by Adam Hartung | Jan 12, 2010 | Defend & Extend, In the Swamp, Innovation, Leadership, Lock-in
Do all good ideas originate outside the organization? Of course not. Motorola understood all the critical technologies for smart phones, and taught Apple how to use them in a joint development project that created the ROKR. That's just one example of a company that had the idea for growth, but didn't move forward effectively. In this case Apple captured the value of new technology and a market shift.
On the Harvard Business Review blog site one of consulting firm Innosight's leaders, Mark Johnson, covers two stories of companies that had all the technology and capability to lead their markets, but got Locked-in to old practices. In "Have You Already Killed Your Next Big Thing" Mr. Johnson talks about Xerox and Kodak – two stories profiled in my 2008 book "Create Marketplace Disruption." Both companies developed the technology that replaced their early products (Xerox developed desktop publishing and Kodak developed the amateur digital camera.) But Lock-in kept them doing what they did rather than exploiting their own innovation.
One of the causes is a fascination with metrics. Again on the Harvard Business Review blog site Roger Martin, Dean of the Rotman School of Management at the University of Toronto, tells us in "Why Good Spreadsheets Make Bad Strategies" that you can't measure everything. And often the most important information about markets and what you must do to succeed is beyond measuring – at least in the short term.
Measurements are good control tools. Measurements can help force a focus on short term improvements. But measurements, and the concomitant focus, reduces an organization's ability to look laterally. They lose sight of information from lost customers, from small customers, from fringe customers and fringe competitors. Measurement often leads to obsession, and a deepening of Defend & Extend behavior. It's not accidental that doctors often find anorexia patients measure everything in (liquids and solids) and everything out (liquids and solids).
Measurements are created when a business is doing well. In the Rapids. Like Kodak during the 1960s and Xerox in the 1970s. Measurements are structural Lock-ins that help "institutionalize" the behavior which makes the Success Formula operate most effectively. And they help growth. But they do nothing for recognizing a market shift, and when new technology comes along, they stand in the way. That's why a powerful Six Sigma or Total Quality Management (TQM) or Lean Manufacturing project can help reduce costs short term, but become an enormous barrier to innovation over time when markets shift. These institutionalized efforts keep people doing what they measure, even if it doesn't really add much incremental value any longer.
To overcome measurement Lock-ins we all have to use scenario planning. Scenarios can help us see that in a future marketplace, a changed marketplace, measuring what we've been doing won't aid success. And because we don't yet know what the future market will really look like, we can't just swap out existing metrics for something different. As we proceed to do new things, in White Space, it's about learning what the right metrics are – about getting into the growth Rapids – before we tie ourselves up in metrics.
Note: To all readers of my Forbes article last week – there has been an update. The very professional and polite leadership at Tribune Corporation took the time to educate me about the LBO transition. As a result I learned that what I previously read, and reported in my column as well as on this blog, as being an investment of employee retirement funds into the LBO was inaccurate. Although Tribune is in hard times right now, the very good news is that the employee retirement funds were NOT wiped out by the bankruptcy. The Forbes article has been corrected, and I am thankful to the Tribune Corporation for helping me report accurately on that issue.
by Adam Hartung | Jun 15, 2009 | Defend & Extend, General, Leadership, Lifecycle
Harvard Publishing recently posted an article from a professor at the London Business School, Freek Vermeulen "Can we please stop saying the market is efficient?" The good professor's point of view was that he observed a lot of companies that were efficient which didn't survive, and several not all that efficient that did survive. He even took time to point out where some Harvard professors had identified that companies who implement ISO 9000 often see their innovation decline!
Unfortunately, the good professor is all too correct. If markets were efficient, we'd see performance move in a straight line. But any follower of equities, for example, can show you where the stock of a company may have gone up, then declined 20%, then gone back to a new high, maybe to even fall back more than the original 20%, only to then climb to even greater highs. If the market for that equity were efficient, it would never have these sorts of wild price gyrations.
Likewise, the market for products, things like copiers, aren't all that efficient. A case I describe pretty deeply in Create Marketplace Disruption. When Xerox brought out the 914 copier it changed the world of office copies. But it didn't take off. Instead, for years companies maintained their duplicating shop in the basement, using small lithographic offset presses. This went on for years, and usually the basement shop was closed when (a) the operator retired, (b) the printing press simply gave up the ghost and was ready for the scrap heap, or (c) when the company realized it had so many copiers the basement would be better served to house copiers instead of the printing press. The fact is that marginal economics – the very low cost of continuing to operate an alread-paid-for-press meant that it was easy to simply keep using presses long after they had any economic advantage. Not to mention all kinds of kinks in the decision apparatus that funded things like a print shop just because the budget "always had." But eventually, as the retirees and metal scrappers started accumulating, the market shifted. What had been a "mixed market" of presses and Xerox copiers suddenly shifted to almost all copiers. Xerox exploded, and the small offset press makers disappeared.
That wasn't efficient. There was a huge lag between when the benefits of copiers were well known and the demise of print shops. In the end, those who had debts or equity in printing press companies suffered huge losses as the business "fell off a cliff." There was no "orderly migration" out of the marketplace. In a very short time, the market shifted from one solution to another.
As recently as 2007 almost every home in America had a newspaper delivered. By 2009 the market had begun to disappear with subscriptions down over 60% in some markets. For advertisers, the purchasing of print ads dropped by over 50% in just 24 months. Yet, the growth of web usage and internet ads had been growing for almost a decade. In an efficient market there would have been a smooth transition between the two, with say 5% of ads shifting every year. Again, the economists' "orderly transition" would have applied. There doesn't seem anything orderly if you're in a market where the newspaper has disappeared, filed for bankruptcy, or cut its pages 40% – and you're wondering how to get the local news or even the TV listings you once found in the newspaper.
Market shifts are sudden, and big. In the later half of the 1980s the PC market shifted from 60% Macintosh to 80% Wintel in just 5 years – while growth for PCs exploded. It didn't feel very efficient to people at Apple, the suppliers of apps for Macs or the user base. Thousands of people in corporations were told "surrender your Mac and get a new PC next week" with no discussion, explanation or concern.
Companies that fall victim to market shifts aren't without strategists, planners or quality programs. Many have robust TQM or Six Sigma projects. But these are all about optimizing performance against past performance – not necessarily what the market wants. When you optimize agains the past you depend on minimal change. When markets shift, these "efficiency" programs can cause you to be the last to know – and the last to react.
People like to think of evolution as sort of like Continuous Improvement. Get 5% better every year. Like a variety of mammal might lose 1/4" of tail each generation until it no longer has one. We now know that's not how it works. There are winners. They keep reproducing, get stronger and more of them every year. Like mammals with long tails. Meanwhile, an alternative develops – like a mammal with no tail. Then suddenly, without expectation, the environment changes. Tails become a big hindrance, and those with tails die off in a massive exodus. Those without tails suddenly find they are advantaged by the lack of tails, so they begin breeding fast and getting stronger. In short order, perhaps a single generation, the tailed mammals are gone and the no-tails become dominant. Not very efficient, or orderly. More like reactive to an environmental shift.
If you want to do good tomorrow, I mean one day from today, the odds are that you can accomplish that by being just slightly better at what you did yesterday. But if you want to be good in 5 years, you may well have to do something very different. If you wait for the market to tell you – well – you've waited too long. By the time you know you're out of date, the competitor has taken your position. You have no hope of survival.
We live with a lot of myths in business. The value of efficiency, and the belief in efficient markets, are just a couple of big ones. Kind of like the old myths about blood-letting. Before the USA, never before in history has anyone ever tried to establish a government of self-rule. And self-rule led America to a country dominated by businesspeople. No longer did the king determine winners, losers, prices and behavior. Now markets would do so. The people who would make these markets were the emerging business folks. But nobody knew anything about markets – except some theories about how they "should" work written by an Englishman who had grand thoughts about open-market behaviors. So most people accepted the earliest theory – with its ideas about "invisible hands" that would guide behavior.
Markets are dramatically inefficient. Just look at the prices of equities. Look at the bankruptcies all around us. GM, your local newspaper, Six Flags and your neighborhood furniture store. People who were often efficient, but didn't understand that markets shift quickly, and very inefficiently. They don't move in small increments – they change all at once. And if you want to survive, you have to
prepare for market shifts. Simply working harder, faster and cheaper won't save you when the market shifts. If you aren't ready to be part of the shift, you get left behind and won't survive.
Markets are shifting today faster than they ever have. Telecommunications, internet connections, massive amounts of computing power, television, jet airplanes – these things have made the clock speed on changes much faster. Market shifts that used to be seperated by decades are compressed into a few years. If you don't plan on market inefficiencies – on market changes – you simply can't survive.
Lots of people misunderstand Darwin. The prevailing view is that his study on the origination of species says that the strongest survive. In fact, his conclusion was quite the opposities. What he said was that it is not the strongest that survive, but the most adaptable.
