by Adam Hartung | Aug 25, 2010 | Books, In the Rapids, Leadership, Lock-in
Summary:
- We are biased toward doing what we know how to do, rather than something new
- We like to think we can forever grow by keeping close to what we know – that’s a myth
- Growth only comes from entering growth markets – whether we know much about them or not
- To grow you have to keep yourself in growth markets, and it is dangerous to limit your prospects to projects/markets that are “core” or “adjacent to core”
Recently a popular business book has been Profit from the Core. This book proposes the theory that if you want to succeed in business you should do projects that are either in your “core,” or “adjacent to your core.” Don’t go off trying to do something new. The further you move from your “core” the less likely you will succeed. Talk about an innovation killer! CEOs that like this book are folks who don’t want much new from their employees.
I was greatly heartened by a well written blog article at Growth Science International (www.GrowthSci.com) “Profit from Your Core, or Not.. The Myth of Adjacencies.” Author Thomas Thurston does a masterful job of pointing out that the book authors fall into the same deadly trap as Jim Collins and Tom Peters. They use hindsight primarily as the tool to claim success. Their analysis looks backward – trying to explain only past events. In doing so they cleverly defined terms so their stories seemed to prove their points. But they are wholly unable to be predictive. And, if their theory isn’t predictive, then what good is it? If you can’t use their approach to give a 98% or 99% likelihood of success, then why bother? According to Mr. Thurston, when he tested the theory with some academic rigor he was unable to find a correlation between success and keeping all projects at, or adjacent to, core.
Same conclusion we came to when looking at the theories proposed by Jim Collins and Tom Peters. It sounds good to be focused on your core, but when we look hard at many companies it’s easy to find large numbers that simply do not succeed even though they put a lot of effort into understanding their core, and pouring resources into protecting that core with new core projects and adjacency projects. Markets don’t care about whatever you define as core or adjacent.
It feels good, feels right, to think that “core” or “adjacent to core” projects are the ones to do. But that feeling is really a bias. We perceive things we don’t know as more risky than thing we know. Whether that’s true or not. We perceive bottled water to be more pure than tap water, but all studies have shown that in most cities tap water is actually lower in free particles and bacteria than bottled – especially if the bottle has sat around a while.
What we perceive as risk is based upon our background and experience, not what the real, actual risk may be. Many people still think flying is riskier than driving, but every piece of transportation analysis has shown that commercial flying is about the safest of all transportation methods – certainly much safer than anything on the roadway. We also now know that computer flown aircraft are much safer than pilot flown aircraft – yet few people like the idea of a commercial drone which has no pilot as their transportation. Even though almost all commercial flight accidents turn out to be pilot error – and something a computer would most likely have overcome. We just perceive autos as less risky, because they are under our control, and we perceive pilots as less risky because we understand a pilot much better than we understand a computer.
We are biased to do what we’ve always done – to perpetuate our past. And our businesses are like that as well. So we LOVE to read a book that says “stick close to your known technology, known customers, known distribution system – stick close to what you know.” It reinforces our bias. It justifies us not doing what we perceive as being risky. Even though it is really, really, really lousy advice. It just feels so good – like sugary cereal for breakfast – that we justify it in our minds – like saying “breakfast is the most important meal of the day” as we consume food that’s probably less healthy than the box it came in!
There is no correlation between investing in your core, or close to core, projects and high rates of return. Mr. Thurston again points this out. High rates of return come from investing in projects in growth markets. Businesses in growth markets do better, even when poorly managed, than businesses in flat or declining markets. Where there are lots of customers wanting to buy a solution you simply do better than when there are lots of competitors fighting over dwindling customer revenues. Regardless of how well you don’t know the former or do know the latter. Market growth is a much better predictor of success than understanding your “core” and whatever you consider “adjacent.”
Virgin didn’t know anything about airlines before opening one – but international travel from London was set to boom and Virgin did well (as it has done in many new markets.) Apple didn’t know anything about retail music before launching the iPhone and iTunes, but digital music had started booming at Napster and Apple cleaned up. Nike was a shoe company that didn’t know anything about golf merchandise, but it entered the market for all things golf (first with just one club – the driver – followed by other things) by hooking up with Tiger Woods just as he helped promote the sport into dramatic growth.
Success comes from entering new markets where there is growth. Growth can overcome a world of bad management choices. When there are lots of customers with needs to fill, you can make a lot of mistakes and still succeed. To restrict yourself to “core” and “adjacent” invites failure, because your “core” and the “adjacent” markets that you know well simply may not grow. Leaving you in a tough spot seeking higher profits in the face of stiff competition — like Dell today in PCs. Or GM in autos. Sears in retailing. They may know their “core” but that isn’t giving them the growth they want, and need, to succeed in 2010.
by Adam Hartung | Aug 12, 2010 | Defend & Extend, General, Leadership, Openness
Summary:
- Your view of today will be determined by your future success
- Conventional wisdom – often called “best practices” – will lead businesses to cut costs in today’s economy, leading to a vicious cycle of reductions and value destruction. “Best Practice” application does not improve results
- Winning companies don’t focus on past behavior, but instead seek out new markets where they can grow – Apple, Google, Virgin, etc.
To paraphrase Charles Dickens (A Tale of Two Cities) are these “the best of times” or “the worst of times?” Few new jobs are being created in the USA, its hard to obtain credit if you’re a borrower, but there’s very little return to saving, the stock market has been sideways for a decade, asset values (in particular real estate) have plummeted while health care costs are skyrocketing. Look in the rear view mirror at the last decade and you could say it is the worst of times.
But the answer doesn’t lie in the rear view mirror – the answer lies in the future. If you succeed in the next 2 years at achieving your goals, you’ll look back and say this was the best of times.
In “Do You Have the Postrecession Blues” at Harvard Business Review blogs the author tells of two shoe salespeople that show up in a remote African village. The first sends back the message “No one here wears shoes, will return shortly.” The second sends the message “No one here wears shoes, send inventory!”
The history of business education has been to teach managers, usually by studying historical case experiences, the “best practices” employed by previous managers. But BPlans.com tells us in an article headlined “The Bad News About Best Practices” that this is a lousy way to make decisions. “..most of the time, they won’t work for you or me. They worked for somebody, some time, in some situation, in the past.”
The New York Times deals with fallacious best practices recommendations in “From Good to Great… to Below Average.” Best selling Freakonomics author Steven Levitt points out that most business authors try to push somebody else’s Success Formula as the road to success. However, the most popular of these are really very inapplicable. Those held up as “the best practice” have most often ended up with quite poor results. So why should someone else follow them? Nine of eleven of Collins’ “great” companies did worse than average!
Best practices has led businesses to cut heads, slash costs, sell assets and in general weaken their businesses the last few years. Most leaders would prefer to believe that they have somehow improved the business by eliminating workers, the skills they bring and the function they perform. But the result is less marketing, sales, R&D, etc. How this ever became “best practice” is now a very good question. What company can you think about that “saved its way to success?” The cost cutters I think about – Sears, Scott Paper, Fannie Mae Candies, etc. – ended up a lot worse for their efforts.
These can be the best of times. Just ask the people at Apple Cisco Systems, Virgin and Google. These businesses are growing as if there’s no recession. Instead of “focusing on their core” business with defend & extend efforts to cut costs, they are entering new markets. They are going to where growth is. Amidst all the cost-cutting, best practice applying grief these are examples of success.
So will you continue to operate as if these are the worst of times, are are you willing to make these the best of times? You can grow if you use scenarios and competitor analysis to find new markets, embrace disruptions to attack Lock-ins that block innovation, and implement White Space teams that learn how to develop new markets for revenue and profit growth.
Postscript – entire Dickens’ quote: It was the best of times, it was the worst of times, it was the age of
wisdom, it was the age of foolishness, it was the epoch of belief, it
was the epoch of incredulity, it was the season of Light, it was the
season of Darkness, it was the spring of hope, it was the winter of
despair, we had everything before us, we had nothing before us, we were
all going direct to heaven, we were all going direct the other way – in
short, the period was so far like the present period, that some of its
noisiest authorities insisted on its being received, for good or for
evil, in the superlative degree of comparison only.
Post-postcript – I am trying a new format for the blog. Please provide your feedback. I’m dropping the bold enhancements, and replacing their intent with an introductory summary. Let me know if you like this better. And thanks to reader Jon Wolf for his specific recommendations for improvement.
by Adam Hartung | Jul 27, 2010 | Current Affairs, Leadership, Web/Tech
Leadership
Stop Focusing On Your Core Business
It has become the fast track to oblivion.
“Where Have All the Flowers Gone” was a 1960s antiwar hit for Peter,
Paul and Mary. The “flowers” meant soldiers dying in Vietnam. These days we might be tempted to sing,
“Where Have All the Mighty Corporations Gone?”
That is the first paragraph to my latest column for Forbes magazine. A laundry list of notable failures the last few years is driving home the point that “focus on your core” is insufficient to even survive – much less thrive! And don’t blame “the government” for these failures – as all were related to management decisions intended to keep the company “on track.” Instead, these leadership teams “doubled down” on the old Success Formula until there just wasn’t any more juice left in that orange!
On the other hand, Apple demonstrates the value of seeking out new markets. “The iPad is Already Bigger than the iPod — and Half as Big as the Mac” is the Business Insider article.
Silicon Alley Insider 7-21-10
By distinctly not focusing on its core, and instead entering new markets, Apple — and Google as well — keep right on growing. Ignoring the “Great Recession.”
So is your business strategy intended to have you keep doing more of the same? Hoping if you do more, better, faster, cheaper things will return to the sales and profit growth of an earlier time? Or are you entering new markets, putting out new solutions that meet emerging market needs? Are you planning for a past era to return, or for the emerging future? Do you use scenarios, or historical trend lines? If you are hoping to be glorious by focusing on your core, give this Forbes article a read. You just may decide to change course.
by Adam Hartung | Jan 25, 2010 | Current Affairs, Leadership, Lifecycle
We all love awards and lists. Who doesn't like being rewarded for their accomplishments. At the same time, we have acquired a strong taste for lists "The best…" Another verification of success. But both can be harbingers of potential problems – and even destruction.
Ben Bernanke became Time magazine's "Man of the Year" and now he's at some risk of losing his job (see 24/7WallStreet.com "In Not Bernanke, Who?" Think about the list of Great Companies that appear in books, like Good to Great, only to end up in big trouble – like Circuit City and Fannie Mae. Why does it seem those who top awards and lists end up shortly struggling?
Too often businesses, and business people, "win" by doing more of the same. They work hard to optimize their Success Formula. They get really committed to practicing what they do (remember Outliers by Malcolm Glaldwell and his recommendation to practice, practice, practice?) They get better and better. And in fields like sports and music, where the rules are well understood and the approach is clear, this often works. And as long as they keep practicing top athletes and musicians often remain near the top of competitors.
But we have to recognize that most of the time those "at the top" in business have emerged within a given market. Then they are knocked off by a shift. Like Ed Zander of Motorola being named #1 CEO in 2004, only to be fired within 2 years as RAZR sales toppled. Like Sun Microsystems perfecting Unix servers for an emerging client/server technology market that became saturated and shifted to PC servers. Like Michael Dell (and Dell Corporation) which emerged when lower cost made supply chain efficiencies critical for PCs, before the PC market became saturated and iPhones plus Blackberries started dominating the landscape. Or WalMart which also used a new supply chain to grow the emerging discount retailing sector, only now it is laying off 10,000 employees as it shuts Sam's stores across the country. These companies created a Success Formula and honed it quarter after quarter to maximize performance in a high growth environment. But the market shifted.
In business the rules are not "set". There is no written music to
perform. Instead, the market is highly dynamic. New competitors
emerge, new ways of competing emerge, new technologies emerge and new
solutions emerge. The market keeps changing. Suddenly, what worked last year isn't successful any more. When the market shifts, the previous winner becomes the new goat. That optimized business starts to look like the world's best wrestler, only to be obsolete when a flood occurs making swimming the new, necessary skill. Being last year's best is impossible to repeat because the market shift makes the old approach less valuable – possibly obsolete.
"Best practices" are usually little more than copying last year's list topper. In the 1990s everyone wanted to copy product development practices at Sun, and supply chain practices at Dell. But both led to horrible returns when demand for servers and PCs diminished. Best practices are almost guaranteed to be a solution developed to late, and applied even later, to solve previous years' problems. They aren't forward looking, and not designed to meet the needs 2 years into the future.
Business success isn't about topping a list. And, to a great degree, the Outlier approach (as is a hedgehog concept) is very risky. If you spend 10,000 hours doing something, only to see the value for that something go away, what good was it? Remember when Cobol writers were in demand? Being the world's best at something in business can cause you to be optimized on the past and inflexible to market change.
Business success requires adaptability. And that requires a focus on future markets. It requires the ability to constantly Disrupt your approach, to build capability in many different areas and markets. It requires skill at establishing and operating White Space projects to learn about new markets and shifts – the ability to know how to test and then understand the results of those tests. In business adaptability trumps optimization, because you can be sure that things will change – markets will shift – and the highly optimized find themselves behind the shift and struggling.
by Adam Hartung | Jan 15, 2010 | Disruptions, eBooks, In the Swamp, Innovation, Leadership, Lock-in
Many people think the best way to grow is by setting big goals – even Big Audacious Hairy Goals (BHAGs). But increasingly we're learning that goal setting is not correlated with success. At AmericanPublicRadio.org there's a partial text, and MP3 download, of a recent interview between General Motors leaders and a University of Arizona Professor titled "It's not always good to create goals."
The story relates how about a decade a go, with market share hovering at 25%, GM set the goal of moving back to 29%. It became a huge, multi-year campaign. Lapel pins with "29" were made and all kinds of motivational programs were put in place. The GM organization had its goal, and it was highly aligned to the goal. But it didn't happen. Despite the goal, and all the energy and talent put into focusing on the goal, GM continued to struggle, lose share – and eventually file bankruptcy. The goal made no difference.
Worse, the interview goes on to discuss how goals often lead to decidedly undesirable, sometimes unethical – even illegal – behavior. Instances are cited where goal obsession led company employees to falsify documents, even ship bricks in place of products to meet sales targets. No executive wants this, but goals and goal obsession – especially when there is a lot of reinforcement socially and monetarily on the goal – can become a serious problem.
Results are exactly that. Results. They are an outcome. They are the way we track our behaviors and activities – our decisions. When we focus on goals – usually some sort of result – we lose track of what is important. We have to focus on what we do. And for most organizations a big goal merely leads people to try working harder, faster,better, cheaper. But when the Success Formula is mis-aligned with the market – even when the whole organization is aligned on maximizing the Success Formula results will still struggle – even falter. Goals don't help you fix a Success Formula returning poor results. Just look at GM.
In fact, it can make matters worse. In "White Bears and Other Unwanted Thoughts" (available on Amazon.com) the authors point out that when you try to turn a negative (a problem) into a positive (a challenge, or goal), you often achieve a rebound effect making people obsess about the problem. Tell somebody not to think about a white bear – and it's all they think about. When your company has a problem and you try to tell employees "hey, don't think about the problem. Go do your job. Work harder, increase your focus, and all will work out. Sure share is down, but don't think about lost share, instead think about the goal of higher market share" frequently the employees will start to become obsessive about the problem. It will reinforce doing more of the same – perhaps manicly. Instead of becoming innovative and doing something new, obsessive devotion to trying to make the old methods produce better results becomes the norm. Goals don't produce innovation – they produce repetition.
So what should you do when facing a problem? Disruptions. GM didn't need a big goal. GM needed to Disrupt its broken Success Formula. GM needed to attack a Lock-in (or two). GM leaders needed to admit the market had shifted, and that competitors were changing the game. GM needed to recognize, admit and encourage employees to engage in attacking old assumptions – and recognize that market share would continue eroding if they didn't do things differently. Setting a big goal reinforced the old Lock-ins and even an aligned organization – working it's metaphorical tail off – couldn't make the outdated Success Formula produce positive results.
Only a Disruption would have helped save GM. After attacking some Lock-ins, like the desire to move all customers to bigger and more expensive cars, or the desire to focus on long production runs, GM should have set up White Space teams to discover new Success Formulas. Instead of putting all its management energy and money into growing volume at Chevrolet, Cadillac, Buick and GM nameplates, General Motors leadership should have revitalized the innovative Saturn and Saab to do new things – to develop new approaches that would be more competitive. Instead of pushing Hummer to have 3 identical cars in 3 sizes, GM leadership should have unleashed Hummer to explore the market for truly unique, limited production vehicles. GM should have allowed Pontiac to really take advantage of the design breakthroughs happening at the Australian design studio – to change the nameplate into a performance car segment leader. By attacking Lock-ins, Disrupting, and using White Space GM really could have turned around. Instead, by creating a BHAG GM reinforced its focus on its Hedgehog concept – and drove the company into bankruptcy.
You can see a 40 second video about the value and importance of Disruptions on YouTube here.
A 75 second video on White Space effectiveness on YouTube here.
Read free ebook on "The Fall of GM: What Went Wrong and How To Avoid Its Mistakes"
