by Adam Hartung | Apr 1, 2011 | Current Affairs, In the Rapids, Innovation, Leadership, Openness, Transparency, Web/Tech
Summary:
- Google is locking-in on what it made successful
- But as technologies, and markets, change Google could be at risk of not keeping up
- Internal processes are limiting Google’s ability to adapt quickly
- Google needs to be better at creating and launching new projects that can expand its technology and market footprint in order to maintain long-term growth
Google has been a wild success. From nowhere Google has emerged as one of the biggest business winners at leveraging the internet. With that great success comes risk, and opportunity, as Larry Page resumes the CEO position this year.
Investors hope Google keeps finding new opportunities to grow, somewhat like Apple has done by moving into new markets with new solutions. Where Apple has built strong revenue streams from its device and app sales in multiple markets, Google hasn’t yet demonstrated that success. Despite the spectacular ramp-up in Android smartphone sales, Google hasn’t yet successfully monetized that platform – or any other. Something like 90% of revenues and profits still come from search and its related ad sales.
Investors have reason to fear Google might be a “one-trick pony,” similar to Dell. Dell was wildly successful as the “supply chain management king” during the spectacular growth of PC sales. But as PC sales growth slowed competitors matched much of Dell’s capability, and Dell stumbled trying to lower cost with such decisions as offshoring customer service. Dell’s revenue and profit growth slowed. Now Dell’s future growth prospects are unclear, and its value has waned, as the market has shifted toward products not offered by Dell.
Will Google be the “search king” that didn’t move on?
When companies are successful they tend to lock-in on what made them successful. To keep growing they have to overcome those lock-ins to do new things. The risk is that Google can’t overcome it’s lock-ins; that internal status quo police enforce them to the point of keeping new things from flourishing into new growth markets. That the company becomes stale as it avoids investing effectively in new technologies or solutions.
At Slacy.com (“What Larry Page Really Needs to Do to Return Google to its Start-up Roots“) we read from a former Google employee that there are some serious lock-ins to worry about within Google:
- The launch coordination process sets up a status quo protection team that keeps things from moving forward. When an internal expert gains this kind of power, they maintain their power by saying “no.” The more they say no, the more power they wield. Larry Page needs to be sure the launch team is saying “here’s how we can help you launch fast and easy” rather than “you can’t launch unless…”
- Hiring is managed by a group of internal recruiters. When the people who actually manage the work don’t do recruiting, and hiring, then the recruits become filtered by staffers who have biases about what makes for a good worker. Everything from resume screening to background reviews to appearances become filters for who gets interviewed by engineers and managers. In the worst case staffers develop a “Google model employee” profile they expect all hires to fit. This process systematically narrows the candidates, leading to homogeneity in hiring, a reduction in new approaches and new ways of thinking, and a less valuable, dynamic employee population.
- Increasingly engineers are forced to use a limited set of Google tools for development. External, open source, tools are increasingly considered inferior – and access to resources are limited unless engineers utilize the narrow tool set which initially made Google successful. The natural outcome is “not invented here” syndrome, where externally created products and ideas are overlooked – ignored – for all the wrong reasons. When you’re the best it’s easy to develop “NIH,” but it’s also really risky in fast moving markets like technology where someone really can have a better idea, and implement, from outside the halls of the early leader.
These risks are very real. Yet, in a company of Google’s size to some extent it is necessary to manage launches systematically, and to have staffers doing things like recruiting and screening. Additionally, when you’ve developed a set of tools that create success on an enormous scale it makes sense to use them. So the important thing for Mr. Page to do is manage these items in such a way that lock-in doesn’t keep Google from moving forward into the next new, and possibly big, market.
Google needs to be sure it is not over-managing the creation of new things. The famous “20% rule” at Google isn’t effective as applied today. Nobody can spend 80% of their job conforming to norms, and then expect to spend 20% “outside the box.” Our minds don’t work that way. Inertia takes over when we’re at 80%, and keeps us focused on doing our #1 job. And we never find the time to really get started on the other 20%. And it’s unrealistic to try dedicating an entire day a week to doing something different, because the “regular job” is demanding every single day. Likewise, nobody can dedicate a week out of the month for the same reason. As a result, even when people are encouraged to spend time on new and different things it really doesn’t happen.
Instead, Google needs a really good method for having ideas surface, and then creating dedicated teams to explore those ideas in an unbounded way. Teams that have as their only job the requirement for exploring market needs, product opportunities, and developing solutions that generate profitable new revenue. Five people totally dedicated to a new opportunity, especially if their success is important to their career ambitions, will make vastly more headway than 25 people working on a project when they can “find the time.” The bigger team may have more capabilities and more specialties, but they simply don’t have the zeal, motivation or commitment to creating a success. Failing on something that’s tertiary to your job is a lot more acceptable, especially if your primary work is going well, than failing on something to which your wholly dedicated. Plus, when you are asked to support a project part-time you do so by reinforcing past strengths, not exploring something new.
Especially worrisome is Inc magazine’s article “Facebook Poaches Inc’s Creative Director.” This is the fellow that created, and managed, the new opportunity labs at Google. What will happen to those now?
These teams also must have permission to explore the solution using any and all technology, approaches and processes. Not just the ones that made Google successful thus far. By utilizing new technologies, which may appear less robust, less scalable and even initially less powerful, Google will have people who are testing the limits of what’s new – and identifying the technologies, products and processes that not only threaten existing Google strengths but can launch Google into the next new, big thing. Supporting their needs to explore new solutions is critical to evolving Google and aiding its growth in very dynamic technologies and markets.
The major airlines all launched discount divisions to compete with Southwest. Remember Song and Ted? But these failed largely because they weren’t given permission to do whatever was necessary to win as a discount airline. Instead they had to use existing company resources and processes – including in-place reservation systems, labor union standards, existing airports and gates – and honor existing customer loyalty programs. With so many parameters pre-set, they had no hope of succeeding. They lacked permission to do what was necessary because the airlines bounded what they could do. Lock-in to what already existed killed them.
The concern is that Google today doesn’t appear to have a strong process for creating these teams that can operate in white space to develop new solutions. Google lacks a way to get the ideas on the agenda for management discussion, rapidly create a team dedicated to the tasks, resource the teams with money and other necessary tools, and then monitor performance while simultaneously encouraging behaviors that are outside the Google norms. Nobody appears to have the job of making sure good ideas stay inside Google, and are developed, rather than slipping outside for another company to exploit (can you say Facebook – for example?)
I’m a fan of Google, and a fan of the management approaches Larry Page and Google have openly discussed, and appear to have implemented. Yet, success has a way of breeding the seeds of eventual failure. Largely through the process of building strong sacred cows – such as in technology and processes for all kinds of activities that end up limiting the organization’s ability to recognize market shifts and implement changes. Success has a way of creating staff functions that see themselves as status quo cops, dedicated to re-implementing the past rather than scouting for future requirements. The list of technology giants that fell to market shifts are legendary – Cray, DEC, Wang, Lanier, Sybase, Netscape, Silicon Graphics and Sun Microsystems are just a few.
It’s good to be the market leader. But Larry Page has a tough job. He has to manage the things that made Google the great company it is now – the things that middle management often locks in place and won’t alter – so they don’t limit Google’s future. And he needs to make sure Google is constantly, consistently and rapidly implementing and managing teams to explore white space in order to find the next growth opportunities that keep Google vibrant for customers, employees, suppliers and investors.
View a short video on Lock-in and why businesses must evolve http://on.fb.me/i2dekj
by Adam Hartung | Oct 21, 2009 | Defend & Extend, In the Swamp, Lifecycle, Lock-in
Boeing is the world's largest aircraft manufacturer. But the Crain's headline "Boeing Loses $1.6B, slashes 2009 profit estimate" should get your attention. Revenues in 2008 dropped some 10% – which the company blamed on a strike. Of course, management always has some bogeyman to blame for poor performance. But revenues have not yet recovered to 2007 levels. Much, much worse is the fact that its newest product launch, the 787 Dreamliner, is some 2 years behind schedule, leaving industry experts skeptical of when it will get out the door.
The reason to really be wary of Boeing isn't just this one plane. Instead, look at the market shift happening in all transportation – including aircraft. It's unclear that the marketplace has much interest in the Dreamliner. Boeing's Success Formula has long been to develop really big projects, billions in investment, and make bigger and bigger aircraft. And the Dreamliner is the latest in Defending & Extending this Success Formula. Even though the product is way over budget, really late and will be a big aircraft when it's unclear that's what people want.
From cars to buses to planes, we're seeing people change to smaller and more efficient products. The last time you flew, were you on a big aircraft? Or did you find yourself on a small plane from Bombardier (of Canada) or Embraer (of Brazil)? Airlines need to keep planes fairly full if they have any hope of making a profit. Couple that with customer desires for convenience – meaning several flights to a city daily, and you can quickly see why smaller airplanes make sense. As a result, the leader (Embraer) in small commercial planes is growing at over 20%/year!
Meanwhile, people are getting less and less excited about flying commercial airlines every year. TSA hassles, flight delays, extra charges for bags, there's a long list of reasons business people are looking for alternatives. And that's where the Jet Taxi business comes in. Whether you buy a fractional interest in an aircraft, or simply rent a plane for a single trip, businesses are figuring out that small aircraft from Beechcraft, Cessna, Lear Jets and even the new Honda jet are providing a very affordable option to commercial flying when even a few people are traveling – and with a lot more convenience. The largest manager of this option is NetJets owned by Berkshire Hathaway – who's lead investor is Warren Buffet.
Add on top of this webinars and video conferencing. Increasingly, people are using digital technologies to communicate without flying at all. Again, with hassles up – and terrorism threats more real than 10 years ago – people are turning to really low cost, and ultra convenient, alternatives to traveling at all.
So are you really optimistic about the future demand for big jet aircraft that take more than a decade to develop and get approved? And built by a company that competes with a government subsidized player supported as a matter of national defense in Europe (Airbus)? It's really hard to be optimistic about the future for Boeing – and the Dreamliner delays seem to just be the early warning signs of a Success Formula very long in the tooth. Boeing is definitely stuck in the Swamp, and it's unclear the company has any effort underway to develop new options.
by Adam Hartung | Sep 11, 2009 | Current Affairs, Defend & Extend, In the Whirlpool, Leadership, Lock-in
Stealing language from FDR, September 11, 2001 is a day that will go down in infamy. Dramatic shifts happened in the world resulting from the horrific attacks on American civilians in New York, Pennsylvania and D.C. . But can we say that most organizations have reacted effectively to those shifts?
Few industries were more affected by the attacks than the airline industry. Shut down for a week, revenues plummeted immediately and were hard to win back from a frightened public. But if ever there was an industry of needing to push the "reset button" on how things worked it was airlines. All the major players (except Southwest) had struggled with profitability, many declaring bankruptcy. Some never emerged (like PanAm, Eastern, Braniff). Mergers had been rampant as companies tried to expand into greater profits – unsuccessfully. Customer satisfaction had been on a straight southeasterly direction, lower and lower, ever since deregulation. Here was a collection of businesses for which nothing was going right, and in dire need of changing their business model.
The shut down and economic downturn provided a tremendous opportunity for the airlines to change their Success Formula. The government allowed unprecedented communication between companies, and unions were ready to make changes, to get the air traffic system working again. A sense of cooperation emerged for finding better solutions, including security. Market shifts which had been happening for a decade were primed for new solutions – perhaps implementing operational methods proven successful at Southwest.
Unfortunately, everybody chose instead to extend Lock-ins to old practices and bring their airline company back on-line with minimal change. Instead of using this opportunity to Disrupt their practices, taking advantage of a dramatic challenge to their business, and use White Space to try new approaches – to a competitor every single airline re-instituted business as usual. To disastrous results. Quickly profits went down further, customer satisfaction dropped further and in short order all the major players (except Southwest) were filing bankruptcies and hoping some sort of merger would somehow change the declining results.
The airlines' problems were not created by the events of 9/11/01. But on that day long-developing market shifts become wildly apparent. The airlines, and other industries like banking, had the opportunity to recognize these market shifts, admit their impact on future results (not good), and begin Disrupting old practices in order to experiment with new solutions that better fit changing market needs. None did. It wasn't long before America was mired in another long and expensive military conflict, and an extended deep recession. For most businesses, things went from bad to worse.
Leaders need to recognize when external events pose the opportunity to Disrupt things as they've been – Disrupt the status quo – and start doing things differently. These prime opportunities don't happen often. Reacting with reassurances, and efforts to get back to the status quo as quickly as possible prove disastrous. This is an emotional reaction, seeking a past sense of stability, but it creates additional complacency worsening the impact of market shifts already jeopardizing the future. Instead, one of the most critical actions leaders can take is to leverage these market challenges into a call for Disruptions and use White Space to implement new solutions which meet market needs.
If only the airlines had done that perhaps they could operate on-time, let customers check luggage without a charge, provide quality meals on long flights and internet access on all flights, and provide a reliable service that customers enjoy. If they had sought to find a better solution, rather than Defending & Extending what they had always done, airline customers would be in a far better shape. And that's a lesson all leaders need to learn from the events of 9/11 – use challenges to move forward, not try reclaiming some antiquated past.
To read how GM ended up bankrupt by refusing to recognize opportunities for changing to meet shifting market needs download the free ebook "The Fall of GM."
by Adam Hartung | Jun 16, 2009 | Uncategorized
Let's say you've had a great business selling to auto companies. What do you do now? Wait for the American auto industry to get better, or……
Let's say you've had a great business selling to airplane manufacturers. What do you do now? This week is the biggest week in the airplane business. It's the Paris Air Show, or as many call it "La Bourget" which is the name of the suburban Paris town where the show occurs. It's the "mother of all conventions" as manufacturers of planes (and lots of military equipment beyond things that fly) try to book orders from international governments, airlines and corporations. This year, it's doom and gloom as Marketwatch points out in "Is Paris Burning?". Even the President of Brazil's very successful commuter jet manufacturer Embrear is saying it's too early to call a bottom in aviation sales in his interview "Not There Yet".
There are many American businesses selling to the aviation industry. Aviation doesn't cycle as fast as automotive, because the prices are much higher and the product lives much longer. So it's easier to predict market moves. We now can predict that the business will be soft for a few additional years with high confidence. Some will choose to "double down" and try to grow share while the recession is on. An expensive effort to find a lower cost while volume drops. Another option would be to cut output, lay people off and wait it out. But, unfortunately for both these options, when sales resume you can't be sure some new suppliers won't have entered the market with new products or new technology. Both approaches could well find prices down and competition up – or even worse the market recovers with new aviation products and you're in a pitched battle to supply the industry against new competitors against whom you have no advantage.
A better idea is to move resources. You don't have to abandon the old business, but why keep trying to live in a worsening environment? If the market is shrinking, isn't it smart to find new markets.
Take for example the behavior in retail. We all know that Circuit City went out of business, and lots of other retailers like Mervyn's and Filene's Basement have filed bankruptcy. It's tough on retailers. Especially those who keep trying to do the same thing. But some are taking actions to change in order to be more competitive. Nine West and some other retailers are changing their approach as reported in, "Gap, Specialty-retail stores mixing up brands."
"Consumers are interested in the best of the best. Not the best of what your brand has to offer. Retailers are learning not to put all their eggs in one basket. If it doesn't work, you just get rid of it." Now that's some advice worth listening to, offered by Marshal Cohen of NPD Group. When markets shift, you have to shift. Waiting around for customers to come back to you is not a viable option.
Retailers that are growing are using test markets to try new things. Like Nine West partnering with New Balance on a new shoe that is attracting a lot of young shoppers. Not everything works, at Cache the store tried some new brands but the test reinforced that people were looking for the Cache brand rather than the products Cache tested. That's the benefit of testing, you can learn. As you learn, you can adapt and adopt new behaviors.
Retailing is going through a massive market shift. Those who survive have to learn a lot more about individual stores versus malls, and on-line versus in-store. They have to learn about brands and about store brands and what people now want. Those who don't have ongoing White Space tests are failing. Those who are have a much better chance of surviving.
So, if your market is shifting, you need to MOVE. Whether you make car parts, aviation parts, furniture, windows,
clothing, candy – anything – you will see your market shift because of
the globalization of new technology. When markets shift, the thing you shouldn't do is "wait it out". That is not a viable strategy. That's putting your head in the sand. Just because you aren't certain what to do doesn't mean you don't take action. And that's why White Space projects are critical – because the only way you can develop a new Success Formula is by trying it in the marketplace. You don't want to end up like all those going out of business because they keep trying to do what they always did, only cheaper, faster or better. You have to start doing different things. And NOW, because the market keeps shifting more every day.
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.
