by Adam Hartung | Mar 30, 2017 | Boards of Directors, Disruptions, Investing, Leadership
(Photo: CEO of Amazon.com, Inc. Jeff Bezos, TOMMASO BODDI/AFP/Getty Images)
Amazon.com is now worth about the same as Berkshire Hathaway. Amazon has had an amazing run-up in value. The stock is up 17% year to date, and 46% over the last 12 months. By comparison, Berkshire has risen 3.1% this year and Microsoft has risen 5.6% —while the S&P 500 is up 5.8%. Due to this greater value increase, Jeff Bezos has become the second richest man in the world, jumping past Warren Buffett while Bill Gates remains No. 1.
Obviously, it wouldn’t take much of a slip in Amazon, or a jump in Berkshire, to reverse the positions of the companies and their CEOs. But it is important to recognize what is happening when a barely profitable company that sells general merchandise, technology products (Kindles, Fires and Echos) and technology services (AWS) eclipses one of the most revered financial minds and successful investment managers of all time.
Warren Buffett (Photo by Paul Morigi/Getty Images for Fortune/Time Inc)
Berkshire Hathaway was a financial pioneer for the Industrial Era. Warren Buffett bought a down-and-out textile company and created enormous value by turning it into a financial powerhouse. At the time America, and the world, was still in the Industrial Revolution. Making things – manufacturing – was the biggest industry of all. Buffett and his colleagues recognized that capital for these companies was deployed very inefficiently. Often too much capital was invested in poor ways, while insufficient capital was invested in good opportunities. If Berkshire could build a capital base it could deploy that capital into high-return opportunities, and make above-average rates of return.
When Buffett started his magical machine he realized that capital was often in short supply. Companies had to ration capital, unable to build the means of production they desired. Banks were unwilling to lend when they perceived any risk, even when the risk was not that great. Simultaneously investment banks were highly inefficient. The industry was unwilling to support companies prior to going public, often uninterested in taking companies public, and poor at allocating additional capital to the highest return opportunities. By the time you were big enough to use an investment bank you really didn’t need them to raise capital – they just organized the transactions.
This inefficiency in capital allocation meant that an investor with capital could create tremendous gains by deploying it in high return opportunities that often had minimal risk – or at least risk that could be offset with other investments.
Berkshire Hathaway was a big winner at mastering finance during the industrial era. By putting money in the right place, at the right time, tremendous gains could be made. Berkshire didn’t have to be a manufacturer, it could make a higher rate of return by understanding how to deploy capital to industrial companies in a marketplace where capital was rationed. In other words, give people money when they need it and Berkshire could generate outsized returns.
It was a great strategy for supporting companies in the Industrial Age. And a great way to make money when capital was hard to come by.
But the world has changed. Two important things happened First, capital became a lot easier to acquire. Deregulation and a vast expansion of financial services led to a greater willingness to lend by banks, larger secondary markets for bank-originated products that carried risk, the creation of venture capital and private equity firms willing to invest in riskier opportunities, and a dramatic growth in investment banking globally making it far easier to go public and raise equity. Capital became vastly more available, and the cost of capital dropped dramatically.
This made finding opportunities for outsized returns just based on investing considerably more difficult. And thus every year it has become harder for Berkshire Hathaway to find investment opportunities that exceed market rates of return. Berkshire isn’t doing poorly, but it now competes in a world of many competitors who have driven down returns for everyone. Thus, Berkshire’s returns increasingly move toward the market norm.
The Industrial Era is dead — usher in the Information Era. Second, we are no longer in the Industrial Age. Sometime in the 1990s (economic historians will pin it to a specific date eventually) the world transitioned into the Information Age. In the Information Age assets are no longer worth as much as they previously were. Instead, information has become much more valuable. What a business knows about customers, markets and supply chains is worth more than the buildings, machines and trucks that actually make up the physical economy. The value from having information has become much higher than the value of things — or of providing capital to purchase things.
In the Information Era, few companies have mastered the art of information management better than Amazon.com. Amazon doesn’t succeed because it has great retail stores, or great product inventory or even great computers. Amazon’s success is based on knowing things about markets and its customers. Amazon has piles and piles of data, and Amazon monetizes that information into sales.
By studying customer habits, every time they buy something, Amazon has been able to make the company more valuable to customers. Often Amazon is able to tell a customer what they need before they realize they need it. And Amazon is able to predict the flow of new product introductions, and predict sales for manufacturers with great accuracy. Amazon is able to understand what media customers want, and when they’ll want it. Amazon is able to predict a business’ “cloud needs” before that business knows – and predict the customer’s likely future services needs long before the customer knows.
In the Information Age, Amazon is one of the very, very best information companies out there. It knows how to obtain information, analyze those mounds of “big data” to determine and predict needs, then connect customers with things they want to buy. Being great at information means that Amazon, even with its relatively poor current profits, is positioned to capitalize on its intellectual property for years to come. Not without competition. But with a tremendous competitive lead.
So, how is your portfolio allocated? Are you invested in assets, or information? Accumulating assets is a very hard way to make high rates of return. But creating sales, and profits, out of information is far easier today. The relative change in the value of Amazon and Berkshire is telling investors that it is now smarter to be long information rich companies than asset rich companies.
If you’re long GE, GM, 3M and Walmart how well will you do in an economy where information is more valuable than assets? If you don’t own data rich, analytically intensive companies like Amazon, Facebook, Alphabet/Google and Netflix how would you expect to make above-average rates of return?
And where is your business investing? Are you still putting most of your attention on how you allocate capital, in a world where capital is abundant and cheap? Are you focusing your attention on getting the most out of what you know about markets, customers and suppliers, or just making and selling more stuff? Do you invest in projects to give you insights competitors don’t have, or in making more of the products you have — or launching product version X?
And are you being smart about how you manage your most important information tool — your talented employees? Information is worthless without insight. It is critical companies today do all they can to help employees develop insights, and then rapidly deploy those insights to grow sales. If you spend a few hours pouring over expenses to find dimes, consider letting that activity go in order to spend hours brainstorming how to find new markets and new product opportunities that can generate a lot more revenue dollars.
by Adam Hartung | Nov 6, 2015 | Current Affairs, General, Lifecycle, Web/Tech
“As goes GM, so goes the Nation” is attributed to Charles Wilson, CEO of GM, in Congressional hearings 1953. His viewpoint was that GM was so big, and so important, that the country’s economic fortunes were inherently dependent on a robust General Motors.
And this was not so far fetched in the Industrial era. 1940s-1960s America was a manufacturing king. Following WWII industrial products dominated the economy, and post-war U.S. manufacturers made products sold around the world as other economies rebuilt and recovered, or just started emerging. With manufacturing the jobs and economic value creator, and GM the largest manufacturer and non-government employer of its time, what was good for GM was generally good for America.
But that tie has clearly broken. GM filed bankruptcy in the summer of 2009. From 2007 to 2009 American employment fell from 121.5M to just over 110M. Last month jobs rose by 271,000, pushing employment to a fully recovered 122M jobs. However, GM and its manufacturing partners have struggled to recover, as this economic expansion has largely left them behind.
We’ve seen a wild shift in the country’s economic base. In 1900 America was an agrarian economy. Over half the population lived on farms. Fully 9 out of 10 working people had a job related to agriculture and food production. But automation changed this dramatically. By 2010, fewer than 1 in 100 people worked in farming or agriculture. Farm incomes are at a 9 year low, and the future direction is downward. Rural towns have disappeared as people moved to cities, concentrating over half the nation’s wealth in just its 20 largest cities.
WWII marked the shift from an agrarian to an industrial economy for America. It was the industrial economy that pulled America out of the1930s Great Depression. The industrial revolution ushered in all kinds of mechanical automation, and it was applied to doing everything as labor shortages forced innovation to meet rising defense challenges. And it was the industrial economy that pushed America to the top. It was the industrial economy which trained most of today’s business leaders.
But we’re no longer an industrial economy. Just as the agrarian economy vanished, so too is the manufacturing economy. Manufacturing jobs have been declining since 1970, and by 2010 they represent only 13% of workers and 15% of the country’s GDP (Gross Domestic Product).
By 2000 we had started the shift from an industrial to an information economy. Digital bits replaced machines as the source of wealth creation. By 2010 it was services, and the huge growth in digital services, that caused the jobs recovery. Services now represent 84% of all jobs, and 82% of the economy. (Economic statistics from FTPress division of Pearson Publishing.)
Today the 3 most valuable companies in America are Apple, Google and Microsoft. Number 6 is Facebook. Their value (and in the case of Apple, Google and Facebook rather rapid value explosion) has been due to understanding how to maximize the value of information. They don’t so much “make things” as they make life better through products which are purely ethereal – rather than something tangible.
Today’s #1 valued retailer is Amazon, now worth more than Wal-mart. Amazon is largely a technology company, building its revenues by knowing more about the customer and what she wants, then matching that with the right products. All in a virtual shopping arena. No stores, salespeople and often no inventory needed. Its technology skills became so good the company has become the #1 provider of cloud services.
Tesla has done something everyone thought impossible. It has created a new auto company where many others failed (recall the DeLorean used in “Back to the Future”? Or the Bricklin?) But Tesla did this by building an entirely different car, one that is based on all new electric technology, that has far fewer moving parts, needs far less service, has better operating performance and actually bears little resemblance to the autos – or auto companies – of the past. Tesla is far more a technology company, designed for the information era, than what we would think of as a “car company.”
The ramifications of this are dramatic. Working class middle age white people are dying faster than any other demographic in America. Their death rates are up 22%, and continuing to increase precipitously. Cause: suicide, drugs and alcohol. This is the group that once found good paying jobs working machines in manufacturing. Now, untrained for the information era, they are unable to find work – even though demand for trained labor is outstripping supply.
Today’s growth companies, those powering the American economic engine, are filled with intellectual assets rather than physical assets. Apple, Google and Facebook (et.al.) are creating intellectual capital, and they need employees able to add to that capital base. it is not enough for job candidates to have a college degree any longer. Today’s job hunter has to be information savvy, digital savvy, tech savvy.
In the 1960s the gap widened dramatically between those in manufacturing and those in farming. By the 1970s farms were closing by the hundreds as value shifted out of agrarian production to industrial production. It was devastating to farm communities and farm families.
Today the gap is widening between those skilled in manufacturing or general knowledge and those with information-based skills. The former are seeing their dreams slip away, while the latter are making incomes at a young age that are hard to fathom. Cities like Detroit are crumbling, while San Francisco cannot supply enough housing for its workers. The shift to an information economy is fully in force, and change is accelerating. For those who make the shift much is to be gained, for those who do not there is much to lose.
by Adam Hartung | Jun 1, 2012 | Current Affairs, In the Rapids, Innovation, Leadership, Television, Web/Tech
On May 18 Facebook went public with an opening price of $38/share. Now, after just 2 weeks, it's more like $28. Ouch – a 25%+ drop in such a short time makes nobody happy. Except buyers. And if you are interested in capturing a high rate of return with little risk, this is your lucky break!
The values of publicly traded companies change, often dramatically, based upon changes in performance and investor expectations about the future. Trying to profit off fast price changes is the world of traders – and the vast majority of them lose fortunes rather than create them. Knowing how to ignore whipsaw events, and invest in good companies when they are out of favor is important to long-term wealth creation.
Investors make money by understanding product markets and the companies supplying them, then investing in companies that build upon trends to create revenue growth with high rates of return over several years. In the forgettable 1999 movie "Blast from the Past" (Brendan Fraser, Christopher Walken, Sissy Spacek) a family moves into its nuclear blast shelter in 1960 during a panic, and doesn't come out for 35 years. Fortunately, the father had bought shares of AT&T and other companies aligned with 1960 trends, and the family discovers upon re-emergence it is quite wealthy.
Creating investment wealth means acting like them, buying shares in companies building on trends so you can hold shares for years without much worry.
If ever there was a company aligned with trends, it is Facebook. The company did not create 900million users in 8 years by being lucky. Facebook is the ultimate information era company. Facebook is not a fad – any more than television or telephones were fads in 1960. Just like they provided fundamental new ways of acquiring and disseminating information Facebook is the newest, most efficient and effective way for connecting and communicating in 2012.
When television appeared the mass population said "why?" There was radio, which was cheap, and older users said TV reduced the use of imagination. And television was not available many hours per day. But it didn't take long for CBS and its brethren to prove it could attract eyeballs, and soon Proctor & Gamble started paying for programming so it could promote its soaps (remember "soap operas?") Soon other companies developed programs strictly so they could promote their products. The "Ted Mack Amateur Hour" was sponsored by Geritol, and viewers were reminded of that over and over for 30 minutes every week. Eventually the TV ad model changed, but the lesson is clear - when you can attract eyeballs it has value and there will be businesses creative enough to take advantage.
Now television watching is declining. Instead, people are spending more time on the internet – including via mobile devices. And the location attracting the most people, and by far for the most minutes per day, is Facebook. Facebook's access to so many people, so often, creates an audience many businesses and non-profits want to tap.
Further, in the networked world Facebook not only has eyeballs, it delivers up to those eyeballs some 9 million apps, and knows what everyone wants, where they come from and where they go next. Beyond the industrial-era business of selling ads (like Google,) Facebook's information business has significant value for anyone trying to promote or sell a solution. Facebook is a repository of information about people, and their behavior, never before seen, understood or developed for use.
Around the IPO, General Motors decided to drop its Facebook advertising. That freaked some investors. Cries arose that social media is somehow broken, and unable to develop a business model.
Let's keep in mind who we're talking about here – GM. Not the most innovative, forward thinking company, to put it mildly. GM, like a lot of other plodding, but big spending, large companies has approached social media like it is just television on the web – and would prefer to simply put up a television ad on a Facebook like link. Whoa! That would be akin to a 1960s TV ad that was simply the text from a newspaper ad. Nobody would read it, and it simply wouldn't work.
Television required a new kind of communication to reach customers – and social media does as well. TV required the ad be entertaining, with movement, product use demonstrations, and video plus audio to go with the words. Connecting with users was harder, but the message (and connection) could be far more robust. And that is what advertisers are being forced to learn about Facebook/Social. It has new requirements, but once understood companies can be remarkably successful at connecting with potential customers – far more than the traditional one-way approach of historical advertising.
Paid promotion on Facebook is just the tip of the iceberg – a one-way approach to advertising sure to create short-term revenue but not terribly robust. Beyond that, social media changes everything. Retail, for example, is fast shifting from pushing inventory to being all about understanding the customer and offering them what they need in an anticipatory way (think Amazon rather than Best Buy.) And nowhere can you better understand customer needs than by social media participation. By being an information company, rather than an industrial company, FB is remarkably well positioned to create growth – for everybody that figures out how to use this remarkable platform.
As Facebook's shares kept falling this week, more attention was paid to whether traditional advertisers would buy FB. And much was made about whether the "metrics" were there to justify social media investments. This micro-management approach clearly misses the main point. People are already on Facebook, their numbers are growing, their uses are growing, their time on the site is growing, and the benefits of using Facebook are growing. Trying to measure Facebook use the way you would measure a print ad – or even a Google Adword buy – is simply using the wrong tool.
When P&G first started producing television "soaps" their competition sat back and said "look at what television advertising costs, compared to print and compared to pushing products into the local stores. What is the return for each of those television shows? Can it be justified? I think it is smarter to keep doing what we've done while P&G throws money at ads you can't measure." By moving beyond the historically myopic view of trying to find returns at the micro level P&G quickly became (at the time) the world's largest consumer goods company. Early TV advertisers followed the trend, knowing their participation would create returns far in excess of doing more of the old thing. And that is the direction of social media.
There was a lot of anticipatory excitement for the Facebook IPO. Lots of people wanted shares, and couldn't buy them in advance. The public, and the Morgan Stanley investment bankers, clearly thought the shares would go up. Oops. But that's a lucky thing for investors. Especially small investors, usually unable to participate in a "hot" IPO. Now anybody can buy FB shares at a 25% discount to the offering price – a better deal than the institutional buyers that usually get the "sweet" deal little guys never see.
If you are an employee, short term you might be unhappy. But if you are an investor, be happy that worries about Greece, the Euro's future, domestic politics, a lousy jobs report and simple myths like "sell in May and go away" have been a drag on equities this month – and diminished interest in Facebook.
Buy FB shares, then forget about them for a while. What you care about isn't the value of FB shares in 4 days, 4 weeks or 4 months – you care about 4 years. If you missed the chance to buy Microsoft in 1986, or Amazon in 1997, or Apple in 2000, or Google in 2004 then don't miss this one. There will be volatility, but the trends are all in your favor.
by Adam Hartung | Apr 26, 2012 | Current Affairs, Defend & Extend, In the Whirlpool, Leadership, Lock-in
WalMart's been accused of bribing officials in Mexico to grow its business. But by and large, few in America seem to care. The stock fell only modestly from its highs of last week, and today the stock recovered from the drop off to the lows of February.
But WalMart is going to fail. WalMart is trying to defend and extend a horribly outdated industrial strategy.
Sam Walton opened his original five and dime stores in the rural countryside, and competed just like small retailers had done for decades. But quickly he recognized that industrialization offered the opportunity to shift the retail market. By applying industrial concepts like scale, automation and volume buying he could do for retailing what Ford and GM had done for auto manufacturing. And his strategy, designed for an industrial marketplace, worked extremely well. Like it or not, WalMart outperformed retailers still trying to compete like they had in the 1800s, and WalMart was spectacularly successful.
But today, the world has shifted again. Only WalMart is putting all its resources into trying to defend and extend its industrial era strategy, rather than modify to compete in the information age. Because its strategy doesn't work, the company keeps wandering into spectacular failures, and horrible leadership problems.
- In 2005 WalMart's Vice Chairman and a corporate Vice President tried to use the company's size to wring more out of gift card and merchandise suppliers. Both were caught and fired for fraud.
- In 2006 WalMart hired a new head of marketing to update the strategy, and improve the stores and merchandise. But upon realizing her recommendations violated the existing WalMart industrial strategy the company fired her after only a few months, and went public with character besmirching allegations that she and an ad agency executive were having an affair. Like that (even if true, which is hotly disputed) somehow mattered to the changes WalMart needed. Changes which were abruptly terminated upon firing her.
- In 2008 a WalMart employee became an invalid in a truck accident. When the employee won a lawsuit related to the accident, WalMart sued the invalid employee to return $470,000 in insurance payments made by WalMart. As if WalMart's future depended on the return of that money.
- In a cost saving move, WalMart moved its marketing group under merchandising, in order to reduce employees and the breadth of merchandise, as well as keep the company more tightly focused on its strategy.
All 3 of these incidents show a leadership team that is so entrenched in history it will do anything – anything – to keep from evolving forward. And sd that history developed it paved a pathway where it was only a very small step to paying bribes in order to open more stores in Mexico. Such bribes could easily be seen as just doing "whatever it takes" to keep defending the existing business model, extending it into new markets, even though it is at the end of its life.
It has come to light that after paying the bribes, the leadership team did about everything it could to cover them up. And that included spending millions on lobbying efforts to hopefully change the laws before anyone was caught, and possibly prosecuted. The goal was to keep the stores open, and open more. If that meant a little bribing went on, then it was best to not let people know. And instead of saying what WalMart did was wrong, change the rules so it doesn't look like it was wrong.
At WalMart right and wrong are no longer based on societal norms, they are based on whether or not it lets WalMart defend its existing business by doing more of what it wants to do.
WalMart's industrial strategy is similar to the Titanic strategy. Build a boat so big it can't sink. And if any retailer could be that big, then WalMart was it. But these scandals keep showing us that the water is increasingly full of icebergs. Each scandal points out that WalMart's strategy is harder to navigate, and is running into big problems. Even though the damage isn't visible to most of us, it is nonetheless clear to WalMart executives that doing more of the same is leading to less good results. WalMart is taking on water, and it has no solution. In their effort to prop up results executives keep doing things that are less and less ethical – sometimes even illegal – and guiding people down through all levels of management and employment to do the same.
WalMart's problems aren't unions, or city zoning councils, or women's rights and fair pay organizations. WalMart's problem is an out of date retail strategy. Consumers have a lot of options besides going to stores that look like airplane hangers, and frequently without paying a premium. There is wider selection, in attractive stores, with better quality and a better shopping experience. And beyond traditional retail, consumers can now buy almost anything 24×7 on-line, frequently at a better price than WalMart – despite its enormous and automated distribution centers and stores, with tight inventory and expense control.
But WalMart is completely unable to admit its strategy is outdated, and unwilling to make any changes. This week, amidst the scandal, WalMart rolled out its latest and greatest innovation for on-line shopping. WalMart will now allow an on-line customer to pay with cash. After placing an order on-line they can trot down to the store and pay the cash, then WalMart will recognize the order and ship the product.
Really. Now, if this is targeted at customers that are so out of the modern loop that they have no credit card, no debit card, no on-line checking capability and no Paypal account tied to checking – do you think they have a PC to place an online order? And if they did go to the local library to use a computer, why would they go pay at the store only to have the item shipped – rather than simply buy it in the store and take it home immediately?
Clearly, once again, WalMart isn't trying to change its strategy. This is an effort to extend the old WalMart, in a bizarre way, online. The company keeps trying to keep people coming into the store.
Amazingly, despite the fact that there's a 50/50 (or better) chance that the CEO and a number of WalMart execs will have to be removed from their position – and could well go to jail for Foreign Corrupt Practice Act violations – most people are unmoved. The stock has barely flinched, and option traders see the stock remaining at 55 or higher out into September. Nobody seems to believe that all these hits WalMart is taking really matters.
A famous Titanic line is "and the band played on." This refers to the band continuing to play song after song, oblivious to disaster, until the ship suddenly broke, heaved up and dove into the ocean leaving only those in life boats to survive. As the Titanic was taking on water not the captain, the officers, the crew, the passengers or those listening over the airwaves wanted to accept that the Titanic would sink.
But it did.
So how long will you hold onto WalMart shares? WalMarts growth has been declining for a decade, and even went negative in 2009. Same store sales have declined for 2 years. Scandals are now commonplace. Online retailers such as Amazon and Overstock.com are stripping out all the retail growth, leaving traditionalists in decline. WalMart may be doing better than Sears, or Best Buy, but for how long?
WalMart has no ability to stop the economic shift from an industrial to an information age. It could choose to adapt, but instead its leaders have done the opposite. The retailers now succeeding are those eschewing almost all the WalMart practices in favor of using customer information to offer what people want (out of their much wider selection) when customers want it, often at surprisingly good prices. This is the current carrying emerging retailers to better profitability – and it is the current WalMart remains intent on fighting. Even as its executives face prison.
by Adam Hartung | Jul 9, 2009 | Current Affairs, Defend & Extend, In the Rapids, In the Whirlpool, Leadership, Lock-in, Openness
Google is growing, and GM is trying to get out of bankruptcy. On the surface there are lots of obvious differences. Different markets, different customers, different products, different size of company, different age. But none of these get to the heart of what's different about the two companies. None of these really describe why one is doing well while the other is doing poorly.
GM followed, one could even say helped create, the "best practices" of the industrial era. GM focused on one industry, and sought to dominate that market. GM eschewed other businesses, selling off profitable businesses in IT services and aircraft electronics. Even selling off the parts business for its own automobiles. GM focused on what it knew how to do, and didn't do anything else.
GM also figured out its own magic formula to succeed, and then embedded that formula into its operating processes so the same decisions were replicated again and again. GM Locked-in on that Success Formula, doing everything possible to Defend & Extend it. GM built tight processes for everything from procurement to manufacturing operations to new product development to pricing and distribution. GM didn't focus on doing new things, it focused on trying to make its early money making processes better. As time went by GM remained committed to reinforcing its processes, believing every year that the tide would turn and instead of losing share to competitors it would again gain share. GM believed in doing what it had always done, only better, faster and cheaper. Even into bankruptcy, GM believed that if it followed its early Success Formula it would recapture earlier rates of return.
Google is an information era company, defining the new "best practices". It's early success was in search engine development, which the company turned into a massive on-line advertising placement business that superceded the first major player (Yahoo!). But after making huge progress in that area, Google did not remain focused alone on doing "search" better year after year. Since that success Google has also launched an operating system for mobile phones (Android), which got it into another high-growth market. It has entered the paid search marketplace. And now, "Google takes on Windows with Chrome OS" is the CNN headline.
"Google to unveil operating system to rival Microsoft" is the Marketwatch headline. This is not dissimilar from GM buying into the airline business. For people outside the industry, it seems somewhat related. But to those inside the industry this seems like a dramatic move. For participants, these are entirely different technologies and entirely different markets. Not only that, but Microsoft's Windows has dominated (over 90% market share) the desktop and laptop computer markets for years. To an industrial era strategist the Windows entry barriers would be considered insurmountable, making it not worthwhile to pursue any products in this market.
Google is unlike GM in that
- it has looked into the future and recognizes that Windows has many obstacles to operating effictively in a widely connected world. Future scenarios show that alternative products can make a significant difference in the user experience, and even though a company currently dominates the opportunity exists to Disrupt the marketplace;
- Google remains focused on competitors, not just customers. Instead of talking to customers, who would ask for better search and ad placement improvements, Google has observed alternative, competitive operating system products, like Unix and Linux, making headway in both servers and the new netbooks. While still small share, these products are proving adept at helping people do what they want with small computers and these customers are not switching to Windows;
- Google is not afraid to Disrupt its operations to consider doing something new. It is not focused on doing one thing, and doing it right. Instead open to bringing to market new technologies rapidly when they can Disrupt a market; and
- Google uses extensive White Space to test new solutions and learn what is needed in the product, distribution, pricing and promotion. Google gives new teams the permission and resources to investigate how to succeed – rather than following a predetermined path toward an internally set goal (like GM did with its failed electric car project).
Nobody today wants to be like GM. Struggling to turn around after falling into bankruptcy. To be like Google you need to quit following old ideas about focusing on your core and entry barriers – instead develop scenarios about the future, study competitors for early market insights, Disrupt your practices so you can do new things and test lots of ideas in White Space to find out what the market really wants so you can continue growing.
Don't forget to download the new, free ebook "The Fall of GM: What Went Wrong and How To Avoid Its Mistakes"
