Richard Branson’s 4 Secrets to Business Success vs Top 10 Management Myths – Virgin


Summary:

  • Richard Branson has built a wildly successful Virgin company on very unconventional “secrets to success”
  • Most business leaders follow management theory than is built on myth
  • Virgin has been wildly successful, even over the last decade when many companies have suffered, by being agile and market oriented
  • It’s time to throw out traditional management, and its myths, for a different approach.

In my speaking and blogging I regularly comment on what great results have been achieved Virgin under Chairman/CEO Richard Branson.  The founder, and the company, both started quite humbly.  Even though nobody can easily define exactly what business Virgin is in, it has done very well.  So I was pleased to read at BNet.comRichard Branson: Five Secrets to Business Success“:

  1. Enjoy what you are doing.  Really.
  2. Create something that stands out
  3. Create something of which you and your employees are proud
  4. Be a good leader – which he defines as listen a lot, ask questions, heap the praise.  Don’t fire people, help them to be happy
  5. Be visible.  Get out into the market and listen, listen, listen.

I am struck at how this is nothing like the recommendations in most management books.  Let’s see what Richard Branson didn’t say:

  1. Sacrifice.  Work hard.  Be diligent.  Be tough. Cut out anything unnecessary
  2. Find one thing to be good at and excel – search for excellence
  3. Know your core competency, and maximize it’s use. Avoid things that aren’t “core”
  4. Make sure everyone is “on the bus” doing the one thing you want to do. Get rid of anyone else
  5. EXECUTE! Optimize your business model.  Focus on execution
  6. Cut costs.  Run a tight ship.  Tighten your belt.
  7. Focus on results.  Run the business by the numbers
  8. Focus on quality – implement Six Sigma and/or TQM and/or LEAN processes
  9. Outsource anything you don’t absolutely have to do
  10. Hire the “right” leaders (or employees)

Business if full of myth.  And we now know that many gurus have been recommending actions for years that simply haven’t produce long-term positive results.  The companies considered “great” by Jim Collins have fared far more poorly than average.  Most of the companies Tom Peters considered “excellent” have not made it to 2010 in good shape – if they even survived!  Most of the 10 myths were things that simply sounded good.  They appeal to the American way of training.  But they haven’t helped those companies which applied these ideas succeed.

Sir Richard Branson has created businesses from selling recordings to bridal shops, international banking, traditional airlines and even a business flying people into outer space.  By all the traditional recommendations, he and his company should have failed.  It followed none of the recommendations for hiring, firing, focus or execution.  Yet he has created billions in personal fortune, billions for investors and given thousand of people very rewarding places to work.  By all counts, he and Virgin have been a success.

It’s time to give up our management myths, and learn to compete in today’s rapidly shifting market.  It’s now more about listening to the market and managing an agile organization than “focusing on core” or “execution.” 

Don’t Fear Cannibalization – Embrace Future Solutions – NetFlix, Apple iPad, Newspapers


Summary:

  • Businesses usually try defending an old solution in the face of an emerging new solution
  • Status Quo Police use “cannibalization” concerns to stop the organization from moving to new solutions and new markets
  • If you don’t move early, you end up with a dying business – like newspapers – as new competitors take over the customer relationship – like Apple is doing with news subscriptions
  • You can adapt to shifting markets, profitably growing
  • You must disrupt your lock-ins to the old success formula, including stopping the Status Quo Police from using the cannibalization threat
  • You should set up White Space teams early to embrace the new solutions and figure out how to profitably grow in the new market space

When Sony saw MP3 technology emerging it worked hard to defend sales of CDs and CD Players.  It didn’t want to see a decline in the pricing, or revenue, for its existing business.  As a result, it was really late to MP3 technology, and Apple took the lead.  This is the classic “Innovator’s Dilemma” as described by Professor Clayton Christenson of Harvard.  Existing market leaders get so hung up on defending and extending the current business, they fear new solutions, until they become obsolete.  

In the 1980s Pizza Hut could see the emergence of Domino’s Pizza.  But Pizza Hut felt that delivered pizza would cannibalize the eat-in pizza market management sought to dominate.  As a result Pizza Hut barely participated in what became a multi-biliion dollar market for Domino’s and other delivery chains.

The Status Quo Police drag out their favorite word to fight any move into new markets.  Cannibalization.  They say over and over that if the company moves to the new market solution it will cannibalize existing sales – usually at a lower margin.  Sure, there may someday be a future time to compete, but today (and this goes on forever) management should keep close to the existing business model, and protect it.

That’s what the newspapers did.  All of them could see the internet emerging as a route to disseminate news.  They could see Monster.com, Vehix.com, eBay, CraigsList.com and other sites stealing away their classified ad customers.  They could see Google not only moving their content to other sites, but placing ads with that content.  Yet, all energy was expended trying to maintain very expensive print advertising, for fear that lower priced internet advertising would cannibalize existing revenues.

Now, bankrupt or nearly so, the newspapers are petrified.  The San Jose Mercury News headlines “Apple to Announce Subscription Plan for Newspapers.”  As months have passed the newspapers have watched subscriptions fall, and not built a viable internet distribution system.  So Apple is taking over the subscription role – and will take a cool third of the subscription revenue to link readers to the iPad on-line newspaper.  Absolute fear of cannibalization, and strong internal Status Quo Police, kept the newspapers from embracing the emerging solution.  Now they will find themselves beholden to the device providers – Apple’s iPad, Amazon’s Kindle, or a Google Android device. 

But it doesn’t have to be that way.  Netflix built a profitable growth business delivering DVDs to subscribers. Streaming video clearly would cannibalize revenues, because the price is lower than DVDs.  But Netflix chose to embrace streaming – to its great betterment!  The Wrap headlines “Why Hollywood should be Afraid of Netfilx – Very Afraid.”  As reported, Netflix is now growing even FASTER with its streaming video – and at a good margin.  The price per item may be lower – but the volume is sooooo much higher!

Had Netflix defended its old model it was at risk of obsolescence by Hulu.com, Google, YouTube or any of several other video providers.  It could have tried to slow switching to streaming by working to defend its DVD “core.”  But by embracing the market shift Netflix is now in a leading position as a distributor of streaming content.  This makes Netfilx a very powerful company when negotiating distribution rights with producers of movie or television content (thus the Hollywood fear.)  By embracing the market shift, and the future solution, Netflix is expanding its business opportunity AND growing revenue profitably.

Don’t let fear of cannibalization, pushed by the Status Quo Police, stop your business from moving with market shifts.  Such fear will make you like the proverbial deer, stuck on the road, staring at the headlights of an oncoming auto — and eventually dead.  Embrace the market shift, Disrupt your Locked-in thoughts (like “we distribute DVDs”) and set up White Space teams to figure out how you can profitably grow in the new market!

Creating the “Best of Times” – Apple, Cisco, Virgin


Summary:

  • Your view of today will be determined by your future success
  • Conventional wisdom – often called “best practices” – will lead businesses to cut costs in today’s economy, leading to a vicious cycle of reductions and value destruction.  “Best Practice” application does not improve results
  • Winning companies don’t focus on past behavior, but instead seek out new markets where they can grow – Apple, Google, Virgin, etc.

To paraphrase Charles Dickens (A Tale of Two Cities) are these “the best of times” or “the worst of times?”  Few new jobs are being created in the USA, its hard to obtain credit if you’re a borrower, but there’s very little return to saving, the stock market has been sideways for a decade, asset values (in particular real estate) have plummeted while health care costs are skyrocketing.  Look in the rear view mirror at the last decade and you could say it is the worst of times. 

But the answer doesn’t lie in the rear view mirror – the answer lies in the future.  If you succeed in the next 2 years at achieving your goals, you’ll look back and say this was the best of times.

In “Do You Have the Postrecession Blues” at Harvard Business Review blogs the author tells of two shoe salespeople that show up in a remote African village.  The first sends back the message “No one here wears shoes, will return shortly.”  The second sends the message “No one here wears shoes, send inventory!”

The history of business education has been to teach managers, usually by studying historical case experiences, the “best practices” employed by previous managers. But BPlans.com tells us in an article headlined “The Bad News About Best Practices” that this is a lousy way to make decisions. “..most of the time, they won’t work for you or me. They worked for somebody, some time, in some situation, in the past.” 

The New York Times deals with fallacious best practices recommendations in “From Good to Great… to Below Average.”  Best selling Freakonomics author Steven Levitt points out that most business authors try to push somebody else’s Success Formula as the road to success.  However, the most popular of these are really very inapplicable.  Those held up as “the best practice” have most often ended up with quite poor results.  So why should someone else follow them?  Nine of eleven of Collins’ “great” companies did worse than average!

Best practices has led businesses to cut heads, slash costs, sell assets and in general weaken their businesses the last few years.  Most leaders would prefer to believe that they have somehow improved the business by eliminating workers, the skills they bring and the function they perform.  But the result is less marketing, sales, R&D, etc.  How this ever became “best practice” is now a very good question.  What company can you think about that “saved its way to success?”  The cost cutters I think about – Sears, Scott Paper, Fannie Mae Candies, etc. – ended up a lot worse for their efforts. 

These can be the best of times.  Just ask the people at Apple Cisco Systems, Virgin and Google.  These businesses are growing as if there’s no recession.  Instead of “focusing on their core” business with defend & extend efforts to cut costs, they are entering new markets.  They are going to where growth is.  Amidst all the cost-cutting, best practice applying grief these are examples of success. 

So will you continue to operate as if these are the worst of times, are are you willing to make these the best of times?  You can grow if you use scenarios and competitor analysis to find new markets, embrace disruptions to attack Lock-ins that block innovation, and implement White Space teams that learn how to develop new markets for revenue and profit growth.

Postscript – entire Dickens’ quote: It was the best of times, it was the worst of times, it was the age of
wisdom, it was the age of foolishness, it was the epoch of belief, it
was the epoch of incredulity, it was the season of Light, it was the
season of Darkness, it was the spring of hope, it was the winter of
despair, we had everything before us, we had nothing before us, we were
all going direct to heaven, we were all going direct the other way – in
short, the period was so far like the present period, that some of its
noisiest authorities insisted on its being received, for good or for
evil, in the superlative degree of comparison only.

Post-postcript – I am trying a new format for the blog.  Please provide your feedback.  I’m dropping the bold enhancements, and replacing their intent with an introductory summary.  Let me know if you like this better.  And thanks to reader Jon Wolf for his specific recommendations for improvement.

The Yin & Yang of Operational Excellence & Innovation


I’m pleased today to post another guest blog – written by Charles Searight of Vector Growth Partners.  Charles offers a great viewpoint on a common issue – how to balance the needs of running a good business with implementing innovation.   I hope you enjoy his point of view as much as I do:

Efficiency is a good thing, taken in moderation.  The same with focus.  It is good management hygiene to pay
attention to what you’re doing and try to do it efficiently.  This helps build a competitive cost
structure and a results-based culture.   From an operations standpoint that means that the use
of an occasional stopwatch or its modern day equivalents in order to eliminate
wasted effort and speed workflows makes perfect sense.  Frederick Taylor made the great
contribution in 1911 of helping companies recognize that labor is a
controllable cost that can be managed, but he taught that a narrow focus on the
optimization of each operation and repetition of the “best practice” was the
key to success.  He missed the
point (among others) that it is really the improvement of the process as a
whole that changes the game.   It took Toyota and Yamaha and other
Japanese companies to teach the world that lesson 70 years later – leading to
today’s six sigma, lean, and time compression concepts.  

We find the same phenomenon happening with most companies today
– they are so focused on optimizing their operations and replicating “best
practices” that they have totally lost sight of the process as a whole.   The pursuit (often obsession) of
operational excellence becomes an end unto itself and gets disconnected from
the mission of generating growth and creating value.
  The end game is not to get lean and agile, but rather to get
lean and agile so that you can compete more effectively
– leveraging these
capabilities to go to market in innovative new ways, to compete in new markets,
and ultimately to create new markets. 

Companies that stay locked-in to being the most efficient
company at making widgets quickly find that low cost widgets have become a
commodity
and wonder how they suddenly got into trouble.  Being an efficient widget maker gets them
into the game, but not for long.  In
order to survive and thrive they must immediately begin planning new markets
for widgets, innovations that will replace widgets, parallel markets targeted
at widget users, new markets for widget-user data, markets unrelated to widgets
that have been identified in conversations with customers, and so on, because
there is always a competitor that will figure out how to make widgets just as
efficiently as they can and undercut their price. 

The companies that generate the most value, like Apple in
recent years, are the ones who focus on trends and where the market will be,
not where it has been.  They use their
operational excellence as a competitive weapon not as a marketing message or
something to put in the trophy case. 
Instead of bragging about how agile they are, they just beat the
daylights out of would-be competitors by launching new products and creating
new businesses at a pace that leaves others in the dust.
  They do this by planning from the
future and focusing on new ways to leverage their capabilities (or build new
ones) to satisfy tomorrow’s unmet market needs – not by focusing on optimizing the
core competencies of yesterday and today. 
They combine the yin of operational excellence with the yang of market
innovation.

Charles Searight is the Managing Partner of Vector Growth Partners headquartered in McClean, VA.  His firm helps companies of all sizes and industries, public or privately held, and many with external funding from private equity pools, develop and implement growth strategies. Feel free to comment on Charles input right here, or contact him directly. If you could use help developing a growth plan you can contact Charles at CSearight@VectorGrowth.com.  Website www.VectorGrowth.com

If you enjoy ThePhoenixPrinciple.com and would like to submit a guest blog please contact me.  I am very pleased to offer up the input of others who have insight or case studies you’d like share about innovation, strategy, growth, lock-in, defend & extend management, scenario planning, competitor analysis/insight, disruptions or white space!

Doubling Innovation Success with White Space – Nielsen, Consumer Products, Apple, Google


“To Boost Innovation Just Keep the Boss Away” titles the BQF Innovation website.  Citing data from The Nielsen Company’s study of 30 large consumer products companies showed that companies with White Space Teams (what they call Blue Sky) teams are far more successful at creating revenue generating innovation than companies trying to innovate through the traditional organization structure.  And, as recommended in this blog, these teams are more than twice as effective when they are dedicated off-site teams! And, organizations with minimal senior executive involvement generate 80% more product revenue than those with heavy senior level participation.

Hierarchy is an innovation killer.  The higher a manager goes, the more he feels compelled to “weed out” options.  Unfortunately, most of this weeding is based upon Defending & Extending the existing Success Formula.  Doing more of the same better, faster and cheaper dominates innovation thinking the higher the manager is placed! Rather than championing new innovations that could take the business into new markets with new products, senior people will apply the 20 Innovation Killers from my last blog posting!  They will say the idea doesn’t fit, for a variety of reasons, and feel justified they’ve added their managerial “value.”

The Heart of Innovation column from IdeaChampions.com amplifies this in “Breakthrough as an Accident Waiting to Happen.” The author describes how many innovations are the result of ongoing experimentation.  Trying new combinations.  Learning, and trying again.  Managers too often want the innovation to be fully developed “in the lab.” They are unwilling to set up teams that are given the permission, and resources, to try, get market feedback, and keep trying.  To learn how to compete in order to eventually win!

All companies want to grow.  All claim to want innovation.  But too often, the senior people just want small improvements that don’t affect any Lock-ins.  They hope for spectacular results from minimal input.  Contrarily, the organization itself frequently contains a large number of people who have great insights for things that could work – if given the opportunity to be applied, tested, reworked and made to fit emerging needs.  We need are more managers willing to set up White Space teams and let them do their job – while holding the teams accountable for results!  Like the leadership at Apple and Google, let people work and learn, and evaluate them on the outcomes – rather than trying to tell them what they need to do, how they need to do it, and setting up boundaries to keep innovation within the Locked-in Succeess Formula!

Plan for Transitions – NetFlix and Walgreens

According to Crain's Chicago Business, "Walgreen's Same Store Sales Nearly Flat."  Walgreen's has been Locked-in for 3 decades.  Build more stores.  Simple.  Just like WalMart did for many years.  Demand seemed insatiable, until there was a store on almost every corner.  Build stores, turn the product fast and keep people coming in for prescriptions or something on sale.  Their Success Formula worked, and it helped them grow and grow.

But then about 3 years ago growth slowed.  A lot.  Raising capital got a lot harder to build these stores, and the apparent need for more stores was a lot less obvious.  But Walgreen's didn't attack it's Lock-ins to the old Success Formula.  Management kept defending it, and trying to extend by acquiring other chains they could convert into Walgreen's.  But as we've seen in same-store results, Walgreen's has stalled.  And we know that less than 7% of stalled companies ever consistently grow more than 2% ever again.  Walgreen's just refuses to realize that health care programs are forcing more people to drugs over the web, and that retailing is fast moving to on-line sales for both convenience and price.  So the Success Formula keeps struggling a bit more every year, with hope that things will somehow return to the "good old days."

A much better management team is in place at Netflix.  Netflix has clobbered Blockbuster with their on-line model for movie rentals.  You'd expect them to keep pushing hard for on-line rentals, in order to Defend & Extend the Success Formula – just like Walgreen's management has done.  In spite of the fact that everyone knows DVD rental growth is threatened by more people simply downloading movies.  Thus, I was delighted to see Netflix publish this chart:

DVD rentals projection
Source:  BusinessInsider.com

Netflix has admitted that its "core" business will peak in 2013!  How great.  And what's even better is that they are rapidly changing their model by investing heavily into streaming downloads.  Where most management would say "we have to stop that transition, it will cannibalize our very profitable existing revenues" Netflix is planning for the change – and preparing to help the market move in that direction!

Only by allowing a streaming download White Space team to be formed 3 years ago is Netflix able to make this transition.  It attacked its Lock-in to the traditional – and wildly successful model – in order to allow a team to have the permission and resources to figure out how to move into the new business profitably.  That means Netflix has a really decent chance of keeping the company growing as the market shifts!   Great news for investors, suppliers, employees and customers!

You don't want to be like Walgreen's management.  They may have a chart showing the maximum number of stores needed in the USA – but they won't publish it.  Because they have no idea how they'll migrate away from the old Success Formula.  They have no Disruptions or White Space.  They are fighting market transitions, and slowly seeing results falter.  But the growth stall is a big sign that Walgreen's has a lot of heavy problems ahead.

You do want to be like Netflix.  Be honest about where markets are headed.  Quit trying to protect an old Success Formula with arguments like cannibalization.  Instead, attack the old Success Formula with Disruptions and launch White Space teams designed to figure out how you can grow with the market shift – even if price points are destined to deteriorate.  Long-term its the only way to survive – and thrive.

Don't forget, I will be the keynote speaker for the breakfast CIO Perspectives meeting hosted by CIO Magazine this Wednesday, June 10.  You can hear more about how to be a market leader using The Phoenix Principle at the Intercontinental Hotel Chicago – please register and I hope to see you there!

Always follow growth markets, and don’t fear Disruption – Baker & McKenzie

How should you select a new CEO?  Loyalty?  Historical management of an existing business?  Understanding of company or industry heritage?  Most of those criteria are rear view focused, even if dominant.  Wouldn't the most important criteria for a new CEO be understanding growth markets and ability to drive growth?

Are you familiar with the acronym BRIC?  It stands for Brazil, Russia, India & China.  Four rapidly growing markets.  If you aren't familiar, you really need to be.  Because your future may well be determined by your ability to compete there – rather than your ability to compete in the USA.  Those markets are growing, and they are rapidly becoming dominant in not only production capability, but in their demand requirements for products as well.  Soon they won't only be places you consider for low cost resources – but places you need to sell if you want to succeed.  The emerging middle class, with money to spend, is rapidly shifting to BRIC countries from the USA and Europe.

According to Crain's Chicago Business, in "Baker & McKenzie Elects New Leader" this $2.1B law firm just selected as its new CEO the head of its Brazilian operations.  Uncharacteristic for most American businesses, yet such an obviously smart move.  Already only 675 of 3,850 company lawyers – less than 20% – are in the USA!  It's a global economy, and Baker & McKenzie are moving where the growth is!

Compare this with McDonald's, which could have put the leader of Chipotle's in charge – but instead sold Chipotles, with its very high growth, and kept putting long-term McDonald's employees in the top job.  Or imagine the difference if GM's Board of Directors had put the head of EDS or Hughes Aircraft, subsidiaries of GM in the 1980s, in the top GM job 25 years ago.  By continuously putting an "auto" executive in the top job GM ended up selling off the high growth subsidiaries, gutted the value out of Saturn, and ended up in bankruptcy court!

There is no more important job for an organization's leader than growth.  Growth can cover a multitude of sins.  Missed sales, lost customers, pricing issues, faulty products — all can be forgotten if you keep driving growth.  Just look at Google's Schmidt and Apple's Jobs.  Hats off to the Management Board at Baker & McKenzie for moving forward and putting the growth market leader into the top job.  More companies should be so unconventional. 

Maybe this will be another Disruption that will help Baker & McKenzie grow even faster than its competitors!  Disrupting the Status Quo is an important part of growth.  Recently Tom Parrish created a podcast interview, published on his EnterpriseLeadershipo.org blog, of us discussing the need to Disrupt in order to grow.  Give it a listen for ideas on using Disruptions to grow in your organization!

Go Beyond Your Customers – Facebook, Apple, Google, Microsoft

I get the most heat when I talk about spending less time listening customers.  But I'm not joking.  To grow revenues and profits you have to go far beyond asking your customers – who are more likely to hold you back from growth than accelerate it.

BusinessInsider.com makes this point loudly in an Henry Blodgett article "Ignore the Scream's — Facebook's Aggressive Approach is Why It Will Soon Become the Most Popular Site in the World." Given how many people use Facebook, it's hard to remember that the site is only 6 years old.  What we've also mostly forgotten is that Facebook wasn't even first.  It followed the popular, and well financed after acquisition by News Corp, MySpace.com.  Lots of companies got into social networking.  But now the marketplace is dominated by Facebook – which will soon be the web's most popular site (as it closes in on Google.)

Facebook did not win by asking users/customers what they wanted.  To the contrary, Facebook's leaders took the approach of offering what they perceived would be steps forward – and then letting the market react.  Frequently a VERY loud contingent would be VERY upset.  Screaming loudly they hated the change.  But with each advancement, Facebook grew users and the site's success.  Facebook didn't ask users what they wanted, nor did they ask users for permission to do new things.  Facebook went into the market, and using its scenarios about the future Facebook's leaders drove toward what they expected to be a more popular site.  They did it, and learned from their experience.

Too many businesses spend way too much time trying to make small advances, and miss the big shifts.  Microsoft is a great example.  As it launches Office 2010, Microsoft isn't trying to bring in new users to grow its base – like Facebook is doing.  Instead it is trying to preserve its installed base.  Nonetheless, some "loss" is a given.  You can't preserve forever.  If you don't bring in new customers, you can't grow because you have to replace lost ones and find incremental new ones.  But what do we see in Microsoft's offerings (such as Office 2010 and System 7) that is designed to bring in new users? 

Meanwhile, Google is offering more powerful and cheaper Cloud-based solutions, as Apple and Google grow the demand for mobile devices (like iPhone and iPad) that don't use Microsoft products.  The big shifts are all away from Microsoft, while Microsoft's efforts at preservation are leaving these alternatives with limited competition.

Today Bnet Australia posted a podcast interview I did with Phil Dobbie, sponsored by CBS, last week.  In "Disrupt To Win" we discuss the big difference between Apple and Google as compared to Microsoft.  The growing companies use scenarios to develop new solutions which will appeal to new users.  They keep expanding the marketplace.  As new users adopt new solutions, eventually it becomes mainstream – further accelerating growth.  Growth doesn't come from trying to Defend the old platform or user base, but from launching new solutions which grow the market leading to conversion and even greater growth.

Facebook is now a phenomenon, growing in 6 years from obscurity to the second largest global user base.  Because, like Apple and Google, the leadership did not ask customers what they wanted (which was what MySpace.com did).  Rather, they studied competitors and emerging markets to create new solutions – without worrying about cannibalization or moving faster than customers would recommend.  And the leadership has been willing to overlook vocal user minorities in order to appeal to new users, thus driving more growth.  You can't expect customers to deliver great growth, that has to come from aggressive scenario planning, deep competitive analysis and a willingness to Disrupt your organization and the marketplace.

Growth is not a part-time job – White Space is Dedicated to Growth – P&G

Being an entrepreneur is not a part-time job.  People who try starting businesses "between jobs" rarely succeed.  It takes time, resources, careful listening to the marketplace and adroit adaptability to emerging needs to be a successful entrepreneur.  But, as Harvard Business Review points out in "The Danger of Part Time Business Builders" too often existing companies relegate new business development to a part-time activity.

That's why creating and maintaining White Space is the 4th step of The Phoenix Principle.  When you have a scenario plan, and you know how you will effectively compete you attack Lock-in to open doors for doing something new – and then you dedicate resources to doing the new thingGrowth requires dedicated resources.  One of the biggest reasons new projects fail is we expect them to get done using 15% of Frank in finance, 20% of Rebecca in real estate, 30% of Michelle in marketing, etc.  Even if Larry is a dedicated leader for the growth project, how can he hope to succeed when most of the time the people on his project have their heads into doing more to manage or improve the existing Success Formula!

The majority of innovation at Proctor & Gamble is variations and derivatives, designed to Defend & Extend an old brand.  Sustaining innovations meant to maintain revenues, or grow them slightly.  A traditional, large organization is usually pretty good at that activity – as exemplified at places like Kraft and P&G.  But these same organizations usually fail when it comes to entering new businesses because they try to "matrix" the resources for start-up; "leveraging" existing staff.  These ad hoc teams, even as a task force, aren't able to really listen to new, emerging customers or challenge old Success Formula Lock-ins – so they almost always spend money, produce mediocre (at best) results and simply drift into oblivion.

Harvard Business Review discusses how P&G succeeded by using White Space in "How P&G Quietly Launched a Disruptive Innovation." By dedicating people to the project, and allowing them to violate previous Lock-ins, the Align Probiotic product team was able to identify new customers, cater to their needs, and build a solid business.  Initially P&G used a traditional approach, and almost killed the product.  But when a far-sighted leader decided to give a dedicated team the resources, and Permission to do what they needed to do without holding closely to P&G Lock-ins, the product became a big success.

If you'd like to hear more about how you can create and use White Space to help your organization succeed, I invite you to 2 upcoming events where I'm the keynote speaker.  Next week, on May 18th, I'll be kicking off the Innovation Summit in Grand Rapids, MI.  Click on the link to register for this event.  On June 9 I'll be the keynote speaker at the CIO Magazine Perspectives event in Chicago.  Click on the link to register for that event.  All organizations, and functions within organizations, benefit from understanding how White Space is important to growth – so come along and listen to how you can apply these concepts in 2010!

Look outside to grow, not inside – Goldman Sachs, CDOs, Strategy and HR

Did you ever carve into a tree, then return to look at the carving years later?  If you did, you would have seen that the carving is the same distance from the ground.  The tree grew from the outside, from its branches, not from the bottom.  The roots and trunk feed the growth, which occurs where the tree meets the environment – growing toward the sun for photosynthetic feeding. 

Too many organizations, however, try to grow from the bottom rather than from the branches.  Instead of looking to the environment for growth, they look inside. Instead of seeing the roots and trunk as sources of water and minerals (resources for growth) the strategists and leaders spend most of their time thinking about how to protect, or even grow, the "core" source of the tree.  Far too little time is spent thinking about the environment and how to push resources where greatest growth can occur.

In a recent Harvard Business Review web posting "The Strategic Imperative Not to Hire Anybody" the author points out that many CEOs are now desirous of growth.  But their approach is very flawed.  They are enamored with all the headcount reductions of the last few years, and want to grow revenues without adding any additional resources.  They are impressed that they grew profits by cutting employees, and now want to grow revenues and profits without any new ones.  They "saved the core" by pruning branches, and expect the growth to rematerialize easily.

Discussing how these CEOs came to such a surprising position, that they should be able to grow without adding new resources, the author Walter Kiechel points out that most strategy in corporations has little to do with understanding new markets, new needs – new sunlight.  Instead, strategists have been trained in how to improve the efficiency of the root system and trunk supply chain.  Their focus has been on optimizing what exists, cutting resources, improving efficiency.  What passes for strategy today has little to do with finding new sunlight, and competing effectively with other plants to get it. Instead, strategy is almost all internal analysis to improve how the existing tree maximizes its use of the dirt.  How the tree will re-bark the old carving, and sustain its old position.  Even ignoring other ground plants that are leaching away minerals and moisture, and other rapidly growing trees that are interfering with sunlight – each year coming closer to the original tree and making it impossible to find sun where it used to be plentiful.

Bloomberg-BusinessWeek makes note of this phenomenon discussing the problems at Goldman Sachs in "Goldman Sachs: Failure of Innovation."  Author Rick Wartzman points out that within Goldman, and almost all other banks, the very smart MBAs from Harvard, Stanford, Columbia, Wharton and elsewhere really weren't developing products which would help the banks grow.  They weren't developing new financing or investing opportunities that would generate economic growth.  Instead, an internal focus led them to develop collateralized debt obligations (CDOs) which had only the intent of reducing risk and increasing return for the existing business.  These were defensive, protective products intended to Defend & Extend the old products – not create anything new.  Goldman wasn't creating economic growth for its clients, or itself, with CDOs.  They were implementing classic D&E behavior – trying to protect the trunk.

Growth happens from the branches.  On the edge of the business, where it meets the environment.  Growth happens when we focus on how to competitively acquire more sunlight, and use that to maximize the value of our resources.  An efficient resource delivery system is helpful, but continued optimizing of that system does not create growth.  Unless there is a robust method of identifying new markets, and pushing resources toward those, you simply cannot grow.  What strategists need to do is spend a lot more time thinking about markets and competitors if they want to create growth – and a lot less time thinking about how to optimize the "core."  If the bankers at Goldman, Bank of America, Merrill Lynch, Citibank, etc. had done that we would have a far more robust economy now.  And if leaders want to start growing in  2010 and 2011 they need to change the focus of their strategy group – and figure out how to put new resources into growth areas of the environment!