by Adam Hartung | Jul 21, 2005 | Defend & Extend, General, In the Swamp, Innovation, Leadership, Lifecycle
Motorola announced a great profit leap this week. Sales keep going up in all markets, and most notably sales of Motorola handsets have been gaining share. It was just 2 years ago that most analysts had given up on Motorola. They tagged the company as unresponsive to customers and a bad investment. But now, analysts all over are trumpeting the success at this aged, but recovering, company and recommending investors buy the stock (as well as the products).
Unfortunately, the same can’t be said for Kodak. Since dropping off the DJIA Kodak has been struggling to re-orient the company toward markets and renewed growth. Kodak announced a loss last quarter, and longer delays before returning to profitability. Although Kodak has been working on its "turnaround" for over 5 years (from film to digital photography) they still are saying that reaching their goals is at least 18 months away. Eighteen months ….. that’s longer in the future than Motorola has been executing its turnaround. And analysts are far from optimistic about the Kodak’s future.
Motorola is opening two new R&D centers, while Kodak is planning to lay-off 20,000+ employees.
Last January (2004) Motorola undertook a pattern interrupt and launched a host of new white space initiatives. The new leader (Ed Zander) escshewed massive layoffs in favor of reigniting his employees and seeking new growth markets. In fairly short order, Motorola has unleashed creative energy trapped in the organization and taken new products to market which are growing the company again. Motorola, in about a year, moved from the Swamp back into the Rapids by effectively disrupting itself then creating and managing White Space projects.
On the other hand, Kodak keeps trying to Defend and Extend its old business while "transitioning" to a new future. The leaders at Kodak won’t let go of the past and unleash their own organization to seek the future. Kodak has plenty of talented people, a great brand, and good distribution. But it keeps trying to defend its past instead of taking the actions to reignite growth in new markets. Its a shame, since Kodak was one of the early pioneers in digital imaging (they held many of the first patents) and its employees have had a clear view of "the future" for 20 years. But management has let lock-in to an old success formula keep them from unleashing their own resources.
Two big and "mature" companies found themselves stuck in the Swamp. Growth had stopped and financial results tanked. One followed the Phoenix Principle, and the other followed traditional management practices. One is now regaining share and growing again, the other remains seriously troubled.
by Adam Hartung | Jul 15, 2005 | In the Rapids
Apple Computer has done something rather amazing. Fewer than 10% of companies that hit a growth stall ever regain growth. But Apple has done it spectacularly.
Just a few years ago Apple was described as one company caught in the grips of the Innovator’s Dilemma by Clayton Christensen. Sales of Macs became so large that the company abanded its efforts to develop what became the very large PDA market (remember the Newton?). Apple began focusing on Defending and Extending its Mac business, and innovative product markets were abandoned. Then Macs fell victim to a market shift toward Wintel PCs and Apple faultered horribly – with layoffs and a risk of failure.
Now, after a series of CEO changes, Apple has taken the lead in the on-line digital music business with its iPod. Third quarter sales were up 75% versus a year ago, leading to a five-fold increase in profits (see Chicago Tribune report.) And share prices are near 5 year highs. That’s great…. so long as Apple doesn’t succumb to the siren’s song of now trying to be just an iPod company. What turned around Apple was using white space to find a new product market overlooked by Sony and other traditional music industry players trying to defend and extend their outdated business model.
What Apple must do is continue disrupting itself, creating white space projects and developing new product markets. In the fast cycle-time world of personal electronics, the requirements for success are applying the Phoenix Principle and avoiding the lure of trying to defend and extend a hit product/market.
by Adam Hartung | Jul 13, 2005 | Defend & Extend, Leadership
Today Bernie Ebbers was sentenced to 25 years in prison. For some it is seen as a signal to all CEOs they had better not commit fraud. For others it’s revenge for the ruination of a large corporation. For others it’s yet another sign of America’s misguided business leadership. And for others this is just an isolated, and irregular, activity by a wildman CEO. No matter what the view, unless this decision is overturned on appeal it’s very likely Bernie Ebbers will die in prison.
What we know from the trial is that Bernie Ebbers worked hard to pursue quarterly revenue and earnings goals. He never for a moment took his eyes off the P&L. He was so single-minded, he was found guilty of altering his books in a massive fraud in order to produce those desperately sought after results. Yet during his leadership at WorldCom he was hailed as a great leader by those in and out of his company who admired his single-minded behavior and focus on results.
Ebbers forgot the basic rule – the P&L is about RESULTS. You don’t create results, they happen because of the business decisions you make. When results don’t come in as favorably as desired it’s not the results you should focus upon, but instead the business decisions which create those results.
Bernie Ebbers is nothing more than another manager who fell victim to Defending and Extending a broken Success Formula. He went farther than most – to the point of fraud – in order to defend and extend that Success Formula. As such, he represents just how far Locked-In management can go to practice D&E Management. All managers who fall into the trap of D&E thinking, and D&E practices, run the risk of facing the reality that the RESULTS simply aren’t what they projected. Then they face very, very difficult choices.
There are other such victims in management today. Some are going through the wringer for it – AIG, Enron, Healthsouth to name a few. And there are many, many more that aren’t on the front page of today’s business section or under investigation. But all represent a common threat to their organizations and investors. The threat created by locking-in, focusing on the results and thereby not preparing to make strategic shifts when market changes require them. Then these managers don’t know what to do when the RESULTS aren’t what was projected.
It appears that Bernie Ebbers may well die in prison because of the decisions he made. Everyone loses – the wiped out WorldCom shareholders, the laid-off employees, the stranded customers, the defaulted suppliers and now the leader himself. And this could have been avoided if Worldcom management (led by Ebbers) simply hadn’t locked-in on that Success Formula and become single-mindedly devoted to Defending and Extending it. And that is the lesson for us all, we have much to fear from Lock-In and D&E Management practices.
by Adam Hartung | Jun 29, 2005 | Defend & Extend, In the Whirlpool, Lock-in
Can you recognize a leadership team (and business) in the Whirlpool?
Today’s Chicago Tribune quoted UAL as saying their losses were the result of "brutal" fuel costs. If it just wasn’t for those darn high fuel prices, why they could break-even.
And if pigs could fly….
For many years United’s management has had one excuse after another as to why they couldn’t make money. Unions, too many planes, high gate costs, insufficient ridership, too much competition…. fuel costs… Their business model is broken and it can’t make money. They have no idea how to fix it. They keep trying to find a way to Defend what they’ve done and Extend it in some fashion that will save the company. But nothing works. And it won’t. Yet, they can’t seem to get the gumption to disrupt themselves and try to really do something new before everyone loses their jobs (they already wiped out the shareholders) and leave creditors owning a bunch of planes.
Why, if they could just get those pigs to fly….
by Adam Hartung | Jun 24, 2005 | Defend & Extend, In the Swamp, Lock-in
McDonald’s is spending $20M this week to feel better about itself. Unfortunately, it won’t help shareholders. McDonald’s hit a growth stall 4 years ago, and ever since has been trying to use Defend & Extend management to regain growth. That’s included selling off assets and shutting stores.
Now it includes McDonald’s bringing 5,000 store managers (most at franchisee expense) to Vegas in an effort to pump them up and thereby improve store execution. The goal? To regain a future by focusing on better execution in the store. But, even the North American President admits "the U.S. would continue with ‘solid’ sales next year but probably not the double-digit growth..seen at times during the recent past."
So, a big chunk of one of America’s largest training budgets is going into a straightforward Defend & Extend program. Why? According to the Chicago Tribune, "The store managers’ performance will largely determine just how successful McDonald’s is going forward." Amazingly, we’re to believe the future of this DJIA multi-billion dollar corporation’s growth relies on the execution of 5,000 front line store managers in making and delivering Big Macs? "Results are [expected to be] evident through better execution of procedures in the restaurants." Where’s the leadership in that?
McDonald’s cannot rely on execution to regain its growth rate. The company heritage – consistency – is all focused on execution. So it’s comfortable for leadership to lean on execution as ‘the fix.’ But McDonald’s needs more than new chicken sandwiches – it needs to find a way to compete with the likes of Starbucks. And that won’t come from doing magic shows for 5,000 store managers in Vegas.
by Adam Hartung | Jun 23, 2005 | Defend & Extend, Disruptions, In the Swamp, Leadership, Lifecycle
Readers of my BLOGs might think I am always opposed to layoffs. It is true that the majority of layoffs are efforts to Defend & Extend outdated Success Formulas with short-term cost reductins that do not effectively address Challenges. Those layoffs (such as across the board reductions) do nothing to improve a business and are difficult to support. They simply push the business closer to the Whirlpool. But, layoffs can also be important Disruptions tied to turning a troubled company around.
Troubled Success Formulas are turned around by White Space projects. And White Space requires both permission and resources. But where is a troubled company supposed to get the resources? In many cases, it requires making tough decisions to STOP doing some things in order to refocus the business on developing a new Success Formula. Layoffs targeted at redirection and resource generation for new projects are very effective Disruptions that can unleash new innovation and move toward renewed success.
HP and Time Warner have both stalled. They must undertake serious redirection. And both are taking Disruptive actions intended to generate Pattern Interrupts plus unleash resources to be invested in White Space.
According to BusinessWeek, HP is going to redirect what it sells and how it sells it. An action intended to get much closer to customer needs – something HP desperately needs to do. And in order to finance this action it will likely layoff 15,000+ workers.
TimeWarner is selling its cable business in order to invest in AOL. A risky move – but one to applaud. Cable franchises are not high growth businesses. Capitalizing the future value of cable into current cash creates a treasure chest for developing new growth opportunities — which likely lie in AOL as it moves aggressively to reposition and compete with Yahoo!
Both companies are far from out of the Swamp and back into the Rapids. But both are doing exactly what they need to do to prepare themselves for the transition. Investors may applaud these moves simply because these changes raise cash that will improve the balance sheets of both firms. What investors should cheer is raising cash to invest in transitional White Space projects that could return both companies to higher growth.
by Adam Hartung | Jun 19, 2005 | Uncategorized
Wall Street Week on PBS featured an interview with Richard Florida author of The Flight of the Creative Class. Try to catch the episode if you can.
In this second book by Dr. Florida, he makes a great argument that growth comes from the efforts of those in society who are most creative. His arguments are compelling. In a nutshell, those companies (and economies) that help develop and then use the talents of our most creative people are most successful.
This may not seem insightful, until you think about how we actually have been treating creative people since 2000. Business R&D budgets actually declined in 2002 – for the first time in 15 years. And with those budget declines went many jobs for those leading our economic innovation engine. Businesses went even farther, though, by actually farming out much of their R&D to offshore companies in an effort to lower development costs. As a result, non-U.S. companies began gaining ground in the ability to innovate and create competitive advantage.
Defend and Extend behavior can be deadly. Using the need for profits as the justification, management can literally shoot the goose which laid the golden eggs. Lock-in to old business ideas leads managers to believe they don’t need innovation, just better execution. They prefer the cost reductions to the investment in innovation. Yet, the data would indicate otherwise. Execution quickly becomes meaningless (and not very profitable) in a highly competitive world — where a more innovative competitor can obsolete your superior execution in a heartbeat.
Despite what the politicians might say, businesspeople know its tough out there. Profits are harder and harder to come by. Every trip to China or India produces less return. What’s needed is a change in management thinking. Away from a focus on execution, and a return to recognizing the importance, and value, of innovation.
Internal innovation is as critical to business as oxygen is to human life. Businesses won’t competitively win in a dynamic world unless they ask for, develop, seek out, relish and promote innovation.
Businesses need those highly creative people in Marketing, Sales, Product Development, R&D – and all aspects of the company. Businesses need to hire, and listen to, those outside organizations (lawyers, ad agencies, consultants) filled with "outside the box thinkers". These outsiders have been proven to drive innovation – and innovation drives growth!
by Adam Hartung | Jun 8, 2005 | Disruptions, In the Rapids, Innovation, Leadership
It’s easy to beat up on old businesses. But lately, a very old business is making some very smart moves.
The venerable New York Stock Exchange came under some severe attacks last year. It Chairman was accused of improper compensation and the Exchange Board was accused of improper oversight. Things weren’t looking too good as prosecutors went after specialists and floor traders.
But hand it to the new CEO. He used the troubles to create an internal Disruption. The NYSE’s troubles were more a reflection of its inabilities to address its challenges from the NASDAQ than malfeasance (although the latter is still being argued.) So he used the attacks to rethink the future of the exchange.
Viola – in a master stroke the new Chairman of the 200 year old exchange has acted to revitalize the NYSE by buying Archipelago. Instead of taking actions in defense of the past, he is moving quickly to push the Exchange into the forefront of trading for the new millenium. This acquisition is a classic example of using a Disruption to create White Space – and develop a new Success Formula for an old business.
In the hectic pace of change in business, many have paid little attention to this action. But it’s a great example of a new leader identifying the real challenge to the business – rather than reacting to its problems. And then taking actions to create a pattern interrupt and new opportunities to learn. And possibly saving a venerable, and horribly locked-in, organization.
This is a great move for the NYSE – and a stellar example of The Phoenix Principle in action.
by Adam Hartung | Jun 8, 2005 | In the Whirlpool
GM is cutting another quarter of its workforce. That’s really not too surprising an announcement, given what’s been made public about the company this year. What is amazing is how so few people saw it coming.
There are lots of pundits screaming about the high cost of health care in each GM care. Or talking about how the pension plan is too expensive. And of course some simply say GM designs me-too product, or doesn’t produce to enough quality. But in fact, none of that is the real issue.
In 1980 Chairman Roger Smith of GM saw that GM’s future was in jeapardy. He undertook a series of actions to help GM move from a large, cash rich car company into new growth markets of IT, electronics and avionics – while creating a new division that would compete with Japanese producers like a Japanese producer. He saw that GM needed to expand its markets and be more than a "car company." GM needed to learn how to do new things.
No one expects GM to regain its glory. The amazing thing is that this bullet has been flying at GM for the entire period. Like a 5 mph bullet.
GM couldn’t get out of the way. It’s desire to remain locked into its old business model, at the risk of complete failure and the destruction of thousands of jobs and billions in shareholder wealth, was greater than its willingness to explore new opportunities. GM had visions – but it never learned how to address its lock-in.
Now GM is moving faster than ever toward the Whirlpool. Slashing jobs and creativity as fast as it can. All in a last ditch effort to dodge that 5 mph bullet. Ever heard the phrase "too little, too late"? It’s obvious that after this long, the executives simply don’t know what else to do. Creativity and innovation have atrophied and disappeared from what was once an innovative and growing company.
But, executive after executive since Smith has retrenched GM to its old business. And pundit after industry expert has pushed GM to be a "better" car company. And year after year, GM has struggled. Now, 20+ years later GM is finally tilting into the Whirlpool
by Adam Hartung | May 21, 2005 | Defend & Extend, In the Swamp, Lock-in
WalMart is an amazing company. From a small rural store a behomoth of retailing emerged in just a few years. No one seems able to compete with WalMart in discounting.
Despite its success, WalMart is now struggling to grow. Poor revenue growth has stalled the share price. Now, more than at any previous time, WalMart needs to find new ways to grow. Its Success Formula has worked so well that no one can outperform WalMart at being WalMart. But, it’s unclear that there’s a need for more WalMarts. And foreign markets aren’t nearly as excited about WalMart as Americans. So, how is WalMart to grow?
WalMart needs White Space projects that can launch new revenues. Just as Sam’s was once a new project that became large. But WalMart has become so focused on its retail store strategy that it’s lost the ability to do new things. Last week WalMart gave up on its effort to rent videos on-line, handing that business to NetFlix.
Amid the announcement WalMart pointed out that its stores sell more in one day than NetFlix does in a year. But the real story is that WalMart can’t figure out how to compete on-line. At WalMart, it’s all about the stores. How to drive more revenue to the stores. And that’s getting increasingly difficult.
There was another retailer that never rose to this challenge. Once the biggest innovator in retail, they were the first to capture the rural customer (with mail order) and they became a powerhouse across the country. But, when they couldn’t adapt to changing times and learn to do new things they fell to an acquirer’s axe. That company was, of course, Sears.
So, it may seem silly to think that WalMart’s failure to sell videos, or anything else, on-line is a serious concern. But people thought Sears’ on-line failures were no big deal 6 years ago. It’s actually a very, very big concern when any company becomes so locked in that it can’t undertake new projects. It portends very bad things ahead.
