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"
by Adam Hartung | Dec 2, 2009 | Current Affairs, Defend & Extend, In the Swamp, In the Whirlpool, Leadership
"Henderson Never Fit In At GM Helm" is the Detroit Free Press headline. Imagine that – the CEO of GM has been asked to leave. Industry sales are down about 24%, and GM is down 32%. Meanwhile, Mr. Henderson had proposed selling 4 divisions (Saab, Opel, Hummer and Saturn) – which were the most interesting divisions in the company – and none of those deals have closed. In fact, 3 have fallen apart completely. Only the Hummer sale to a Chinese firm is potentially going to happen. In fact, it's hard to find anything good that's happened at GM since Mr. Henderson took over. Including closing Pontiac.
When the government invested in GM this year the existing Chairman/CEO, Rick Waggoner, was forced to resign. Imagine that, after puting several bilion in a company the investor's transition team replaced the CEO who got the company into bankruptcy, almost out of cash, with no plan for recovery. Also, the Board, which had allowed GM to get into such a mess without even raising tough questions, was replaced. All seems remarkably sensible given the sorry state of the company.
The goverment led transition team, which rocketed GM through bankruptcy, cleaned the ceiling, but then selected Mr. Waggoner's hand-picked successor (Mr. Henderson) to replace him. The claim was they'd need 6 months to search for somebody new and didn't want to take the time. And they put in a lifetime monopolist, Mr. Whiteacre of AT&T, as Chairman. And a 40+ year industry veteran was made head of marketing (Mr. Lutz.) And a 40+ year company employee was kept as CFO. And we're supposed to be surprised that things aren't going well?
The Chairman and replacement CEO says of the company says "Whiteacre: GM On the Right Path," also in the Detroit Free Press. But do you believe him? What does he know about competing successfully against intense foreign led competitors who move fast? The AT&T that trained him early in his career failed horribly, never succeeding in any market outside the U.S. and getting cleaned by offshore competitors in hardware and mobile telephony. And as head of Southwestern Bell, all he did was rebuild the old "Bell system" of land-line companies – without effectively taking a leading position in any new telephony business. Or any other business. Broadband, mobile phones, digital television – can you think of any market where today's AT&T is a technology, product development, innovation or other market leader? He may have bought up a bunch of the old spun out businesses, but those are on their last legs as people give up land lines and transition to a different sort of connected future.
What's surprising is that GM isn't doing worse. But it's unlikely Mr. Whiteacre, or Mr. Henderson's replacement, will do much better. Several candidates are from inside GM – all with the same Lock-ins that allowed Messrs. Waggoner, Henderson and Lutz to perform so abysmally – despite incredible pay packages for many years. In "Selling GM's CEO Job to be Tough Task" (Detroit Free Press) headhunters claim that the industry is so complex they'll have a hard time finding someone talented who will work for the pay. Balderdash. That's only true because they are so Locked-in to traditional thinking about who should lead GM that they keep trying to recycle already overpaid CEOs who have done little for shareholders. That's not what's needed at GM.
Give us a break. Who would want an industry veteran in the job at all? And why would a recruiter hunt for somebody with a lot of industrial-era Lock-ins. GM's investors (that's the citizens of the USA and Canada,) employees and vendors need somebody who's ready to move beyond the old industry and company Success Formulas and do something very different. Willing to develop entirely new scenarios of the future which alter the competitive playing field and then Disrupt the organization in order to start doing new things. Before Tata Motors and China's Chery auto join the other companies ready to put GM into the grave.
It's amazing how "inside the box" the people who are leading GM, and advising the company, remain. Why not try to recruit somebody from Tesla to take over? The long-delayed electric Chevy Volt might well get to market faster – and in a more desirable form – if that were to happen. Or how about an heir apparent at fast growing Cisco Systems? Those people know how to pay attention to the market and move quickly to give customers what they need – profitably.
Turning around GM requires leadership that will change the Success Formula. Not try to Defend it, or Extend it with slowly evolving variations and minimal change. The whole house needs to be cleaned. The investor representatives who led the transition pulled up short of finishing their job. Only by bringing in new managers who are willing to see a very different future, unbounded by the GM legacy, can GM's competitive position be changed – and if GM tries to keep competing the way it has Toyota, Honda, Hyundai, Kia, Tata Motors, et. all will eat GM's dinner. And only by Disrupting the old Lock-ins, using White Space teams to develop new solutions, can GM regain viability.
by Adam Hartung | Jun 6, 2009 | Uncategorized
"GM reaches deal to sell Saturn to Penske" is the latest GM headline. Although the management at GM could not figure out how to run a profitable Saturn, it has very quickly sold the business. And within a week of selling Hummer to a Chinese company. Sounds like a combination of low pricing, and better skills at hiring investment bankers than running a business.
The biggest lesson we can learn from this is that GM was so Locked-in to its old Success Formula that it was frozen in place, unable to take actions that would allow GM's revenue and profit to grow. After years of doing nothing more than layoffs, GM was able to find buyers for 2 of its 3 semi-autonomous divisions almost immediately. In other words, if GM management had to change to fix GM the team would rather fail — wiping out the shareholders, most of the bondholder value, and eliminating thousands of jobs – and sell assets (at a significant loss) than change. Rather than Disrupt and use White Space to create a new GM, management preferred to declare bankruptcy, beg for billions in aid (like some impoverished third world starving nation such as Bangladesh), and give away assets in an effort to preserve the Success Formula they believe in – but which failed in the market. These leaders have shown they don't care about anyone or anything more than they care about trying to Defend & Extend the GM legacy – Cadillac, Chevrolet, Buick and GMC. This management doesn't want GM to succeed, they want to wind back the clock, and they'll try anything possible to see if they can make it happen.
They can't. The clock won't rewind. And GM's management is demonstrating why they should not be allowed to run any company – much less a major auto company. Nor should you trust them to watch your dog – much less trust them with $60billion in financing. Trying to preserve the past will only prolong dismal results. They will not repay this money.
So what about Saturn? Some think this acquisition, coupled potentially with the new ownership of Hummer, marks another shift in the auto industry. In "Putting GM's Saturn on a different orbit" the Marketwatch commentator indicates that we may be seeing a shift away from an industrial model of manufacturers pushing cars onto dealers. Since Penske owns many dealerships, he thinks these new independent labels may let the dealerships take the lead. Manufacturing will have to respond, through a network of manufacturers something like Nike uses, to the retailers – who will be much more in touch with the market.
From the pixels displaying these articles to God's ear, paraphrasing an old maxim. It would be wonderful if both Saturn and Hummer, and the soon to be independent Saab, were driven by market requirements rather than internally entrenched management trying to Defend & Extend old practices. If they are, the odds are good that they'll push the losses at the remaining GM much higher, much faster than the management team (and probably the government overseers handing them money) expect.
But it does beg the question, if it's so easy to sell these divisions why doesn't the government simply dismantle GM and sell everything? These are supposedly the smallest, least viable parts of GM. And they are selling incredibly fast. Instead of these "one-off" sales, happening at distressed prices to buyers with little competition, why not create an open market to sell everything? Obviously the only way to get rid of the terrible GM leaders is to sell the business out from under them, leaving them with nothing to do. So, instead of handing these incompetent GM leaders another $40B, why doesn't the government turn over assets to the investment bankers and tell them to maximize the value of a sale? Create a bunch of bidders for the various assets (less toxic than nothing-down mortgage securities), ala the intent of bankruptcy law, so that people with new ideas (like Penske) can acquire these assets and use those ideas and innovations to convert the brands, product lines, supply chains and manufacturing plants into something more valuable?
In a sale, a new buyer could purchase plants to redeploy for windmill production, for example. A GMC buyer could attempt to converting the brand into a competitor of Caterpillar Tractor or Komatsu. Chevrolet might have better life as a U.S. motorcycle company. Someone might want to turn Cadillac into an airplane company. As crazy as these ideas sound, don't forget that Honda has entered airplane production and shows every sign of succeeding. We know that running any part of GM like it used to be run will not work. So why not give the innovators a shot at these tangible and intangible assets on the open market? Wouldn't you rather see someone new, like the team at Penske Enterprises, try to do something with the rest of GM – rather than leave it in the hands of the people who say they need another $40billion to keep it alive. Ever heard of the term "cut your losses"?
Those who listen to markets survive – even thrive. That's what creates optimism about the future of Hummer, Saturn and Saab. The concept that new owners will utilize new market-based scenarios with clear understanding of competitors to Disrupt these companies, then attack old Lock-ins in order to implement new behaviors, excites people. We can imagine these new leaders using White Space to convert the design, production and distribution processes into methods that give customers what they want when they want it – achieving profits as a result. After 3 decades of ongoing failure, we can't imagine the people running GM doing it.
We believed in Lee Iacocca primarily because he had been fired at Ford. He knew Chrysler was not well enough connected to customers – and that he was. This was a guy who would cut off the top of a production car with a skill saw in order to drive it around the block as a way to test relaunching convertibles. He wasn't afraid to develop cars people had never seen, like mini-vans, because he saw changes in customer needs. He wasn't afraid to Disrupt the status quo and he wasn't afraid of testing new technologies, new production processes and new markets. That's why he turned around Chrysler. And that's what it will take to turn around Cadillac, Chevrolet, Buick and GMC.
It's too early to really know if new owners will do the right things to make these fire-sale divisions into successful businesses. We have to look for the scenarios, Disruptions and White Space. But we know we won't see such behavior out of GM. If the government folks who are considering giving more money to GM really want to save jobs, grow the economy and keep the profit motive alive they need to pull back fast from funding this GM management team. Instead, use this immediate market input (from the dividion sales) to force the courts to bust up the rest of GM and sell it to someone who just might have a truly better idea.
by Adam Hartung | Jun 4, 2009 | Uncategorized
This week marks the 20th anniversary of the Chinese student uprising in Tiananmen Square, and its brutal put-down by the Chinese leadership. Ironically, the same week GM agrees to sell its Hummer division to a Chinese company. Quite a contrast in outcomes over 20 years. China was then a backwater nation having very little business with the USA, and GM was still considered a dominant U.S. industrial power.
We all know what China has accomplished in the last 20 years. From struggling poverty, the country is now the third largest economy – and the single largest offshore holder of America's debt. China is poised to be a superpower, and the world's largest economy within another 20 years. How?
Within months of the Tiananmen event, in which the Chinese military slaughtered thousands of its own citizens, the Berlin Wall tumbled. The Soviet Union evaporated, leaving behind a series of independent states poorly capitalized and ill prepared to compete internationally. The Chinese leadership recognized this as a major market shift, and wasted no time taking action.
Step 1 was recognizing that future scenarios no longer required investing massive funds defending the world's longest contested border. More tanks were on the Chinese/Soviet border than all the rest of the world combined – and the replacement of those tanks suddenly became non-essential. And the Chinese recognized this, and changed. With speed exceeding anything anybody imagined, the Chinese changed all their scenarios about the future. Instead of spending massive funds on military works, those funds could be spent elsewhere. By reworking their future scenarios, they realized they could undertake different opportunities. No longer were they required to do "more of the same" as they'd done for several decades.
Step 2 was recognizing the new competition. Instead of fighting a traditional war, the Chinese would be in an economic war with the smaller eastern European nations, and India. Dissolving the USSR meant the Indians, who had long sparred with the Soviets while also taking aid, suddenly knew they had to rely completely on the USA – and trade. And that meant the Chinese had a new #1 competitor, but in the new battle for trade rather than old fashioned aid. Where before China wanted money for armaments, now they needed to invest money in production to pull dollars from U.S. business. The new objective became competing with India, rather than the Russians.
Thirdly, they Disrupted their approach to world diplomacy. Instead of a closed country, they became open. Instead of investing in guns, they invested in power plants, roads and infrastructure. On the world stage, China wanted to become the biggest winner of foreign exchange. And the road to that win came through participating with American capitalists. The leadership realized it needed to totally change the country's investment patterns in order to make the country's low cost labor available, and it did so. Almost overnight. How, by recognizing and undertaking a Disruption in their investment patterns.
Fourth, China implemented White Space for job creation. Suddenly, almost every city had a development zone. They didn't need to figure out what infrastructure to buy. All they had to do was invite the Americans in and we'd tell them what we wanted. We'd describe the airports, power plants, telecom systems, roadways – everything we wanted to give them the work (and foreign exchange). All they had to do was listen and do it.
China is an example in doing things differently, changing how you
compete to be very efffective, without really changing values.
People often tell me they worry that The Phoenix Principle means you
have to give up your ideals. I disagree. Being a Phoenix organization
means you're willing to adapt to market requirements, and doing so does
not mean you have to change your "ethos," religion or personal values.
You merely have to adapt. If you want to be "green" or "sustainable" or "ethical" or even "religious" you can do so. You just have to make sure you are connected to the marketplace in ways that allows you to develop a Success Formula which creates growth.
Compared to India, the Chinese have been wildly successful. And that's saying lot, given how incredibly successful India has been. There is no doubt that India, too, has used outsourcing to raise foreign exchange, create jobs and grow. But compared to China, well there's no comparison. The Indian government is still trying to figure out how to build a highway, expand major (overcrowded) airports and provide consistent electricity to business parks in major cities. The Indian leaders don't suffer from a lack of smart – no way – but the government keeps trying to operate the way it always has. And that has held them back from making the investments and taking the actions which have catapulted the Chinese into the lead. While India had a head start in 1989 (largely English speaking leadership and a strong investment in education for the elite), China has eclipsed their growth and is chasing Japan and the USA.
Through all of this, China never changed its politics. Some people who go to China return talking about how "capitalistic" the country is. They forget the lessons of Tiananmen Square. China has been and remains a tightly controlled, Communist, centrally-planned country. "China scholars see little chance for political reform" is the headline describing how the politics of China are unchanged since the days when they shot thousands of their own students, and imprisoned thousands more. Several students taken prisoner have never been heard from again. Those that fled the country are not allowed to return – and their families were subsequently required to consider them bad Chinese. Many were held in prisons for years, and others are still in remote work camps. China is still China, deep inside. No more a market/capitalistic country than it ever was. It just learned to adapt to a changing world. (Something Chairman Mao tried to avoid – almost destroying the country.)
Coincidentally, my 21 year old son returned from a month in China yesterday evening. He was visiting manufacturing plants and engineering schools. We talked, and will talk more, about what the Chinese businesses and schools are doing. Why, and exactly HOW do these schools and factories affect competition? Competition to be a world-class engineer (he's a mechanical engineer prepping for his civil engineering master's degree), and competition for building things. As he summed it up before crashing to sleep "they do things entirely differently than we do in America – and I can easily see why they get things done cheaply. They do things in a uniquely Chinese way, but it meets the needs of American companies who want lower costs and market access. This may have been my first trip to China, but it won't be my last. It can't be if I want to remain competitive. Maybe I need to learn Mandarin or Cantonese so I can go to one of their schools for a year."
We all have to learn to adapt. The world changes. Every year. If we try to resist those changes, to Defend & Extend what we like to do, we grow further out of touch with market requirements and lose the ability to compete. You don't have to "sell your soul" to adapt. But you must adapt if you want to continue succeeding. You have to make your investments based upon what will make you a winner in the future – not what made you a winner in the past. You have to study competitors, and do those things that will make you a winner. You have to accept Disruptions by attacking old Lock-ins, and use White Space to develop new solutions. If you do that, even at the scale of the Chinese economy, you can have unbelievably successful results. Or at the level of an individual engineer. If you don't the results aren't pretty. Not pretty at all. Just ask the employees at GM.
by Adam Hartung | Jun 2, 2009 | Current Affairs, In the Whirlpool, Leadership, Openness
How appropriate. "GM strikes deal to sell Hummer" headlines a Marketwatch.com article. A day after declaring bankruptcy, Hummer with all its branding and product drawings is going to China. It seems everything about GM is iconic – including its movement of an operating auto businesses to China.
Is this bad for America, or good? I'd rather say it's inevitable. In a global economy, industrial production will move to the lowest cost location. And with a low valued currency, a very lowly paid workforce, and access to very inexpensive capital that puts China at the top of the list. Unless you want to bring back Chairman Mao and wall-in China, the population density and government programs make it inevitable that the country will be a leader in manufacturing.
But that doesn't equate to high value.
America is the world's largest agricultural nation. But has that made America wealthy? Not since the 1800s has it been true that land ownership for agricultural uses made Americans – and the nation – wealthy. As the value of agriculture declined – largely due to dramatic increases in production – America's wealth shifted to industrial production. It was by being the largest and most productive industrial nation that America prospered during the Industrial economy.
But now, industrial production has razor thin margins. Much like agriculture. Over-invest in capacity, and you can end up with under-utilized (or closed) plants and not much margin from other businesses to cover the cost. Not since the 1990s has America operated anywhere near "full capacity" on its manufacturing base. The "good" years of the last decade were unable to produce industrial jobs, or wealth for industrial companies (i.e. – GM's bankruptcy.)
In the great battle for economic leadership, the next wave is about information. How to obtain, use and manipulate information is where value is now created. Steel traders can make more than steel producers today. If you want to improve your profitability, and your longevity, you have to change your thinking from "how do I make and sell more stuff" to "what do I know they don't know, and how do I turn that into value?"
For somebody selling autos, it's becoming a lot more important to understand customer wants and preferences than to be good at making cars. Toyota and Honda can identify opportunities first, and put products into the market faster than anyone else. They can maximize their product development and short-run capability to reach targets fast, and gain advantages over competitors. Don't forget, Honda made money not just on small, high mileage cars but on a full-size pick-up called the Ridgeline (and Toyota on the Tundra). These companies are better at using scenarios to recognize early market shifts, and clearer about competitor moves so they can position products to fulfill unique customers needs. Even if it means launching products not traditional to their "core" – like Honda's Ridgeline, it's manufacturing robotics, and its new jet airplanes.
In the industrial era, people sought scale advantages and tried to build entry barriers against competitors. In the information economy flexibility is equally (or more) important than size. Recognizing customer needs and competitor actions early is more important than catering to old, devoted customer groups. Willingness to Disrupt, and do what you must do to change the market by using White Space test projects keeps you ahead of the competition – rather than trying to Defend & Extend your "core."
For the industry, having Hummer production in China could turn out to be a good thing. It will lower product cost. If the distribution in the USA can gain control of the market, by recognizing customer needs and directing the production, the distributors can grab all the value away from the Chinese manufacturer. If, on the other hand, the dealers try to act like old fashioned dealers who merely keep stock and negotiate price — then they won't create value and margins will stink. There are ways to make money in the information economy, even for traditional players, but it requires changing your Success Formula from industrial-era behaviors to the needs of an information-based economy. You can follow GM – or you can try to be like Cisco.
