Spend on what pays off – not what your used to spending on – movie studios

by | Apr 20, 2009 | Current Affairs, Defend & Extend, Film, General, In the Swamp, Leadership, Lock-in, Television

How do you pick a movie to see – whether at the theatre or at home?  The movie studios think you pick movies by what you see on TV ads, according to the Los Angeles Times "Studios struggle to rein in marketing costs." 

I remember the old days when my friends and I grabbed a newspaper and shopped the ads looking for a flick to go see.  And we were influenced by television ads as well.  But, as time went by, we started asking each other, "Is that movie any good, or are all the best parts in the ad?"  (Admit it, you've asked that question too.)  Then we found out we could get sneak peaks from shows like "Siskel & Ebert at the movies," so one of us would try to watch that and see if we liked the longer scenes.  And we didn't ever agree with the critics, but we could listen to hear if they described a movie we would like.  Now, not only myself but my sons follow the same routine.  Only we go to the internet looking for a YouTube! clip, and for reviews from all kinds of people – not just critics.  Mostly when we see a TV ad we hit the mute button.

Everywhere, businesses are still wasting money on old business notions.  For movie studios, they keep trying to get people to watch a big budget by advertising the thing.  (To death.  Until nobody watches the ad any more because they have it memorized.  And get angry that the ad keeps showing.)  But even the above article admits that studios know this isn't the best way any more.  With the internet around, we all listen less to advertisements, and gain access to more real input.  From web sites, or Twitter, or friends on Facebook, or colleagues on Linked-in.  We watch a lot less TV, and what we watch is more targeted to our interest and available on cable.  Or we download our TV from the web using Hulu.com.  Yet, the studios are so Locked-in to their outdated Success Formula that they keep spending money on TV ads – even though they know the value isn't there any more.

So why do the studios spend so much on advertising?  Because they always have.  That's Lock-in.  Lacking a better idea, a better plan, a better approach that would really reach out to potential viewers they keep doing what they know how to do, even as they question whether or not they should do it!  The industrial era concept was "I spent a fortune making this movie, and distributing it into theatres, so I better not stop now.  Keep spending money to advertise it, create awareness, and get people into the theatres."  The studios see movie making as an industrial enterprise, where those who spend the most have the greatest chance of winning.  Spend a lot to make, spend to distribute, spend to advertise.  To industrial era thinkers, all this spending creates entry barriers that defends their business.

And that's why movie studios struggle.  It's unclear how well those ideas ever worked for filmmaking – because we all saw our share of blockbuster bombs and remember the "American Graffiti" or "Blair Witch Project" that was cheap and good.  But for sure we all know the world has now permanently shifted.  Today, small budget movies like "Slum Dog Millionaire" can be made (offshore in that case – but not necessarily) quite well.  The pool of new actors, writers, directors, cinematographers and editors keeps growing – driving production quality up and cost down.  And distribution can be via DVD – or web download – between low cost and free.  A movie doesn't even have to be shown in a theatre for it to be commercially successful any more.  And any filmmaker can promote her product on the internet, building a word of mouth driving popularity and sales.

From filmmaking to recordings to short programs to books, the market has shifted.  Things don't have to be big budget to be good.  The old status quo police, like Mr. Goldwyn or Mr. Meyer, simply have far less role.  Digitization and globalization means that you don't need film for movies – or paper for books.  Thus, democratizing the production, as well as sales, of "media" products.  Thus the old media companies are struggling (publishers, filmmakers, magazines, newspapers and recording studios) because they no longer have the "entry barriers" they can Defend to allow their old Success Formulas to produce above average returns.  And they never will again.  The world has changed, and the market has permanently shifted.

Is your business still spending money on things that don't matter?  Does your approach to the market, your Success Formula dictate spending on advertising, salespeople, PR, external analysts, paid reviewers or others that really don't make nearly as much difference any more?  When will you change your approach?  The movie studios are preparing to spend hundreds of millions of dollars on summer ad promotions for new movies.  Is this necessary, given that the downturn has increased the demand for escapist entertainment?  Is your business doing the same? 

If you want to cut your cost, you shouldn't cut 5% or 10% across the board.  That won't help your Success Formula meet market needs better.  Instead, you need to understand market shifts and cut 90% from things that no longer matter – or that have diminishing value.  Quit doing the things you do because you always did them, and make sure you do the things you need to do.  You want to be the next "Slumdog Millionaire" not the next "Ishtar."  You want to be Apple, not Motorola.  You want to be Google, not Tribune Corporation.  Spend money on what pays off, not what you've always spent it on.

Downloads

by | Apr 20, 2009 | Uncategorized

IcondownloadDownload slides from Adam’s presentations.

PepsiCo update – doing more of the right stuff

by | Apr 20, 2009 | Current Affairs, Food and Drink, General, In the Rapids, Leadership, Openness

"PepsiCo bids to buy its bottlers for $6billion," is the Marketwatch headline today.  Another big Disruption, this time at the industry level, orchestrated by PepsiCo's Chairperson/CEO Indra Nooyi.  Now that changes are being made with the product line, packaging and brands this latest move will allow Pepsi's beverage division to much more quickly implement changes to align with market needs.  While Coke is doing little, Pepsi is disrupting the industry organization changing the marketplace and placing serious challenges onto all competitors.  And without waiting for the recession to end.

Many leadership teams should pay close attention to what's going on at PepsiCo.  By moving fast to align with future market needs they are catching competitors unwilling to take action due to recessionary concerns.  Their Disruptions are creating changes that will help Pepsi return to the "muscle building" organization created in the days of former Chairman Andrall Pearson.  And the changes coming out of White Space are helping Pepsi to develop a stronger Success Formula for competing in the post-industrial age. 

Investors, employees and vendors should be encouraged by Pepsi.  Competitors had better be worried.  And all leadership teams can learn from the action being taken to gain share during this period of uncertainty.  As companies hit growth stalls the tendency is to "wait and see".  But winners react quickly to Disrupt and use White Space where they overtake delaying competitors – returning to the Rapids of growth and gaining share.

Rewarding performance, or luck? McDonald’s and Pepsico

by | Apr 19, 2009 | Uncategorized

"McDonald's CEO's compensation rose 44%" was the Crain's Chicago Business headline.  In this era of focus on CEO pay, the question should be whether this is pay for performance?  Yes, McDonald's has seen its business do relatively well the last year – but was that really due to the CEO?  Or did an incoming tide simply raise the McDonald's boat? 

The last year has generally been tough on restaurants.  But McDonald's competes in a narrow part of the market focused on cheap.  Like Wal-Mart, McDonald's is a huge corporation but its sales are closely tied to the performance of markets driven by low price.  It wasn't long ago (less than 8 years) that McDonald's was shutting stores around the globe because performance was so poor.  The company felt it had too many McDonald's.  So it sold Chipotle and other assets to raise the money for closings and buying back equity shares to hold off a corporate attack.  And it spent money to improve the marketing in stores, including refocusing on quality.  As a result, when the economy fell apart (globally) McDonald's was in the right place at the right time. 

There was nothing prescient about the decision-making at McDonald's.  Quite to the contrary, the decisions taken were all about Defending the old Success Formula regardless of where the marketplace was headed.  In fact, the toughest decision made during the last 18 months was whether to keep 2 pieces of cheese on the double cheeseburger or not.  And its decision to raise the price on the 2-slice burger while launching another 1-slice burger to remain priced at $1 was considered a big innovation by home town newspaper Chicago Tribune ("Launch time at McDonald's").  Fortunately, the biggest recession in 70 years has encouraged people to go down-market, to McDonald's, and thus helped the company maintain sales and profits.  Whether McDonald's will hold onto these gains or see them go back out with the receding tide when the economy improves is entirely unclear.

On the other hand, PepsiCo has taken a much more aggressive approach to growth in its soft drink business.  Chairman and CEO Indra Nooyi has never been the kind of executive to back off from pushing for change.  As a Boston Consulting Group Manager she ruffled many feathers amongst the conservative leadership in her efforts to make partner – to the point they recommended she find a career elsewhere.  And, never looking back, she went on to greatly exceed the expectations of her former bosses by rocketing through Motorola and later PepsiCo all the way to the top position.  Her willingness to Disrupt and implement White Space has created significant growth for the companies where she worked.

Now she's brought in Massimo D'Amori as the new head for Pepsi's soft drink business, and he's shown no hesitancy to follow her lead in Disrupting the moribund brands as detailed in the BusinessWeek article "Blowing up Pepsi."  Rather than waiting for the recession to recover, he's dived into the brands changing everything from packaging to logos.  He's personally been involved in the Disruptions, making sure people know that he sees now, while Coke is moving slowly and sales should be soft, to reposition Pepsi's beverage products in order to attract new customers and grow!  As the new head of brands said, it's time to "rejuvenate, reengineer, rethink, reparticipate."  When the economy caused weak performance quarters the anwer became "retool and reteam;" including changing more people on the senior team.

Will all this Disruption work? We know that White Space has flourished, so Disruption has taken hold.  Will the White space provide a faster growing and more profitable Pepsi beverage division?  We know that everything from logo design to bottles have been tested, tried and are being improved upon.  The early results look good, but it's still too early to tell if Pepsi has caught Coke flat footed.  But what we can be sure about is that Pepsi is doing everything it can to take advantage of the changing environment in order to be #1 in beverages – including vitamin water, sports drinks and juices  as well as traditional soft drinks. 

When talking about McDonald's and Pepsi it might all seem like much 'ado about nothing.  What's the big deal?  But reality is that size alone does not make either company immune to failure.  All businesses, no matter size or age, have to adapt to changing markets or risk becoming obsolete.  Polaroid invented instant photography, but has become nothing more than an historical name.  Last week the Wall Street Journal reported how "Vultures vie in auction for remains of Polaroid."  From 21,000 workers at its peak in 1978, the company has fallen to a mere 70 – and to a brand value of only $80million.  This sort of failure can happen to any company.

When we look into 2035, which, if either, McDonald's or PepsiCo is likely to be the next Polaroid?  We'd like to think neither.  Yet, history indicates that McDonald's constant unwillingness to move from Defending & Extending its hamburger business puts it at risk.  Of what?  Maybe the next Mad Cow disease.  Or the next diet craze.  Or the next economic shift that leads customers out of their stores and somewhere else to eat.  Or perhaps a "perfect storm" of all 3. McDonald's D&E management depends upon the future looking much like the recent past for the company to succeed.  It is not really preparing for a different future.  And that cannot be said for PepsiCo – where under Ms. Nooyi's leadership we see a company obsessing about competition while working passionately to position itself for future markets and future customers needs.  Pepsi's willingness to Disrupt and use White Space bodes very well for the likelihood of turning around the recent growth stall, and creating longevity for the company, its investors, employees and vendors.

High Speed Rail USA – will it work? – The 4 requirements

by | Apr 17, 2009 | Uncategorized

Thanks to one of this blog's readers who emailed me about high speed rail lines and the proposed project to improve and expand them in the USA.  According to today's St. Louis Business Journal "Fed to invest $13B in U.S. high speed rail." The Associated Press says states are lining up for funding in "8 states seek stimulus money for high speed rail." And many people support the plan, as noted in an August, 2008 USAToday column "The case for high speed rail in America." Is this a good investment?

There is no doubt that the least-energy, lowest carbon footprint, and thereby lowest cost way to transport anything is via rail.  Prior to the Reagan administration's deregulation of truck rates in the early 1980s shipping prices between all interstante points had to be registered with the U.S. Department of Transportation (DOT), and in-state with the state departments.  These departments regulated pricing, and tended to price all shipping based on cost.  As a result, there was a clear and major difference in the price of rail vs. truck vs. air.  But deregulation changed that.  Truck capacity exploded when truckers were allowed to lower prices to razor thin margins.  Most businesses preferred trucks to rail because it was easier to schedule, scheduled in smaller lot sizes, was usually faster, and you could queu up the trucks down to a specific hour which was impossible with rail (a lot more flexible and suddenly not that much more expensive.)  The flexibility, along with lower pricing brought about by hyper-competition, meant rail growth went nowhere while truck traffic skyrocketed (as did use of air shipping).  The same reason passenger trains of old were replaced with car and plane travel.

So, there is no doubt that from a public policy standpoint rail traffic is a great move.  It will be more energy efficient and less costly to the economy if people move by rail than car or air.  But just because it's good public policy doesn't mean it will work.  Remember the Susan B. Anthony dollar coin?  How many readers have one in your pocket today?  This coin was good public policy because it meant there would be far lower cost of printing the easily worn out paper dollar.  Every major country from Canada (the Loonie) to the Euro have eliminated low value paper currency for the much more durable coin.  So the Treasury department spent quite a bit on advertising to relaunch the dollar coin (which was dropped in the 1950s) and promote its use.  Yet, within just a few months the product faltered and has found limited interest as currency (although still valid legal tender and held by numismatists).  Just because the economics are favorable (for both users and the government) and the public policy is good does not mean the effort will succeed. 

In open markets, it takes more than low cost and good idea to succeed.  People are Locked-in to current solutions.  In the case of the dollar, it couldn't be used in vending machines.  Cash drawers had no slot for it.  Many men had women had stopped carrying coins in the USA, and had no inclination to start.  People were plenty pleased with things they way they were.  To get people to change means you have to overcome that Lock-in to the current solution.  And getting people to return to personal rail rather than cars or planes will have to overcome at least as much Lock-in as relaunching the dollar coin.  Let's not forget that in the 1970s the feds started pouring money into a northeast corridor passenger train system connecting Boston, New York, Philadelphia, Baltimore and Washington – one of the most compact and populated areas of America.  But in it's 30 year history Amtrak (as its called) has never been able to turn a profit, remaining subsidized to keep running.

So, to succeed high speed rail will need to apply The Phoenix Principle:

  1. The product must meet future customer needs.  What scenarios of the future make high speed rail valuable? Increased urban density, high fuel costs, increased auto congestion, and higher airport inconvenience would all support the use.  But some of these are incompatible (such as fuel cost and congestion).  So we need to be very careful about the scenario planning to identify the individual user/market needs that high speed rail fulfills.  Exactly which scenarios make this option a big winner with users?  And what would cause those scenarios to develop?  Markets are fickle, hard to guess, and impossible to "manage"  as customers wander between options and trade-offs.  Given that people are getting along pretty well with today's cars, busses, planes and standard trains a Phoenix Principle supporter would demand identifying the scenarios that make high-speed rail successful.
  2. The developers have to obsess about competition.  As mentioned, people have a lot of options.  How convenient will be these trains?  Will they operate hourly, or once per day?  How do I get from office or home to the departure terminal, and to my final destination on the other end?  Will there be ample and affordable parking?  Will there be rental cars?  Easy drop-off and pick-up?  Food?  What are the economics of the whole transit from door-to-door?  What is the comparison with each of the other travel options on not only cost but convenience, security, reliability, flexibility, user experience, seasonality, and any other factor that determines how people travel.  And don't forget to compare the very need with other high-tech options, like webinars and fast developing enhancements to videoconferencing – competitors on the fringe.
  3. Why would somebody stop their old behavior and suddenly change?  What Disruption is planned that will cause people to say "hey, this new high-speed rail is the think I need to try"? (As opposed to saying "that's nice – have you tried that yet?  Maybe you should use that new train.") Will the government support this launch with a new tax of say 50% on short-hop air travel?  Or a $1.50/gallon increase in gasoline taxes?  Or a nationwide toll system to tax driving on interstate highways? Or even more inconvenient restrictions boarding airplanes?  People don't change behavior for no reason – and encouraging a big change like shifting travel patterns requires some kind of Disruption that really gets their attention.
  4. You can't expect to change everyone – or even large numbers quickly.  High speed rail needs to be implemented in White Space areas where it is most likely to succeed, and then watched and tested.  Like mentioned, travel is more than just the train.  Everything from schedules to prices to seats to feeder systems — there are a lot of variables here that need to be checked and tested.  And regardless of early plans (assuming done by the very best planners and marketers) things will have to be adjusted.  To succeed the owner/operator of these lines will have to convert an early group of users that become disciples for the product – like Howard Hughes created in the early days of air travel, or Apple does for its iPod and iPhone.  These early adopters who have the earliest and greatest need will be the ones who can convince others about the efficacy of these new train lines and thereby reduce their risk, encouraging the others to migrate into this new solution.

Like I said, high speed rail is great public policy.  But so is mass transit for Los Angeles or Houston.  For it to be a success – meaning return a profit that covers the cost of capital and earns an above market rate of return – requires the introduction be managed like all Phoenix Projects.  It must meet future user/market needs, it must be better than competitive options, there must be a Disruption to get people to consider using it, and it must be launched in White Space where the bugs can be worked out and a loyal following of users created.  It takes a lot more than just laying down a bunch of new track and building new locomotives.

About Adam Hartung

by | Apr 17, 2009 | Uncategorized

Adam_hartung_2

Adam Hartung helps companies innovate to achieve real growth. He began his career as an entrepreneur, selling the first general-purpose computing platform to use the 8080 microprocessor when he was an undergraduate. Today, he has 20 years of practical experience in developing and implementing strategies to take advantage of emerging technologies and new business models. He writes, consults and speaks worldwide.

His recently published book, Create Marketplace Disruption: How to Stay Ahead of the Competition (Financial Times Press, 2008), helps leaders and managers create evergreen organizations that produce above-average returns.

Adam is currently Managing Partner of Spark Partners, a strategy and transformation consultancy. Previously, he spent eight years as a Partner in the consulting arm of Computer Sciences Corporation (CSC) where he led their efforts in Intellectual Capital Development and e-business. Adam has also been a strategist with The Boston Consulting Group, and an executive with PepsiCo and DuPont in the areas of strategic planning and business development.

At DuPont Adam built a new division from nothing to over $600 million revenue in less than 3 years, opening subsidiaries on every populated continent and implementing new product development across both Europe and Asia.

At Pepsi, Adam led the initiative to start Pizza Hut Home Delivery. He opened over 200 stores in under 2 years and also led the global expansion M&A initiative acquiring several hundred additional sites. He also played a lead role in the Kentucky Fried Chicken acquisition.

Adam has helped redefine the strategy of companies such as General Dynamics, Deutsche Telecom, Air Canada, Honeywell, BancOne, Subaru of America, Safeway, Kraft, 3M, and P&G. He received his MBA from Harvard Business School with Distinction.

Don’t innovate, don’t grow, don’t increase value – KRAFT

by | Apr 16, 2009 | Current Affairs, Defend & Extend, Food and Drink, General, In the Swamp, In the Whirlpool, Leadership, Lock-in

All of America may have learned the jingle "America spells cheese K*R*A*F*T", but that doesn't mean Kraft is a good investment.  When the recession first began, investors were excited about buying companies that had well known brands – especially in food.  The idea was that everyone has to eat, so food companies won't get hammered like an industrial company (think Caterpillar or General Electric) when the economy shrinks.  Second, people will eat out less and in more so food might actually see an uptick in growth.  Third, people will want well known brands because it well help them feel good during the depressing downturn.  So, Kraft was to be a good, safe investment.  After all, even though it's only been spun out of cigarrette company Altria a few months, this thinking was powerful enough for the Dow editors to replace failed AIG with Kraft on the (in)famous Dow Jones Industrial Average.

Too bad things didn't work out that way (see chart here).  Although the stock held up through the summer near it's spin-out high at 35, Kraft's value fell out of the proverbial bed since then.  Down about 40%.  What's worse, as several companies have "bounced back" during the recent stock market rebound Kraft shares have gone nowhere.  And now Crain's Chicago Business reports "Analyst downgrades Kraft on volume risk."  This UBS analyst has noted that instead of going up, or sideways, sales (and volume) at Kraft have declined.  While he might have expected a potential 1% decline, instead he's seeing drops of more like 2.5%.  In light of this poor performance, he thinks the best Kraft can do for the next 12 months is a meager improvement – or more likely sideways performance.

Kraft has been in a growth stall for a long time.  Since well before spinning out of Altria.  The company stopped launching new products years ago.  Instead, it has been trying to increase sales with line extensions of its existing products – things like 100 calorie packs of Oreos.  There hasn't been a real new product at Kraft since DiGiorno pizza and Boboli crust some 10 years ago.  Simultaneously, the company sold some of its high growth businesses, like Altoids, in order to "focus on core brands".  All of which meant that while cash flow has been stable, there's been no growth.  Turns out folks may be eating at home more, but they aren't paying up for worn-out brands like Velveeta, instead turning to store brands and generics.  Shoppers are looking for new things to improve their meals during this recession – but Kraft simply doesn't have any.

Without innovation, Kraft has gone nowhere.  For a decade the company has merely Defended & Extended its 1940s business model.  It keeps trying to do more of the same, perhaps faster and better.  It couldn't do cheaper because of rising commodity prices last year, so it actually raised prices.  As a result, customers are quite happy to buy comparable, but cheaper, products setting Kraft up for price wars in almost all its product lines.  And there's nothing Kraft can point to as a new product which will actually grow the top line.  Just a hope in more advertising of its old products, doing more of the same.

When Kraft spun out the CEO was replaced in order for Kraft to revitalize its moribund organization.  Good move.  The previous CEO was so in love with D&E management that he bragged about his "strategy" of spending more on Velveeta and older brands – in other words he was wedded to the outdated Success Formula and had no plans to change it. 

So he was replaced by a competent executive named Irene Rosenfeld.  This was touted as a big move, by bringing in the Chairman of PepsiCo's Frito-Lay Division.  PepsiCo is noted for its fairly Disruptive environment, instituted during the reign of Chairman Andrall Pearson who aggressively moved people around (and out) in his effort to "muscle build" the organization.   But reality was that Dr. Rosenfeld had worked at Kraft for many years before going to PepsiCo, and was returning (according to her bio on the Kraft web site).  And her leadership has been, well, more of the same.  There have been no Disruptions at Kraft – no White Space – and no new products.  So the growth stall that began during the Altria ownership has continued unabated.

Despite Kraft's lack of performance – and you could say poor performance given that sales and volume are down, as well as profits since she took the top job – Dr. Rosenfeld's salary was increased at the end of March (according to Marketwatch.com "Compensation rose for Kraft Foods' CEO in 2008").  It seems the Board of Directors was concerned that the stock options she was awarded in early February had fallen in value (because the share price dropped dramatically – hurting all investors) so they felt they had to raise her base pay.  Since the "at risk" pay didn't pan out, well they felt compelled to make her compensation less risky.  Then they invented some excuses to make themselves feel better, like they want the CEO to be paid comparably with other CEOs. 

(I guess they don't care about the 20 other senior execs who have seen their base pay frozen.  Say, do you suppose I could appeal to my publisher that I want pay like other authors?  Like Barack Obama who got almost $3million in royalties last year?  Or do you suppose the publisher might tell me if I want that much money I should sell more books – looking at my results to determine how much I should get?  I rather like this "comparable pay" idea – sounds sort of like union language for CEO contracts.)

Kraft is going nowhere, and Dr. Rosenfeld is the wrong person in the Chairman/CEO job.  Kraft is stalled, and investors as well as employees are suffering.  Kraft desperately needs leaders that will Disrupt the organization, refocus it externally on market needs, become obsessive about improving versus competitors in base businesses while identifying fringe competitors changing the market landscape.  And above all introduce some White Space where Kraft can innovate new products and services that will get the company growing again!  Kraft has enormous resources, but the company is frittering them away Defending & Extending a 60+ year old Success Formula that has no growth left in it.  More than ever in Kraft's long history, the company needs to overcome it's Lock-in to innovate – and the Board needs to realize that requires a change in leadership.

A blog and book to consider

by | Apr 15, 2009 | Books, Current Affairs, Disruptions, General, Leadership, Web/Tech

I was delighted recently to find a weekly blog named www.IsSurvivor.com.  Bob Lewis writes in a clear and frank tone about what he often sees as not working correctly – especially in the world of information management.  I would recommend this blog to everyone because his advice applies to all aspects of business – not just IT.

And I was delighted to recently read his book "Keep the Joint Running:  A Manifesto for 21Century Information Technology."  Despite the book's tagline, this is a book for everyone in business – not just IT people.  As the author reminds readers over and again, IT is a really important, and integrated, part of the modern business.  You can't consider it a stand-alone silo or you'll have really big problems.  And I find myself thinking the same is true for all functions.  The book is a great read as well.  Not pompous (although the author has a mountain of experience to draw upon), very matter-of-fact, and incisive when cutting into multiple myths that detract from performance of functional groups as well as the corporation overall.

One thing all readers should love is the book's focus on getting work out the door.  Mr. Lewis points out, with great examples, that if you aren't competent you can't be strategic.  I was reminded of so many people I've worked with over the years who lacked prodigiously in competence yet seemed to maintain their positions by taking "the strategic view."  Far too often we see in consulting firms the partner that's good at relationships, but couldn't actually do the work if his life depended upon it.  In the end, when those without competency are in charge, problems happen.  A simple rule – like the many Mr. Lewis gives us – that we so often ignore. 

Business, and IT even moreso, are very new fields of academia.  Unlike math, English, botany or geology, we've been studying business only a short time. Yet, the die-hard followers of early theories are surprising.  Given the lack of any labs to test these theories, and the very visible number of failures these theories incur, the willingness to turn an idea into dogma (in incredibly short time) and then remain tied to that dogma should intrigue all investors and business leaders.  Mr. Lewis shows himself a great Disruptor as he wastes no time taking an axe to many dogmas, exposing them as myths, as he works his way through the sea of bad approaches he finds functional heads utilizing.  Best practices, process optimization, workforce optimization, applying metrics regardless of experience or ties to goals, development methodologies and documentation practices are just a few of the dogma he successfully analyzes, finds wanting, and discards in favor of better approaches that don't find enough use.  (Read the book to get the magic answers.)

I spent my own time in IT working for vendor companies, as a CIO, and for several years as a partner in the giant IT services firm Computer Sciences Corporation.  Item by item I found Mr. Lewis spot-on with his assessment of most IT firms, and IT practitioners.  Not that folks can't get it right – but that for the most part their assumptions about what would work are so misguided that they have no hope of success.  Only by rethinking the approach can the business do better.  Which, after all, is the goal of all functional groups – to improve the sales and profits of the company. 

But like I said earlier, I recommend Mr. Lewis's blog, and his book, for every CEO, executive, manager or front-line employee who works with IT – so that means everyone.  His ideas will help improve the performance of any organization and its functions – not just IT.  And for IT folks it offers a world of insight to why things in the past were often so hard, and how they can be much better going forward.  You'll gain good insight for doing better planning, using Disruptions effectively instead of following outdated practices that simply don't work, and finding White Space where you can rapidly improve the success of your organization.  His recommendations make sense, and you'll find them incredibly practical for improving performance today

Introducing Innovation Right – Amazon’s Kindle

by | Apr 14, 2009 | Books, Current Affairs, Disruptions, General, In the Rapids, Innovation, Leadership, Lifecycle

Last week I blogged about how Segway and GM were taking all the wrong steps in launching the PUMA.  Today let me explain why Amazon is the mirror image – doing the launch of Kindle correctly.  Kindle is the new "electronic book" from Amazon which allows people to download whole books, or parts of books, onto a very small, light and thin device where they can read the material, notate it and even convert it to audio.  Even Marketwatch.com is bullish in its overview of the product "Amazon's Kindle, e-books are future of reading."

Firstly, Amazon recognized it had a Disruptive innovation and didn't pretend this was a small variation on printed material.  Perhaps "over the top" a bit with the PR, Mr. Bezos called Kindle the biggest revolution in reading since Gutenberg invented the printing press.  This bold claim causes people to realize that Kindle is something very different than anything prior.  Which it is.  Kindle is not like reading on a PC, nor is it like reading a book, nor is it like reading a magazine or newspaper (should you download those).  It's different, and it requires buyers change their habits.  By highlighting the uniqueness of the product Amazon doesn't undersell the fact that users really do have to change to enjoy the product.

Secondly, the product isn't being run through some high volume distribution that will struggle with the uniqueness and potentially low initial volumes.  Amazon isn't trying to sell the product today at Best Buy or Wal-Mart, which would demand instant volume in the millions supported by huge ad spending.  Something which would not only be expensive, but probably would not meet those retail expectations.  Instead, Amazon is selling the product itself and closely monitoring volumes.

Thirdly, Amazon isn't pushing Kindle as a product for everybody.  At least not yet.  Amazon isn't offering Kindle for $20, losing a huge amount of money, and saying everyone needs one – which would likely lead to many people buying a Kindle, deciding its not for them, and then throwing it away to wait a very long time before a repurchase – with lots of negative comments.  Instead, Amazon prices Kindle at $359 and targets the product at early users who will really benefit.  Like the heavy volume book reader.  This allows Amazon to build a base of initial users who will use the product and provide feedback to Amazon about how to modify the product to make it even more valuable.  Amazon can cycle through the learning experience with users to adapt and develop the product for a future mass market.

Fourthly, the Kindle doesn't come with 30 options to test.  It has just a few.  This allows Amazon to learn what works.  And add functionality in a way that tests the product.  Amazon can add features, but it can also drop them. 

Will Kindle be the next MP3 device.  Probably.  How long will it take?  Probably not as long as people think.  Because Amazon is introducing this innovation correctly.  Publishers, authors, book readers and other application users are all learning together.  And while traditional paper publishers (from books to newspapers) are waiting to see, Amazon is preparing its new products to "jump the curve" on these old publishers.  It's not hard to imagine in 3 or 4 years how authors might go straight to Amazon with their writing, for publication as a Kindle-only product.  This would be incredibly cheap, and open the market for many more authors (books or periodicals) than have access today.  Since the cost of reading drops precipitiously (due to no paper) the pricing of these new books and periodicals may well be a few dollars, or even less than a dollar.  Thus exploding the market for books the way the internet has exploded the market for short-form blog writers.

Even in a recession, people look for new solutions.  But capturing those new customers takes careful understanding of how to reach them.  You can't act like Segway and dump a strange new product onto users with mass distribution and a PR highlight reel.  You have to recognize that Disruptive innovations take better planning.  You have to find early customers who will enter White Space with you to test new products, and provide feedback so you both can learn.  You have to be honest about your Disruptive approach, and use it to figure out what the big value is – not guess.  And you have to be willing to take a few months (or years) to get it right before declaring your readiness for mass market techniques. 

Amazon did this when it launched on-line book selling.  It didn't sell all books initially, it mostly sold things not on retailers shelves.  It didn't sell to everyone, just those looking for certain books.  And it learned what people wanted, as well as how to supply, on its journey to Disrupt book retailling – later about all retailing – and build itself in to the model for on-line mass retail.  Following that same approach is serving Amazon well, and portends very good things for Kindle's success.

When You Fail to Disrupt Success is Problematic – GM, Saturn

by | Apr 12, 2009 | Uncategorized

At Buckley Brinkman's Blog he asks the question "Can the auto industry be saved?"  His posting gives a great overview of the complexities.  I like his overview that "there are no safe, and few reasonable investments in this space."

Today a lot of people are asking, "how GM could be leading an industry that fell so far?  How could all those managers, over all those years, end up doing so poorly?  How could the collective wisdom of the last 30 years brought to the industry, including not only management but the union leadership and all the vendors seemingly let an entire industry, with companies the world's largest, end up in such a soup?"

A key to understanding the answer is offered by the recent Newsweek article "Saturn was supposed to save GM.  Instead GM Crushed Saturn."  This article underscores the dramatic actions taken by GM Chairman Roger Smith in the early 1980s to transform a floundering General Motors – including buying EDS and Hughes aircraft.  And the unprecendented creation of a new auto division with a new union agreement to change the direction of American auto manufacturing. 

Over the next few years,  Saturn came onto the market as a successful division.  It had unprecedented employee satisfaction, unprecedented loyalty for an American car brand, and unprecedented support by its new dealers.  But what Saturn did NOT have was the support of GM.  Nor even the union that helped create it.  As the Newsweek article further details, inside GM there was no support for Saturn outside the Chairman's office.  Management continually pushed the corporation to rob Saturn of resources, and even shut down the new division.  Meanwhile, a new union leader took over the UAW, and he pushed for changing work rules back to the previous, contentious and frustrating relationship.  To which GM quickly agreed preferring consistency over something that worked better. 

Although Chairman Smith was dramatic in creating Saturn, he did not Disrupt GM.  He never challenged the other division heads to recognize that they could not succeed with old practices.  Chairman Smith never moved to place an EDS leader in a top position.  In fact, to the contrary, he went along with special action to repurchase the GM shares traded to Ross Perot and remove him from the Board, on the basis that Mr. Perot was too Disruptive to GM.  The very benefits Mr. Smith desired was epitomized in Mr. Perot, who pushed hard for big changes in GM management practices.  But Mr. Smith was unwilling to actually Disrupt the history and hierarchy of GM.  And the same was true for Hughes leadership.  Instead of taking action to put a Hughes executive in charge of GM, to lead the way for change, GM leaders were backwatered and ignored in the halls of Detroit.

When you are unwilling to Disrupt, desired changes never "stick."  Even with all the resources of the GM Chairman's office, without Disruption the Locked-In GM organization was more powerful and even better resourced.  What was supposed to be White Space which would change GM made no difference, because GM was not Disrupted.  So the organization kept Defending & Extending its Success Formula created in the 1940s.  It didn't take long for the un-disrupted GM leaders to sell of both EDS and Hughes, using the profits to subsize the car business.  And they converted Saturn into nothing more than another faceplate on just another GM car – nothing special at all – and widely despised by leaders who always felt Saturn had operated outside the Success Formula so needed to be closed.

Now the Chairman of GM that asked for billions of taxpayer money to save the company, Mr. Wagoner, has been fired.  His approach continued to be pushing the same old Success Formula that is so obviously out of step with current market needs.  So the banker of last resort asked for him to leave.  Which is not so out of the ordinary.  Any executive that would ask for investment in the dire straights of GM would expect the investors to make changes in the executive suite.  It happens all the time.  But the problem seems to be that after pushing Mr. Wagoner out, the U.S. government representatives as bankers haven't proposed a new slate.

The only way to "save" GM will require a wholesale restructuring of the company.  Never have so many forces worked so hard to preserve an out of date Success Formula – from management to unions to vendors.  It will take somebody of great will, and uncommon acumen, to kill off Chevrolet and the out-of-date parts of GM that simply have no future value.  Because now, even more than in the 1980s, what GM needs is an enormous Disruption.  Something that will cause the company, from the executive suite to the factory floor, to stop and say "wow, things really are going to be different around here."  Only after that sort of Disruption will White Space be able to develop a new future for GM.  As we've already seen, trying to do "more of the same" without an enormous Disruption will not save GM - in fact will not even substantially change it.