Plan for the Unseen Disruptions to Your Business…Now.

Plan for the Unseen Disruptions to Your Business…Now.

Market Threat Assessment

Recent studies of senior managers have shown that being blindsided by a disruption is the largest unresolved concern in strategy development today. 

That fear is too often real because disruption typically begins where it is least visible to management- on the fringes of the existing target markets.  And, once the disruption “pirate ship” is sighted on the horizon, not only is it probably too late, but companies react poorly.

Some research of corporate responses to disruption has shown that most companies ignore the threat, fortify existing positions or attempt to buy innovation.  The first choice is not an option for an ongoing business.  Fortification through distribution changes, product model proliferation and discounting only buys some additional time while wasting resources.  Once a disruption enters the market, there’s little time for organic innovation efforts so companies often make acquisitions attempting to buy innovation.  Sadly, given the risk profile and limited experience in innovation, these are often sustaining innovations which are swept aside by the wave of disruption.

A very large example is when Microsoft fell behind in the mobile market in 2014 and purchased Nokia, a weak player in mobile phones to get access to this market.  The joint project, the Lumina phone, failed to catch on and Microsoft’s share fell by 50%- fail.  Cisco tried to catch up with the photography trend by acquiring Pure Digital, the maker of low cost Flip cameras.  Unfortunately, shortly after the acquisition, the high-resolution sensors included in smartphones took photography to a new level.  Bye, Flip! Trend monitoring would have predicted this natural evolution as a high risk threat. 

To anticipate external changes, marketing departments have embraced big data as a powerful tool to help companies identify new markets and consumer preferences.  These tools use the past to predict the short-term future which is reasonable in a steady market.  The problem is that big data cannot anticipate dynamic disruption. 

But, you and your staff can.

As a key input to your next strategy workshop, use trends!  As a start, gather info from the people closest to your market and further using Porter’s five force model.  See my articles on Scenarios to expand these trends to actionable goals.

What’s on your company’s radar today?

We are here to help as your coach on trends and innovation. We bring years of experience studying trends, organizations, and how to implement. We bring nimbleness to your strategy, and help you maximize your ability to execute.

Go the www.adamhartung.com and view the Assessment Page. Send me a reply to this email, or call me today, and let’s start talking about what trends will impact your organization and what you’ll need to do to pivot toward greater success.

Apple Partners With Accenture To Build Enterprise Apps: 5 Reasons Apple Is Winning The Developer War

Apple Partners With Accenture To Build Enterprise Apps: 5 Reasons Apple Is Winning The Developer War

Everybody knows that Google’s Android has about 80-85% smartphone market share, and Apple’s iOS has only 14-19% share (depending upon quarter.) But this week tech services giant Accenture announced it was partnering with Apple to build enterprise apps for its customers, focusing initially on financial services and retail.  Despite lower unit sales Apple maintains marketplace technology leadership by capturing the enterprise app developer community – including IBM, Cisco, Deloitte and SAP.

iPhone and Android stand out in Mobile market

For most consumers an Android-based phone from one of the various manufacturers, most likely bought through a wireless provider if in the USA, does pretty much everything the consumer wants.  Developers of most consumer apps, such as games, navigation, shopping, etc. make sure their products work on all phones.  For that reason, the bulk of consumers are happy to buy their phone for $200 or less, and most don’t even care what version of Android it runs.  As a stand-alone tool an Android phone does pretty much everything they want, and they can afford to replace it every year or two.

But the business community has different requirements.

And because iOS has superior features, Apple continues to dominate the enterprise environment:

  1. All iPhones are encrypted, giving a security advantage to iOS. Due to platform fragmentation (a fancy way of saying Android is not the same on all platforms, and some Android phones run pretty old versions) most Android phones are not encrypted.  That leads to more malware on Android phones.  And, Android updates are pushed out by the carrier, compared to Apple controlling all iOS updates regardless of carrier.  When you’re building an enterprise app, these security issues are very important.
  2. iOS is seamless with Macs, and can be pretty well linked to Windows if necessary for an apps’ purpose. Android plays well with Chromebooks, but is far less easy to connect with established PC platforms. So if you want the app to integrate across platforms, such as in a corporation, it’s easier with iOS.
  3. iPhones come exactly the same, regardless of the carrier. Not true for Android phones. Almost all Androids come with various “junkware.”  These apps can conflict with an enterprise app.  For enterprise app developers to make things work on an Android phone they really need to “wipe” the phone of all apps, make sure each phone has the same version of Android and then make sure users don’t add anything which can cause a user conflict with the enterprise app.  Much easier to just ask people to use an iPhone.
  4. iOS backs up to iCloud or via iTunes. Straightforward and simple. And if you need to restore, or change devices, it is a simple process. But in the Android world companies like Verizon and Samsung integrate their own back-up tools, which are inconsistent and can be quite hard for a developer to integrate into the app. Enterprise apps need back-ups, and making that difficult can be a huge problem for enterprise developers who have to support thousands of end users.  And the fact that Android restores are not consistent, or reliable, makes this a tough issue.
  5. Search is built-in with iOS. Simple. But Android does not have a clean and simple search feature.  And the old cross-platform inconsistencies plague the various search functions offered in the Android world.  When using an enterprise app, which may well have considerable complexity, accessing an easy search function is a great benefit.

Most of these issues are no big deal for the typical smartphone consumer who just uses their phone independently of their work.  But when someone wants to create an enterprise app, these become really important issues.  To make sure the app works well, meeting corporate and end user needs, it is much easier, and better, to build it on iOS.

This allows Apple to price well above the market average

Today Apple charges around $800 for an iPhone 7, and expectations are for the iPhone 8 to be priced around $1,000.  Because Apple’s pricing is some 4-5x higher, it allows Apple’s iOS revenue to actually exceed the revenue of all the Android phones sold!  And because Android phone manufacturers compete on price, rather than features and capabilities, Apple makes almost ALL the profit in the smartphone hardware business.  Even as iPhone unit volume has struggled of late, and some analysts have challenged Apple’s leadership given its under 20% market share, profits keep rolling in, and up, for the iPhone.

By taking the lead with enterprise app developers Apple assures itself of an ongoing market.  Three years ago I pointed out the importance of winning the developer war when IBM made its huge commitment to build enterprise apps on iOS.  This decision spelled doom for Windows phone and Blackberry — which today have inconsequential market shares of .1% and .0% (yes, Blackberry’s share is truly a rounding error in the marketplace.)  Blackberry has become irrelevant. And having missed the mobile market Microsoft is now trying to slow the decline of PC sales by promoting hybrid devices like the Surface tablet as a PC replacement.  But, lacking developers for enterprise mobile apps on Microsoft O/S it will be very tough for Microsoft to keep the mobile trend from eventually devastating Windows-based device sales.

As the world goes mobile, devices become smaller and more capable.  The need for two devices, such as a phone and a PC, is becoming smaller with each day.  Those who predicted “nobody can do real work on a smartphone” are finding out that an incredible amount of work can be done on a wirelessly connected smartphone.  As the number of enterprise apps grows, and Apple remains the preferred developer platform, it bodes well for future sales of devices and software for Apple — and creates a dark cloud over those with minimal share like Blackberry and Microsoft.

‘The Founder’s Mentality’ Recommended For Your Summer Reading

‘The Founder’s Mentality’ Recommended For Your Summer Reading

Summer is here, and everyone needs a business book or two to read. I’m recommending The Founder’s Mentality – How To Overcome the Predictable Crises of Growth by two very senior partners and strategy practice heads at Bain & Company — Chris Zook and James Allen. Bain is one of the top three management consulting firms in the world, with 8,000 consultants in 55 offices, and has been ranked as one of the best places to work in America by Glass Ceiling.

Since both authors are still part of Bain, the book is somewhat bridled by their positions. No partner can bad mouth current or former clients, as it obviously could reveal confidential information — and it certainly isn’t good for finding new clients who would never want to risk being bad-mouthed by their consultant. So don’t expect a lambasting of poorly performing companies in this review of global cases. But after reviewing the work at their clients for over 20 years, and many other cases available via research, these fellows concluded that most companies lose the original founder’s mentality, get bound up in organizational complexity, and simply lose competitiveness due to the wrong internal focus. And they offer insights for how underperformers can regain a growth agenda.

founders mentality

Photo courtesy of Chris Zook

Moving From Mediocre To Good

I interviewed Chris Zook, and found him rather candid in his observations. When I asked why people should read The Founder’s Mentality I really liked his response, “Many people have read Good to Great. But, honestly, for many organizations the challenge today is simply to move from mediocre to good. They are struggling, and they need some straightforward advice on how to make progress toward growth when the situation likely appears almost impossible.”

 You should read the book to understand the common root cause of corporate growth problems, and how a company can address those issues. This column offers some interesting thoughts from Chris about how to apply The Founder’s Mentality to eliminate unnecessary complexity and make your organization more successful.

Adam Hartung: What is the most critical step toward undoing needless, costly, time consuming complexity?

Chris Zook: The biggest problem is blockages built between the front line and the top staff. Honestly, the people at the top lose any sense of what is actually happening in the marketplace — what is happening with customers. 80% of the time successfully addressing this requires eliminating 30-40% of the staff. You need non-incremental change. Leaders have to get rid of managers wedded to past decisions, and intent on defending those decisions. Leaders have to get rid of those who focus on managing what exists, and find competent replacements who can manage a transition.

 Hartung: Market shifts make companies non-competitive, why do you focus so much on internal organizational health?

Zook: You can’t respond to a market shift if the company is bound up in complex decision-making. Unless a leader attacks complexity, and greatly simplifies the decision-making process, a company will never do anything differently. Being aware of changes in the market is not enough. You have to internalize those changes and that requires reorganizing, and usually changing a lot of people. You won’t ever get the information from the front line to top management unless you change the internal company so that it is receptive to that information.

Hartung: You say simplification is critical to reversing a company’s stall-out. But isn’t focusing on the “core” missing market opportunities?

Zook: Analysts cheered Nardeli’s pro-growth actions at Home Depot. But the company stalled. The growth opportunities that external folks liked hearing about diverted attention from implementing what had made Home Depot great — the “orange army” of store employees that were so customer helpful. It is very, very hard to keep “growth projects” from diverting attention to good operations, and that’s why few founders are willing to chase those projects when someone brings them up for investment.

Hartung: You talk positively about Cisco and 3M, yet neither has done anything lately, in any market, to appear exemplary

Zook: It takes a long time to turn around a huge company. Cisco and 3M are still the largest in their defined markets, and profitable. Their long-term future is still to be determined, but so far they are making progress. Investors and market gurus look for turnarounds to happen fast, but that does not fit the reality of what it takes when these companies become very large.

Hartung: You talk about “Next Generation Leaders.” Isn’t that just more ageism? Aren’t you simply saying “out with the old leaders, you have to be young to “get it.”

Zook: Next Generation Leadership is not about age. It’s about mentality. It’s about being young, and flexible, in your thinking. What’s core to a company may well not be what a previous leader thinks, and a Next Gen Leader will dig out what’s core. For example, at Marvel the core was not comics. It was the raft of stories, all of which had the potential to be repurposed. Next Gen Leaders are using new eyes, dialed in with clarity to discover what is in the company that can be reused as the core for future growth. You don’t have to be young to do that, just mentally agile. Unfortunately, there aren’t nearly as many of these agile leaders as there are those stuck in the old ways of thinking.

Hartung: Give me your take on some big companies that aren’t in your book, but that are in the news today and on the minds of leaders and investors. Apply The Founder’s Mentality to these companies:

Microsoft

Zook: Did well due to its monopoly. Lost its Founder’s Mentality. Now suffering low growth rates relative to its industry, and in the danger zone of a growth stall-out. They have to refocus. Leadership needs to regain the position of attracting developers to their platform rather than being raided for developers by competitive platforms.

Apple

Zook: Jobs implemented The Founder’s Mentality brilliantly. Apple got close to its customers again with the retail stores, a great move to learn what customers really wanted, liked and would buy. But where will they turn next? Apple needs to make a big bet, and focus less on upgrades. They need to be thinking about a possible stall-out. But will Apple’s current leadership make that next big bet?

WalMart

Zook: One of the greatest founder-led companies of all time. Walton’s retail insurgency was unique, clear and powerful. Things appear to be a bit stale now, and the company would benefit from a refocusing on the insurgency mission, and taking it into renewal of the distribution system and all the stores.”

It’s been almost a decade since I wrote Create Marketplace Disruption – How To Stay Ahead of the Competition. In it I detailed how companies, in the pursuit of best practices build locked-in decision-making systems that perpetuate the past rather than prepare for the future. The Founder’s Mentality provides several case studies in how organizations, especially large ones, can attack that lock-in to rediscover what made them great and set a chart for a better future. Put it on your reading list for the next plane flight, or relaxation time on your holiday.

Focus is Only Confusion at Failing HP

Focus is Only Confusion at Failing HP

Hewlett Packard yesterday announced second quarter results.  And they were undoubtedly terrible.  Revenue compared to a year ago is down 7%, net income is down 21% as the growth stall at HP continues.

Yet, CEO Meg Whitman remains upbeat.  She is pleased with “the continued success of our turnaround.”  Which is good, because nobody else is.  Rather than making new products and offering new solutions, HP has become a company that does little more than constantly restructure!

This latest effort, led by CEO Whitman, has been a split of the company into two corporations.  For “strategic” (red flag) reasons, HP is dividing into a software company and a hardware company so that each can “focus” (second red flag) on its “core market” (third red flag.)  But there seems to be absolutely no benefit to this other than creating confusion.

This latest restructuring is incredibly expensive. $1.8billion in restructuring charges, $1billion in incremental taxes, $400million annually in duplicated overhead services, then another $3billion in separation charges across the two new companies.  That’s over $5B – which is more than HP’s net income in 2014 and 2013.  There is no way this is a win for investors.

Additionally, HP has eliminated 48,000 jobs this this latest restructuring began in 2012.  And the total will reach 55,000.  So this is clearly not a win for employees.

The old HP will now be a hardware company, focused on PCs and printers.  Both of which are declining markets as the world goes mobile.  This is like the newspaper part of a media company during a split.  An old business in serious decline with no clear path to sustainable sales and profits – much less growth.  And in HP’s case it will be in a dog-eat-dog competitive battle to try and keep customers against Dell, Acer and Lenovo.  Prices will keep dropping, and profits eroding as the world goes mobile.  But despite spending $1.2billion to buy Palm (written off,) without any R&D, hard to see how this company returns profits to shareholders, generates new jobs, or launches new products for distributors and customers.

The new HP will be a software company.  But it comes to market with almost no share against monster market leader Amazon, and competitors Microsoft and Cisco who are fighting to remain relevant.  Even though HP spent $10B to buy ERP company Autonomy (written off) everyone has newer products, more innovation, more customers and more resources than HP.

Together there was faint hope for HP.  The company could offer complete solutions.  It could work with its distributors and value added resellers to develop unique vertical market solutions.  By tweaking the various parts, hardware and software, HP had the possibility of building solutions that could justify premium prices and possibly create growth.  But separated, these are now 2 “focused” companies that lack any new innovations, sell commodity products and lack enough share to matter in markets where share leads to winning developers and enterprise customers.

HP-10C-MThis may be the last stop for investors, and employees, to escape HP before things get a lot worse.

HP was the company that founded silicon valley.  It was the tech place to work in the 1960s, 1970s and early 1980s.  It was the Google, Facebook or Apple of that earlier time.  When Carly Fiorina took over the dynamic and highly new product driven company in July, 1999 it was worth $45/share.  She bought Compaq and flung HP into the commodity PC business, cutting new products and R&D.  By the time the Board threw her out in 2005 the company was worth $35/share.

Mark Hurd took the CEO job, and he slashed and burned everything in sight.  R&D was almost eliminated, as was new product development.  If it could be outsourced, it was.  And he whacked thousands of jobs.  By killing any hope of growing the company, he improved the bottom line and got the stock back to $45.

Which is where it was 5 years ago today.  But now HP is worth $35/share, once again.  For investors, it’s been 25 years of up, down and sideways.  The last 5 years the DJIA went up 80%; HP down 24%.

Companies cannot add value unless they develop new products, new solutions, new markets and grow.  Restructuring after restructuring adds no value – as HP has demonstrated.  For long-term investors, this is a painful lesson to learn.  Let’s hope folks are getting the message loud and clear now.

Five Worst CEOs Revisited – How Many Jobs Did They Create this Labor Day?

Five Worst CEOs Revisited – How Many Jobs Did They Create this Labor Day?

It’s Labor Day, and a time when we naturally think about our jobs.

When it comes to jobs creation, no role is more critical than the CEO.  No company will enter into a growth phase, selling more product and expanding employment, unless the CEO agrees.  Likewise, no company will shrink, incurring job losses due to layoffs and mass firings, unless the CEO agrees.  Both decisions lay at the foot of the CEO, and it is his/her skill that determines whether a company adds jobs, or deletes them.

Ed Lampert, CEO Sears

Over 2 years ago (5 May, 2012) I published “The 5 CEOs Who Should Be Fired.”  Not surprisingly, since then employment at all 5 of these companies has lagged economic growth, and in all but one case employment has shrunk.  Yet, 3 of these CEOs remain in their jobs – despite lackluster (and in some cases dismal) performance. And all 5 companies are facing significant struggles, if not imminent failure.

#5 – John Chambers at Cisco

In 2012 it was clear that the market shift to public networks and cloud computing was forever changing the use of network equipment which had made Cisco a modern growth story under long-term CEO Chambers.  Yet, since that time there has been no clear improvement in Cisco’s fortunes.  Despite 2 controversial reorganizations, and 3 rounds of layoffs, Cisco is no better positioned today to grow than it was before.

Increasingly, CEO Chambers’ actions reorganizations and layoffs look like so many machinations to preserve the company’s legacy rather than a clear vision of where the company will grow next.  Employee morale has declined, sales growth has lagged and although the stock has rebounded from 2012 lows, it is still at least 10% short of 2010 highs – even as the S&P hits record highs.  While his tenure began with a tremendous growth story, today Cisco is at the doorstep of losing relevancy as excitement turns to cloud service providers like Amazon.  And the decline in jobs at Cisco is just one sign of the need for new leadership.

#4 Jeff Immelt at General Electric

When CEO Immelt took over for Jack Welch he had some tough shoes to fill.  Jack Welch’s tenure marked an explosion in value creation for the last remaining original Dow Jones Industrials component company.  Revenues had grown every year, usually in double digits; profits soared, employment grew tremendously and both suppliers and investors gained as the company grew.

But that all stalled under Immelt.  GE has failed to develop even one large new market, or position itself as the kind of leading company it was under Welch.  Revenues exceeded $150B in 2009 and 2010, yet have declined since.  In 2013 revenues dropped to $142B from $145B in 2012.  To maintain revenues the company has been forced to continue selling businesses and downsizing employees every year.  Total employment in 2014 is now less than in 2012.

Yet, Mr. Immelt continues to keep his job, even though the stock has been a laggard.  From the near $60 it peaked at his arrival, the stock faltered.  It regained to $40 in 2007, only to plunge to under $10 as the CEO’s over-reliance on financial services nearly bankrupted the once great manufacturing company in the banking crash of 2009.  As the company ponders selling its long-standing trademark appliance business, the stock is still less than half its 2007 value, and under 1/3 its all time high.  Where are the jobs?  Not GE.

#3 Mike Duke at Wal-Mart

Mr. Duke has left Wal-Mart, but not in great shape.  Since 2012 the company has been rocked by scandals, as it came to light the company was most likely bribing government officials in Mexico.  Meanwhile, it has failed to defend its work practices at the National Labor Relations Board, and remains embattled regarding alleged discrimination of female employees.  The company’s employment practices are regularly the target of unions and those supporting a higher minimum wage.

The company has had 6 consecutive quarters of declining traffic, as sales per store continue to lag – demonstrating leadership’s inability to excite people to shop in their stores as growth shifts to dollar stores.  The stock was $70 in 2012, and is now only $75.60, even though the S&P 500 is up about 50%.  So far smaller format city stores have not generated much attention, and the company remains far behind leader Amazon in on-line sales.  WalMart increasingly looks like a giant trapped in its historical house, which is rapidly delapidating.

One big question to ask is who wants to work for WalMart?  In 2013 the company threatened to close all its D.C. stores if the city council put through a higher minimum wage.  Yet, since then major cities (San Francisco, Chicago, Los Angeles, Seattle, etc.) have either passed, or in the process of passing, local legislation increasing the minimum wage to anywhere from $12.50-$15.00/hour.  But there seems no response from WalMart on how it will create profits as its costs rise.

#2 Ed Lampert at Sears

Nine straight quarterly losses.  That about says it all for struggling Sears.  Since the 5/2012 column the CEO has shuttered several stores, and sales continue dropping at those that remain open.  Industry pundits now call Sears irrelevant, and the question is looming whether it will follow Radio Shack into oblivion soon.

CEO Lampert has singlehandedly destroyed the Sears brand, as well as that of its namesake products such as Kenmore and Diehard.  He has laid off thousands of employees as he consolidated stores, yet he has been unable to capture any value from the unused real estate.  Meanwhile, the leadership team has been the quintessential example of “a revolving door at headquarters.”  From about $50/share 5/2012 (well off the peak of $190 in 2007,) the stock has dropped to the mid-$30s which is about where it was in its first year of Lampert leadership (2004.)

Without a doubt, Mr. Lampert has overtaken the reigns as the worst CEO of a large, publicly traded corporation in America (now that Steve Ballmer has resigned – see next item.)

#1 Steve Ballmer at Microsoft

In 2013 Steve Ballmer resigned as CEO of Microsoft.  After being replaced, within a year he resigned as a Board member.  Both events triggered analyst enthusiasm, and the stock rose.

However, Mr. Ballmer left Microsoft in far worse condition after his decade of leadership.  Microsoft missed the market shift to mobile, over-investing in Windows 8 to shore up PC sales and buying Nokia at a premium to try and catch the market.  Unfortunately Windows 8 has not been a success, especially in mobile where it has less than 5% shareSurface tablets were written down, and now console sales are declining as gamers go mobile.

As a result the new CEO has been forced to make layoffs in all divisions – most substantially in the mobile handset (formerly Nokia) business – since I positioned Mr. Ballmer as America’s worst CEO in 2012.  Job growth appears highly unlikely at Microsoft.

CEOs – From Makers to Takers

Forbes colleague Steve Denning has written an excellent column on the transformation of CEOs from those who make businesses, to those who take from businesses.  Far too many CEOs focus on personal net worth building, making enormous compensation regardless of company performance.  Money is spent on inflated pay, stock buybacks and managing short-term earnings to maximize bonuses.  Too often immediate cost savings, such as from outsourcing, drive bad long-term decisions.

CEOs are the ones who determine how our collective national resources are invested.  The private economy, which they control, is vastly larger than any spending by the government. Harvard professor William Lazonick details how between 2003 and 2012 CEOs gave back 54% of all earnings in share buybacks (to drive up stock prices short term) and handed out another 37% in dividends.  Investors may have gained, but it’s hard to create jobs (and for a nation to prosper) when only 9% of all earnings for a decade go into building new businesses!

There are great CEOs out there.  Steve Jobs and his replacement Tim Cook increased revenues and employment dramatically at Apple.  Jeff Bezos made Amazon into an enviable growth machine, producing revenues and jobs.  These leaders are focused on doing what it takes to grow their companies, and as a result the jobs in America.

It’s just too bad the 5 fellows profiled above have done more to destroy value than create it.