by Adam Hartung | Mar 28, 2009 | Current Affairs, In the Whirlpool, Leadership, Lifecycle, Quotes, Web/Tech, Weblogs
"If you don't read the newspaper you are uninformed. If you do read the newspaper you are misinformed." — Mark Twain
"All I know is what I read in the newspaper. That makes me the most ignorant man alive." —- Will Rogers
What both these great writers understood was that when you get most of your news from one source, you get only what that source chooses to tell you, and only a single interpretation of the news. Since newspapers began there has been controversy about bias in news reporting. Many famous newspapers were considered "conservative" or "liberal" based upon the political opinions of the owners. The reality is that when a newspaper reporter tells you a story, what you read – down to the word choices - is affected by the opinions and feelings of the author, as well as those of the editor and perhaps even the publisher.
The great breakthrough of the internet is you aren't restricted to a single (or possibly) two sources. You can find articles about anything from a political speech to an automobile accident published by 5, 10 maybe hundreds or thousands of sources. And for many news items the internet provides you not only multiple opportunities to read how the "facts" are told, but you can find multiple articles that interpret those facts. This plethora of coverage means that internet readers have the opportunity to be as selective, or as broad, as they choose. And it means that the ability of publishers to "control the direction" of a story is dramatically diminished. Readers, by looking across multiple sources, can determine as a group which "facts" they find accurate, and which "interpretation" they find most genuine. Because of the internet, news coverage is "democratized" in a way that has never before been possible.
Newspapers provided a method of informing the public for a very, very long time. But they have an internal weakness they cannot overcome – the printing means that only one version of a story is told and it can only be economically told once per day. The distribution method makes newspapers an "event" that occurs at "deadline", and the cost is high enough that there's only enough advertising to support the printing and distribution of one newspapers in most markets. When you get down to the printing – the "paper" in "newspaper" – it has limits that create a weakness.
The internet is disruptive because it overcomes the limitations of printing. It is available 24×7 not just to read, but to be updated and current with the latest information. A person anywhere can read input from multiple sources. The internet makes up-to-the-minute news coverage of everything available to people in rural, remote locations as quickly as it does those "on the scene", thus opening an interest in world or very local events to everyone on the planet, regardless of location. And this means this "no cost distribution" (not no cost of fact acquistion, or interpretation, or writing – just distribution) allows the internet to do what economist Joseph Schumpeter called "creatively destroy" the old value in newspapers.
Those who bemoan the loss of newspapers need to spend more time on the internet. There are so many sources for so much news that we are today the best informed society in the history of mankind. The financial problems at newspaper publishing have not diminished the quantity or quality of news coverage. Those are higher than ever. And the businesses that jump into this market, by developing networks to access the most/best news and interpretation at the lowest cost – while delivering it in a format that is easy for readers to find and absorb – will be successful. And it will be harder than ever for those trying to create the news (such as politicians and political pundits) to decry "bias" in a world where all opinions are available to everyone.
by Adam Hartung | Mar 27, 2009 | General, Innovation, Openness, Television, Travel, Web/Tech
If you can read this blog and not grin (or maybe even laugh) you're more grisly than me.
MediaPost.com posted "P&G Backs Public Toilet Database Site, App." Proctor & Gamble, supporting Charmin branding, has agreed to financially support the web site www.SitorSquat.com, which was originally developed by a New York homemaker. According to the Charmin brand manager this is considered part of the overall marketing effort which includes providing toilets at public events. His goal is that by helping people find clean places to go, it will help them remember to buy Charmin when they are at the grocery.
You have to admit, it's a clever and far from traditional idea. And certainly most of us have been in situations whether for ourselves or for someone with us (including children) we'd like to know the location of a toilet – especially a clean one. That the database can be downloaded, or accessed via the web or iPhone or Blackberry makes it a usable tool. Perhaps as valuable as an on-line restaurant guide. In times of "crisis" it could be the most valuable app on your iPhone.
But, despite the cleverness, P&G is operating in D&E mode rather than really growing toilet paper sales. The app does not discern whether the facility's paper is nice, soft Charmin, or more industrial single ply product. Nor does it even promote Charmin in rating the toilets. The stars seem to be more closely tied to mop and rag use by janitors, and accessibility, than anything else. It's unclear that this will increase demand for Charmin, much less toilet paper, and probably does little more than reinforce the brand name, by merely putting it on the site.
If P&G really wanted to grow the market for toilet paper, it would be more aggressive. For us world travelers, there are many places where toilet paper isn't as common as the USA – such as India. We all know of various health risks in India (mostly due to water issues), and P&G would be well served to promote hygiene in the developing world, including the use of disposable personal cleaning products like toilet paper. Further, P&G could develop products that use less wood pulp thus having less environmental impact, in effect a "green" toilet paper, that would incent additional use by the ecology-oriented. Or P&G could develop product from recycled or other waste material that has an even lower carbon footprint than paper (corn stalks? corn husks? banana leaves? straw?), again promoting use in the developing world (that often lacks enough wood) as well as environmental advocates.
While the database is interesting, and no doubt will get used, its business value will most likely be nill. A funny news column, but of no value to P&G shareholders. It doesn't help P&G address future needs of people regarding toilet paper (ecology, etc.), nor does it address the use of competitive products (which is non-use, or natural fibers [leaves] in the developing world). P&G has taken a clever new generation product like an iPhone app, and turned it into a very traditional, industrial use which is basic brand awareness reinforcement. Really not White Space, because no goals are given the project nor any positive results expected from it.
But, you have to admit, it's definitely "outside the box" thinking – especially for a company as stodgy as P&G. There is no doubt, this is an innovative (if sustaining) innovation in brand marketing – including the building of a web/iPhone app to promote a product. You'd just like to see P&G go a bit further in its efforts to find growth for shareholders. Have a happy weekend!
by Adam Hartung | Mar 26, 2009 | Current Affairs, Defend & Extend, In the Swamp, Innovation, Leadership, Quotes
Clayton Christensen is a Harvard Business School professor who first described in detail how "disruptive" innovations shift markets, allowing upstart competitors to overtake existing companies that appear invulnerable. I just found a 4 minute video clip "Clay Christensen's Advice for Jamie Dimon" at BigThink.com. In this clip the famous professor tells the story about how the big "banks" allowed themselves to be overtaken by "non-banks" – and then he offers advice on what the big banks should do (Jamie Dimon is the Chairman and CEO of J.P.MorganChase, and an HBS alumni.)
Dr. Christensen lays out succinctly how banks relied on loan officers to find good loan candidates, and make good loans. But increasingly, borrowers were classified by a computer program, not by loan officers. Once the qualification process was turned into a computer-based Q&A, anybody with money could get into the lending business – whether for credit cards, or car loans, or mortgages, or small business loans, or commercial loans. Losing control of each of these lower-end markets, the bankers had to bid up their willingness to take on more risk to remain in business while also chasing fewer and fewer high-quality borrowers. The result was greater risk being taken by banks to compete with non-banks (like GMAC, GE Credit, Discover Card, etc.) What should they do? Dr. Christensen says go buy an Indian or Chinese phone company!!!
Hand it to Dr. Christensen to make the quick and cogent case for how Lock-in by the banks got them into so much trouble. By trying to do more of the same in the face of a radically shifting market (people going to non-banks for loans and to make deposits), they found themselves taking on considerably more risk than they originally intended. Rather than finding businesses with good rates of return, they kept taking on slightly more risk in the business they knew. They favored "the devil you know" over the "the devil you don't know." In reality, they were taking on considerably more risk than if they had diversified into other businesses that were on far less shaky ground than unbacked mortgages.
This is Strategic Bias. We all like to remain "close to core" when investing resources. So we keep taking on more and more risk to remain in our "core" — and for little reason other than it's the market and business we know. Because we know the business, we convince ourselves it's not as risky as doing something else. In truth, markets determine risk – not us. Because we assess risk from our personal perspective, we keep convincing ourselves to do more of what we've done — even when the marketplace makes the risk of doing what we've done incredibly risky —- like happened to Citbank, Bank of America and a host of other banks.
And in great form, the professor offers a solution almost nobody would consider. His argument is that (1) these banks need to go where demand is great, go to new and growing markets, not old markets, and loan demand cannot be greater than in emerging markets. (2) To succeed in the future (not the past) banks have to learn to compete in emerging markets because of growth and because so many winning competitors are already there, and (3) you want to enter businesses that are growing, not what necessarily your traditional business or what you are used to doing. He points out that the traditional "banking" infrastructure is nascent in emerging markets, and well may not develop as it did in the western world. But everyone in these places has phones, so phones are becoming the tool for transactions and the handling of money. When people start doing everything on their phone (remember the rapidly escalating capabilities of phones – like the iPhone and Pre) it may well be that the "phone company" becomes more of a bank than a bank!!
Who knows if Clayton is right about the Indian phone company? But his point that you have to consider competitors you never thought about before is spot on. When markets shift they don't return to old ways. It's all about the future, and banking has changed, so don't expect it to return to old methods. Secondly, you have to be willing to Disrupt old Lock-ins about your business. If the "loaning" of money is now automated, banking becomes about transaction management – not making loans. You have to consider entirely different ways of competing, and that means Disrupting your Lock-ins so you can consider new ways of competing. Thirdly, you don't just sit and wait to see what happens. Get out there and participate! Open White Space projects in which you experiment and LEARN what works. You can't develop a new Success Formula by thinking about it, you have to DO IT in the marketplace.
Big American banks have tilted on the edge of failure. More will likely fail – although we don't yet know which the regulators will put under or keep afloat. What we can be sure of is that the market conditions that put them on the edge will not revert. To be successful in the future these organizations have to change. Probably radically so. So if they want to use the TARP money effectively, they had better take action quickly to begin experimenting in new markets with new solutions.
Gotta hand it to Professor Clayton Christensen, he's made a huge improvement in the way we think about innovation and strategy the last few years. His ideas on banking are well worth consideration by the CEOs trying to bring their shareholders, employees and customers back from brink.
by Adam Hartung | Mar 25, 2009 | Current Affairs, Disruptions, General, Innovation, Leadership, Web/Tech
Forbes Magazine reviewed the new car from Tata Motors in "Nano Lives Up To The Hype." Although we've known Tata Motors was designing and preparing this low-end car for a couple of years, most people were ignoring it. But now it's here, and according to Forbes the $2,000 car exceeds expectations. It's not a golf cart on wheels, it's "a proper car." And it's about to go on sale in India.
So the world's largest car company, General Motors, is on the edge of bankruptcy – only able to stay out via the largesse of loans from the U.S. government. Their sales are down 40%. And at the same time, from far away in a country well known for poor roads, emerges a new competitor ready to sell cars at 1/5 the price of any car sold in America – or the rest of the western world. Do you suppose the executives at GM or staying awake worrying about the Nano, or do you think they are ignoring this car altogether while trying to figure out how to sell more Chevy's?
Admittedly, the Nano comes from the fringe of competition. People don't think of manufacturing when they think of India, they think of IT. And they sure don't think of cars. Powered rickshaws maybe. And the car itself weighs only about 1,350 pounds – half what any other car weighs. It's really designed for performance up to about 40 miles per hour, and it's not a great performer on the way to reaching the top speed of 65. Although loaded with interior room, it has no back access – not even a fuel hatch. It would be very easy to ignore. It's easy to say this may be the next Yugo. But, this one seems a lot more like the original Honda Civic in 1973. Bare bones vehicle from a foreign country that's cheap, but otherwise "not up to American standards?" Or is it a bare bones car from a new competitor with a strong desire to learn, improve and eat into the share of current competitors?
Any car executive who's smart is paying a lot of attention to the Nano. Firstly, it demonstrates making a car at an unheard of price. For much of the world, this offers people their first chance at an automobile of any kind. So it brings in new users who would otherwise be left out. It's price, alone, shows that in a global economy, auto production is headed toward lower prices due to lower world-wide cost. If this vehicle is satisfactory to westerners, or can be made satisfactory over the next few years, it may never again be possible to pay American labor rates for producing automobiles. For basic transportation, American labor may be too expensive.
Additionally, the Nano went from idea to car in about 3 years. No 5 or 6 year cycle, like American car companies desire. Tata has demonstrated it can design and manufacture a car in about half the time of the existing auto companies. So the cycle time is shortened even more. And that this car can be profitable at volumes a fraction of the American production runs shows that markets need not be enormous – and old notions about tooling and other fixed costs of production may be things of the past.
Nano demonstrates why we HAVE to obsess about competitors. Including "fringe" competitors. Because these new competitors are figuring out how to do things differently. They are shooting for future markets, not past markets (like India, China, eastern Europe, South America, Africa). They are developing new Success Formulas that have different requirements, possibly obsoleting the old Success Formulas. It's so easy if you're selling books to say "no one will buy books on the web" when you see the early interface and business model for Amazon – rather than think where this new competitor will be in a couple of years. If you're selling land-line phone service it's easy to deride the quality of early cell phones, and project they will never move beyond niche users. But smart competitors know that when a new product is introduced by a fringe competitor, it's best to pay really, really close attention. You may need to be more like that competitor than you realize in a great big hurry.
by Adam Hartung | Mar 24, 2009 | Current Affairs, Defend & Extend, In the Swamp, In the Whirlpool, Leadership, Weblogs
"Senator proposes nonprofit status for newspapers" was the headline at Marketwatch.com today. Senator Benjami Cardin, a democrate from Maryland, has proposed allowing newspapers to convert to 501(c)(3) status so their subscription and advertising revenue woujld be tax exempt, while contributions to run the papers would be tax deductible. This would allow some newspapers to stay afloat.
Let me share with you a response I received from a fellow reader of this blog:
"I watched Chris Mathews and had the same feeling. As they spoke I had visions of chiefs of Bethlehem, U.S. Steel, etc. sitting around a table in the 60s going 'continuous casting, those Japanese, that's not going anywhere.'
How can they say investigative reporting is going to be dead – there are a million reporters out there working for passion and curiosity. As a matter of fact, if I was going to be paid for a year to chase a story, seems to me a strong incentive to create a story when there really wasn't one.
I loved the way they were holding the paper and saying how people will miss the periphery articles. People will be limited to their feeds and be exposed to the rest of what's going on. I look at it as if I read an article in a newspaper that is just one take of the situation. With the internet I can drill down to get additional information and opinions. Plus get immediate commentary from experts."
Lots of people are getting "subsidy happy" these days. Money to banks, money to car companies, money to newspapers. What we must realize is that these short-term subsidies should be targeted at stopping a worse calamity. Nothing more. Sort of trading off company subsidies against even higher costs for unemployment, uninsured health care, and the costs of letting companies fail short-term. The reality is that none of these subsidized companies are sustainable as they are. The market has shifted, and their Success Formulas no longer produce positive results. They will burn up the subsidy money, as we've already seen happen at GM, and soon ask for more.
When markets shift, new competitors emerge to thrive. Provided we don't get in their way by propping up bad competitors too long with subsidies. In banking, we saw the unregulated institutions on a global scale start doing all sorts of financial services. While some of these are reverting back to regulated banks in the U.S. today so they can receive subsidies, globally we have seen the emergence of immense banks that are outside U.S. regulation. These institutions can borrow and lend globally, and are creating a new approach to financial services. We can't prop up an uncompetitive Citigroup against giant global banks making profits offshore. Likewise, globalization of manufacturing now means that good, low cost cars can be produced in Korea, China and India – making rates of return on higher cost labor in the USA, Germany and Japan harder to obtain. Additionally, many of these offshore competitors (in particular Japanese and Korean) have demonstrated they can deliver proifts on far lower volumes, thus requiring faster launch cycles and more niche products to succeed. GM lacks the manufacturing cost structure (in short-term line costs as well as labor) and the new product introduction processes to survive against these competitors. In newspapers consolidating the reporting into a daily made sense when you needed vast and costly infrastructure to print and deliver the news – no longer requirements in a web-enabled news marketplace.
Economists can make strong arguments for subsidies to help short-term dislocations. Such as helping companies in New Orleans to get back up and running due to a hurricane. That is a short-term problem not related to a market shift. But arguments for subsidies offered during market shifts are strictly "public policy" efforts trading off one policy cost for another. They cannot "save" a business. The company and its employees must use the subsidy to change their Success Formula as fast as possible, so they can compete with some product in some market where they can grow — without need for a subsidy
TARP and its other stimulus products are intended to keep some air in some parts of the boat so it doesn't sink entirely. But they aren't fixing the ship. That requires new competitors emerge that are attuned to current market needs, and have Success Formulas that produce profits based upon future markets. As the economist Schumpeter said 70 years ago, we rely upon these new entrepreneurs to give us the creative new solutions that create growth in the wake of the destruction of old businesses unable to keep up with shifting markets. Let's hope we don't spend all our money trying to keep the old battleship afloat, because we'll need some to help the newer, faster, more agile competitors grow with solutions that meet current and future needs.
by Adam Hartung | Mar 23, 2009 | Current Affairs, General, Leadership, Lock-in, Television
Jon Friedman's Media Web Blog got it right today in it's article "How Fox Business and Bloomberg Can Gain Ground." Business news coverage was in the spotlight when Jon Stewart's The Daily Show on Comedy Central started attacking CNBC for being too business/executive friendly (see the running debate clips in the "on the Tape" section of the Daily Show homepage.) Whether Stewart was right or not, it didn't help CNBC to have some of it's spotlight personnel being trashed daily by a popular comentator, especially using their own tapes.
One would expect that financial news viewership is down, just because the recession has lessened interest in investing. But that doesn't mean CNBC is losing position. For that to happen, it's competitors – which are much smaller in share of market – have to do something to take advantage of the Stewart attacks. If everyone keeps doing what they always did, CNBC probably won't suffer much damage when the investing marketplace recovers.
So Mr. Friedman recommends that Fox Business News and Bloomberg news need to be the "anti-CNBC." I'm not sure what he means by that. But the idea is right. CNBC has been the market leader for several years, and it's Success Formula is Locked-in. It's viewer surveys have been with people who already watched CNBC, so its coverage has remained almost the same. And as more and more corporations and investment firms put CNBC on those flat-screen TVs in their lobbies, CNBC kept touting the market pitch that seemed to win them over as viewers and advertisers. As CNBC became apologists for these big advertisers, they reinforced their Lock-in to the Success Formula, and even as they Defended corporate titans and executive pay they extended their Success Formula onto the web with information that largely copied the television.
Suddenly, CNBC has been Challenged by a market shift. Like most market shifts, it didn't surface where CNBC expected, or how CNBC would have expected. CNBC was blindsided by the appeal of Stewart's attacks to mainstream television viewers, and many reporters who don't cover "the business beat." Like any good Locked-in organization, the CNBC reaction was to Defend itself, and do even more of what it always did claiming to be better and faster than the competition at reporting from Wall Street and the executive suites.
But right now CNBC is vulnerable. If Fox Business News and Bloomberg have been obsessing about the competition, now is the time to take advantage of its weakness. But to do that means attacking the Lock-in on which CNBC is built – it's very pro-Wall Street, pro-big company, pro-deregulation, pro-executive (and often pro-Republican party) positioning on practically every issue. Being a similar CNBC won't help the competition – even when CNBC is under attack. Because the attack is from a market shift, and the competition will win by moving to where the market moved.
So, what outlet reports on business news that isn't pro-Wall Street, pro-big company, pro-deregulation, pro-executive, pro-Republican? See what I mean – you can't really think of one. But are there people who invest in a 401K account, or a Roth IRA, or any IRA, or in their employer, or in their own home, who might be interested in a more "main street" and less "Wall Street" sort of positioning? Or a more balanced coverage of the pros and cons of America's biggest companies? Or those big company (and bank) executives? Or the issues related to debt, getting it and repaying it? Is there a market for business news that's been ignored, but Stewart has tapped into? Maybe call it the Suzie Orman approach to business news rather than the Larry Kudlow or "Fast Money" approach.
When companies obsess about competitors, they understand the competitors' Success Formulas and Lock-ins. And they prepare competitive actions that attack those Lock-ins. Entering a gladiator battle where everyone competes the same way just creates a lot of blood for spectators to watch, with no gain for the competitors. Phoenix Principle competitors don't attack where the competition is strong, but rather where the competitor is weak. Attack their Lock-in, so they can't react because they are stuck doing what they always did (and believe in it.). Right now is a good time for someone to attack CNBC and start stealing away viewers. To position themselves as a different kind of financial network that more people want to watch – especially when business news becomes less toxic and more interesting.
by Adam Hartung | Mar 22, 2009 | Uncategorized
The Chris Mathews Show (you can download/view the show at the link) today lamented the failure of newspapers, citing this week's shift to on-line only for the Seattle Post Intelligencer (check my earlier blog on this company for more details.) Mr. Mathews even went so far as to demonstrate how he, as a boy, folded newspapers to throw them on stoops when growing up in Philadelphia. The show made a valiant, if completely unsuccessful, effort to Defend the newspaper business. Maybe because he feels the not breath of on-line competitors himself!
As 2 print journalists and 2 television journalists discussed what was happening with news, the group was notably absent an advocate for on-line news. While they discussed the change in behavior of young news readers, all of the panelists were (like me) well over 40. They talked about how they used a newspaper, but they had no one there to discuss how other news seekers use networking sites or blogs. There was no blogger on the panel, nor a representative of any notable on-line news sites like Marketwatch.com or HuffingtonPost.com, nor a representative of Google or Yahoo! or any other organization leading the development of on-line content sites.
Mr. Mathews and his guests reminded me of an executive group in a company talking about a new competitor on the scene. All of them love the existing product, and have processes closely linked to using the current product (they like to get up and read a morning newspaper – but then, they don't have to fulfill an 8:00 to 6:00 job with high productivity requirements). They talked about "the good old days" when print journalists were the kings. They discussed how print news used to break stories like the Watergate cover-up (which was 35 years ago). They guessed at how newspapers might continue to survive, such as by consolidating through mergers and acquisitions, which would allow fewer to survive, but probably thrive – at least that was their hope. And they confirmed to themselves that if newspapers disappeared it had to be a bad thing – and even threatening to democracy!! Overall, it was a segment fully dedicated to Defending newspapers, without even the hint of someone who could explain the alternative as a product or a better business model!
By talking to themselves, and their customers, these folks showed their woeful ignorance on the state of on-line news. Mr. Mathews definitely needs to get more in touch with his (and newspapers') competition. His panel talked as if those who write about events on-line today don't have or take the time to research their topics — showing his ignorance about how important topics like the delays in producing the Boeing 787 jetliner were ferreted out by bloggers – not traditional media! And he said that without newspapers you lose "peripheral vision" about the news. Which ignoredthe role of news consolidation sites and, again, bloggers, and social networks at bringing forward interesting things happening around us to groups with similar interests — things often missed by traditional newspapers with their locked-in reporting methods.
If Mr. Mathews wants to do the topic of failing newspapers justice he should bring on his show people that work in non-traditional news. Bloggers and on-line site editors. His competition. Instead of dismissing them as somehow unqualified (because they aren't like him), he better pay attention to what they do, how they do it, and why they are often able to do his job better than him! Instead of focusing on his "base" he had better start obsessing about competition.
And he better start opening some White Space to keep himself and his show relevant – like opening a Twitter account, and creating a web site that's interactive with those in and reading the news (rather than his current vanity site) and blogging himself. Because if he keeps Defending his current show and position, and the newspapers that are finding themselves too slow and out-of-date in today's market, he's likely to find his show struggling for advertisers faster than he realizes! His show can fall to the perils of Defend & Extend Management just like any product that pays too little attention to competition and doesn't deploy White Space to evolve its Success Formula.
by Adam Hartung | Mar 20, 2009 | Current Affairs, General, In the Swamp, In the Whirlpool, Innovation, Leadership, Lock-in, Travel, Web/Tech
"Xerox chops earnings outlook as sales slide" is the headline on Marketwatch.com. Do you remember when Xerox was considered the most powerful sales company on earth? In the 1970s and into the 1980s corporations marveled at the sales processes at Xerox – because those processes brought in quarter after quarter of increasing profitable revenue. Xerox practically wiped out competitors – the small printing press manufacturers – during this period, and "carbon paper" was quickly becoming a museum relic (if you are under 30 you'll have to ask someone older what carbon paper is – because it requires an explanation of something called a typewriter as well [lol]).
But today, do you care about Xerox? If you have a copier, you don't care who made it. It could be from Sharp, or Canon, or anybody. You don't care if it's Xerox unless you work in a "copy store" like Kinko's or run the copy center for the corporation – and possibly not even in those jobs. And because desktop printers have practically made copiers obsolete, you may not care about copiers at all. In short, even though Xerox invented the marketplace for widespread duplicating, because the company stayed in its old market of big copiers it has seen revenue declines and has largely become irrelevant.
"U.S. airline revenue plunges for another month" is another Marketwatch.com headline. And I ask again, do you care? The airlines were deregulated 30 years ago, and since then as a group they've never consistently made money (only 1 airline – Southwest – is the exception to this discussion.) The big players in the early days included TWA, Eastern, Braniff, PanAm – names long gone from the skies. They've been replaced by Delta, American and United – as we've watched the near collapse of US Airways, Northwest and Continental. But we've grown so used to the big airlines losing money, and going bankrupt, and screaming about unions and fuel costs, that we've pretty much quit caring. The only thing frequent travelers care about now is their "frequent flier miles" and how they can use them. The airline itself is irrelevant – just so long as I get those miles and get my status and they let me board early.
When you don't grow, you lose relevance. In the mid-1980s the battle raged between Apple's Macintosh and the PC (generically, from all manufacturers) as to which was going to be the dominant desktop computer. By the 1990s that question had been answered, and as Macintosh sales lagged Apple lost relevance. But then when the iPod, iTunes, iTouch and iPhone came along suddenly Apple gained a LOT of relevance. When companies grow, they demonstrate the ability to serve markets. They are relevant. When they don't grow, like GM and Citibank, they lose relevance. It's not about cash flow or even profitability. When you grow, like Amazon with its Kindle launch, you get attention because you demonstrate you are connected to where markets are headed.
Is your business obsessing about costs to the point it is hurting revenue? If so, you are at risk of losing relevance. Like Sara Lee in consumer goods, or Sears in retailing, even if the companies are able to make a profit – possibly even grow profits after some bad years – if you can't grow the top line you just aren't relevant. And if you aren't relevant, you can't get more customers interested in your products/services, and you can't encourage investors. People want to be part of Google, not Kodak.
To maintain (or regain) relevance today, you have to focus on growth. Cutting costs is not enough. If you lose relevance, you lose your customer base and financing, and you make it a whole lot easier for competitors to grow. While you're looking internally, or managing the bottom line, competitors are figuring out the market direction, and proving it by demonstrating growth. And that's why today, even more than before, it is so critical you focus planning on future markets for growth, obsess about competitors, use Disruptions to change behavior and implement White Space to experiment with new business opportunities. Because if you don't do those things you are far, far too likely to simply become irrelevant.
[note: Thanks for feedback that my spelling and grammar have gotten pretty sloppy lately. I'm going to allocate more time to review, as well as writing. And hopefully pick up some proofreading to see if this can improve. Sorry for the recent problems, and I appreciate your feedback on errors.]
by Adam Hartung | Mar 19, 2009 | Current Affairs, Defend & Extend, Food and Drink, In the Swamp, In the Whirlpool, Leadership, Lock-in
"Nobody doesn't like Sara Lee." That was the jingle I still remember from my youth. For years we heard this on the TV, as we were coaxed to buy the delictable productss, frozen, refrigerated and fresh, offered by Sara Lee. But today, unfortunately, almost nobody likes Sara Lee anymore. Oh – the products are great – it's the company, primarily its leadership, that's a disaster.
It's tough to make money on food. After all, everyone has the same cost for the ingredients. And in the developed world, there's more than enough food to go around. For the last 50 years, to make money on food required adding to the product so it had more value. Such as freezing frozen potatoe slices rather than selling whole potatoes so french fries are more convenient - raising price and margin. Or adding preservatives and vitamins so the bread lasts longer than the other guy's, and may be a touch better for you. Or the biggest addition, advertising so you imbue the food with all kinds of personality elements urging customers to identify with the product. If you want to make money selling food, you have to taste better, prepare faster, sell cheaper and hopefully give me more value in myself — or else I'll by the generic product and kill your margin. And for a number of years, Sara Lee knew how to do this fairly well.
But then, Sara Lee stumbled. It quit launching new products and new brands. It's quality and branding was matched by competitors from Entenmann's to Little Debbie. Without innovation, the frozen, refrigerated and fresh pies, sausage and other products saw margins shrink. So Sara Lee hired a bright exec from PepsiCo to fix up the company named Brenda Barnes. Since then, the story has really gone downhill.
Ms. Barnes focused on her "problem," a low stock price, rather the market challenges Sara Lee faced. She built a 5 year plan to turn around Sara Lee. But his plan had no innovation involved. No plans for growth. Just the opposite, she intended to sell many assets to raise cash. And then use that cash to buy shares. And through this process, she would "prop up" the company stock to the benefit of shareholders. The company would be smaller – but she said it would be worth more – in some kind of weird economics. But, this stock ploy had worked for other industrial companies, she said, so it would work for Sara Lee. Since then, according to the chart at Marketwatch.com, Sara Lee stock has gone from 21 to 7! While the CEO wants to blame the tough economy for her performance, the chart shows that this "strategy" has been a dead loser since the day it was announced. Things have been downhill since long before banks trimmed their lending.
Now, in her latest move, the CEO wants to sell some more businesses. But in an FT.com article "Sara Lee Searches for Sell-off Suitor" there aren't any buyers for remaining businesses. As one analyst commented "it's a rather tired portfolio." That's a polite way of saying "when you don't innovate your business, why would someone want to buy it?" As another analyst said "it's not a very good business." Increasingly, instead of buying these product lines competitors realize they would prefer to compete against them, growing sales organically and profitably — without the headaches and cost of acquisition.
So, because the sale side of the strategy isn't working, we read in Crains ChicagoBusiness.com "Sara Lee to put stock repurchases on hold." After buying shares at $20, $18, $15, the CEO has decided not to buy shares when they are $7 – in order to conserve cash! Maybe if she had spent money on growing the business, expanding products and new business lines, using White Space to innovate new profitable opportunities the stock wouldn't be down to $7 with little interest on the part of any buyers.
Ms. Barnes tried to implement an industrial strategy when it can no longer work. Sara Lee brands aren't some kind of asset that will always go up in value. You can't just expect sales and profits to rise because you do more of the same, and cut costs. The world is highly competitive, and you have to prove the value of your business every day. Customers are demanding, and competitors are ready to steal them away in a heartbeat. You can't prop up the stock by trying to reduce the number of shares, unless you're ready to get down to $1 of revenue and 1 share left valued at $1. What good is that?
Sara Lee could have behaved very differently in 2005 – and CAN behave very differently now. The company clearly needs a new CEO that is ready to develop scenarios of the future which indicate what innovations could have high value. Instead of talking about what Sara Lee used to be, the CEO and management team needs to define what Sara Lee will be in 2015. And by obsessing about competitors, describe how Sara Lee can be a big winner. Then there needs to be Disruption in order to allow the company to consider the new business opportunities, and White Space with permission and resources to rebuild the Success Formula into one that can make above-average rates of return and grow! If Sara Lee will take these actions the company still has time to meet market challenges. But if it doesn't act fast, after 4 years of decline and a very shifted market, nobody's going to have any Sara Lee to nibble on sooner than Ms. Barnes is admitting.
by Adam Hartung | Mar 18, 2009 | Current Affairs, Defend & Extend, In the Rapids, In the Swamp, Innovation, Leadership, Web/Tech
We hear people say that eventually there will be no PC. Did you ever wonder what "the next thing" will look like that makes the PC obsolete? For most of us, working away day-to-day on our PC, and talking on our mobile phone, we hear the chatter, but it doesn't ring for us. As customers, all we can imagine is the PC a little cheaper, or a little smaller, or doing a few new things. And same for our phone. But, for those who are making the technology real, imagining that next way of getting things done – of improving our personal productivity the way the PC did back in the early '80s – it is an obsession.
I think we're getting really close, however. In what Forbes magazine headlined "Apple's Explosive iPhone Update" we learn that Apple is dramatically enhancing what it's little hand held device can do. USAToday hit upon all the new capabilities of the iPhone in its article "Apple iPhone software prices may rise," but these are just the capabilities us mere users can see. On top of these, Apple has provided 1,000 new Application Programming Interfaces (APIs). These allow programmers all kinds of opportunities to do new things with the iPhone (or iTouch). We all know that the netbook direction has small devices doing spreadsheets, presentations and documents – and that is, well, child's play and not the next move to personal productivity. You have to go beyond what's already been done on these machines if you want to get new users – those that will make your product supercede and obsolete the old product. And these APIs open that world for programmers to do new things on the iPhone and iTouch.
So go beyond your PC and phone with your thinking. With just one of the new offerings, Push, your iPhone could recognize your location (via GPS), know you are walking in front of a Pizza Hut (example) and ring you that this store will give you $2.00 off on a lunch pizza. Right now. And it'll create that magical bar code so the minimum wage employee at the register can scan your phone to get the price right when you check out. Or link your phone via bluetooth to your heart rate monitor in your running watch and automatically email the result to your cardiologist for the hourly profile she's building to determine your next round of pills – with a quick ring and reminder to you that you best slow that walk down a little if you want to get positive, rather than negative, impact. Or you get an alert that UBS just posted on the web a new review of GE (in your stock portfolio) and your phone automatically forwarded it to your broker at Merrill asking him for a comment and executed a stop-sell order at $.30 below the current market price via the on-line ML order application. By the way, you were supposed to turn at the last corner, but you were so busy listening to your alert that you missed the intersection so the GPS is re-orienting you to the destination – especially since there is construction on the next street and the sidewalk is closed – as per the notice posted by Chicago Streets and Sanitation this morning.
What makes this interesting is that it's the device, plus the open APIs, that make this stuff real and not just fairy dreams. That makes you wonder if you really want to lug around that 7 pound laptop, now that you get the newspaper, magazines and your books from Amazon all on the iPhone as well. And when you're delayed at O'Hare you can download last night's episode of Two-and-a-half Men and watch it on the screen while you wait to board. The laptop can't do everything this new device can do – and the new thing is smaller, and cheaper, and easier. This is all getting very real now. And with Google and Palm close on Apple's heals, it's now a big race to see who delivers these applications.
Does your scenario of the future have all this in mind? Are you planning for this level of productivity? Of information access? Of real-time knowledge? Are you thinking about how to use this capability to improve returns so you can explode out of this recession in 2010? Do you think you better take some time now to check?
In the meantime, IBM wants to buy Sun Microsystems according to the Marketwatch.com article "IBM May get Burnt." Talk about "other side of the coin." Why would anybody want to buy a company with declining sales? In IBM's case, probably to eliminate a competitor. Now that is typical 1980s industrial thinking. "So last century" as the young people say. The financial services and telecom industries are "soft" – to say the least. IT purchases are lowered. IBM and Sun are big suppliers. So IBM can buy Sun and hope that it will get rid of a competitor, and then raise prices. And that is typical industrial era – circa Michael Porter and his book Competitive Strategy – thinking. Lots of people are probably saying "why not, sounds like a good way to make money."
At least one problem is that this is no cheap acquisition. Ignoring integration problems, even though Sun is down – a huge amount down – the acquisitions is still over $6billion. Sure, IBM has that in cash. But what happens in information businesses is that competition never goes away. With budgets low, what sorts of PC servers (maybe from HP) running Linux are coming out that the customers will compare with Unix servers – and push down prices even if IBM has no Unix server competition? What opportunities for outsourcing applications to offshore server farms, running Chinese or Korean-made boxes with Linux, taking the business away from IBM exist? Or what applications will be eliminated by banks and telcos that need to axe costs for survival now that markets have shifted? You don't get to "own" an information-based business, and you don't get to control the pricing or behavior of customers. IBM needs to wake up and realize that it's investment in Sun within 2 years will be washed away.
We should be heading forward, not backward. Especially during this recession. Those companies that deliver new products that exceed old capabilities will be winners. Those that seize this opportunity to Disrupt markets – like Apple is doing – will create platforms for growth. Those that try applying industrial practices will find themselves looking in the rear view mirror, but never find that lost "glory land" that disappeared in the big recession of 2008/09. As investors, we need to keep our eyes on the growing companies building new applications, rather than the ones trying to regain yesterday.
