by Adam Hartung | Jan 14, 2021 | eBooks, Investing, Politics, Strategy, Trends
Chicago, and Illinois, are in big economic trouble.
- 7th straight year of population decline. Losing 235,000 people in 10 years, 3x the amount of any other state. Last year saw a decline of 79,500 people – second only to much larger New York – and the rate of people leaving is accelerating.
- Illinois has, on average, property taxes 2x the national average. If you owned the “Home Alone” house in suburban Chicago, since the movie was made in 1990 you would have paid $890,000 in property taxes.
- Chicago is the worst residential real estate market of any large city in America. While values have been rising elsewhere since the Great Recession, in the last decade, property values in Chicago have declined 20%.
- Sales tax is 9%, and on some products 10%+, one of the highest rates in the USA. On-line purchases are taxed at 10.25%, for example. Illinois is one of only 7 states to charge sales tax on gasoline. And Illinois has the highest cell phone tax in the country.
- Illinois roadway toll fees are widespread, and among the highest in the USA, with the majority of those funds going NOT to road improvement but rather into the general budget to cover state expenses.
- Illinois is 46th in private sector job growth – and would be 50th except the #1 source of job growth is government jobs. And 40% of the government workforce makes $100k+/year. The total number of jobs in Illinois December, 2019 was 6.2M – unchanged since 2015 – and up only slightly from 5.9M in 2010 – yielding a pathetically low growth rate for jobs of 1/2 of 1% (.5%) per year
- 1/3 of the state budget is pension payments, and pension debt is 26% of state GDP – highest in the country. Lots of retirees, very few new jobs to pay their pensions.
Thrive to the Future – 4 top trends for 2021 and beyond.
Gibbon wrote “The Decline and Fall of the Roman Empire” as a treatise to uncover how such a powerful empire could lose its greatness. There is no doubt, Chicago and Illinois were once great. The area was known for great jobs, great infrastructure, great transportation system, great homeownership – and for many decades considered one of the best places to live in America. Back when agriculture and manufacturing dominated the economy. But quite obviously, as the world changed, and the sources of economic value (including jobs) changed, the late, great state of Illinois kept pushing on with “business as usual” instead of changing policies and investments to re-orient for the Information Era.
Things were not destined to become this bleak. Chicago could be Austin today – but obviously it isn’t. Where Austin, and Texas, looked at trends and made investments beyond the old “core” of oil and gas, Chicago and Illinois completely failed to look at trends that indicated a clear need to change. Problems, and the path to solve them, have been obvious for years. It was easy to predict this would happen. But a chronic focus on the short-term, rather than the long-term, combined with a complete unwillingness to change how investments were made caused state and city leaders to consistently ignore warning signs and make one bad decision after another.
Indicators of Decline
I’m an expert on trend-based planning, so let’s take a look at the telltales this was coming and how those telltale indicators were ignored:
- In February, 2006 (yes 15 years ago) I wrote that Illinois was the #1 net job loss market in the country. This factoid highlighted an emerging problem in the underlying economy. The state was still considerably dependent on old-line agriculture/food giants, those businesses were crumbling and unlikely to recover as the economy shifted. Notably Kraft was in its 5th year of what was to be a turnaround (that never happened) and Sara Lee was under incompetent leadership that kept selling businesses to shore up declining revenues and earnings. The state, and city, had failed to develop an infrastructure for investment in start-up companies. There was a total lack of investment money for entrepreneurs from paternalistic large companies such as Motorola and Ameritech. And a lack of money for innovation from banks, venture capital and private equity firms. Existing businesses were aging, cutting jobs and none were focused on investing in new companies to keep the local economy tied to the emerging Information Economy [ link ]
- In February, 2009 Forbes selected Chicago as the 3rd most miserable city in the USA, citing high taxes, no job growth, infrastructure decay, congestion and bad weather. An uproar ensued – but no change. I then noted my 2006 column, and recommended a very serious Disruption in how Chicago was managing its resources. Clearly the “more of the same” strategy trying to defend its past was not working. Unless there was a disruption, Chicago would get worse – not remain the same, and certainly not get better. The signs were clear that from ’06 to ’09 nobody was thinking about the big changes needed [ link ]
- In June, 2010 it was reported that Illinois lost 260,000 jobs between 2000 and 2010 – and that was an indicator of why Chicago and the state were having so many economic problems. I recommended the city and state make significant changes in resource allocation to keep more start-ups local. The University of Illinois was the #4 engineering school in the US, but the vast majority of graduates left to one or the other coasts. Local businesses were not developing new businesses, thus not hiring these top students. Start-ups at the universities, and by recent grads, could not obtain funding, so they fled to where the money was. Economic reliance on stalled companies like Kraft, Sara Lee, Motorola, Lucent, Sears and United had created a Growth Stall that was sure to lead to additional job losses – when the best talent was right there in the state! [link ]
- I followed up a week later that same June with a column on how Mayor Daley was very popular with voters and local businesses, but he was setting up the city (and state) for failure. There was a focus on keeping the “old guard” happy, and doing so by completely ignoring opportunities for future growth. Offering tax breaks and subsidies to recruit corporate headquarters (like Boeing) created very few jobs, and was a poor use of resources that should be diverted to funding start-up tech and bio-tech companies. And financial machinations, like selling the city’s parking rights, gave a short-term lift to the budget, hiding significant weaknesses, while creating massive long-term problems. Chicago and Illinois politicians were focused on short-term actions to get votes, and ignoring the very real jobs problem that was tanking the economy. [ link ]
- By April, 2014 I was able to clearly demonstrate that my predicted economic stagnation spiral had taken hold in Illinois. Defend & Extend investments to shore up declining companies – like Sears – robbed local governments of funds for job creating programs. And a decade + of no job creation was forcing taxes up – at a remarkable rate – which kept businesses from moving to Illinois; kept them from opening software labs, coding facilities, research centers, pharma and bio-pharma production plants, etc. With no growth, but rising costs, the death spiral had begun and needed immediate attention [ link ]
- In September, 2016 the outward migration from Chicago and Illinois had become a powerful trend. Looking at demographics, the market was aging. Rising costs and no growth had pinched budgets to the limit, while pension costs had become an unsustainable burden on the state’s citizens. Just like Japan was in an aging crisis, Illinois was in an aging crisis. And this was destined to create even more problems for the economic death spiral that began before 2006. [ link ]
- So by January, 2017 the demographic tailspin was clearly creating a vacuum pulling people out of Chicago and Illinois. Fully 4 years ago it was obvious that the predicted trends had taken hold, and nothing short of an incredible disruption would save Chicago from becoming the next Detroit. Using the simplest trend planning tools made it clear that unless there was radical change in investments the Chicago empire was at its end. [ link ]
Lessons for business?
Far too many businesses act like Chicago. “Business as usual” dominates. Resources are automatically routed to defending old business lines, rather than investing in new products and solutions. Focusing plans on historical customers, products and markets create blindness to market shifts, and a reluctance to move forward to new technologies and markets. Very little energy is put into trend analysis, and plans are not built based on trends and likely future outcomes (planning from the past dominates over planning for the future.) People who point out likely future bad outcomes unless serious change is undertaken are ignored, or shouted down, or removed entirely. Short-term financial machinations (selling assets, or a business, or offering deep discounts to keep customers) create an illusion of security while long-term trends are undermining the business’ foundation.
We are experts at trend analysis, trend planning and effective resource allocation. It was clear 15 years ago that major resource reallocation was necessary for Chicago to continue growing its economy. Don’t let a fixation on doing more of the same get in the way of your future growth, like Chicago. Let us help you identify critical trends and invest smarter to build on trends and grow.
Key lessons?
First, the world is growing and leading businesses will grow. If you’re not growing, you’re dying. Just like GE and Exxon. Second, never plan from past success, but instead plan for the future. You don’t grow value by being operationally excellent, because the world is forever changing and it will make your past business less valuable even if you do run it well. Third, make sure your plans are all built on trends. Let trends be the wind in your sales, or the current under your boat, or whatever analogy you like – just be sure you’re using TRENDS to drive you business planning, product development and solutions generation. Customers buy trends and help for them to achieve the future.
Did you see the trends, and were you expecting the changes that would happen to your demand? It IS possible to use trends to make good forecasts, and prepare for big market shifts. If you don’t have time to do it, perhaps you should contact us, Spark Partners. We track hundreds of trends, and are experts at developing scenarios applied to your business to help you make better decisions.
TRENDS MATTER. If you align with trends your business can do GREAT! Are you aligned with trends? What are the threats and opportunities in your strategy and markets? Do you need an outsider to assess what you don’t know you don’t know? You’ll be surprised how valuable an inexpensive assessment can be for your future business. Click for Assessment info. Or, to keep up on trends, subscribe to our weekly podcasts and posts on trends and how they will affect the world of business at www.SparkPartners.com
Give us a call or send an email. Adam@sparkpartners.com 847-726-8465.
by Adam Hartung | Sep 22, 2015 | Current Affairs, Disruptions, In the Rapids, Innovation
A recent analyst took a look at the impact of electric vehicles (EVs) on the demand for oil, and concluded that they did not matter. In a market of 95million barrels per day production, electric cars made a difference of 25,000 to 70,000 barrels of lost consumption; ~.05%.
You can’t argue with his arithmetic. So far, they haven’t made any difference.
But then he goes on to say they won’t matter for another decade. He forecasts electric vehicle sales grow 5-fold in one decade, which sounds enormous. That is almost 20% growth year over year for 10 consecutive years. Admittedly, that sounds really, really big. Yet, at 1.5million units/year this would still be only 5% of cars sold, and thus still not a material impact on the demand for gasoline.
This sounds so logical. And one can’t argue with his arithmetic.
But one can argue with the key assumption, and that is the growth rate.
Do you remember owning a Walkman? Listening to compact discs? That was the most common way to listen to music about a decade ago. Now you use your phone, and nobody has a walkman.
Remember watching movies on DVDs? Remember going to Blockbuster, et.al. to rent a DVD? That was common just a decade ago. Now you likely have shelved the DVD player, lost track of your DVD collection and stream all your entertainment. Bluckbuster, infamously, went bankrupt.
Do you remember when you never left home without your laptop? That was the primary tool for digital connectivity just 6 years ago. Now almost everyone in the developed world (and coming close in the developing) carries a smartphone and/or tablet and the laptop sits idle. Sales for laptops have declined for 5 years, and a lot faster than all the computer experts predicted.
Markets that did not exist for mobile products 10 years ago are now huge. Way beyond anyone’s expectations. Apple alone has sold over 48million mobile devices in just 3 months (Q3 2015.) And replacing CDs, Apple’s iTunes was downloading 21million songs per day in 2013 (surely more by now) reaching about 2billion per quarter. Netflix now has over 65million subscribers. On average they stream 1.5hours of content/day – so about 1 feature length movie. In other words, 5.85billion streamed movies per quarter.
What has happened to old leaders as this happened? Sony hasn’t made money in 6 years. Motorola has almost disappeared. CD and DVD departments have disappeared from stores, bankrupting Circuit City and Blockbuster, and putting a world of hurt on survivors like Best Buy.
The point? When markets shift, they often shift a lot faster than anyone predicts. 20%/year growth is nothing. Growth can be 100% per quarter. And the winners benefit unbelievably well, while losers fall farther and faster than we imagine.
Tesla was barely an up-and-comer in 2012 when I said they would far outperform GM, Ford and Toyota. The famous Bob Lutz, a long-term widely heralded auto industry veteran chastised me in his own column “Tesla Beating Detroit – That’s Just Nonsense.”
Mr. Lutz said I was comparing a high-end restaurant to McDonald’s, Wendy’s and Pizza Hut, and I was foolish because the latter were much savvier and capable than the former. He should have used as his comparison Chipotle, which I predicted would be a huge winner in 2011. Those who followed my advice would have made more money owning Chipotle than any of the companies Mr. Lutz preferred.
The point? Market shifts are never predicted by incumbents, or those who watch history. The rate of change when it happens is so explosive it would appear impossible to achieve, and far more impossible to sustain. The trends shift, and one market is rapidly displaced by another.
While GM, Ford and Toyota struggle to maintain their mediocrity, Tesla is winning “best car” awards one after another – even “breaking” Consumer Reports review system by winning 103 points out of a maximum 100, the independent reviewer liked the car so much. Tesla keeps selling 100% of its production, even at its +$100K price point.
So could the market for EVs wildly grow? BMW has announced it will make all models available as electrics within 10 years, as it anticipates a wholesale market shift by consumers promoted by stricter environmental regulations. Petroleum powered car sales will take a nosedive.
The International Energy Agency (IEA) points out that EVs are just .08% of all cars today. And of the 665,000 on the road, almost 40% are in the USA, where they represent little more than a rounding error in market share. But there are smaller markets where EV sales have strong share, such as 12% in Norway and 5% in the Netherlands.
So what happens if Tesla’s new lower priced cars, and international expansion, creates a sea change like the iPod, iPhone and iPad? What happens if people can’t get enough of EVs? What happens if international markets take off, due to tougher regulations and higher petrol costs? What happens if people start thinking of electric cars as mainstream, and gasoline cars as old technology — like two-way radios, VCRs, DVD players, low-definition picture tube TVs, land line telephones, fax machines, etc?
What if demand for electric cars starts doubling each quarter, and grows to 35% or 50% of the market in 10 years? If so, what happens to Tesla? Apple was a nearly bankrupt, also ran, tiny market share company in 2000 before it made the world “i-crazy.” Now it is the most valuable publicly traded company in the world.
Already awash in the greatest oil inventory ever, crude prices are down about 60% in the last year. Oil companies have already laid-off 50,000 employees. More cuts are planned, and defaults expected to accelerate as oil companies declare bankruptcy.
It is not hard to imagine that if EVs really take off amidst a major market shift, oil companies will definitely see a precipitous decline in demand that happens much faster than anticipated.
To little Tesla, which sold only 1,500 cars in 2010 could very well be positioned to make an enormous difference in our lives, and dramatically change the fortunes of its shareholders — while throwing a world of hurt on a huge company like Exxon (which was the most valuable company in the world until Apple unseated it.)
[Note: I want to thank Andreas de Vries for inspiring this column and assisting its research. Andreas consults on Strategy Management in the Oil & Gas industry, and currently works for a major NOC in the Gulf.]
by Adam Hartung | Nov 3, 2014 | Current Affairs, In the Rapids, Leadership, Web/Tech
On April 15 Zebra Technologies announced its planned acquisition of Motorola’s Enterprise Device Business. This was remarkable because it represented a major strategic shift for Zebra, and one that would take a massive investment in products and technologies which were wholly new to the company. A gutsy play to make Zebra more relevant in its B-2-B business as interest in its “core” bar code business was declining due to generic competition.
Last week the acquisition was completed. In an example of Jonah swallowing the whale, Zebra added $2.5B to annual revenues on its old base of $1B (2.5x incremental revenue,) an additional 4,500 employees joined its staff of 2,500 and 69 new facilities were added. Gulp.
As CEO Anders Gustafsson told me, “after the deal was agreed to I felt like the dog that caught the car. ”
Fortunately Zebra has a plan, and it is all around growth. Acquisitions led by private equity firms, hedge funds or leveraged buyout partners are usually quick to describe the “synergies” planned for after the acquisition. Synergy is a code word for massive cost cutting (usually meaning large layoffs,) selling off assets (from buildings to product lines and intellectual property rights) and shutting down what the buyers call “marginal” businesses. This always makes the company smaller, weaker and less likely to survive as the new investors focus on pulling out cash and selling the remnants to some large corporation.
There is no growth plan.
But Zebra has publicly announced that after this $3.25B investment they plan only $150M of savings over 2 years. Which means Zebra’s management team intends to grow what they bought, not decimate it. What a novel, or perhaps throwback, idea.
Minimal cost cutting reflects a deal, as CEO Gustafsson told me, “envisioned by management, not by bankers.”
Zebra’s management knew the company was frequently pitching for new work in partnership with Motorola. The two weren’t competitors, but rather two companies working to move their clients forward. But in a disorganized, unplanned way because they were two totally different companies. Zebra’s team recognized that if this became one unit, better planning for clients, the products could work better together, the solutions more directly target customer needs and it would be possible to slingshot forward ahead of competitors to grow revenues.
As CEO since 2007, Anders Gustafsson had pushed a strategy which could grow Zebra, and move the company outside its historical core business of bar code printers and readers. The leadership considered buying Symbol Technology, but wasn’t ready and watched it go to Motorola.
Then Zebra’s team knuckled down on their strategy work. CEO Gustafsson spelled out for me the 3 trends which were identified to build upon:
- Mobility would continue to be a secular growth trend. And business customers needed products with capabilities beyond the generic smart phone. For example, the kind of integrated data entry and printing device used at a remote rental car return. These devices drive business productivity, and customers hunger for such solutions.
- From the days of RFID, where Zebra was an early player, had emerged automatic data capture – which became what now is commonly called “The Internet of Things” – and this trend too had far to extend. By connecting the physical and digital worlds, in markets like retail inventory management, big productivity boosts were possible in formerly moribund work that added cost but little value.
- Cloud-based (SaaS and growth of lightweight apps) ecosystems were going to provide fast growth environments. Client need for capability at the employee’s (or their customer’s) fingertips would grow, and those people (think distributors, value added resellers [VARs]) who build solutions will create apps, accessible via the cloud, to rapidly drive customer productivity.
With this groundwork, the management team developed future scenarios in which it became increasingly clear the value in merging together with Motorola devices to accelerate growth. According to CEO Gustafsson, “it would bring more digital voice to the Zebra physical voice. It would allow for more complete product offerings which would fulfill critical, macro customer trends.”
But, to pull this off required selling the Board of Directors. They are ultimately responsible for company investments, and this was – as described above – a “whopper.”
The CEO’s team spent a lot of time refining the message, to be clear about the benefits of this transaction. Rather than pitching the idea to the Board, they offered it as an opportunity to accelerate strategy implementation. Expecting a wide range of reactions, they were not surprised when some Directors thought this was “phenomenal” while others thought it was “fraught with risk.”
So management agreed to work with the Board to undertake a thorough due diligence process, over many weeks (or months it turned out) to ask all the questions. A key executive, who was a bit skeptical in her own right, took on the role of the “black hat” leader. Her job was to challenge the many ideas offered, and to be a chronic skeptic; to not let the team become enraptured with the idea and thereby sell themselves on success too early, and/or not consider risks thoroughly enough. By persistently undertaking analysis, education led the Board to agree that management’s strategy had merit, and this deal would be a breakout for Zebra.
Next came completing financing. This was a big deal. And the only way to make it happen was for Zebra to take on far more debt than ever in the company’s history. But, the good news was that interest rates are at record low levels, so the cost was manageable.
Zebra’s leadership patiently met with bankers and investors to overview the market strategy, the future scenarios and their plans for the new company. They over and again demonstrated the soundness of their strategy, and the cash flow ability to service the debt. Zebra had been a smaller, stable company. The debt added more dynamism, as did the much greater revenues. The requirement was to decide if the strategy was soundly based on trends, and had a high likelihood of success. Quickly enough, the large shareholders agreed with the path forward, and the financing was fully committed.
Now that the acquisition is complete we will all watch carefully to see if the growth machine this leadership team created brings to market the solutions customers want, so Zebra can generate the revenue and profits investors want. If it does, it will be a big win for not only investors but Zebra’s employees, suppliers and the communities in which Zebra operates.
The obvious question has to be, why didn’t Motorola do this deal? After all, they were the whale. It would have been much easier for people to understand Motorola buying Zebra than the gutsy deal which ultimately happened.
Answering this question requires a lot more thought about history. In 2006 Motorola had launched the Razr phone and was an industry darling. Newly minted CEO Ed Zander started partnering with Google and Apple rather than developing proprietary solutions like Razr. Carl Icahn soon showed up as an activist investor intent on restructuring the company and pulling out more cash. Quickly then-CEO Ed Zander was pushed out the door. New leadership came in, and Motorola’s new product introductions disappeared.
Under pressure from Mr. Icahn, Motorola started shrinking under direction of the new CEO. R&D and product development went through many cuts. New product launches simply were delayed, and died. The cellular phone business began losing money as RIM brought to market Blackberry and stole the enterprise show. Year after year the focus was on how to raise cash at Motorola, not how to grow.
After 4 years, Mr. Icahn was losing money on his position in Motorola. A year later Motorola spun out the phone business, and a year after that leadership paid Mr. Icahn $1.2B in a stock repurchase that saved him from losses. The CEO called this buyout of Icahn the “end of a journey” as Mr. Icahn took the money and ran. How this benefited Motorola is – let’s say unclear.
But left in Icahn’s wake was a culture of cut and shred, rather than invest. After 90 years of invention, from Army 2-way radios to police radios, from AM car radios to home televisions, the inventor analog and digital cell towers and phones, there was no more innovation at Motorola. Motorola had become a company where the leaders, and Board, only thought about how to raise cash – not deploy it effectively within the corporation. There was very little talk about how to create new markets, but plenty about how to retrench to ever smaller “core” markets with no sales growth and declining margins. In September of this year long-term CEO Greg Brown showed no insight for what the company can become, but offered plenty of thoughts on defending tax inversions and took the mantle as apologist for CEOs who use financial machinations to confuse investors.
Investors today should cheer the leadership, in management and on the Board, at Zebra. Rather than thinking small, they thought big. Rather than bragging about their past, they figured out what future they could create. Rather than looking at their limits, they looked at the possibilities. Rather than giving up in the face of objections, they studied the challenges until they had answers. Rather than remaining stuck in their old status quo, they found the courage to become something new.
Bravo.
by Adam Hartung | Aug 6, 2014 | Defend & Extend, In the Whirlpool, Innovation, Lifecycle, Web/Tech
Remember the RAZR phone? Whatever happened to that company?
Motorola has a great tradition. Motorola pioneered the development of wireless communications, and was once a leader in all things radio – as well as made TVs. In an earlier era Motorola was the company that provided 2-way radios (and walkie-talkies for those old enough to remember them) not only for the military, police and fire departments, but connected taxies to dispatchers, and businesses from electricians to plumbers to their “home office.”
Motorola was the company that developed not only the thing in a customer’s hand, but the base stations in offices and even the towers (and equipment on those towers) to allow for wireless communication to work. Motorola even invented mobile telephony, developing the cellular infrastructure as well as the mobile devices. And, for many years, Motorola was the market share leader in cellular phones, first with analog phones and later with digital phones like the RAZR.
But that was the former Motorola, not the renamed Motorola Solutions of today. The last few years most news about Motorola has been about layoffs, downsizings, cost reductions, real estate sales, seeking tenants for underused buildings and now looking for a real estate partner to help the company find a use for its dramatically under-utilized corporate headquarters campus in suburban Chicago.
How did Motorola Solutions become a mere shell of its former self?
Unfortunately, several years ago Motorola was a victim of disruptive innovation, and leadership reacted by deciding to “focus” on its “core” markets. Focus and core are two words often used by leadership when they don’t know what to do next. Too often investment analysts like the sound of these two words, and trumpet management’s decision – knowing that the code implies cost reductions to prop up profits.
But smart investors know that the real implication of “focusing on our core” is the company will soon lose relevancy as markets advance. This will lead to significant sales declines, margin compression, draconian actions to create short-term P&L benefits and eventually the company will disappear.
Motorola’s market decline started when Blackberry used its server software to help corporations more securely use mobile devices for instant communications. The mobile phone transitioned from a consumer device to a business device, and Blackberry quickly grabbed market share as Motorola focused on trying to defend RAZR sales with price reductions while extending the RAZR platform with new gimmicks like additional colors for cases, and adding an MP3 player (called the ROKR.) The Blackberry was a game changer for mobile phones, and Motorola missed this disruptive innovation as it focused on trying to make sustaining improvements in its historical products.
Of course, it did not take long before Apple brought out the iPhone and with all those thousands of apps changed the game on Blackberry. This left Motorola completely out of the market, and the company abandoned its old platform hoping it could use Google’s Android to get back in the game. But, unfortunately, Motorola brought nothing really new to users and its market share dropped to nearly nothing.
The mobile phone business quickly overtook much of the old Motorola 2-way radio business. No electrician or plumber, or any other business person, needed the old-fashioned radios upon which Motorola built its original business. Even police officers used mobile phones for much of their communication, making the demand for those old-style devices rarer with each passing quarter.
But rather than develop a new game changer that would make it once again competitive, Motorola decided to split the company into 2 parts. One would be the very old, and diminishing, radio business still sold to government agencies and niche business applications. This business was profitable, if shrinking. The reason was so that leadership could “focus” on this historical “core” market. Even if it was rapidly becoming obsolete.
The mobile phone business was put out on its own, and lacking anything more than an historical patent portfolio, with no relevant market position, it racked up quarter after quarter of losses. Lacking any innovation to change the market, and desperate to get rid of the losses, in 2011 Motorola sold the mobile phone business – formerly the industry creator and dominant supplier – to Google. Again, the claim was this would allow leadership to even better “focus” on its historical “core” markets.
But the money from the Google sale was invested in trying to defend that old market, which is clearly headed for obsolescence. Profit pressures intensify every quarter as sales are harder to find when people have alternative solutions available from ever improving mobile technology.
As the historical market continued to weaken, and leadership learned it had under-invested in innovation while overspending to try to defend aging solutions, Motorola again cut the business substantially by selling a chunk of its assets – called its “enterprise business” – to a much smaller Zebra Technologies. The ostensible benefit was it would now allow Motorola leadership to even further “focus” on its ever smaller “core” business in government and niche market sales of aging radio technology.
But, of course, this ongoing “focus” on its “core” has failed to produce any revenue growth. So the company has been forced to undertake wave after wave of layoffs. As buildings empty they go for lease, or sale. And nobody cares, any longer, about Motorola. There are no news articles about new products, or new innovations, or new markets. Motorola has lost all market relevancy as its leaders used “focus” on its “core” business to decimate the company’s R&D, product development, sales and employment.
Retrenchment to focus on a core market is not a strategy which can benefit shareholders, customers, employees or the community in which a business operates. It is an admission that the leaders missed a major market shift, and have no idea how to respond. It is the language adopted by leaders that lack any vision of how to grow, lack any innovation, and are quickly going to reduce the company to insignificance. It is the first step on the road to irrelevancy.
Straight from Dr. Christensen’s “Innovator’s Dilemma” we now have another brand name to add to the list of those which were once great and meaningful, but now are relegated to Wikipedia historical memorabilia – victims of their inability to react to disruptive innovations while trying to sustain aging market positions – Motorola, Sears, Montgomery Wards, Circuit City, Sony, Compaq, DEC, American Motors, Coleman, Piper, Sara Lee………..
by Adam Hartung | Apr 15, 2014 | Current Affairs, In the Rapids, Leadership, Transparency
Zebra Technologies is a company most people don’t recognize. Yet, I bet every product you buy has the product on which they specialize.
Since 1982 Zebra has been the leader in bar code printers and readers. Zebra was a pioneer in the application of bar codes for tracking pallets through warehouses, items used in a manufacturing line, shipment tracking and other uses for manufacturing and supply chain management. As the market leader Zebra Technologies developed its own software (ZPL) for printing barcodes, and made robust printing and reading machines that were the benchmark for rugged, heavy duty applications at companies from Caterpillar, to UPS and FedEx, to WalMart.
Although the company dabbled in RFID technology for product tracking, and is considered a leader in that market, the new technology really never “took off” due to higher costs compared with the boring, but effective and remarkably cheap, bar code. So Zebra plodded away making ever better, smaller, cheaper, faster bar code printers. It may not have been exciting, like the nondescript headquarters in far-suburban Chicago, but it met the market needs. Zebra was an excellent operational company that was delivering on its focus.
Even if it was, well …… boring.
But, like all markets, the bar code market began shifting. Generic software companies, like Microsoft, produced drivers that would work from a cheap PC to allow
cheap generic printers, like those from HP, to print bar codes. These were cheap enough to be considered disposable. Not a good thing for the better, but more expensive, market leader. Competitive, non-proprietary software and hardware leads to lower prices and margin compression. It’s a differentiation stealer.
Worse, lots of customers stopped caring much about bar codes altogether. Zebra’s customers realized bar codes were everywhere. Nothing new was really happening. When it came to delivering on the promise of really efficient, accurate and low cost supply chain management the bar code had a place. But no longer an exciting one. When your product is boring discussions with customers easily slip toward price rather than new products. And when you’re talking about price, and how to keep existing business, relevancy is at risk. You become a target for a new competitor to come along and steal your thunder (and profits) by relegating your product to generic-doom while taking the high rode of delivering more value by changing the game.
So hand it to Zebra’s leadership team that they observed the risk of staying focused on their status quo, and took action to change the game themselves. Today Zebra announced it is buying the enterprise device business of Motorola. And this is a big bet. At a price of $3.5B, Zebra is spending an amount nearly equal to its existing net worth. And it is borrowing $3.25B – almost the whole cost – greatly increasing the company’s debt ratios. That is a gutsy move.
Yet, in this one move Zebra will nearly triple its revenues.
This decision is not without risk. The acquired Motorola business has seen declining revenues – like a $500M decline in the last year (roughly 25%.) With many products built on Microsoft software, customers have been shifting to other solutions. Exactly how the old technologies will integrate with new ones in the Motorola lines is not clear. And even less clear is how a combined company will bring together old-line printer/scanners using proprietary software with the diverse, and honestly pricey, products that Motorola enterprise has been selling, to offer more competitive solutions.
Yet, investors should be encouraged. Doing nothing would spell disaster for Zebra. It is a company that needs to re-invent itself for today’s pressing business needs — which have little in common with the top needs 30 years ago (or even 10 years ago.) In October, Zebra launched Zatar, a Web-based software that allows companies to deploy and manage devices and sensors connected to the Internet. In December Zebra purchased a company (Hart) for its cloud-based software to manage inventory. Now Zebra is looking to use these integration tools to bring together all kinds of devices the new company will manufacture to help companies achieve an entirely new level of efficiency and capability in today’s real-time manufacturing and logistics world.
We should admire CEO Anders Gustaffson’s leadership team for recommending such bold action. And the company’s Chairman and Board for approving it. Of course “there’s many a slip twixt the cup and the lip,” but at least Zebra’s investors, employees, suppliers and customers can now see that Zebra is really holding a viable cup, and that it is putting together a serious effort to provide better delivery to buyers lips.
This is a play to grow the company by following the trend to “the internet of things” with new solutions that are potential game changers. And there’s no way you can win unless you’re in the game. With these acquisitions, there is no doubt that what was mostly a manufacturing company – Zebra – is now “in the game” for doing new things with new technologies.
This does beg some questions: What is your company doing to be a game changer? Are you resting on the laurels of strong historical sales – and maybe a strong historical market position? Do you recognize that your market is shifting, and it is undercutting historical strengths? Are you relying on operational excellence, while new technologies are threatening your obsolescence?
Or — are you thinking like the leaders at Zebra Technologies and taking bold action to be the industry game-changing leader, even if it means stretching your financials, your management team and the technology?
Most of us would rather be in the former, than the latter, I think.
