by Adam Hartung | Sep 21, 2006 | Defend & Extend, General, In the Rapids, In the Swamp, Innovation, Lifecycle, Lock-in, Openness
On my web site I have a case study comparing Motorola and McDonald’s (download paper here.) As a reader of this BLOG, it won’t surprise you to guess that I think Motorola is a company for the future, and one into which you should consider investing, while McDonald’s is so horribly Locked-in to its past that I see precious little chance it will remain a great company.
Just look at today’s newspaper for further verification. Motorola has announced the launch of a new vending machine to sell mobile phones and accessories (see article here.) Now this might seem pretty bizarre. Who would buy a mobile phone from a vending machine? Honestly, I don’t know who and I know it won’t be me. But, I am impressed. It takes organizational flexibility, a willingness to see market challenges to conventional distribution, an openness to Disrupting old behaviors and the capability to experiment with changes to the Success Formula to try this. The idea had to be created, it had to move through the organization, receive permission for testing and get funding to make it to market. These are all traits of a company trying to stay in the Rapids, trying to maintain its growth, and organized to create and use White Space. While not all projects in such companies succeed, long term the companies do generate higher growth and long-term above average rates of returns.
Meanwhile, today McDonald’s announced their next big idea was to start selling Egg McMuffins all day (see article here.) Now there’s a big dash of creativity! The epitome of Defend & Extend Management, the company is so Locked-in to its old Success Formula it actually considers it exciting, newsworthy and innovative to simply consider expanding the hours it sells an existing, and decades old, product. I doubt Starbucks is quaking with worries about this change impacting their growth. Even by a consultant’s best estimate this will be considered a success if it adds a mere 3% to 5% to the bottom line. What tremendous ambition!
Motorola is Disruptive, willing to create White Space and test new ideas. Who knows what the value of alternative distribution for mobile phones is – such as a point of purchase vending machine. But they are willing to test the idea and see. Maybe it will turn out to be something that young people, or travelers, or some segment really wants. Meanwhile, McDonald’s is doing more of the same, and bragging about how hard it is to actually pull off this simple time-of-day extension for an existing product.
by Adam Hartung | Sep 20, 2006 | Disruptions, General, In the Rapids, Innovation, Leadership, Lifecycle, Openness
I recently blogged about the way Honda managed to be in so many markets, from lawn mowers to airplanes. Maybe not focused, just consistently growing revenues and profits. A very good thing for employees, suppliers, investors and customers.
In that vein, I was delighted yesterday to hear that Motorola is buying Symbol Technologies. Most analysts thought the acquisition "ho-hum" (see Chicago Tribune article here). But they should be excited, because in fact it demonstrates another clear move into White Space.
Most people would think of Motorola as a cell phone manufacturer. And there is no doubt that is their largest business. So, analysts get excited when Motorola talks about cell phones. But there is so much more to Motorola. Their last big acquisition was General Instrument in 2000 (before Ed Zander took over), growing their dominant business in set-top boxes and helping them grow their DVR business. Remember a fast-growing gadget called TiVo? That’s a DVR.
Now, Symbol gets Motorola into bar code readers, mobile computers and enterprise software for inventory management and retail. Included in this business is RFID systems, a new market that lots of people are trying to develop. You could challenge this kind of acquisition as being "off focus", but then you wouldn’t understand the importance of White Space. Here Motorola has just bought itself a nice business, at a good price, that it can use to explore expanding technologies and solutions for people on trucks, in warehouses, using all kinds of wireless technology. New markets, new technologies, new solutions – and even more important new customers.
This is not one of those "restructuring" acquisitions intended to drive up revenue through industry consolidation. This is bona fide expansion into new markets, and creation of more White Space. An effort that can create Disruption opportunities and help define a new Success Formula. All hallmarks of what has been turning Motorola around the last few months. Bravo to management for doing the right thing again!
by Adam Hartung | Sep 17, 2006 | Defend & Extend, Disruptions, General, Lock-in, Openness
I am not terribly mechanically inclined. Yes, I do work on lots of things I own, but I do not consider myself a skilled professional.
I was surprised recently when my 18 year old son told me he was going to buy an old Jeep. "But you already have an old Jeep I bought you" I said. "Yes," he told me "but I want the transmission out of this other one because it is much better for my V-8 than the original one installed. I can switch these transmissions and it will be better for both vehicles, and I should make some money on the situation."
I immediately recognized that this was not a simple job. Heck, he was talking about switching transmissions in two vehicles from different years with different engines and other configuration issues. What if things didn’t line up? What if they didn’t fit? "Son," I said "this is no simple job. I’m afraid it is beyond my skills these days. Do you know what you’re doing?"
To which I got a tremendous answer. "No dad," he said "I’m not sure what it will take. But I have enough money to pull off the job, even if things go really wrong and I have to change the clutch and many other parts. I have lined up a consultant (a professional mechanic) who will advise me on problems. And even though I’m not sure what to do, I’m confident I can figure it out. And, when I’m done, the Jeep I buy will be worth at least what I paid for it and my Jeep will be worth a lot more. I just need permission to tear into it."
Voila! White Space was requested. He didn’t have all the answers, but he was certain he could figure it out. And he had prepared all the resources. Not only to do the job, but what he would do for transportation while his machine was under repair. He had created personal White Space, and all he needed was to Disrupt my Lock-in – my Lock-in that said such a job required a "professional."
Now the transmissions are switched, and things are better all around. Why? Because he created some personal White Space – and I accepted the need for a little Disruption.
by Adam Hartung | Sep 3, 2006 | General, In the Rapids, Innovation, Leadership, Lifecycle, Openness
When I was young the word Google meant a very large number in math class. Today, Google means "to search" – or even more importantly Google represents the latest meteoric growth company. The interesting question, is Google just lucky (right company in the right market at the right time), or is there something more systematic going on?
It shouldn’t surprise you to hear that I think it is systematic. Let’s just take a look at Google’s IT department, and you can compare it to the typical department. Or possibly your own. (For specifics, go to Information Week article here.) Look for the White Space to innovate growth, and compare to most IT departments.
Firstly, despite spending 50% of revenues on IT, the company has no CIO or CTO. Instead, IT responsibility is distributed amongst several Vice Presidents. The closest thing to a CIO they have is a 36 year old with an undergraduate degree in social and political organizations, then a Ph.D. in Psychology. So much for the "tech bent" requirement in the role – or in Google. The fact is, that having distributed responsibility is a Disruptive design element which keeps projects, and people, from getting Locked in.
When it comes to managing technology he says "What we put on each desktop is not as important as how we think about what to put on each desktop…choice is always better than control…control gets in the way of innovation….sees a distinction between tools that tell you something and tools that stop you from doing something….I try to control as little as possible."
Google manages engineers with a matrix system. Employees have mutliple managers, and projects typically last as little as 3 months. Rather than a "good old boy referral" system for placing people, the project assignment system is automated with AI. Every person and every project is reviewed, and input is put in a database, and the information is completely available to EVERYONE to see. That’s right, performance reviews are public knowledge. Another design element that creates Disruptions and avoids Lock-in.
To encourage collaboration, people stay on projects for only a short time. And, to keep people talking lunch is free in the cafeteria. Most people would say that free lunch is simply wasted money. But then again, most people have never come close to Google’s growth rate.
The fact is, Google is loaded with White Space. Its organizational structure is designed to constantly Disrupt the way people work and think, by moving them frequently and rapidly across projects. Feedback is public, so that everyone knows what is working and what isn’t. AI creates job assignments, rather than people, forcing new collaboration and new insights. And R&D is not budgeted separately from IT, engineering or product development, in order to keep work and people moving freely and focused upon results rather than myopic projects or budgets.
There is very little "Focus" at Google. Just dramatic growth, fantastic new product development and introduction, and superb rates of return.
by Adam Hartung | Aug 9, 2006 | Defend & Extend, General, In the Rapids, In the Swamp, Innovation, Leadership, Lock-in, Openness
Once again we have the opportunity to view the tale of two companies. Both troubled, yet capable of success if they do the right things.
Motorola was struggling a few years ago. Then, a new leader came on board and started Disrupting the old Success Formula. Simultaneously, he opened up White Space all around the company. Sales went up, and so did innovation. While everyone knows about the success of RAZR, Motorola also built its business in digital video recorders and networks. Now, today, we learn that Motorola has further grown its success, winning a $3billion deal to build out a wireless data network for Sprint/Nextel. (See full article here.)
Sara Lee found itself also struggling a few years ago. They also hired a new leader. But this leader chose to disturb the organization without really changing the Success Formula – focusing on cost cutting and selling businesses without creating any new White Space. Now, today, we find out that the leader is conceding she won’t meet her margin goals (even as the business shrinks more than 50%), and isn’t really sure when the company will be growing again. (See full article here.)
Motorola is up over 30% in market value. Sara Lee is down more than 30% in market value. Those who read this blog know that I was a very early fan of Motorola’s turnaround, and recommended it as an investment. They also know I’ve been a longstanding pessimist of Sara Lee. Why? It’s as simple as White Space. At Motorola you could observe a leader attacking the Lock-in and implementing White Space. At Sara Lee there was no attack on company, or industry, Lock-in to old formulas and there was absolutely no White Space.
A successful turnaround absolutely requires fast action to Disrupt and implement White Space. It is the single best predictor of whether a company will overcome its growth stall, or not. Any time you need to decide whether to invest in, join, or supply a troubled company follow one simple rule – Follow the White Space.
by Adam Hartung | Jul 30, 2006 | General, In the Rapids, Innovation, Leadership, Lifecycle, Openness
When I was young (40 years ago) GM and Ford made cars and trucks. Harley Davidson made big, loud motorcycles. Boeing and Cessna made airplanes. Briggs and Straton made the engines for lawn mowers and other yard equipment. Today, you pretty much can make those same statements.
In the 1960s a company named Honda came to America with a little 50cc motorcycle. No one knew much about this company or what it did. But today, Honda does a lot. Motorcycles, all terrain vehicles, personal watercraft (jet skis), automobiles, full size pick-up trucks, electric generators, lawn mowers and garden tractors, outboard boat motors, water pumps, scooters, snowblowers, robots and airplanes. So, what market are they in?
Honda eschewed the commonly held notions of "core market" and "core customer". They don’t try to be #1 or #2 in their markets (they are the #3 Japanese auto company, for example). You can’t define them in any easy way. Just that they keep growing well above the market average, they keep making money, and they keep providing a doubling our tripling of value for their investors every 7 years or so (quite better than the market average.)
So what drives this success? A focus on innovation as a tool to avoid Lock-in. Let’s look at their recent move into jet airplanes (could you imagine GM, Ford, Harley Davidson or Briggs & Stratton announcing they intend to make and sell airplanes?) The project is led by the V.P. of North American R&D – not the Marketing or Strategy head. His approach has been to apply innovation. Honda is using unique engine mounting (top of wing instead of on the fuselage), building with composite material instead of aluminum and implementing a unique wing shape which achieves a larger interior cabin, higher cruising speed and greater fuel efficiency.
Of course, the competition is belittling this new Honda entry with statements like "It’s a brand new territory for Honda… It’s very different than the consumer market." OK. Sounds a lot like what the original players said when Honda entered the motorcycle market, the auto market, the lawn/garden market, the full-size pickup market and then the outboard motor market. Yet, in each, the innovations Honda brought to market allowed them to attract customers for their products at a good price and a great margin.
Honda does not fixate upon its "core markets", it’s "core capabilities" or even its "core customers". Instead, it constantly looks for new opportunities to innovate and add value. It does not fear new markets, but rather sees each new market as an opportunity to Disrupt itself and create White Space for a new solution. Then, they are merciless in their efforts to do what no previous competitor has done to create value for customers. And now, they are far more successful than #1 or #2 in almost every market they compete.
by Adam Hartung | Jul 22, 2006 | Disruptions, General, In the Swamp, Innovation, Leadership, Openness
Everyone wants an evergreen company – one that is constantly growing and self-renewing, generating more revenues and profits year over year. One such company is Illinois Tool Works. Have you heard of it? Do you know what they do?
One of the most important things ITW does is avoid Lock-in. ITW has no fixation with core markets, core customers, core products nor core competencies. In fact, the company is a collection of over 600 small businesses around the world, in a wide range of businesses. They don’t seek imagined synergy and push for consolidations and mergers, instead allowing each business to each maximally develop their customer opportunities and markets. Headquarters does not dictate the strategy or markets for these businesses. ITW doesn’t even try to limit its businesses to being in similar markets, functions, technologies or product lines.
What ITW does is consistently grow, and consistently make more money. For 90 years. Revenues grow at about 10%/year, earnings at about 15%/year and earnings per share about 14%/year.
How? Like I said, the company first and foremost avoids Lock-in. Leadership isn’t trying to follow fad definitions of new markets, or catch the latest wave of analyst hot buttons. They disrupt themselves by constantly looking into new markets, new technologies and new product opportunities. They don’t focus their acquisitions on cutting products or quickly generating more money with cost reduction, instead relying upon customers to help define how they can improve market performance leading to financial performance. By not seeking "optimization" of their acquisitions (like Tyco), they remain constantly in a disruptive state of enquiry. And each and every business is allowed to operate in its own White Space – free of dictates from a hierarchy or home office about how to succeed. Results are what matter at ITW – not slavish response to structural or behavioral Lock-ins.
And the company lauds innovation. Innovators are sought out, and rewarded. ITW is one of American’s largest patent filers, and patent holders, and it works hard to maintain that position – even if you’ve never heard of them. They want White Space projects in their businesses, and they reward the efforts as well as the results.
ITW defies all the rules of best management practice. They don’t optimize. They don’t "focus on the core." Instead they live without Lock-in, constantly innovate and Disrupt, and allow White Space to flourish all over the company. And for that they achieve innovation on the scale of an IBM, and returns like an old-fashioned (Jack Welch era) GE. And the result is an Evergreen Company that grows beyond average and makes above average rates of return.
by Adam Hartung | Jun 21, 2006 | General, In the Rapids, Leadership, Openness
I recently attended a great event. A marketing company offered $3,000 to the start-up with the best idea – an idea they had only 3 minutes to explain. This was a competition for companies looking for angel or venture funding.
As the dozen companies put out their ideas, which ones do you think the 100+ event attendees most backed? Quite simply, they were the ideas that allowed the audience to imagine doing something currently well known better, faster and cheaper. The audience members had a fast, positive, visceral favorable reaction to the ideas that Defended & Extended existing behavior. When it came to thinking about giving away money, they were most ready to support an idea that took the least effort to develop.
The fact is that upon further discussion, the Defend & Extend ideas looked to have a fairly short half-life. Many of the other ideas showed greater long-term value, but they would require finding early angel customers, and white space to actually test the idea and develop a valid implementation. Many audience members could not see past the development problems, and were unwilling to fund White Space for these ideas to possibly flourish.
We all are susceptible to More, Better, Faster. We all have our Lock-ins, and we quickly recognize and accept things which Defend & Extend existing behavior. If we don’t Disrupt ourselves, we’ll never really think about new solutions – and never grow the way we all can. And we’re very susceptible to favoring ideas we see as easy – rather than the ones with greatest potential value.
by Adam Hartung | May 12, 2006 | Disruptions, General, In the Rapids, Leadership, Openness
Last week Starbucks beat analyst estimates as profit rose 27%. Same store sales were up 10%, the 57th consecutive quarter of sales increases in stores open a year or more. Starbucks now has over 11,000 stores. It has opened 900 so far this year, and will open 900 more before year ends. This is definitely one heck of a growth story, and the company stock has soared 7-fold in the last 5 years.
No company can achieve that kind of growth without significant Disruptions, and lots of White Space. Starbucks has no end to the many flavor varieties of coffee it offers. But, it also offers tea and has seen tremendous growth from Green Tea of late. And to keep promoting itself, the company did an advertising first as it gave away (as in free) 500,000 beverages on March 14 just to remind people it’s spring and time to get out and enjoy the Starbucks stores. And in Chicago, they are starting to sell hot sandwiches – a new test for growth.
Starbucks is not just a coffee shop, of course. Their coffee (as beans and ground) is available in grocery stores, and they are the #1 market player in prepared coffee with their Frappucino, Iced Coffee and DoubleShot drinks, bottled and distributed by Pepsi. You also can get Starbucks Ice Cream and Frappucino bars in most markets. And for the late night adult crowd there’s now Starbucks Coffee Liqueur at the liquor store.
But, the Starbucks White Space goes far beyond the beverages for which they are famous. Starbucks has emerged as a major player in the music business. In 2005, they demonstrated their growth skills as they launched and were the #1 distributor for Ray Charles final release Genius Loves Company. Unbeknownst to many, Starbucks has a music division. Of course it creates all its own in-store music – and offers that on CD. But it also is a major force behind bringing new acts to market and distributing major artists such as Alanis Morissette, ColdPlay and the Dave Mathews Band. Starbucks has even inked an agreement with the famed William Morris Agency to find new talent for them to release.
And Starbucks just co-produced the LionsGate movie Akeelah and the Bee. Although it has gotten off to a sluggish start, the mere fact that Starbucks is into movie production demonstrates the lattitude with which the company will use White Space to drive new business opportunities. Look for tie-ins and promotions in your local store.
Could you imagine CD’s or movies made and distributed by McDonald’s? Or purchasing a frozen Pizza Hut pizza at your grocer? Why not? Any company can keep itself constantly Disrupted and filled with White Space. And for that, you will be rewarded with growth, and a high P/E multiple for investors. And you can provide ALL of your employees with benefits, even health benefits for part-timers (hear that Wal-Mart?). Everyone wins when you avoid the tendency to Lock-in on your first Success Formula and instead focus on White Space.
by Adam Hartung | Apr 25, 2006 | General, In the Rapids, Innovation, Leadership, Lifecycle, Openness
Would you get into the wireless phone business today? Can you think of a more cutthroat competitive marketplace than cell phones? Can you think of a market that has more disappointed investors than mobile communications – voice or data? If I told you a company was getting into mobile communications, you’d probably say "good luck." And then you’d make sure you don’t have that stock in your portfolio.
Unless the company is Apple. Last week the reporters started talking about Apple’s potential jump into cellular phone service (see article). For most companies you’d laugh. But, for Apple, you probably believe it. And you likely think they just might pull it off. After all, why not a cell phone iPod?
Why change your opinion when you hear the company name? White Space. Apple has demonstrated it is willing to Disrupt its Success Formula to open up White Space and develop new markets. By demonstrating that skill, Apple is now able to keep competitors off balance. Even competitors in industries where Apple formerly did not participate. Apple creates possibilities for investors and employees, and concern (if not fear) in competitors just because it has shown that by using White Space it can tackle and win in new markets.
Virgin is like Apple in this regard as well. From a recording company Virgin is now an airline, a retailer, and a cell phone company. What is Virgin’s great skill? It is willing to Disrupt itself and create White Space for launching new businesses and entering new markets. By doing this Virgin, like Apple, has demonstrated an ability to remain evergreen. And create concern and doubt amongst its competition.
The Power of White Space. It keeps your company fresh, and long lived. And in the short term, it keeps you competitors off balance. You don’t have to do everything you announce, nor even succeed at all you try. Merely by demonstrating you will do it you create competitive fear – and an advantage for yourself.
