by Adam Hartung | May 26, 2009 | Current Affairs, Defend & Extend, General, Lifecycle, Lock-in, Openness
Today I was hit by a market shift that left me baffled as to what I should do next.
Everybody, every work team, every company has Lock-ins. Lock-ins help you operate quickly and efficiently. And they blind you to potential market shifts. I have as many Lock-ins as anyone. Some I recognize, and some I don't. It's always the ones we don't recognize that leave us in trouble.
For 18 years I've listened to only one radio station in Chicago. WNUA 95.5 smooth jazz. I like jazz, and I've just about quit listening to anything else musically. I grew accustomed to the people who played the "light jazz" music on WNUA, and so enjoyed it I even listened to the station on my computer when traveling out of town. I was a stalwart, loyal fan. My whole family knew that when I was driving the car, the channel would be 95.5.
Then, after a long weekend out of town, I got in the car this morning. I pushed the button for 95.5, and for some reason there was Hispanic music. I couldn't figure it out. This didn't make any sense. So I turned off the radio and went about my business. When I returned home I logged onto WNUA.com to find a letter from a Clear Channel Chicago executive telling me that WNUA was no longer broadcasting as of 10:00am on Friday, May 22. The web site was gone, only this one HTML page existed. I was stunned.
I quickly did a Google search and found an article published by the media critic at The Chicago Tribune dated May 22, "WNUA Swings to Spanish Format." I immediately thought "this can't be right. There has to be something I can do to get back my radio station. Maybe if I email Clear Channel?" See, I quickly wanted to defend my radio selection, and extend the life of the product I personally enjoyed.
But then I read the article. Turns out there are a lot of smooth jazz lovers who were loyal to WNUA. But, unfortunately, that number has not been growing for a while. The channel management had tried many things to boost listeners, but none had worked. The market just wouldn't grow, despite their efforts. The jazz radio listener market had stalled – and was showing signs of (oh my gosh) decline! I was getting older, and apparently us old Chicago smooth jazz hounds aren't creating new jazz followers.
But, the station had done a lot of analysis as to what was growing. Hispanics now outnumber African-Americans as the largest minority group in the country. Clear Channel Chicago did a full scenario about the future, thinking about what would be needed to fill the needs of Chicago's biggest listener groups in 5 years. Looking forward, there was no doubt that smooth jazz wasn't going to grow – but the opportunity for an Hispanic station was "crystal clear". Competitively, they would continue losing revenue playing smooth jazz, and although the cost of shifting would be great – the opportunity to be part of a growing market had much more to gain. Chicago is the 5th largest Hispanic population in the USA and growing, with 28% of the current population Hispanic. Clear Channel management did both scenario planning and competitor analysis before deciding to make this switch – just what a Phoenix Principle company is supposed to do!
KaBoom. The market was shifting, and I saw it, but I didn't think about the impact on my own life. I just assumed WNUA would always be there playing jazz for me. But the people at Clear Channel looked at the market shifts, and how they could best use their 5 stations to service the most people. That is good for Chicago, and good business for Clear Channel. If they wanted to keep growing, WNUA had to be replaced. I would bet the hate mail has been extreme. The longing for our old station must be felt by several thousand people around Chicago. It's hard to let go of a Lock-in.
Oh, I feel terrible about not having my radio station. But the right move was made. I should have thought about this more, and seen it coming. I could have scouted out other radio stations, and started looking for other music styles that I'd like to listen to. But I wore blinders – until the market shifted and left me in the cold.
I'm curious, have any of you readers found yourself the unfortunate loser due to a market shift? Did some favorite aspect of your life or work disappear because the market went a different direction – and you found yourself in a small segment unprofitable to serve? I'd love to hear more stories from folks whose Lock-in left them unprepared for a change in lifestyle or work.
As for me, I guess there's always CDs. Or NPR (I'm getting old enough to like the news). But those would be D&E behaviors intended to ignore the shifting market. So, maybe I should start letting others in my family select the radio stations so I could climb out of my cave and learn what more modern musicians are doing these days. It would do me good to update my music knowledge – get me closer to people who have music appreciation beyond jazz, and probably make me a lot more likable as a driver. It's never too late to open up some White Space and learn what's new in the world you couldn't see because of your old Lock-in.
by Adam Hartung | May 21, 2009 | Current Affairs, General, In the Swamp, Leadership, Lifecycle, Lock-in, Openness
"Target heads toward the Crossroads" is the Marketwatch headline today. Like almost all large retailers, Target has had a tough year. Profits dropped, and Target hit a growth stall. If not careful, the company could fall away into noncompetitiveness, like KMart did. At the same time, some think Target is the only strong competitor to WalMart. Just to rough up the problem, outside investors led by raider Bill Ackman are trying to pressure Target to "restructure" and spin off its real estate into a publicly traded trust. Management isn't helped by a Wall Street Journal report "Proxy firm backs critics in Target vote" recommending shareholders vote to put Mr. Ackman on the Board. At this time, in the Flats, is when management teams are most vulnerable – and more often than not make decisions that doom the company.
It's at this time, when growth has stalled and vultures are swirling around, that management is most likely to turn to Defend & Extend Management. They look backward, and try to implement old practices hoping it will ward off attacks. They stop Disrupting, instead forcing high levels of conformance among employees. They jump into short-term cost cutting actions, which kill off new growth ideas, and shut down White Space projects to conserve cash. Instead of heading toward new markets, they emulate traditional competitors and focus on short-term actions. Unfortunately, these actions throw the company into the Swamp, hurting their ability to compete long term and making them victims of competitors. Look at Motorola, which swung from an intense high into the throws of near-failure when the executive team turned toward D&E management after Carl Icahn attacked the company. Instead of going after market growth, the D&E practices plunged the company into a cash drain leading to cataclysmic drop in sales and market share.
The worst thing Target could do is try to be Wal-Mart. Nobody can beat WalMart at being WalMart. And WalMart has its own troubles, including saturation of its stores as well as declining customer interest in its low-cost format. Recent resurgence, linked to the worst economy in 70 years, does not reflect a change in what customers want from retailers long-term. Rather, it's a short-term blip for a Locked-in Success Formula that has seen declining returns on investment for over a decade. If Target were to try emulating WalMart, in format or approach, it would be disastrous.
Nor is doing what Target always did the right thing to do. The market has shifted. What worked in 2005 cannot be assured of working in 2010. Trying to refind its "core" and do more of the same practices would again be a Defend & Extend approach which will hurt results. Amplifying those D&E practices by taking radical actions, such as spinning out its real estate in a short-term financial machination, would only reduce the variables Target can use to regain growth. Following the recommendations of raider Ackman and his Pershing Square firm will attempt to short-term spike profitability, but at the grave risk of killing the company long-term.
What Target needs to do now, more than ever, is study the market. The retail industry is under a major shift as on-line participants increase capability and share, per-store numbers struggle to maintain, and as underlying real estate values tumble. Customer expectations, from baby boomers to GenY are different than they were in 2001, and all retailers need to adapt to these changes. The retailers that do, with new approaches – perhaps mixed approaches that combine on-line with traditional, and/or combine mega-stores with specialty, etc. – will be the ones that capture share as pent-up consumer demand re-emerges in the future. What scenario of the future looks most likely to attract and retain customers in 2015?
Simultaneously, Target needs to study competitors, to define its positioning that produces best results. The good news is that the biggest competitor (WalMart) is so locked in that it's easy to predict. Target can study WalMart, Kohl's, Gordman's, J.C.Penney and others to identify what actions it can take that will avoid head-to-head battering and instead provide rapid growth. Especially by focusing on on-line competitors, including Netshops.com, much can be learned about how the market is shifting and where Target should go to maximize growth.
Above all, Target needs to take this opportunity to Disrupt old behaviors and convince employees, and shareholders, that Target will pull out all stops to become the leading retailer by 2020. WalMart is so Locked-in that it can easily decline (and if you doubt that, just look at other market leaders and how they did coming out of downturns – like GM and Sears). The right retailer, making the right decisions, can become the next leader. But not by just doing more of the same. It will take a concerted effort to open the doors for trying and doing new things.
And right now Target needs to be throwing up test stores and new concepts – White Space projects – where it can learn what will work for the next great retailing Success Formula. No amount of planning is worth as much as experimentation. The newest ideas in retailing need to be reviewed and tested to see what can work now. Maybe the time has finally arrived for home grocery shopping, for example. Who knows? What we do know is that the company that uses this market transition period to build a new Success Formula aligned with changing customer expectations will be positioned to be the new market leader.
Conventional wisdom would say that Target should cut costs, emulate WalMart, get really cheap with prices, tighten its supply chain, spin out all "non core" assets and focus on returning to practices that made a profit in 2004, 05, 06 and 07. But our studies for The Phoenix Principle showed that those practices almost always doom the competitor. Instead, at this critical lifecycle point, it's more important than ever to focus on GROWTH and return to the Rapids – otherwise you end up in the Swamp, moving along toward the Whirlpool, like Woolworths, S.S. Kresge, TG&Y, Sears, KMart and Sharper Image.
by Adam Hartung | May 8, 2009 | Current Affairs, Defend & Extend, Disruptions, Food and Drink, General, Innovation, Leadership, Lock-in, Openness, Television, Web/Tech, Weblogs
Where the people go, advertisers will follow. Why pay for an ad at the end of a never traveled dead-end street? The purpose of advertising is to reach people with your message. And now "Forrester: Interactive Marketing to grow 11% to $25.6 Billion in 2009" reports MediaPost.com. When print advertising is dropping (direct mail down 40%, newspaper down 35% and magazines down 28%), the on-line market is growing and expected to reach over $50billion by 2014. Search ads is the biggest, with over half the market, but social media is expected to grow the fastest at over 34%/year.
Such a market shift indicates that those who buy ads need to be very savvy about what works. Like I said, you don't want to be the fool who jumps into billboards, only to get placed on the one at the end of a dead-end road. Success means Disrupting your assumptions about advertising, and learning what work by entering White Space with tests and measurements.
In "Mobile Marketing Won't Work Here" Bret Berhoft explains why GenY simply won't tolerate intrusive ads – especially on their mobile devices. Social media are different conduits, with different users and different behaviors. Where older folks (and our parents) were content to be interrupted by ads – such as on TV – the avid users of new media aren't. And they've been known to create counter-movements attacking advertisers that don't adhere to their on-line behavior requirements.
What won't work is trying to do what Sears has done. Instead of learning how people use social media, and how you can connect with them to meet their needs, "Sears to Launch Social Networking Sites" we learn. Where everybody is using Facebook, MySpace, Twitter, Linked-in, etc., Sears decided to open two new sites called MySears.com and MyKmart.com. They hope people will go to these sites, register, and tell stories about their experiences in both retail chains. Then Sears intends to flow through good comments to Sears.com and KMart.com sites.
The horribly Locked-in Sears management keeps trying to Defend & Extend its outdated model. As people have left Sears and KMart in droves for competitors, they aren't looking for a site to "connect" with other people who are Sears centric. People use social networks to learn, grow, exchange ideas, keep up with trends. They don't register for a site because their parents used to shop there.
Sears has missed the basics of Disrupting its old Success Formula, so it keeps trying to apply it in ways that don't work. It keeps doing what it always did, only trying to do it in new places. These sites aren't White Space projects trying to participate in the social networks that are growing (like everything from illness questions to home how-tos). Rather, they are still trying to take the position that Sears is at the center of the world, and people want to be part of Sears.
Exactly how advertisers will capture the attention of participants still isn't clear. Some ideas have gone "viral" producing mega-returns for minimal investments. Other ideas have flopped despite big spending. The market is shifting, and variables keep changing (Marketers Search for Social Media Metric.) But for those who Disrupt their old Lock-ins, those who attack their assumptions, they can use White Space to learn what does work.
"Pizza Hut 'Twintern' to Guide Twitter Presence" is a great example of creating White Space to study social media advertising by participating. The new position will interact with Twitter users, and be a leader in how to interact with Facebook and other sites – even the notorious YouTube! where user content can include the very bizarre. By participating where the customers are, these leaders can develop insights to how you can consistently advertise effectively. Already Sony and Dell have demonstrated they can achieve high recall (Word of Mouth goes Far Beyond Social Media) beyond Social Media with their on-line efforts. These participants, who Disrupt their assumptions and bring in others to work in White Space will be the winners because they aren't trying to Defend & Extend the old Success Formula. They are trying to create a new one to which they can migrate the old business.
by Adam Hartung | May 4, 2009 | Current Affairs, Defend & Extend, General, In the Swamp, Innovation, Leadership, Openness
Today Yahoo.com picked up on Mr. Buffett's recent comments, with the home page lead saying "Buffett's Gloomy Advice." The article quotes Buffett as saying newspapers are one business he wouldn't buy at any price. Even though he's a reader, and he owns a big chunk of the Washington Post Company (in addition to the Buffalo, NY daily), he now agrees there are plenty of other places to acquire news – and for advertisers to promote.
I guess the topic is very timely given the Marketwatch.com headline "N.Y. Times hold off on threat to close Boston Globe". Once again, in what might remind us of an airline negotiation, the owner felt it was up to concessions by the workers, via their union, if the newspaper was to remain in business. After squeezing $20million out of the workers, the owners agreed not to proceed with a shutdown – today. But they still have not addressed how a newspaper that is losing $85million/year intends to survive. With ad revenue plunging over 30% in the first quarter, and readership down another 7% in newspapers nationally, union concessions won't save The Boston Globe. It takes something that will generate growth.
And perhaps that innovation was also prominent in today's news. "Amazon expected to lift wraps on large-screen Kindle" was another Marketwatch headline. Figuring some people will only read a magazine or newspaper in a large format, the new Kindle will allow for easier full page browsing. According to the article, the New York Times company has said it will be a partner in providing content for the new Kindle.
Let's hope the New York Times does become a full partner in this project. People want news. And the only way The Boston Globe and New York Times will survive is if they find an alternative go-to-market approach. Printing newspapers, with its obvious costs in paper and distribution, is simply no longer viable. Trying to defend & extend an old business model dedicated to that approach will only bankrupt the company, as it already has bankrupted Tribune Company and several other "media companies." The market has shifted, and D&E practices like cost cutting will not make the organizations viable.
It's pretty obvious that the future is about on-line media distribution. We've already crossed the threshold, and competitors (like Marketwatch.com and HuffingtonPost.com) that live in the on-line world are growing fast plus making profits. What NYT now needs to do is Disrupt its Lock-ins to that old model, and plunge itself into White Space. I'm not sure that an oversized Kindle is the answer; there are a lot of other products that can deliver news digitally. But if that's what it takes to get a major journalistic organization to consider switching from analog, physical product to digital on-line distribution as its primary business I'm all for the advancement. Those who compete in White Space are the ones who learn, adapt, and grow. Being late can be a major disadvantage, because the laggard doesn't have the market knowledge about what works, and why.
This late in the market evolution, the major print media players are all at risk of survival. While no one expects The Chicago Tribune or Los Angeles Times to disappear, the odds are much higher than expected. These businesses are losing a tenuous hold on viability as debt costs eat up cash. Declining readership and ad dollars makes failure an equally plausible outcome for The Washington Post, New York Times and Boston Globe. Instead of Disrupting and using White Space, as News Corp started doing a decade ago (News Corp owns The Wall Street Journal and Marketwatch.com, as well as MySpace.com for example), they have remained stuck in the past. Now if they don't move rapidly to learn how to make digital, on-line profitable they will disappear to competitors already blazing the new market.
by Adam Hartung | Apr 29, 2009 | Books, Current Affairs, Defend & Extend, General, In the Swamp, Leadership, Lock-in, Openness
Today the U.S. Federal Reserve indicated that the worst of America's economic downturn may be over, according to "Fed stands pat, and says worst may be over" at Marketwatch.com. Fed officials seem to think that the rate of decline has slowed. Note, they didn't say the economy is growing. The rate of decline is slowing. They hope this points to a bottoming, and eventually a return to growth.
With interest rates between banks at 0%, and short-term rates for strong companies near that level, there really isn't much more the Fed can do to create growth. It will keep buying Treasury securities and keep pushing banks to loan. But growth requires the private sector. That means businesses – or what reporters call "Main Street."
The government doesn't create growth. It can stimulate growth with low interest rates and money that will stimulate business investment. Growth requires people make products or services, and sell them. Those who are waiting on the government to create a growing economy will never gain anything from their wait, because it's up to them. Only by making and selling things do you get economic growth.
Recent events, closing banks and massive write-offs, are a big Challenge to old ways of doing business. Those who keep applying old practices are struggling to generate profits. The tried-and-true practices of American industrialism just aren't turning out gains like the once did. And they won't. The world has shifted. Entrepreneurs in India, Malaysia and China – places we like to think of as poor and "third world" – are building fortunes in the information economy. American businesses have to shift. If you make posts to install on highway sides, well lots of people can do that and competition is intense. To make money you need to make products that help move more people on the highway faster and safer – some kind of post that perhaps can provide traffic information to web sites and aid people to look for alternate routes. Posts aren't what people want, they want better traffic flow and today that ties to more information about the highway, who's using it, and what's happening on it.
Growth will return when businesspeople move toward supplying the shifted market with what it wants. Like Apple with a solution for digital music that involved players and distribution. Or Amazon with a solution for digitally obtaining books, magazines and newspapers, storing them, presenting them and even reading them to you. These companies, and products, appeal to the changed market – the market that values the music or the words and not the vinyl/tape/CD or the ink-on-paper. The customers that want the information, not necessarily the tangible item we used to use to get the information.
For the economy to grow requires a lot more businesses realize this market shift is permanent, and adjust. During the Great Depression those who refused to shift from agriculture to industrial production found the next 40 years pretty miserable – as rural land prices dropped, commodity prices dropped and the number of people working in agriculture dropped. Agrarianism wasn't bad, it just wasn't profitable. And going forward, industrialism isn't bad – but to grow revenues and profits we have to start thinking about how to deliver what people want – not what we know how to make. You have to deliver what the market wants to grow sales – even if it's different from what you used to make.
Starbucks offered people a lot of different things. And the old CEO tried to capitalize upon that by expanding his brand into liquor, music recording, agency for entertainers, movie production, and a widespread set of products in his stores – including food. But then an even older CEO returned, and he said Starbucks was all about coffee. He launched some new flavors, and he pushed out an instant coffee product. But a year later "Starbucks profit falls 77% on store closure charges" reports Marketwatch.com. His "focus" efforts have cut revenues, and cut profits enormously. He's cut out growth in his effort to "save" the company.
By trying to go backward, Chairman Schultz has seriously damaged the brand and the company. He has closed 570 stores – which were a big part of the brand and perhaps the thing of greatest value. Stores attracted people for a lot more than just coffee. People met at the stores, and buying coffee was just one activity they undertook. So as the stores were shuttered, the brand began to look in serious trouble and people started staying away. The vicious cycle fed on itself, and same store sales are down 8%. No new flavor or packaged frozen coffee bits for take home use is going to turn around this troubled business. It will take a change to giving people what they need – not what Mr. Schultz wants to sell.
With more and more people working from home the "virtual office" for many small businesspeople can still be a local Starbucks. When you can't afford take a client out for a snazzy lunch you can afford to take them for a coffee. When your wasteline can't take ice cream, you can afford a no-cal hot coffee in a great environment. Starbucks never was about the coffee, it was about meeting customer needs in a shifted market. And when the CEO realizes this he has the chance to save the company by taking into the new markets where customers want to go. Not by bringing out new instant coffee granules.
Starbucks is sort of a model of the recession. When you try to do what you always did, and you blame the lousy economy for your troubles, you'll see results worsen. As businesspeople we must realize that the recession was due to a market shift. We went off the proverbial cliff trying to extend the old business – just like Apple almost did by trying to be the Mac and only the Mac. To get the economy growing we have to look to see what people really want, and supply that. And what they want may be somewhat, or a whole lot, different from what we used to give them. But when we start supplying this changed market what it wants then the economy will quit contracting and start growing.
So be more like Steve Jobs, and less like Charles Schultz. Quit trying to go backward and regain some past glory. Instead, look into the future to figure out what people want and that competitiors aren't giving them. Be willing to Disrupt your business in order to take Disruptive solutons to the market. And get your ideas into White Space where you can develop them into profitable businesses. Don't wait for someone else to turn the economy around – just to find out then it's too late for you to compete.
by Adam Hartung | Apr 26, 2009 | Books, Current Affairs, Food and Drink, Games, General, In the Rapids, Innovation, Leadership, Openness, Sports, Television
I recently listened to a great presentation on innovation by Bill Burnett, partner at Launchpad Partners. I recommend you download the slides to his presentation, "The CEO's Role in Innovation," in order to understand just how important innovation is to profitability as well as the CEOs role in creating the right culture. I also hand it to Bill that he not only lays out the CEO's role, but discusses what it takes organizationally to implement innovation – including getting the right people involved to go beyond just coming up with good ideas.
Markets shift. Sometimes there are long periods in which the market is reasonably the same (like newspapers). And sometimes it seems like new changes are happening rapidly (like computers). How long between shifts is impossible to predict. But it is certain that all markets shift. Some new technology, or a new form of solution, or a new way of pricing, or a new competitor will enter the market and change things such that the profitability of previous solutions declines. And it is the role of CEOs to create an open culture in which the management team feels it must keep its eyes peeled for market shifts, bring them to the company for discussion, and propose innovations which can increase the longevity of company sales and profits by addressing the market shifts.
Take for example the current shift in the sports market. This is important, because a throng of businesses advertise in the sports market. Everything from TV or radio ads during games, to ads inside event brochures, to putting logos on equipment and uniforms, to paying athletes as endorsers. Being aligned with the right sports, the right teams and the right athletes is worth a lot of money. You can legitimately ask, would Nike be Nike if they hadn't been the first company to sign up Michael Jordan – and later Tiger Woods? So the money is very large (billions of dollars) making mistakes very expensive. But getting it right can be worth billions in returns.
So catching a recent MediaPost.com blog "The Allure of Action Sports" is important. While most of us think of basketball, baseball, American football and possibly NASCAR – for GEN Y (young folks) sports is taking on an entirely new meaning. These are sports with almost no rules – just technique. They pack the stands at events such as the Dew Tour and X Games. Active participants include almost 12 million skateboarders, 7 million snowboarders and 3 million BMX riders. Not only do people watch these sports, but the most popular performers have their own cable TV shows – like "Viva La Bam." Just like football and basketball overtook our fathers' love of baseball as America's pastime – young competitors are shifting to watch and practice action sports. For people in consumer goods and many retailers, it becomes critical that the CEO provide an environment where the company can Disrupt its old marketing practices and create White Space to explore how to link with these new markets. The winners will rake in millions of higher profits. The laggards will see the value of their sports market spending decline.
Have you recognized this shift in the sports market? Are you prepared to take advantage of this shift? Are you considering sponsoring a local skateboard competition – for example – to promote a restaurant, quick stop, or T-Shirt store? You can react faster than Wal-Mart, Coke or GM – are you considering the options to grab loyal customers when they are still "McDonald's targets"?
A great example of the right kind of CEO has been Jeff Bezos of Amazon. As I reported in this blog back in January, book sales declined about 10% in 2008. You would think this would spell a huge problem for the world's largest bookseller. But SeattlePI.com recently reported "Amazon Profits Jump Despite Recession." CEO Bezos recognized long ago that book readership was jeapardized by changing lifestyles. Fewer people have the willingness to buy printed books, carry them around and take time to read them. So he Disrupted his retail Success Formula and implemented White Space to develop something new. This led to Kindle, a product which is small, light, can hold hundreds of books, can be read "on the go", accepts downloads of journals (magazines and newspapers) and can even read the book to you (Kindle has an audio feature.) And that's just product rev 2 – who knows where this will be in 3 years. By focusing on the future he could see the market for reading shifting – and he created an environment in which new innovation could be developed to keep Amazon growing even when the traditional products (and business) started declining. Kindle is now outselling everyone's expectations.
Innovation is the lifeblood of businesses. Without innovation Defend & Extend management leads to declining returns as competitors create market shifts. So it is crucial leaders, from managers to the CEO, keep their eyes on the future to spot market challenges and obsess about competitor actions that are changing market requirements. Then be willing to Disrupt the old Success Formula by attacking Lock-ins, and use White Space to test and implement new innovations which can lead to a new Success Formula keeping the business evergreen.
by Adam Hartung | Apr 24, 2009 | Disruptions, In the Rapids, Innovation, Leadership, Lifecycle, Openness
Everybody should have White Space projects. More than one. Because you never know if which project will work out, and which might not. Nobody has a crystal ball. To create growth you have to not only open White Space, but you have to know when to get out — by closing or selling.
Today GE announced "Safran to buy 81% stake in GE Homeland Protection" according to Marketwatch, effectively taking GE out of the airport security business. According to Securityinfowatch.com the sale will give the French company complimentary technology for its markets around the globe, as well as GE's U.S. sales force and market access. Thus it was willing to pay-up for the business unit. For GE, the sale gets the company out of a business heading in a different direction than originally planned.
Many people thought that airport security technology would be rampant in U.S. airports following the changes after September, 2001. And GE was one of several companies that developed scenarios justifying investment in new products to innovate new solutions and take them to market. Scenarios for big spending on airport security seemed sensible. But, a few years later, reality is that nobody wants to pay for the new techology. The airlines are broke and have no money to pay for better customer satisfaction during check-in, where they can blame the TSA for unhappiness. The cities that own the airports have no money to pay for more equipment to upgrade the systems. Most have their hands out for federal dollars due to tax shortfalls. And customers refuse to pay higher ticket taxes to cover the security investments. What looked like a great market turned out to be a slow-grower with extensive downward pricing pressure. So far the market has concluded it will just let people wait in line.
So, hand it to GE. They sold the business. By GE standards the $580million received for the sale isn't a lot of money. But it shows that when you have White Space projects, you have to manage them for results, not just let them run. To now make this business worthwhile in the massive corporation, GE would need to make big acquisitions. But the growth wasn't really there to make the market all that interesting. Because GE was participating in the market, they learned what was happening and could see that the desired scenario wasn't the actual scenario. So GE needed to dial-back its investments. When the airport security business failed to take off, it made more sense to sell it than keep investing in product development for a market growing slower than expected. Rather than simply let the business string along and see declining returns, GE sold the business to someone who has a different scenario for the future – willing to pay for GE's R&D investments. Before the business looked bad to everyone, GE sold its interest at a good price so it had the money to invest in something else. When the shift went a different direction than GE planned, GE got out. That's smart.
You can't expect to read all market shifts completely accurately. Rarely does everything quickly work out all right, or all wrong. So you have to develop your scenarios, and invest based upon what's most likely to happen. You need several options. Then, track the market versus your scenarios. If things don't go the way you thought they might, you have to be willing to stop. If you're smart, you can get out without losing your investment – possibly even make some money – especially if you're first to escape.
Back in the early days of mainframe computers the 3 big players were IBM, GE and RCA. Behomoths that used the products as well as saw the market growing. But GE quickly realized that in mainframes, IBM's share allowed them to manipulate pricing so that GE and RCA would never make much money – and never gain much share. So the head of GE's computer business called up RCA and offered to sell RCA the business. He offered to let RCA "synergize" the combination so it could "compete stronger" against IBM. RCA took him up on the deal. GE made a big profit on the sale. The head of the computer business got tagged for his savvy move, and soon was made Chairman and CEO. And RCA ended up losing a fortune before learning IBM had the market sewn up and RCA couldn't make any money – eventually getting out via a shut down. That write-off spelled the beginning of the end for RCA.
White Space is really important. But it's not a playground for madcap innovators to do whatever they want. White Space should be based on scenarios. And the business should report results based upon the scenario expectations. If the White Space project can't meet expected results, you have to be just as willing to get out as you were to get in. You have to compete ferociously, to win, but don't be ego-involved and foolish like RCA was in mainframes. Be committed, but be smart. If you don't get the results you planned on, understand why. Keep your eyes on the market. Get in, work hard, and be prepared to possibly get out.
by Adam Hartung | Apr 20, 2009 | Current Affairs, Food and Drink, General, In the Rapids, Leadership, Openness
"PepsiCo bids to buy its bottlers for $6billion," is the Marketwatch headline today. Another big Disruption, this time at the industry level, orchestrated by PepsiCo's Chairperson/CEO Indra Nooyi. Now that changes are being made with the product line, packaging and brands this latest move will allow Pepsi's beverage division to much more quickly implement changes to align with market needs. While Coke is doing little, Pepsi is disrupting the industry organization changing the marketplace and placing serious challenges onto all competitors. And without waiting for the recession to end.
Many leadership teams should pay close attention to what's going on at PepsiCo. By moving fast to align with future market needs they are catching competitors unwilling to take action due to recessionary concerns. Their Disruptions are creating changes that will help Pepsi return to the "muscle building" organization created in the days of former Chairman Andrall Pearson. And the changes coming out of White Space are helping Pepsi to develop a stronger Success Formula for competing in the post-industrial age.
Investors, employees and vendors should be encouraged by Pepsi. Competitors had better be worried. And all leadership teams can learn from the action being taken to gain share during this period of uncertainty. As companies hit growth stalls the tendency is to "wait and see". But winners react quickly to Disrupt and use White Space where they overtake delaying competitors – returning to the Rapids of growth and gaining share.
by Adam Hartung | Apr 3, 2009 | Current Affairs, General, In the Rapids, Lifecycle, Openness, Science
Since before writing Create Marketplace Disruption I've been a fan of GE. The company is the only company to be on the Dow Jones Industrial Average since started 100 years ago. While so many other companies have soared and failed, GE has continued to adapt and grow. But it's been hard to be a GE proponent the last year. Even though GE continues to follow The Phoenix Principle, fears about the recession, GE's massive commercial real estate holdings, and risks in GE Capital drove the stock from $40 a year ago to $6.50!!! A whopping 84% decline!!!
I've also long been a fan of Intel. Intel transformed itself from a memory chip company facing horrible returns into a microprocessor company by maintaining a healthy paranoia about markets and competitors. The company has worked with Clayton Christensen over the years to not only keep up with sustaining innovations, but to implement Disruptive ones as well. But Intel was recession-slaughtered over the last year, losing half its value.
It's been enough to make an innovation lover cry. But, simultaneously, it's not clear that over the last year ever stock has been accurately priced for its long term value by the market. As we know, fears about bank and real estate failures have simultaneously destroyed investor confidence while pushing up cash needs. Don't forget that Warren Buffet made an insider deal to provide money to GE with warrants to buy the stock at $23 – about double the current value. So perhaps the bloodbath in these two companies went beyond what should have been expected?
Today there's more heartening news. "GE and Intel join forces on home health" is the FT.com headline.
GE and Intel both have identified that health care will be a growing market into the future, expecting the home health monitoring business alone to grow from $3B today to $7.7B by 2012. By keeping their eyes on the future, both companies are showing that they are investing based on future expectations, not just historical performance. And, both have identified opportunities that reside outside their existing health care markets, such as the medical imaging market where GE is currently strong. Thus, they are investing $250million into a new joint venture company to develop new markets.
This shows the earmarks of good White Space. It's focused on developing a growing future market, not trying to preserve an existing market position. It's outside the existing business manager's control, thus given permission to develop a new Success Formula rather than operate within existing constraints of existing businesses. And the project is given enough resources to succeed, not just get started.
Maybe now is a great time to buy stock in these companies? GE has gone out of its way recently to divulge information about its real estate and finance units to analysts in order to be more transparent. And the company is demonstrating a commitment to the behaviors, future-oriented planning and White Space, that have long helped the company grow.
Now, if we could just start seeing the kind of disruptive behavior out of Chairman Immelt that former Chairman "Neutron Jack" Welch demonstrated my comfort level could go up even more…..
by Adam Hartung | Mar 29, 2009 | Current Affairs, Disruptions, General, Innovation, Leadership, Openness, Web/Tech
"Management is not a science, like physics, with immutable laws and testable theories. Instead, management, at its best, is an intelligent response to outside forces, often disruptive ones." So says Steve Lohr in " How Crisis shapes the Corporate Model" in The New York Times Saturday.
For years, many people thought of management as being all about execution. How to build plants, make things, sell those things and finance the operations of building and making stuff. In fact, whole books were written on execution, with the basis that strategy was pretty much unimportant. If you could execute well, what's the need for strategy?
But the last year has shown everyone that the world is a dynamic place. GM missed many changes, and now is barely alive. Despite a focus on execution, the CEO Rick Wagoner has been forced to step down by the administration if GM is to get more bailout money (see "GM's Wagoner Will Step Down" WSJ.com March 29) When you get behind, a "re-invention gap" emerges where the competition keeps going with the market further and further into the future, while you are left behind struggling to sell, grow and make money as you focus on execution. The longer you keep focusing on execution, the bigger the gap gets. Depending on size and competition, eventually you end up completely out of step with the market and unable to compete. Like GM.
The pressure to change with market needs is high everywhere, from banks to manufacturers to newspapers. From General Electric to Sara Lee to Sun Microsystems to The Tribune Corporation, companies that can't adapt to changes have seen their valuation hammered. And the companies we like today are those demonstrating they can adapt to market needs – like Google, Apple, RIM and Virgin. These companies are today investing in launching new products, investing in growth, rather than just trying to cut cost and execute on old business practices while waiting for the return of "better times."
Globalization is now hitting everyone. No industry, and no player in any industry, can ignore the impact of global competition in the way they compete. Today, we can wire together businesses from various service providers, with precious little investment, and reach customers quite profitably while maintaining enormous flexibility. Just ask Nike if you want to know how to "do it."
Focus, hard work, diligence – these have been the mantra for many business leaders. It makes us feel good to think that if we work hard, if we keep our eye on execution, we can succeed. But as readers of this blog have known for 4 years, those admirable qualities do not correlate to success (as academics and journalists have been pointing out when arguing with Jim Collins and his spurrious mathematical exercises). To be successful requires adaptability. You have to constantly scan the horizon for market shifts and emerging competitors that are ready to disrupt markets. And be ready to change everything you do, not just part of it, if you want to compete in the markets as they shift.
The companies, and executives, that will fail as a result of these tumultuous times has not been determined. You can keep from being one of the downtrodden if your focus remains on identifying future market needs and adapting to new competitors through White Space where you can develop new solutions. It's very possible to succeed going forward, if you're adaptive. Or you can end up like Mr. Wagoner and the management team at GM.
PS – The New York Times Company had better start reading its own material and undergo same radical adaptation of its own, or it may not survive to be a media player very soon. To steal from an old saying, it's about time that cobbler started checking his own family's shoes.
