by Adam Hartung | Nov 1, 2004 | In the Rapids, Innovation, Leadership
Starbuck’s has been breaking the rules ever since it was brewed up in the mind of founder Howard Schultz, and it looks like they are doing so again. Many of Starbuck’s innovations have been product-related breakthroughs such as Frappuccino and adding Music CD’s to the store’s inventory. These have been profitable innovations, but the first time the company really challenged its success formula is when it added wireless internet connectivity. Now the company is opening dozens of “media bar” stores that will enable customers to listen to and burn custom CD’s while they slurp down that Venti no-foam non-fat caramel Latte. This is a dramatic entrée into a new success formula that speaks loudly of Starbuck’s commitment to reinventing itself.
How are they able to do this when other companies struggle with even small innovations? I think there are three key elements. The first is the company’s commitment to ongoing innovation. CEO Schultz has created a climate where innovations are valued and can come from anywhere in the organization. For instance, the idea for Frappuccino came from two store managers who were experimenting with a frozen coffee drink.
A second factor is that the identity of the company is sufficiently large that many different strategic directions are possible. Rather than narrowly define itself as a coffee bar, Starbucks sees itself as a “third place”—a destination where people can escape from the rat race and other troubles, relax and experience a sense of well-being and community. Music is a natural addition to the sense of leisurely self-indulgence.
The third element is passion. I think passion is the secret ingredient in every really great success story. Why? Because business is about people, and people are passionate to their very core. Employees who are passionate about the business will give more energy, more creativity and will be more productive than the norm. Customers can tell when passion is in the air—it’s infectious and they start to catch it too. Passionate customers inspire employees in a positive feedback loop. Passionate customers also breed new customers. Someone who is crazy about your business will tell their friends and very nearly drag them to your store. In practically every early morning meeting I attend, someone is drinking from a Starbucks cup and telling somebody how they “never miss their Starbucks run in the morning.”
How much passion do you have for your business? How much passion do your employees and customers have for your business? In my experience, passion is something that leaders must consciously nurture. And it’s rare. I mostly experience it in growing companies that are still in the Rapids. Most mature organizations feel dead and (gasp!) business-like to me. Yuck! I want to feel a buzz in the air, some excitement, and people who are really happy to be doing their job that day. I get that sense at Starbucks, at CiCi’s Pizza, and at Discount Tire. It’s missing at McDonald’s, Pizza Inn, and Firestone. I’ll pick the first three over the second three at every chance, and I’m betting that most of you do too.
by Adam Hartung | Nov 1, 2004 | Disruptions
We all know our business goal is to create above-average results. Yet, much of what we’re trained to do in business is sure not to achieve these results.
In the August 24 issue of FORTUNE you’ll find the following analysis of modern marketing http://www.fortune.com/fortune/valuedriven/0,15704,686868,00.html :
“And here is one of the key insights of that science: In category after category, the market leaders are virtually identical. “Virtually” is important. They aren’t absolutely identical. They’re just very, very close. Whether it’s potato chips, toothpaste, disposable diapers, or any of hundreds of other products, the pattern holds. You can tell the difference between Coke and Pepsi if you care about soft drinks, but the difference is minuscule. That’s because endless research has established what consumers like most, and straying too far from those specs is asking for failure.”
What we’re missing from much management science today, including marketing, is the capability to create marketplace disruptions. It’s only by creating market disruptions that companies can achieve competitive advantage. Me-too strategies lead to me-too returns, until the inevitable price war breaks out when one competitor tries to buy share causing everyone to go from mediocre to below-market shareholder returns.
Leaders today need to unlock the breakthroughs inside their companies. They need to encourage breakthrough thinking among the employees. They must overcome the “me too” approaches taught too often in business school, and practiced too often in business. Lead your competition in breakthroughs and you’ll lead them in returns as well.
by Adam Hartung | Oct 31, 2004 | Leadership
There are signs of lock-in all around us, and also signs of leaders that overcome lock-in to create a new success formula for the betterment of their organization.
At a recent high school playoff football game the half ended with one team down 21 to 0. The down team had a coaching staff that had worked together for 20 years. Just two years ago they had gone to the state finals. But today, the opposing team “had their number.” There was enough predictability in the game that the scoring team had shut off the down team’s offense completely. The crowd was listless, as the students and parents attending sat through the half time show expecting the season to be over for their team.
With their backs against the wall, and their season ending in just two quarters, the down team needed a miracle. But they got something better.
When the leading team kicked off to start the second half, the last thing they expected was a reverse. But that’s exactly what the down team did! Completely “against type,” they ran a reverse and it yielded them a touchdown on the first play of the half. Less than 4 minutes of game later, the score was unchanged and the down team found themselves with the ball on their own 35 yard line with a 4th and 10. Time to punt.
But, again, against all expectations (and some would call common sense) when the snap got to the punter he immediately took off on a dead run. He got 30 yards (20 beyond the line of scrimmage). Three plays later, the down team was in the end zone and the game was within one touchdown of a tie. And there was plenty of game left. Sure enough, over the rest of the game the down team scored two more touchdowns while the team that was so far ahead at the half was unable to score even one point. The team everyone gave up for lost was the winner – and on to their next playoff game in another week.
What happened was a fantastic example of leaders recognizing their success formula had been “smoked out” by the competition. They realized they wouldn’t win the game if they kept doing the same thing. So they changed. They changed the way they played. And they so confounded their competitor, which had manhandled their team the whole first half, that the competition was “on its ear” for the rest of the game.
It’s hard to change a success formula. Especially if it gave you a championship. But it’s better to win than to defend what you did, but lose. In a dynamic world, winning often means changing in order to upset the competition.
by Adam Hartung | Oct 29, 2004 | Lock-in
I was worried. I couldn’t find my son and his grandfather who were supposed to be fishing together. I looked out behind my father-in-law’s house at the boat dock where they should have been standing to fish in the lake. And they weren’t there. I knew they weren’t out on the lake because the fishing boat was slung up in the boat house. Despite looking everywhere I thought they would be, I still couldn’t find them. So, perplexed, I waited in the house for them to show up, trusting that my son was in good hands.
An hour later, they walked in and I immediately jumped up and demanded to know where they had been. “We we’re out fishing on the lake,” my son said with a puzzled expression on his face. I explained that they couldn’t have been because the boat was docked in the slip. My son laughed and said “Dad, take another look,” and pointed to the boat house. I did, and there were… TWO boats! My father-in-law’s fishing boat was tied up at the dock looking just like I remembered it—small, green hulled, simple, rigged for fishing. And there, moored in the slip, was a ski boat—a big, white, designed-for-speed rigged-for-skiing boat-that-looked-nothing-like-a-fishing-boat boat sat there as clear as day. And despite looking right at it all morning, I had not seen it. I had not expected it to be there, and to me, it wasn’t.
The real voyage of discovery consists not in seeking new landscapes, but in having new eyes. — Marcel Proust
This story illustrates the power that our expectations have to distort our perception and literally show us what we expect to see rather than what is really there. It is this perceptual bias that is a main reason that businesses do not see competitive threats until it is too late. It is why leaders look at the numbers and see evidence that defending the old Success Formula is working… right up to the day that everything crashes down around them. It is why customer-facing employees often have a dramatically different—and mostly more accurate—understanding of the competitive realities than senior executives.
In order to create the breakthroughs that they desire, executives must first disrupt their mental lock-in. This is the only way to open up their perceptual bias to see new information and reach new understandings. Only in seeing the situation “with new eyes” are rich new possibilities opened up for truly novel innovation.
by Adam Hartung | Oct 28, 2004 | Leadership
It is ironic that Blockbuster would announce the extension of CEO John Antioco’s contract for 5 years on the same day that they reveal a $1.42 billion loss.
Reuters: The company posted a quarterly operating profit well below analysts’ estimates even before $1.5 billion in one-time charges, as it faced falling movie rental demand and higher costs to counter competition. The company’s shares were down 6.35 percent at $6.64 on the New York Stock Exchange.
Antioco has been credited with saving Blockbuster time and again as the company repeatedly fell on hard financial times. And now he’s trying to do it again. The trouble with heroic leadership is you never know when luck will run out and the heroism won’t be enough.
Businesses cannot survive for long depending on heroic leaders and yet the business press constantly celebrates them. At almost any time, you can find a headline asking “Can Joe Blow Save XYZ Company?” The need for heroic leadership points to a deeper problem that gets masked over by the short-term successes won through the efforts of a few individuals. Why did the company need saving in the first place? What has happened to the company’s Success Formula that put it in such dire conditions, and what’s being done about it? These are the questions that should be asked when someone trumpets a heroic turnaround.
What’s the alternative? What companies need to do is develop a culture based on ongoing reinvention—from the top to the bottom. It is only when the organization systemically renews itself before it has to, that it can quit relying on heroic leadership to fly in and save the day. That’s what it means to adopt the Phoenix Principle and make it a foundational element in your company’s success.
by Adam Hartung | Oct 26, 2004 | Quotes
“When society requires to be rebuilt there is no use in attempting to rebuild it on the old plan. No great improvements in the lot of mankind are possible until a great change takes place in the fundamental constitution of their modes of thought.”
— John Stuart Mill 19th century philosopher and economist
by Adam Hartung | Oct 26, 2004 | General
Definition: How a company wins in the marketplace. It includes beliefs about who we are, what we do, how we do it, and why we do the things we do. Early in the lifecycle, it serves as the source of continued growth and prosperity. Later in the lifecycle it becomes locked-in and eventually causes the failure of the organization. For example, the key elements of Tupperware’s Success Formula are the home party sales approach, highest-quality products, and their relationships with their independent sales agents. [Source: The Phoenix Principle] See also: Success Formula Pyramid, lock-in, challenge, river lifecycle model.
by Adam Hartung | Oct 18, 2004 | In the Rapids
Haircuts. Now there’s a market with nothing new to be added, right? Don’t say that to Sports Clips, which has been identified as one of Entrepreneur magazine’s fastest growing franchises. This company is a great example of looking at the same boring market as everyone else and seeing it differently. The result is a novel store model that has resulted in tremendous growth.
“We are changing what men perceive as a commodity to an experience,” says Gordon Logan, CEO and founder of Sport Clips. “We’ve done what no one else has – targeted 50% of the market.”
What does the company offer that’s so unique? It is designed solely for guys—a market segment that has had to choose between old-style barber shops and full-service hair salons, neither of which do a good job of providing great, affordable haircuts in an environment that is comfortable for guys (try to find a guy-oriented magazine in a hair salon!). That’s the essence of business opportunity, and Sports Clips has filled it admirably. Here’s their approach:
“Targeting men and boys, Sport Clips operators provide high quality haircuts in a fun environment, complete with TVs at every stylist’s station tuned to sports. Every Sport Clips has specially trained stylists who focus on providing the highest level of service to every client.”
Colleen Gaiser, manager of my local franchise store, gave me a tour last week. From the big screen TV broadcasting a college football game in the foyer, to the sports magazines, to the neck and shoulder massage; this place was custom-tailored for men. And it’s succeeding, with $25 million in sales and expectations to continue doubling in size. Companies in the Swamp, take notes: this is a case study in how to recognize a need and develop a custom designed solution.
by Adam Hartung | Oct 18, 2004 | Defend & Extend, In the Whirlpool
Blockbuster’s competitors are making it difficult for the company to make strides toward profitable growth. Netflix, the leading online DVD rental business, just announced a price cut in an attempt to double the size of its business (a bad move, but that’s another story…). And Blockbuster, in order to not be under-cut, dropped its own prices in response.
This is the problem with Defend and Extend management. While Blockbuster is busy fending off competitors to its current business, it is consuming scarce investment dollars and organizational attention that cannot be applied to meeting the real threat, which is video on demand.
Even if Blockbuster succeeds against Netflix, how will they out duel Wal-Mart on price in this space? And now Amazon.com is rumored to be getting into the market, and Netflix may find a deep-pocketed buyer. Can Blockbuster keep this up indefinitely? Of course not. Instead of chasing around after paper-thin margins in a business that has no future, the company needs to wake up to the reality that it doesn’t have a Success Formula that can win in the long run and act now to reinvent it.
by Adam Hartung | Oct 14, 2004 | Defend & Extend, In the Whirlpool
What do you think; does Blockbuster’s Success Formula have a chance of being saved? The company IS innovating and CEO Anitoco’s recent investor tour was centered around convincing shareholders that the company has a plan to reinvigorate the business… but really, who are they kidding (besides themselves)?
Blockbuster’s innovations are clever and will certainly put some more dollars on the top-line (at least temporarily). These include increasing game rentals (competing with stores such as Gamestop), allowing people to trade-in their old movies, a subscription service to allow people to keep movies indefinitely (to compete with Netflix). Ultimately, the company is saying that it is changing its business from “a place you rent a movie to a brand where you rent buy or trade movies and games, used or new, in-store or online.”
We don’t think its going to be enough. Why? Because there are too many alternatives for renting movies, but the really big show-stopper is a disruptive technology: video on demand. Blockbuster claims that it has certain advantages over video on demand such as a two-month lead on getting new movies. But even this is based on the assumption that movie theaters fear cannibalization of retail sales. And that can change overnight.
Blockbuster’s actions won’t work over the long-term because they aren’t addressing the challenge. In essence they are just extending the old business model which is to have lots of brick and mortar retail outlets providing entertainment-related products for home use. It’s the lock-in to all the real estate that’s killing the company. What will happen when sales drop precipitously due to the rising popularity of streaming video that can be downloaded in the comfort of your home? It’s inevitable.
What else could they do? Stop investing in their dead business model–the current business model is in the Whirlpool and has no future. Instead it can start selling off valuable real estate and use the money to experiment with leading-edge business concepts. What would you do if you were CEO?
