Google’s innovation continues

This week The Economist reviewed the innovation processes at Google.  In "Google's Corporate Culture – Creative Tension" the magazine overviews several recent innovations, and actions senior leaders are taking regarding innovation management.

While Mr. Anthony recently chastised Google for its "immature" innovation management in a Harvard Business School blog post, and somewhat The Economist does as well, for not producing more revenue from its innovations – nobody can refute that the company released yet 3 more very important innovations this week – an updated Chrome web brower, new software that allows viewing on-line newspapers in a more natural way (Fast Flip) and Google Wave for collaborative project development.  For most companies any one of these would be vaunted to market on piles of ad and PR sending.  Products less significant cause Microsoft to throw their Marketing/PR machine into overdrive.  But innovative launches are frequent enough at Google that you can completely miss some of them.  Even when they continue to change whole industries – like Google has been doing to newspaper publishers and continues.

The best line in the article says that senior Google leadership is very actively trying to counter "the conservatism that can set in as companies mature."  The good news is that even though it has 20,000 employees, Google is not "mature."  Thankfully, it remains in the Rapids of growth.  Size does not equal "maturity."  That word is more applicable to companies that begin truncating ideas and activities to optimize their existing business.  This is the direction Scott Anthony recently proposed on his HBS blog.  And it gets companies into serious trouble.

Instead, Google is working hard to keep ideas from being truncated by hierarchy or people who are focused on narrow opportunities.  Senior leaders are making themselves available to everyone in order to make sure ideas get attention – rather than vetted.  Through this they are giving permission for ideas to be developed, even when many in the company aren't supportive.  This top-level focus on granting permission to new ideas which are unconventional is a CRITICAL component of innovation success.  Second, they aren't relying on a priority process for funding (something Mr. Anthony recommends).  Instead they are making ample dollars available for ideas to push them to market quickly – and see if the innovation is accepted by the market or needs more work. 

By personally engaging at the top levels in this process, Mr. Schmidt and his team are being Disruptive.  They aren't allowing structural impediments like strategy formulation, hiring practices, tight IT systems, large historical investments or internal "experts" to Lock-in Google to its past.  This is demonstrably exceptional behavior that pushes Google into new markets and growth.  Then, by focusing on granting permission – even for things the "organization" may not initially support – and adding resources from outside normal resource allocation systems they are doing the 2 things necessary to keep White Space alive and thriving at Google.

Google has been growing, even in this very tough economy.  More importantly, it has not slowed down its releases of innovation on the marketplace that can generate future growth.  Mobile phones using its Android software are just now getting to market, and offer (along with other innovations) potentially very large revenue gains in new areas.  With smart phones and Kindle-like e-readers to outsell PCs in late 2010 Google is squarely positioned to be part of the "next wave" of personal digital productivity (along with Apple.)  And this can be explained by the company's willingness to remain Disruptive and push White Space projects — even with 20,000 employees.

Building scenarios effectively – Zipcar, I-Go, Hertz, Enterprise, GM, Chrysler, Ford

How many cars do you own?  Odds are, it's at least 1 more than you need.  There are more licensed vehicles in the USA than there are licensed drivers – so it's clear America is loaded with cars. Now it looks like a permanent shift is developing, to less auto ownership, and it will change competition significantly.

In places as far ranging as Detroit/Ann Arbor, Chicago and San Francisco increasingly people are opting for a new approach to transportation.  Take the bus and train – yes.  Take a cab – sometimes. And for a lot of folks they are joining car-sharing companies.  According to Freep.com, "Service Lets Users Borrow a Car Whenevery they want."  Pay a flat annual fee, as low as $30 to $150, then you rent a car in your neighborhood for as little as $8.00/hour.  Right.  No monthly insurance fee, no gas charge, no parking bills.  You rent cars when you need them, and only as long as you need them.

To those of us, mostly older, this may seem heretical.  How can you give up your car?  It's long been a status symbol.  What you drive is supposed to say something about who you are.  But this is getting turned upside down.  People, lots of people, are renting by the hour and they want something very cheap and easy to park.  Cars have a place, but not in your personal parking spot at an enormous cost.

Implications are powerful.  Firstly, recognize that the USA is increasingly an urban country.  Every election we are reminded that while most the people live in cities, the electoral map is by state.  Thus, a President can be elected while losing the popular vote!  Just like the tendency across the globe, as agriculture makes less and less importance to the economy people gravitate to major urban centers.  Likewise, as manufacturing jobs move offshore from America, people shift to office work which is more centralized in urban areas than the former "factory towns."  These demographic trends have been developing for over 30 years, and show every sign of accelerating – not decreasing. 

Thus, watching what the "early movers" are doing in urban areas is really important.  We have to develop our scenarios about the future, and we can see that what happens in cities is becoming even more important than it was just a couple of decades ago.  And in cities, people are opting not to buy cars.  Nor even rent them for a day or two.  Nor are they relying on ever more costly taxis.  They are going for hourly rentals they can preschedule.

GM, Chrysler and Ford are getting very little of this business because the renters, 80%, prefer small hybrids. Hertz and other big rental car companies were being shut out, because their model was the daily rental — largely from an airport location for a traveling business person or vacationer.

In a real way, this shows all the signs of a classic Clayton Chrstensen "Disruptive Innovation."  An unserved, or underserved, customer who cannot obtain personal transportation is able to get it.  An unconventional solution, perhaps, but it's working.  What does that tell us?  As the business grows expect the leaders to develop better and better solutions, leading to more and more people accessing the solution.  This is how we get to a very large market shift – not from the people currently served suddenly changing, but rather from the underserved market creating a new solution which gets improved and refined until it meets the needs of the majority of customers – who shift much later – but cut the legs out from under old Success Formulas.  Meaning we could get back to families having one car (circa 1948) and when a second is needed they rent by the hour – even in the suburbs!!  With insurance costs often topping $100/month for a second car, plus the cost to license and maintain it, it's less clear that multi-car ownership is as beneficial as it once was.  If a viable new solution comes along – well it just might work!

This, of course, is not a good thing for auto companies dependent on a demand rebound to fix their recent woes.  Their "good case" scenarios have people returning to adding to their personal fleets, while also returning to new car acquisition every 2 or 3 years.  If instead buyers go the direction of less ownership and less frequent purchases it will be impossible for these companies to repay the government loans.

Markets shift.  Often quickly and violently.  Far too oten, we ignore these shifts.  Because they look so different, so odd, that we believe it must be a short term phenomenon.  We expect that things will soon get "back to normal."  We have future scenarios – they are extensions of the past.  But in the post-millenial global economy people are starting to do a lot of things differently.  They aren't trying to return to old patterns.  They are developing new ones.  And if you want to compete, it's becoming crystal clear you have to change your assumptions about the future, your scenarios of the future and your approach to markets.  Before you get left so far behind you fail.

Please leave Google alone – bad advice from Harvard and Mr. Anthony

Is Google a company who's growth and innovation worry you?  Not me.  Which is why I was disturbed by a recent blog at Harvard Business School Publishing's web site "Google Grows Up."  In this article Scott Anthony, a consultant and writer for HBS, says that he thinks Google has been immature about its innovation management, and he thinks the company needs to change it's approach to innovation.  Unfortunately, his comments replay the core of outdated management approaches which lead companies into lower returns.

No doubt Google's revenues are highly skewed toward on-line ad placement.  But with the market growing at more than 2x/year, and Google maintaining (or growing) share it's not surprising that such high revenues would dwarf other projects.  Google created, and has remained, in the Rapids of growth by leading the market.  From its Disruptive innovation, offering advertising through products like Google AdWords to people who previously couldn't afford it or manage it, allowed Google to lead a market shift for advertising.  And ever since Google has implemented sustaining innovations to maintain its leadership position.  That's great management.  No reason to worry about a lot of revenue in ad placement today, with the market growing.  Not as long as Google keeps breeding lots of new, big ideas to help grow in the future.

But Mr. Anthony flogs Google for its "unrestrained" approach to innovation.  He recommends the company push hard to implement a process for innovation management – and he uses Proctor & Gamble as his role model – in order to curtail so many innovations and funnel resources to "the right" innovations.  Even though he's obviously flogging his consulting, and pushing that all "good management" requires some significant stage gate management of innovation – he couldn't be more wrong.

Firstly, P&G is far from a role model for innovation.  As recently discussed in this blog, the company recently said one of its major innovations was cutting prices on Tide while introducing less a less-good formulation.  As commenters said loudly, this is not innovation.  It's merely price cutting – taking another step on the demand/supply curve of price vs. performance.  It doesn't change the shape of the curve – it doesn't help people get a far superior return – nor does it bring in new customers who's needs were not previously met. 

In a Wall Street Journal article "P&G Plots Course To Turn Lackluster Tide," the CEO freely admits the company has had insufficient organic growth.  Additionally, his big future opportunities are to "reposition Tide," to cut the price of Cheer by another 13% and to use Defend & Extend practices to try pushing the P&G Success Formula into other countries.  Like people in China, India and elsewhere are in need of 1.5 gallon containers of laundry detergent sold through enormous stores which have big parking lots for all those cars to lug stuff home.  None of these ideas have helped P&G grow, nor helped the company achieve above-average returns, nor demonstrate the company is going to be a leader for the next 10 years in new products, new distribution systems or new business models for the developed or developing world. 

This urge to "grow up" is a huge downfall of business thinking.  It smacks of arrogance and superiority by those who say it – like they somehow are "in the know" while everyone else is incapable of making smart resource allocation decisions.   In "Create Marketplace Disruption" I provide a long discussion about how introducing "professional management' causes companies to enter growth stalls.  The very act of saying "gee, we could be more efficient about how we manage innovation" immediately applies braking power well beyond what was imagined.  If Mr. Anthony were worried about Google managers leaving to start new companies in the past (like Twitter) he should be apoplectic at the rate they'll now leave – when it's harder to get management attention and funding for new potentially disruptive innovations.

Google is doing a great job of innovating.  Largely because it doesn't try to manage innovation.  It maintains robust pipelines of both disruptive, and sustaining, innovations. Google allows everybody in the company to work at innovation – providing wide permission to try new things and ample resources to test ideas.  Then Google lets the market determine what goes forward.  It lets the innovators use supply chain partners, customers, emerging customers, lost customers and anybody who can provide market input guide where the innovation processes go.  As a result, the company has developed several new products — such as new network applications that replace over-sized desktop apps, and a new, slimmer mobile operating system that expands the capabilities of mobile devices —- and we can well imagine that it may be coming close to additional revenue breakthroughs.

Unfortunately, Mr. Anthony would like readers, and his clients, to believe they are better at managing innovation than the marketplace.  However, all research points in the opposite direction.  When managers start guessing at the future their Lock-ins to historical processes, products and market views consistently causes them to guess wrong.  They over-invest in things that don't work out well, and investing for really good ideas dries up.  All resource allocation approaches use things like technology risk, market risk, cost risk and revenue risk to downplay breakthrough ideas.  Management cannot help but "extend the past" and in doing so over-invest in what's known, rather than let ideas get to market so real customers can say what is valuable.

Google is doing great.  In a recession that has put several companies out of business (Silicon Graphics and Sun Microsystems are two neighbors) and challenged the returns of several stalwarts (Microsoft and Dell just 2 examples) Google has grown and seen its value rise dramatically.  To think that hierarchy and managers can apply better decision-making about innovation is – well – absurd.  It's always best to get the idea surfaced, push for permission to do things that might appear crazy at first, and get them to market as fast as possible so the real decision-makers can react, and give input, to innovation.

Don’t wait too long – Huffington Post, GM, Chrysler, Ford, Hyundai, Honda, Toyota

"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 competitorsGM 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!

Did you feel an economic earthquake – Japanese elections

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.

Trying new things to grow can be cheap and effective – Motel 6 and rock bands

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!

Catch the shift and Grow – or die away – Apple vs. Sears

"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.

Preparing for the shift? – Apple, Dell, Microsoft, Google – Smartphones vs. PCs

Smartphones will outsell PC by 2011 according to Silicon Valley Insider:

Smartphone sales

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!

Innovate to Grow – Amazon, Apple, Google, Shell

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.

Growth plans 7.09

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 marketsPeople 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 optionsThe 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]

Fixing Health Care … latest article on Forbes

"Want to stir up controversy? Bring up health care. Everybody has a
story to tell–something that went wrong, someone left in the cold,
something the government or an insurer failed at. Everybody has an
opinion about all the current proposals too. And everybody has a
solution they'll happily (or angrily) defend all night long."

That's the opening paragraph for my latest article as a columnist for Forbes "Fixing Health Care:  It's Time to Experiment".  I recommend using White Space projects to let market participants determine a better approach to paying for health care in America.  Since businesses pay for most health care, given our largely employer-paid system, the biggest burden is on American business.  If we don't develop a better solution that controls cost, America's competitiveness could seriously falter

Why would we want lawyers to try "designing" a better answer, when we could let all of us participate in solution development if we open up some market tests?  What we need from the government is permission to work around existing rules allowing the tests, and some resource commitment to conduct them.  America's health delivery system isn't bad – if you have access to it and can afford it.  The broken part has to do with access and cost – not the capability of providers to do a decent job.  Those are business problems, not health care problems. We aren't talking about "product" problems, we're talking about "distribution" and "pricing" problems.   If we use good business practices, especially White Space to foster creativity, we could develop a new and uniquely American solution that is far better than the current accident of history. 

Hope you enjoy.  And hopefully we'll be able to move from our currently Locked-in, and amazingly expensive, health care payment system to something that meets more people's needs while bringing rationality back to cost.