by Adam Hartung | Mar 4, 2008 | Defend & Extend, Disruptions, General, Innovation, Leadership, Openness
When markets shift it’s better to "get it fast" and make changes than "fight to the death" to protect the past.
The Chicago Tribune recently reported results of music compact disc sales (read article here.) It may not surprise readers to learn that nearly half of all teenagers bought no (not one) CDs last year. I’m 50, and I remember when teenagers were the mass consumers of 45’s and then LPs (remember small records with big center holes and "long playing albums") then later 8-tracks, cassettes and eventually CDs (how’s that for a walk down memory lane folks!). So to learn that the percentage of CD sales to teenages fell to 10% from 15% in 2007 was a bit surprising. When my sisters and I were young, teenagers were the vast majority of the market!
What does this tell us about the future? CD’s have a pretty lousy future. In 10 years I’ll be 60 – and who knows if I’ll be buying any CDs. But we know that these teenagers aren’t going to start. They’ll never buy a CD. If you’re a music company that depends on CD sales (like EMI, Sony, Vivendi/Universal or AOL Time Warner) you had better be pretty worried. Whether these companies will ever Disrupt their Lock-in and get a new approach is far from clear. They have ignored the trend for a long time, and Locked-in businesses are well known to remain Locked-in until they, quite literally, fail (at least in that market).
Do you remember how people bought all those albums or tapes? Does anyone remember Musicland – the retailer that in the 1970’s had 20%+ of music sales? Or that Virgin was begun as a direct mail company selling music through the mail? In 2007 the number of sold CDs fell by 19%! While sales of digital songs grew 45%! Today Apple, the company once known for a niche computer called the Macintosh, is the number 2 retailer of music in the country – without a single music store! Apple displaced Best Buy to take the #2 position (of course, #1 is Wal-Mart, but how long do you think that will remain as trends continue?) Clearly, the company that "gets it" has made a fortune, while the ones locked-in to traditional physical product sales and bricks-and-mortar have fared far more poorly.
Do you remember Wayne Huizenga? He was the megalomaniac who built up a car dealership into a network of dealerships making a fortune. He also bought the Florida Marlins, and they became World Series winners. And he bought Blockbuster Video, converted it to Blockbuster Music. So now you think, "what a dope." Guess again. This guy gets it fast. He sold his car dealerships when folks were willing to pay a lot. And he sold his ball players, capitalizing on the world series to make a big profit before overspending to try a repeat – as most owners have done. And he was fast to shut those Blockbuster music stores and sell the real estate before he got stuck with a bunch of unsellable inventory. He got it fast — which is more than we can say for the traditional companies mentioned above. Markets are constantly shifting. Those businesses (and their leaders) that Get it fast can avoid costly Defend & Extend – and build on early wins (like Apple) to huge success.
by Adam Hartung | Feb 28, 2008 | Defend & Extend, General, In the Swamp, Leadership, Lifecycle, Lock-in
Compare two recent reports on automobiles. Last Friday The Chicago Tribune reported that U.S. auto sales this decade had declined 7% (read article here). Hmm, sounds like better quality cars is dampening revenues – and an excuse for GM, Ford and Chrysler to do poorly. However, just last week the Wall Street Journal reported that the number of passenger automobiles on the roads in China rose — get this now — from 500,000 to 50,000,000 in the last 30 years! Right, a 100X increase in the number of automobiles. I don’t know how many autos are on the roads in India, Chile, Brazil and other high growth countries – but I’m sure the number has gone up quite a bit. Any visitor to these countries can point out the increased congestion.
So, if all the growth is in these other countries, why hasn’t GM focused 50% (or more) of its market research there? Why haven’t most design efforts been focused on autos that meet the demands of these markets? Since all companies want to grow, why isn’t GM (and Ford, etc.) focused on supplying these markets with double digit volume gains? After all, Tata Motors of India is now launching a sub $2,500 auto (read more here) that it expects to sell in the tens of thousands, and simultaneously the company is taking over luxury brands Jaguar and Land Rover from Ford (see article here.)
Businesses get Locked-inside their boxes. GM, Ford and Chrysler have sold cars in Europe – but largely they have always been happy to be U.S. companies selling products in the U.S. Even though the growth has gone elsewhere, outside the U.S., these companies remain "inside the box" – and that box keeps getting relatively smaller as the global markets get larger. Although they may try to "think outside the box", Lock-in keeps them fixated on the U.S. and only marginally involved in other markets.
Companies like Tata "get outside the box – then think." They figure out how to make money in high growth markets, and go to new markets figuring out how to get a toe in. They compete, get bloodied up, compete more, learn and find a way to make money. They don’t get overwhelmed with planning exercises and building market models. They never lose sight of where growth is, and they keep their eyes on growing sales in these Rapids markets with high growth. Meanwhile, their eyes are forever on the horizon looking for the next growth opportunity.
No matter how big a business seems when growing, eventually growth slows. New technologies, new products or new competitors change the landscape, and what was once a very big box starts to shrink. Before long, as the growth goes to other markets, the box starts looking smaller and smaller. Yet, most companies remain fixated on competing inside their box. Like GM, so worried about U.S. market share that they missed the explosion in China, India and elsewhere. And now the competitors that learned how to succeed in the growth markets are keener, and better resourced, to come blow up the small box GM is fixated upon.
Businesses have to get outside the box or they eventually fail. The quicker they learn this lesson, and implement processes to Disrupt their cozy competitive world – while implementing White Space projects to keep them in the quickly shifting Rapids – the more likely they are to survive longer, and make significantly more money for investors while creating exciting jobs for employees and demand for suppliers.
by Adam Hartung | Feb 26, 2008 | Defend & Extend, General, Leadership, Lock-in
$6billion – that’s how much today’s economy paid for ….. nothing. IBM (see chart here) announced today it would add $15billion to its share buyback fund (read Marketwatch article hear). This fund is used to repurchase shares of Big Blue, and top executives said they intended to spend $12billion buying back their own shares this year. The fund, according to IBM’s Chief Executive is "one of they key elements of IBM’s 2010 road map for earnings per share growth."
When a company buys back its shares it does not increase sales, or earnings. It merely buys back its own equity. The number of manufacturing plants, patents, or products does not go up. The number of salespeople, or other employees does not go up. All that happens is the total sales and earnings is now divided by a smaller number of shares. Earnings per share increases – not because the company is doing any better – but rather because the denominator was manipulated to a smaller number.
Note that as the amount being spent to buy shares was announced at $12billion, the amount of value increase was only half that – $6billion. Right off, we should recognize that some investors see this for what it is. Financial machinations that provide no real value. Instead of IBM saying it was opening a White Space fund to spend $15billion on new markets, new technologies, new projects it is spending the money on financial manipulations that have no inherent value. And what is that worth? Well, investors said about half of the amount promised to be spent.
Investors should be worried about this kind of announcement. Firstly, it says management is focused on financial machinations – rather than actually growing sales and earnings. That is not a good thing. Secondly, it implies that management has so few investment opportunities that it is going to spend money on stock buybacks. Again, not a good thing. Investors should prefer that the company would have so many new product investment opportunities that it is having to allocate cash amongst them – rather than give the cash to existing shareholders in an effort to buck up the share price. It’s an indication that the company lacks growth opportunities when it buys shares rather than buying new capital equipment to make new products, or new salespeople to meet customer needs.
The front page of Marketwatch.com excitedly announced the $4.30 jump in IBM’s shareprice as a result of the announced buyback. You would have thought some great new innovation had been launched. Instead, this was much ado about nothing – and a real risk to a company that requires high amounts of Disruption and White Space to maintain growth.
by Adam Hartung | Feb 24, 2008 | Defend & Extend, General, In the Swamp, Leadership, Lifecycle, Lock-in
The Chicago Tribune today ran a feature on growth at McDonald’s (see chart here) the last 5 years. Of course McDonald’s grew, does no one remember the program McDonald’s launched in the mid-1990s to close stores? Over 5 years McDonald’s closed hundreds of stores in the U.S., Japan, U.K., Europe and almost every other country in the globe. Admitting to "saturation" claims made by franchisees, McDonald’s management set about reducing the number of units. By 2003, the closures had largely stopped – and magically McDonald’s is able to set out on a slow growth trajectory. And after the most massive stock buyback in company history, using funds from asset sales, the share price rose to new heights as well. Imagine that!
Now McDonald’s is trumpeting it’s coffee launch (read article hear). As the company prepares to roll-out lattes and cappuccinos, does anyone think this is the result of White Space – and the beginning of a new McDonald’s prepared to retake the high growth path? Hardly. The company has greatly automated the specialty coffee making process so its franchisee’s employees, let’s call them non-baristas, don’t need the skills of a Starbucks company employee. You won’t get the specified drink so made fun of by the Dunkin’ Donuts ads (fritalia anyone?) And despite some remodeling, you won’t have the same atmosphere in which to drink your elixir – it will still be a McDonald’s with its focus on speed over service pleasant surroundings.
Investors should face the truth that this is just another effort by McDonald’s to get you into the store for an Egg McMuffin, or Big Mac. Just as salads were introduced so moms would stop in for a happy meal for the 5 kids in the car pool. McDonald’s isn’t trying to upscale their environment so that businesspeople stop in to discuss a potential out-of-town deal. Nor attract the working women on their way to their next sales call. Nor the soccer moms taking a 20 minute break between the next exhausting task. This is about selling some additional beverages near the carry-out window – and hopefully getting a few extra sandwich sales. But do we really think that’s what the world wants – more Big Macs? Is the lack of a latte the only thing keeping us from going to McDonald’s more often?
I’d predict this wouldn’t work at all – except the returning Starbuck’s CEO has recently taken to Defend & Extend Management himself. His latest declarations to return to a coffee focus, and diminishing recent introductions of other products – including quality lunch foods – is playing right into McDonald’s hands. While McD’s may not be Starbucks, pretty soon Starbucks may not be either. Yet, in the end, tastes have shifted. This isn’t 1965. We may want a lot of things fast and consistent, including the vast bulk of coffee purchases from 7-11 and Dunkin, but that isn’t how Starbucks became a modern legend. And it isn’t the road to growth for Ronald McDonald.
McDonald’s isn’t really changing. And the long-term road to growth and above-average profits is still unclear. Nothing about a McDonald’s iced coffee indicates the company will soon be the next cache. Until management realizes that Chipotles is where customers are heading – toward new products in new service formats – McDonald’s results will, long term, remain uninteresting. Up for a while, but just waiting for the next innovation to push them back down. It can all sound so good….. but Locked-in management is not the route to prosperity. And these coffees are all about maintaining Lock-ins at McDonald’s.
by Adam Hartung | Feb 20, 2008 | Defend & Extend, In the Swamp, In the Whirlpool, Innovation, Leadership, Lifecycle, Lock-in
Motorola’s (see chart here) idea to spin off its mobile phone business is probably a very good thing for investors. Because that part of Motorola is a sitting duck. Motorola undertook a number of Disruptions the last 4 years, and many of its businesses have White Space doing the right things – such as launching great new products and keeping customers highly satisfied – in markets from 2-way radios to enterpise networks to digital set-top boxes.
But the mobile handheld business, well it just tried to hand onto its success with Razr for too long (read article about Motorola product competition here). Razr was good, but in today’s economy competitors around the globe see your new product and copy it as fast as possible. Then they start one-upping you, such as Nokia (see chart here) did by making lower cost phones and RIM (chart here) and Apple (chart here) did by bringing out products with even more innovation (such as Blackberry and iPod phones).
Motorola had higher cost chips, but you don’t have to be low cost to compete. Samsung used its chips to differentiate with multiple variations every month, swamping the market with "new" product even if it just barely was new. Meanwhile, Motorola introduced only 1 new product this year – the Rokr E8 – which wasn’t even new but (as the name implies) an updated Rokr which was introduced almost 3 years ago.
Now the mobile phone business is well into the Swamp (possibly even the Whirlpool some claim), while other parts of Motorola are keeping themselves in the Rapids. As the above referenced article says, previous troubles in mobile phones "stir uncertainlty and depress morale, rather than inspire Motorola’s deep pool of designers and engineers to be more innovative." Employees don’t like working in the Swamp or Whirlpool, where chronic anxiety over cost cuts, and declining investment keep the business in an also-ran status. An analyst wtih Jackson Securities said "I don’t think the people in the lab are idiots. I think creativity hasn’t been incentivized.." Employees like working in the Rapids. They know that’s where success occurs, and that’s where Motorola’s mobile phone business was in 2005 and 2006. But now that competitors have created what Ross Perot called "that great sucking sound" in mobile phones, why would anyone want to work there?
The engineers in Motorola’s mobile phone business are hard working, industrious, and talented. I know several of them, and they are world class. Their business unit’s fall from grace isn’t because of employee weaknesses or insufficient loyalty. Rather, the leaders (including Mr. Zander, CEO) made the horrific decision to try Defending & Extending their business with the Razr rather than maintaining Disruptions and White Space letting loose the talent which made and launched the Razr in the first place. This decision kept the innovation minimal, the opportunity for new products to reach market negligible and turned the business unit into a sitting duck. If this business had maintained the Disruptive behavior that got the Razr out the door, and used White Space to keep innovations flowing to market – instead of chasing market share and trying to lower costs – these engineers would be sitting pretty, rather than sitting ducks.
The competitors have been taking potshots for months. And now that we’re learning White Space disappeared in this unit, the risk is the corporation keeps trying to pump money from the better units into the duck as fast as losses pour out from competitive shots. It will be better for the employees, the investors, suppliers and customers if Motorola puts its energy into growing the businesses it has kept on course the last 4 years, and let bygones be bygones in a market Motorola created – but let get away. When you see a sitting duck, best thing is to walk away.
by Adam Hartung | Feb 17, 2008 | Defend & Extend, General, In the Swamp, In the Whirlpool, Leadership, Lifecycle, Lock-in
We like to think that businesses succeed on the strengths of perseverence, tenacity and hard work. Yet, we know that many leaders, and their teams, follow these principles and still do not succeed. Unfortunately, too many businesses stake their claim on Defending & Extending their Success Formula "to the death" – and end up exactly there.
Sears (see chart here) is on the brink of failure, yet it is unclear the egomaniacal CEO who bought the company will give up his Success Formula to save investors, suppliers and employee jobs. (Read full Chicago Tribune article on the failing Sears turnaround here.) When Mr. Lampert took over Sears he was quick to say he was willing to give up revenue in the pursuit of better profits. Somewhere in his training Mr. Lampert built into his Success Formula that growth was not as important as short term profits – and in fact that profits could be captured in a no growth business for better investment elsewhere. But in reality, that theory just hasn’t been shown to work.
Sears cut employees, product lines, advertising, marketing and closed stores to raise short-term profits. But investors are now recognizing that these actions may well have destroyed the company. While Mr. Lampert pumped up the bottom line, he lost competitive position in large appliances – letting the Kenmore brand grow stale while Whirlpool and others grew revenues at Best Buy. And now with homebuilding on the skids, demand for these appliances is falling like an anchor. At the same time, the venerable Craftsman brand has lost share to Ryobi and other tool brands now sold in Home Depot and Loews. Mr. Lampert predicted sales for Sears products, and at Sears stores, would fall as he focused on profits. And they did! Mr. Lampert did a great job of helping competitive manufacturers and retailers gain strength while he started trying to milk his "cash cow."
Only the milk is not forthcoming. After consistently declining operating numbers, in the 2007 fourth quarter Sears profits declined 51%. So Mr. Lampert fired his hand-picked supplicant President, and announced a reorganization. Like the Captain shooting the first mate while ordering deck chair reorganization on the Titanic. And now analysist are saying that the sum of the parts at Sears (brands plus real estate) is worth less than recent market valuations – as much as 30% less!
Mr. Lampert believed in his Success Formula, and he asked investors to believe in it as well. Many did. But Mr. Lampert’s industrail era retailing Success Formula is woefully out of date – and not producing growth or positive results. He’s Locked-in, and he seems willing to take down with him anyone who will share his Lock-in. How long should investors believe in Mr. Lampert and his failed strategy? To the death? For those who think it may not happen – just consider Woolworth’s, Kresge, Montgomery Wards, KMart and Marshall Fields.
by Adam Hartung | Feb 11, 2008 | Defend & Extend, General, In the Swamp, Leadership, Lock-in
One striking characteristic of Defend & Extend Management is that leadership, and often everyone else, becomes very willing to expect everything to work out eventually. Regardless of the signals. D&E leaders tend to be just like the characters in the 1913 novel by Eleanor Porter (read more about Pollyanna here) – always optimistic and always rewarded for their optimism.
Last Sunday the Chicago Tribune published an article about the major companies in Chicago that have either failed, or done poorly, in the last decade (read article here). The list of problems was pretty dramatic – Motorola, Sears, Sara Lee, Ameritech (gone, now SBC), First Chicago (gone, now JPMorganChase), Amoco (gone, now BP), Tribune (almost gone – in a highly leverage buyout), Quaker Oats (gone). Not to mention that Chicago real estate barely participated in the great real estate run-up the last 7 years – largely because netting job losses versus job gains the employment base hasn’t grown! No, Chicago isn’t finding real estate falling like Las Vegas, but it never came close to going up like Las Vegas (or Miami, or Walnut Creek, or Phoenix) either.
Yet, those interviewed in the article were completely "Pollyanneish" (how does a noun become an adverb?) A former Chicago executive virtually admitted there was little innovation in Chicago – and qualified himself by saying that Chicago innovation was more "adaptation." Ugh, let’s get real folks. In other markets people are creating breakthroughs and that is drawing the most talented people – and that is driving up real estate values. Meanwhile, Chicago accepted an out-of-town carpetbagger in Ed Lampert who destroyed Sears. And Motorola, once a national leader in innovation has seen its invention of cell phones lost to other competitors as the company now considers exiting the business!
I’m a midwestern guy, and I LOVE Chicago. To me, its a great place to live and work. But that’s what people say in Detroit, Cleveland, St. Louis and Tulsa also. Who cares? If you can’t create new businesses, and new jobs, and revenue growth it doesn’t matter. Let’s face it, Chicago spent nearly 10 days without breaking above freezing in one stretch this January, and Chicago just spent the first few days of February under snow and another 0 degree frigid blast. No one moves to Chicago for the weather! Or the theater. Or the symphony. Or the political influence.
GROWTH is all that matters. People love Paris, London and Rome. But only the wealthy idle look to move there. Today, property values for business and homes in Mumbai (formerly Bombay), Chenai (fomerly Madras) and Bangalore exceed Chicago. Go to these cities and you see employment growing 20% per year! People want to be in these places. Yes, the weather is hot. Often humid. And the roads are aweful. But that is where the action is. People there are defining the new future – the new global economy. Is that happening in Chicago?
Chicago has a great past. But who cares? If Chicago can’t compete on the world stage with Shanghai, Hyderabad and Buenas Aries for investment and growth it doesn’t matter. Chicago can quickly become the next large, boring, cold city. Not even Al Capone could slow Chicago when it had the stockyards, the steelmills and the reputation as "the city that works." But if Chicago doesn’t wake up and start making itself a leader we risk becoming just another big city on a nice fresh water lake. And the midwestern youth will fly to the east coast, west coast, China, South America, or India to find opportunity for riches.
by Adam Hartung | Feb 5, 2008 | Defend & Extend, General, In the Swamp, Leadership, Lifecycle
On Friday Microsoft (see chart here) announced an offer to buy Yahoo! (see chart here) – [read articles on acquisition offer at Chicago Tribune here and Marketwatch here]. The world’s largest software company admitted it fears Google, and to play catch-up in on-line ad revenue it has decided to buy Yahoo! Because of its huge cash hoard, if Microsoft wants Yahoo! it will get it. And Yahoo! will add revenue to Microsoft. So Microsoft will exchange cash for new revenue, and ostensibly growth. Is this a good thing?
Microsoft almost missed the internet market entirely. Wedded to its desktop software sales, Microsoft was not an early participant in the internet. Then, Bill Gates realized that "owning" the desktop was not enough as users become interconnected. Quick as a whip he reached out to Spyglass, one of the commercial applications of the Mosaic web browser from the National Supercomputing Center in Illinois, and got a license for what became Internet Explorer. Whew! Microsoft avoided being swept by upcomer Netscape and stayed in the personal computer game.
But, Microsoft customers and investors should be worried. It wasn’t Disruption and White Space that led to Microsoft’s decision to launch IE. And now, a decade and a half later, Microsoft again has not used Disruptions and White Space to develop its next market move. Instead, it is hoping an acquisition can save the company from missing the next big move in the Information Economy. Twice Microsoft has reached into its cash horde to save itself – and this time it has made the move much, much later than it did the first time. Google is far out in front, and what Microsoft brings to Yahoo! is unclear. Google is #1 in search engine use (far ahead of Microsoft), and it dominates the ad placement business – more than twice the size of Yahoo! Microsoft may bring cash to Yahoo!, but it is unclear cash is enough to take a front runner position.
Microsoft figured out how to be the most effective competitor for small computer operating systems and personal computer applications. And the company prospered from sprouting White Space teams that figured out how to lead the personal computer movement. But since the internet came along, Microsoft has struggled. Microsoft is Locked-in to its monolithic views the PC world, and with each technology wave the company demonstrates it is unable to foresee a market leading future. The decision to buy Yahoo! is a Defend & Extend move taken to keep from falling farther behind – not the result of an internal Disruption and White Space intended to yield a new Success Formula for Microsoft. It is unlikely that Yahoo! will prosper more greatly under Microsoft ownership. Rather, it is likely that like most Microsoft acquisitions Yahoo! will struggle under the weight of Microsoft Lock-ins which slow growth and retard improved returns.
Microsoft was an incredible pioneer that in competition with Apple Computer changed the face of modern computing. But where Apple has moved on to music downloading, music players and even mobile phones Microsoft keeps trying to capture past glory. In the information economy, this approach has proven a disaster to everyone that has tried applying it. Soon not only will Microsoft be worrying about Linux sales, but how to catch the powerhouse Google with a tired, second position subsidiary Yahoo! This does not bode well for anyone relying on Microsoft long term.
by Adam Hartung | Feb 3, 2008 | Defend & Extend, General, In the Swamp, Leadership, Lifecycle, Lock-in
Welcome back to my BLOG! I had to take a few weeks away to finalize the book with my publisher (Wharton Press/Prentice Hall) and am now looking forward to its release in May or June! Of course a lot has happened since I last blogged, and I’m looking forward to jumping in with comments on how current businesses can dramatically improve results by applying The Phoenix Principle. Let your friends and colleagues know the blog is back —– and encourage everyone to comment!
After all the positive things I said about Motorola (see chart here) over the last 3 years, it is befitting that my return posting be about this company that is newly belueaguered. Last Friday Motorola executives gave investors, and employees, the impression they intended to break up the company (see article here) – and jettison the cell phone business which Motorola invented! On the face of it, this action appears to indicate Motorola’s executives are ready to through in the towel on reviving Motorola as one of America’s leading technology companies.
When Ed Zander joined Motorola he embarked on a remarkable start. He stopped Defend & Extend practices implemented by the Galvins, focused on finding competitor weaknesses, Disrupted long-held Lock-ins and opened several White Space projects. And there was rapid improvement in ALL Motorola divisions. What went wrong?
The Siren’s song of quick returns from Defend & Extend Management lured even the maverick CEO Ed Zander onto the rocks of disaster. Instead of keeping the focus entirely on the future, Mr. Zander allowed himself, and his company, to start planning from the past. As quickly as July, 2006 – a mere 2 years after starting Motorola’s remarkable transformation – when asked how he intended to keep up company growth he responded with "More Razrs" (see article here). He was willing to rely on extending past success, rather than discovering new solutions that would maintain growth. And this small turn, this willingness to think he could milk a company cow, undid Motorola. It turned out that as he spoke these words, sales of Razr handset phones were peaking and the handset business was entering a precipitous profit slide.
Of course, competitors learned from Motorola, and copied the company. Similar products came to market, and Motorola found itself slashing prices to maintain sales. The company continued to attack competitors, Lock-ins and open White Space in the rest of its businesses (see article here). And those businesses are continuing to do quite well, as revenues and share are rising along with profitability. By focusing on the future, and how to be stronger in set-top boxes, wireless networks and infrastructure products through new products and new ways to compete, those businesses have applied The Phoenix Principle to great success. But these successes weren’t enough to overcome the disaster wrought by the Defend & Extend decision in cellular handsets.
The lure of D&E Management is strong. Executives would like to believe they can live on past successes. They would like to avoid scenario planning, competitor paranoia, the tension of Disrupting Lock-ins and managing White Space. But in today’s global internet economy, they can’t. Competitors can acquire resources too fast, and overcome competitive hurdles too easily. There really is no rest for the weary, and to any executive willing to listen to the Siren’s song of cut costs (Motorola started laying off thousands in 2007 – after Disruptions had created success and leadership began thinking about how to D&E that success) they need to pay close attention to what happened to Ed Zander and his team at Motorola. D&E may sound good, but it doesn’t produce revenue and profit growth that will make a company successful.
by Adam Hartung | Dec 9, 2007 | Defend & Extend, General, In the Rapids, Innovation, Leadership, Lifecycle, Lock-in
I’ve had a lot of discussion this week about Motorola. Readers of this blog know I’ve been a big fan of Motorola, yet here we are today with the company’s value barely higher than it was 4 years ago (see chart here) – and the savior CEO is being replaced.
A Chicago analyst put Motorola’s situation well when he headlined "Big Expectations, Harsh Realities Plague Motorola" (see article here.) The Phoenix Priniciple is all about growth. When growth breaks out, you can’t stockpile it to use some future date. You have to keep growing. Motorola Disrupted 4 years ago, and a slew of White Space projects led to rapid growth. One of those projects was a breakout phone called RAZR – but that was just one. Motorola bought Good, Symbol and brought out several new products in DVRs and 2-way mobile radios. But this wasn’t enough (read full article here.)
Never forget Motorola once was the #1 microprocessor manufacturer – as the brains behind the early Macintosh. Motorola also launched Iridium. Not only was Motorola a huge leader in cell phones, but the company designed and deployed a satellite-based system intended to potentially augment or replace cell phones. Motorola uses White Space. But, unfortunately, when things start working the company also has a penchant to start Defending & Extending that success. Motorola’s Lock-in to infrastructure products meant the company didn’t give up on Iridium early enough. And Motorola Locked-in on analog phones, which they led, moving to digital phones way too late.
Trying to Defend & Extend what works has once again gotten Motorola into trouble. RAZR was a great product. But by focusing on growing share through RAZR, innovation declined. Instead of keeping Disruptions happening, and new White Space projects flourishing, Motorola overly focused (once again, unfortunately) on extending what worked (notice past tense) rather than maintaining innovation and keeping its eyes on the long-term future. Now other mobile handsets are more innovative, and the other markets where Motorola invested are growing – but not fast enough to keep over-all company growth rates out of the Stall Zone.
Motorola’s new CEO needs to do exactly what the company did 4 years ago (see article on new CEO here). Disrupt and open White Space. Motorola is full of innovations – across all its businesses. It needs leadership to Disrupt Lock-ins to hierarchy and sacred cows so that innovation can rapidly come to market. If Motorola instills Disruptions and Lock-in it can repeat past breakout success and return to above average growth. If it returns to The Phoenix Principle, and eschews D&E Management, its future looks very rosy indeed. But the threat of failure looms large if management avoids Disruptions and doesn’t invest in White Space – needed now more than ever at Motorola.
