by Adam Hartung | Dec 31, 2014 | General, In the Rapids, Transparency
Results, results, results. We frequently hear that we should focus on results.
More often than not, focusing on results is a waste of time. Because it is looking in the rear view mirror, rather than the windshield.
Someone asked me today what I thought of Janet Yellen as head of the Federal Reserve. I found this hard to answer. Even though Chairperson Yellen has been in the job since February, her job as lead policy setter has almost no short term ramifications. It takes quarters – not months – to see the results of those policy decisions. Even after a year in office, it is very difficult to render an opinion on her performance as Fed leader. The fantastic 5% growth in the U.S. economy last quarter has much more to do with what happened before she took office – in fact years of policy setting before she took office – than what has happened since she became the top Fed governor.
We often forget what the word “results” means. It is the outcome of previous decisions. Results tell us something about decisions that happened in the past. Sometimes, far into the past. We all can remember companies where looking backward all looked well, right up until the company fell off a cliff. Circuit City. Brachs Candy. Sun Microsystems.
Further, “results” are impacted dramatically by things outside the control of management, such as:
- Changes in interest rates (or no changes when they remain low)
- Changes in oil prices (which have been dramatically lower the last 6 months)
- Changes in investor expectations and the overall stock market (which has been on a record-setting bull run)
- Inflation expectations (which remain at historical lows)
- Expectations about labor rates (which remain low, despite trends toward higher minimum wages)
- Technology advances (including rapid mobile growth in apps, beacons, payments, etc.)
We too often forget that last quarter’s (or even last year’s) results are due to decisions made months before. Gloating, or apologizing, about those results has little meaning. Results, no matter how recent, are meaningless when looking forward. Decisions made long ago caused those results. “Results” are actually unimportant when investing for the future.
What really matters are the decisions being made today which can cause future results to be wildly different – better or worse. What we need to focus upon are these current decisions and their ability to create future results:
- What are the goals being set for next year – or better yet for 2020?
- What are the trends upon which goals are being set? How are future goals aligned to major trends?
- What are the future expected scenarios, and how are goals being set to align with those scenarios?
- Who will be the likely future competitors, and how are goals being set make sure we the organization is prepared to compete with the right companies?
Far too often management will say “we just had great results. We plan to continue executing on our plans, and investors should expect similar future results.” But that makes no sense. The world is a fast changing place. Past results are absolutely not any indicator of future performance.
For 2015, and beyond, investors (and employees, suppliers and communities sponsoring companies) should resolve to hold management far more accountable for its future goals, and the process used to set those goals. Amazon.com maintains a valuation far higher than its historical indicates it should primarily because it is excellent at communicating key trends it watches, future scenarios it expects and how the company plans to compete as it creates those future scenarios.
In the 1981 Burt Reynolds’ movie “Cannonball Run” a character begins a trans-country auto race by ripping the rear view mirror from his car and throwing it out the window. “What’s behind me is not important” he proudly states. This should be the 2015 resolution of investors, and all leaders. Past results are not important. What matters are plans for the future, and future goals. Only by focusing on those can we succeed in creating growth and better results in the future.
by Adam Hartung | Nov 23, 2010 | Current Affairs, Defend & Extend, In the Swamp, Innovation, Leadership, Lock-in, Web/Tech
Summary:
- Most planning systems rely on extending past performance to predict the future
- But markets are shifting too fast, making such forecasts wildly unreliable
- To compete effectively, companies must anticipate future market shifts
- Planning needs to incorporate a lot more scenario development, and competitor information in order to overcome biases to existing customers and historical products
- Apple and Google have taken over the mobile phone business, while the original leaders have fallen far behind
- Historical mobile phone leaders Nokia, Samsung, Motorola, RIM and Microsoft had the technologies and products to remain leaders, but they lacked scenarios of the future enticing them to develop new markets. Thus they allowed new competitors to overtake them
- Lacking scenarios and deep competitor understanding, companies react to market events – which is slow, costly and ineffective.
“Apple, Android Help Smartphone Sales Double Over Last Year” is the Los Angeles Times headline. Google-supplied Android phones jumped from 3% of the market to 26% versus the same quarter last year. iPhones remained at 17% of the market. Blackberry is now just under 15%, compared to about 21% last year. What’s clear is people are no longer buying traditional mobile phones, as #1 Nokia share fell from 38% to 27%. Like many market changes, the shift has come fast – in only a matter of a few months. And it has been dramatic, as companies not even in the market 5 years ago are now the leaders. Former leaders are struggling to stay in the game as the market shifts.
The lesson Google and Apple are teaching us is that companies must have a good idea of the future, and then send their product development and marketing in that direction. Although traditional cell phone manufacturers, such as Motorola and Samsung, had smartphone technology many years prior to Apple, they were so focused on their traditional markets they failed to look into the future. Busy selling to existing customers an existing technology, they didn’t develop scenarios about 2010 and beyond that would describe how the market could expand – far beyond where traditional phone sales would take it. Both famously said “so what” to the new technology, and used existing customer focus groups of people who had no idea the potential benefit of a smart phone to justify their willingness to remain fixated on the existing business. Lacking a forward planning process based on scenario development, and lacking a good market sensing system that would pick up on the early market shift as novice competitor Apple started to really change the market, these companies are now falling rapidly to the wayside.
Even smartphone pioneer Research in Motion (RIM) was so focused on meeting the needs of its existing “enterprise” customers that it failed to develop scenarios about how to expand the smartphone business into the hands of everyone. RIM missed the value of mobile apps, and the opportunity to build an enormous app database. Now RIM has been surpassed, and is showing no signs of providing effective competition for the market leaders. While the Apple and Android app base continues to explode, based upon 3rd and 4th generation product inducing more developers to sign up, and more customers to buy in, RIM has not effectively built a developer base or app set – causing it to fall further behind quarter by quarter.
Even software giant Microsoft missed the market. Fixated upon putting out an updated operating system for personal computers (Vista then later Windows 7) it let its 45% market share in smart phones circa 2007 disappear. Now approaching 2011 Microsoft has largely missed the market. Again, focused clearly upon its primary goal of defending its existing business in O/S and office automation software, Microsoft did not have a forward focused planning group that was able to warn the company that its new products might well arrive in a market that was stagnating, and on the precipice of a likely decline, because of new technology which could make the PC platform obsolete (a combination of smart mobile devices and cloud computing architecture.) Microsoft’s product development was being driven by its historical products, and market position, rather than an understanding of future markets and how it should develop for them.
We can see this lack of future scenario development and close competitor tracking has confused Microsoft. Desperately trying to recover from a market stall in 2009 when revenues and profits fell, Microsoft has no idea what to do in the rapidly expanding smartphone market today. Its first product, Kin, was dropped only two months after launch, which industry analysts saw as necessary given the product’s lack of advantages. But now Mediapost.com informs us in “Return of the Kin?” Microsoft is considering a re-launch in order to clear out old inventory.
This amidst a launch of the Windows Phone 7 that has gone nowhere. Firstly, there was insufficient advertising to gain any public awareness of the product launch earlier in November (Mediapost “Where’s the Windows Phone 7 Ad Barrage?“) Initial sales have gone nowhere “Windows Phone 7 Lands Without a Sound” [Mediapost], with many stores lacking inventory, very few promoting the product and Microsoft keeping surprisingly mum about initial sales. This has raised the question “Is Windows Phone 7 Dead On Arrival?” [Mediapost] as sales barely achieving 40,000 initial unit sales at launch, compared to daily sales of 200,000 Android phones and 270,000 iphones!
Companies, like Apple and Google, that have clear views of the future, based upon careful analysis of what can be done and tracking market trends, create scenarios that allow them to break out of the pack. Scenario development helps them to understand what the future can be like, and drive their product development toward creating new markets with more customers, more unit sales, higher revenues and improved cash flow. By studying early competitors, especially fringe ones, they create new products which are more highly desired, breaking them out of price competition (remember the Motorola Razr fiasco that nearly bankrupted the company?) and into higher price points and better earnings. Creating and updating future scenarios becomes central to planning – using scenarios to guide investments rather than merely projections based upon past performance.
Companies that base future planning on historical trends find themselves rapidly in trouble. Market shifts leave them struggling to compete, as customers quickly move to new solutions (old fashioned notions of “exit costs” are now dead). Instead of heading for the money, they are confused – lost in a sea of options but with no clear direction. Nokia, Samsung, RIM and Microsoft all have lots of resources, and great historical experience in the market. But lacking good scenario planning they are lost. Unable to chart a course forward, reacting to market leaders, and hoping customers will seek them out because they were once great.
Far too many companies do their planning off of past projections. One could say “planning by looking in the rear view mirror.” In a dynamic, global world this is not sufficient. When monster companies like these can be upset so fast, by someone they didn’t even think of as a traditional competitor (someone likely not even on the radar screen recently) how vulnerable is your company? Do you plan on 2015 looking like 2005? If not, how can future projections based on past actuals be valuable? it’s time more companies change their approach to planning to put an emphasis on scenario development with more competitive (rather than existing customer) input. That’s the only way to get rich, instead of getting lost.
by Adam Hartung | Sep 7, 2010 | Current Affairs, Defend & Extend, In the Whirlpool, Leadership, Web/Tech
Summary:
- Not even dominant industry leaders are immune to decline from market shifts
- It’s easy to focus on what made you great, and miss a market shift
- Competitors drive market shifts, not customers – so pay attention to competitors!
- AOL lost industry domination to competitors with new solutions, and now new technologies, even though it executed its Success Formula really well
- You can become obsolete really quickly when fringe competitors introduce new solutions
- Do more competitor analysis
- Keep White Space teams experimenting with emerging solutions and competing in shifting markets
Do you remember when AOL (an acronym, and updated name, for America On-Line) dominated our perception of the internet? Fifteen years ago AOL was one of the leading companies introducing Americans to the wonders of the web. Providing dial-up access (remember that?) AOL offered users its own interface, and a series of apps that helped its customers discover how the world wide web could make their lives easier – and better. At its peak, AOL had over 30 million subscribers! AOL was so commercially strong, and investors were so optimistic, that a merger with powerhouse publisher Time/Warner, which already owned CNN and HBO, was organized so AOL’s young leader, Steve Case, could take the helm and push the company forward into the digital frontier.
Along the way, something went very wrong. In an example of what happened to AOL and its products, as seen below, after pioneering Instant Messaging as an internet application AOL’s AIM user base has declined precipitously – by more than 50% – in the last 3 years:
Source: BusinessInsider.com
Of course, the same thing that once drove AOL growth is now apparent somewhere else. New markets are emerging. Instead of using PCs with instant messaging, most people today text via their mobile device! Texting isn’t just a youthful activity. According to Pew Research, on PewInternet.org in “Cell Phones and American Adults” 72% of American adults now text – up from 65% a year ago. 87% of teens text. And I’m willing to bet a lot of those teens don’t even have an instant messaging account – on any platform. The amount of “instant messaging” has grown dramatically – just not using “instant messaging” software. It’s now happening via mobile device texting.
Where AOL once dominated the landscape for digital communication, it is now becoming almost insignificant. But it wasn’t because AOL didn’t know how to execute its strategy. AOL was an industry leader, with savvy management, and a blue-ribbon Board of Directors. AOL even bought Netscape in its effort to remain the best server and client technology for a proprietary internet platform.
AOL became obsolete because the market shifted – while AOL tried holding on to its initial Success Formula. AOL did not shift as the market shifted, it has remained Locke-in to its early Identity, original Strategy and all those product Tactics that once made it great! AOL didn’t do anything wrong. It just kept doing what it knew how to do, rather than recognizing the impact of competitors and changing markets.
Shortly after AOL emerged as the market leader, competitors sprang up. First they offered dial-up access, often more cheaply. Eventually dial-up was replaced with high-speed internet access from multiple providers. Instead of using a proprietary interface, competitors Netscape and Microsoft brought out their own internet browsers, making it possible for users to surf the web directly and easily. Instead of using an AOL directory to find things, search engines such as Ask Jeeves, Alta Vista and Yahoo! Search came along that would find things across the web for users based upon their query. Email alternatives emerged, such as Hotmail and Yahoo! Mail. Eventually, one piece at a time, all the proprietary packaged products that AOL provided – including instant messaging – was offered by a competitor. And the value of the AOL packaging declined. As competitor products improved, for most users being an AOL subscriber simply had little advantage.
And now entirely new apps are coming along. As the market quickly shifts to mobile data and applications, devices like smartphones and tablets are replacing PCs. And the apps that made internet companies rich and famous are poised for decline – as users shift to the new way of doing things.
Whether the currently popular internet companies will make the next step, or end up like AOL, will be determined by whether they remain stuck on defending & extending their “core” business, or if they can shift with the market. There is no doubt that the amount of “instant messaging” is skyrocketing. It’s just not happening on the PC. Like many tasks, the demand is growing very fast. But it is via a new, and different solution. If the company sees itself as providing a PC type of internet solution, then the company will likely decline. But, alternatively, the leadership could see that demand is exploding and they need to shift – with the market – to the new solution environment to maintain growth.
Whether you are the market leader or not, you know you don’t want to end up like AOL. Once rich with resources, and a commanding market lead, AOL is now irrelevant to the latest market trends – and growth. AOL stuck to what it knew how to do. It has not shifted with changing market requirements – including changes in technology. For your company to succeed it must be (1) aware of competitors and how they are constantly changing the market – especially fringe competitors, and (2) enlisting White Space teams that are participating in the new markets, learning what works and how to migrate to capture the ongoing growth.
Postscript: I want to thank a pair of colleagues for some great mentions over the weekend. Firstly, to FMI Daily for posting to its readership about my blog on The Power of Myth. Secondly, a big thank you to Management Consulting News for referring its newsletter readers to this blog as notable, and my recent posting on the failure of Fast Follower strategy. I encourage readers to follow the links here to these sites and sign up for future information from both!!
