by Adam Hartung | Jan 8, 2006 | Defend & Extend, In the Swamp, Leadership, Lifecycle, Lock-in
Harley Davidson is a great, well known brand. But as one of my old professors used to say "a good product, and a good company, doesn’t necessarily make for a good stock."
Despite it’s brand image, for the last 2 decades things have been changing at Harley. Half of revenues now come from brand merchandise (like jackets) rather than motorcycles. The average age of its customers has kept rising, until now its over 50. Its new product introduction has been between anemic and nonexistent.
No one has done a better job of hiding an inherently no-growth story better than Harley Davidson. It has raised prices, faked shortages and found more ways to Defend and Extend its brand as it has done almost nothing to bring in a new generation of customers. Its big effort to move forward was the launch of the V-Rod 3 years ago with an engine, no joke, made by Porsche. Unfortunately, Harley’s dealers bad-mouthed the machine and wouldn’t sell it as they continued to stay Locked in to the old business (and the old-fashioned "hogs"). And Harley knuckled under, downplaying the new bike to appease these dealers. And a new generation of customers, to whom the new bike appealed, continued going to Honda and Yamaha.
Harley has had a P/E multiple of 25. Recently it has fallen to 14. Some folks think this might make Harley a value. I’d say that given the Lock-in, and the complete capitulation to Defend & Extend management at Harley, they have been merrily floating along the Flats not realizing how close they were to the Swamp. Fourteen might be a very high P/E once the market realizes how few 50 year olds are left looking for a $25,000 motorcycle based on 30 year old technology.
by Adam Hartung | Jan 8, 2006 | General
Everyone over 40 thinks about retirement. Nearly everyone looks forward to it. And younger workers look forward to the opportunities which retirement creates.
But will you retire? This week’s announcement by IBM that it can’t afford to continue it’s retirement plan is just another in a string of Telltale warnings. We heard a lot of press last year that Social Security might not be there for many retirees (at least not like they imagined.) And we hear that some big-time business threats, like the problems at GM, are more than a little bit due to high pension costs.
Just a few years ago the stock market was skyrocketing and everyone felt their pension plans were in great shape. After only a few years of anemic market performance now corporations are claiming they can’t promise retirement.
Who’s problem is this? Why, it’s yours (and mine.) No matter what we want to believe, what we Locked-in on when we were younger, and what happened for our parents there is no doubt that retirement is going to be different for the Boomer generation. But have you Disrupted your thinking and made plans? Or are you ignoring these Challenges, so clearly being reported, in favor of Lock-in to old assumptions?
I’ve talked often about how easily businesses ignore their Challenges and avoid Disrupting their Lock-in. But this one is personal. The pension Challenge affects us as individuals. It requires we as individuals find some White Space to rethink our retirement plans. Have you started? Or are you content Defending and Extending your past beliefs? The Challenges are large – and the personal risk is high. Maybe it’s time you think about how you’ll handle this Challenge; before it becomes a problem you may not be able to solve.
by Adam Hartung | Jan 8, 2006 | General, In the Rapids, Innovation, Leadership, Lifecycle, Openness
Motorola has done it again. As reported by every news agency that attended the Consumer Electronics Show, Motorola has joined up with Google, Yahoo and Kodak to improve its products and make new products. This is, of course, after partnering with Apple months ago.
What’s really important about this news is it shows the ongoing effort to create White Space in Motorola. As I blogged a year ago, Motorola’s efforts to create White Space where new innovation can flourish is a key success factor for turning around the struggling behemoth. Now, it’s ventures not only are opening the product development doors for licensing and creation, but in fact the Kodak venture will co-locate people from both companies into a joint development facility.
Many people have pointed out that several new products, including the RAZR, were mostly developed prior to Zander showing up. So why am I such a fan of Zander? Why so eager to talk about these projects? Because Zander Disrupted Motorola and unleashed the creativity which was there. The sparks already existed, but previous leaders did not know how to Disrupt the environment, attack the Lock-ins that held Motorola hostage to its worn out Success Formula, and create White Space to migrate the company into a new Success Formula. What’s happening in Motorola’s turn-around isn’t just a product story. It’s a story about how to overcome Lock-in to the past and launch yourself forward. And for that a lot of credit does go to Mr. Zander.
A lot has happened at Motorola since Ed Zander took over. Most of it, from raising cash by selling automotive businesses to aggressively promoting DVRs to putting real pizzaz into the phone marketing and creating new ventures has all been good. This is a company to watch, and probably a stock to own.
by Adam Hartung | Jan 4, 2006 | General, Leadership, Lifecycle, Lock-in, Openness
2006 has started with the completion of Viacom’s spin-off of CBS. Since these two entities merged, their value has about shrunk in half. What was to be an integrated media company is trying to increase its value by dis-integrating. Even Sumner Redstone, the legendary investor, said on CNBC Tuesday January 2 (when interviewed by Bob Pisani) that "Synergy is dead."
For at least 4 decades business leaders have believed that getting larger, especially by acquisition, was a good thing. If you couldn’t generate growth, fake out investors by buying it. But now we’re seeing companies face the opposite. Carl Icahn is after Time Warner to break up its business. And Knight Ridder is being forced to bust up its newspaper empire. All in order to "unleash the value" hidden in these merged organizations.
Congratulations! This is a great move to help these companies reinvigorate themselves. Not because of "focus", but because they can now quit focusing inward, trying to optimize their business models, and get back to the job of pleasing customers and adjusting to market requirements. The era of conglomeration was built on false assumptions that large companies could control their destiny and through optimization generating ever larger returns. Not! Instead, these companies lost touch with customers, became out of phase with their markets and prey for more nimble competitors while destroying shareholder value (not to mention the economic impact of thousands of lost jobs from downsizing, needless outsourcing and considerable "economic dislocation" for suppliers.)
Now, CBS and Viacom each needs to get about the job of creating a new Success Formula that aligns with customer needs. If they use this split as a Disruption, and put in place some White Space for new ideas to emerge, they have a great opportunity to catch up lost ground on emerging competitors and regain lost customers. They’ve moved the batter to first base – it’s time to see if they can move him around the bases to score.
by Adam Hartung | Jan 2, 2006 | General
There’s a better than 50% chance you shopped at least once in WalMart. Five years ago, there was an equally large chance you shopped in KMart or Sears. But this year, did you shop at Sears? Or Sears Essentials (the replacement concept for KMart)?
Sears is still trying to figure out what to do with Martha Stewart. Months after we heard that KMart + Sears was going to be a big competitor to Target, Kohls and WalMart the fact is that Sears missed this 2005 holiday season. Imagine that. Do you think the execs at Sears needed someone to provide a calendar so they new when shopping season would start?
Sears remains hopelessly Locked-in to its old Success Formula. Eddie Lampert might be rich and smart, but he has no clue how to deal with a large, Locked-in organization. He hasn’t Disrupted the Success Formula, despite much hoopla and personal press coverage regarding his supposed genius. Lacking that Disruption, we haven’t seen a new Sears emerge – just an even weaker verson of the old, failing Success Formula.
If you avoided Sears this Christmas (without even trying) I think you can probably avoid the stock as an investor. If you’re a supplier, be sure to watch your receivables line. And here’s hoping that the talented folks working at Sears are lookng at Dick’s Sporting Goods, and other emerging retailers, for new opportunities to compete more effectively.
by Adam Hartung | Jan 2, 2006 | Disruptions, General, In the Rapids, Innovation, Leadership, Lifecycle
Most people I know think Howard Stern is an oddity. Although he’s had a loyal following for 30 years, most business people never listen to his show. And they can’t believe he’s being offered $500M to change his broadcast to satellite radio. Of course, few of them listen to satellite radio, either.
But, I think anyone who uses radio advertising had better get serious about Sirius. Many electronics stores (Best Buy, Circuit City) sold out of satellite radio equipment this Christmas. Sirius now has over 3 million subscribers. XM Radio (the competitor) has over 5 million subscribers. Quarterly subscriber growth, before Christmas, exceeded 20%.
Back when Ted Turner launched 24 hour news, and "America’s Team" (the Atlanta Braves) to fill programming for his cable TV stations most people thought cable TV was an oddity. Now, the networks have long lost their grip on market share as customers flock to targeted stations on cable TV and increasingly avoid commercials with Tivo and other Digital Video Recorders. Do we think the transition in radio will be slower, or faster? History would say that the adoption rate of similar technologies is exponentially quicker.
If you own stock in a radion station, and think people want "local programming", you’d best be taking stock of Sirius and XM. This is a serious shift in behavior. Sirius only needs 1 million new subscribers to make the Stern offer profitable. Since they added nearly 360,000 new listeners in the third quarter that looks pretty likely.
Challenges to business don’t often present themselves like a hurricane. They are subtle. Business people have to read the Challenges to catch winds early and make changes. The Telltales are showing that something is happening in radio-land. Don’t take long to prepare. If you invest, or if you depend on radio advertising, you had better pay close attention and start making your contingency plans. As shocking as Howard Stern is, he won’t cost you money like the shock of missing the lastest shift in behavior.
You don’t want to be committed to CDs when iTunes hits. You don’t want to be long on newspapers when Google’s classified ads start making inroads. And right now, I’d be paying close attention to listener behavior in radio — and thinking about how it will impact your business and investments.
by Adam Hartung | Dec 23, 2005 | Disruptions, General, Innovation, Leadership, Lifecycle, Lock-in, Openness
This week before Christmas, 2005 I had a great lunch. I was in L.A. and I called an old acquaintance to join me for lunch. He’s a great guy, somewhat trapped in an "old-line" American manufacturing company that’s been Locked-in for several years. They’ve not done their shareholders, nor their employees, much good for a decade. Executive turnover hasn’t helped as new leaders just follow worn-out strategies that have eroded their pricing and competitiveness.
"How about some Sushi?" I asked. Now, this buddy was a "meat and potatoes" guy, so my question was intended as a ribbing. I was surprised when he said, "Sure. Whatever you like." "You must be kidding" I said, "since when do you eat so adventurously?" "Over lunch" he said, leading me to wait for a juicy answer.
During the last year, he had taken on a new role helping develop a company strategy. In that role, he had made a half dozen trips to China. "You know" he said to me "I never really understood just how dramatic the globalization changes were going to be to our business until I went to China. They do work entirely differently than us. It’s beyond culture and how smart we versus they are. The Chinese are using resources we ignore, and approaching the opportunities differently. If our company doesn’t change – fundamentally change – we won’t survive another 10 years. The decision, the opportunity, is up to us. If I can get our top management to see what I’ve seen, and we step up to the Challenges, we can get out of our Lock-in and create a future that exceeds everyone’s expectations. But, if we sit doing what we’ve done – well, we’re a gonner."
My friend got outside the box. When he changed roles and entered strategy he Disrupted his thinking about the business. He visited foreign companies, and he saw opportunities for sales, marketing, product development, and manufacturing that he believes obsolete the existing Success Formula and create opportunities for a new one. And, while doing this, he changed himself. His personal Lock-ins to "the way this business is done" for the last 20 years disappeared and he sees a new industry competition developing.
Now he eats Sushi. And he eats all kinds of Chinese food I’ve never had the opportunity. He also eats Indian, or whatever food is served. He got outside the box, he started thinking, and the old barriers fell away as he moved toward a new definition of success
I hope everyone enjoys their Christmas, Hanukah or Kwanzaa meals in joy and peace this year. Whether it’s roast beef, turkey, goose, lamb — or Sushi.
by Adam Hartung | Dec 18, 2005 | Books
If you haven’t read it yet, I strongly encourage you to read The World is Flat by Thomas Friedman.
Too many of us get up every day and do our jobs without looking just beyond the horizon. Yet, what’s over there is available for us to see if we will just take the time to look. Thomas Friedman gives us a great look at what the future holds by examining the existing trends and what promotes those trends.
Those who are Locked-in to old Success Formulas may choose to disregard this book. That would be a mistake. Every company in America and Europe – and increasingly developed Asia – will find themselves Challenged (if not already so) by the emergence of new competitirs in the developing world. These competitors don’t survive just on low labor rates, but by finding new ways to compete. These new competitors aren’t Locked-in to old processes. They are busy upsetting existing competitive Lock-in and creating new Success Formulas. They are succeeding by targeting the Lock-in of existing competitors. Targeting you.
Let The World is Flat get you "Outside the Box." Then think —- think about what you’ll have to do to succeed in this rapidly changing competitive landscape.
by Adam Hartung | Dec 12, 2005 | Defend & Extend, Disruptions, Leadership, Lock-in
Can you tell the difference between a disturbance and a Disruption? I’ve found in my speeches that most people can’t.
There’s actually a big difference. A disturbance will cause you to pause and think about how to get your Success Formula to react quickly. But a Disruption causes you to stop and think about the viability of your Success Formula. It creates a pattern interrupt that it causes you to think about your Lock-ins and consider entirely new Success Formulas. A disturbance is often externally generated, a whack to your head so to speak, while a Disruption comes from within the organization because it attacks your Lock-in.
I’m going to reach out of business for this example. When Katrina hit the Gulf Coast I urged the government to stop business as usual, and create White Space for rebuilding the area into a better, more powerful economic environment. Katrina created a severe Challenge to the area. The problems left behind were so large that business as usual could not deal with them. But would the area actually change, or be left to cope via its old means and resources?
The President went on television in front of bright lights (powered by portable generators) to say that yes, New Orleans needed to be rebuilt. And he promised lots of money. But there were no specific agenda items that would change the old ways we had of dealing with catastrophes, nor solutions to the patchwork of local, parish, state and national approaches that often conflict. At the time of the speech we all wished for a quick rebuilding, but it was clear that would not happen – and it hasn’t. It couldn’t if we didn’t change our way of operating – change our Success Formula.
This happened similarly when we responded to the attacks of September 11, 2001. We gave families of the dead money, but otherwise we lost our opportunity to change how we prepare, how we manage first-responders, and how we operate our airlines. Those things are all still the same – and unlikely to change – because we did not Disrupt our way of doing things and create White Space to develop new solutions.
We didn’t Disrupt the way we deal with catastrophes. We didn’t change the way we’d always operated. To mimic a recent clever TV ad, all that was really offered was "throwing money at the problem." And that, in fact, hasn’t happened because the way we distribute money is so broken the process can’t allocate funds quickly enough to help. The money is promised, but not distributed and it looks increasingly like it won’t be due to chronic government deficits and urgent needs from elsewhere (such as Iraq, Medicaid, etc.)
Katrina was a Challenge. It demonstrated our inability to prepare for and respond to catastrophes. It begged for a Disruption to our Lock-in to old government approaches so we could develop new solutions. But, rather than undertake a Disruption we instead mired ourselves in disturbances as lawmakers and spending officials haggle through the problems of our dysfunctional process. The Challenge pointed out the flawed approach, but we have not done anything about it.
Some have said to me that these government examples are unfair – because government can’t be Disrupted. And that is simply untrue. After December 7, 1941 we Disrupted government allowing businesses to react quickly in the production of Liberty Ships, airplanes and all manner of military apparatus to move us expeditiously into WWII. We opened the floodgates to new ideas for fast action – and we produced more equipment (and solutions) faster than anyone, including our enemies, believed possible.
Challenges expose weaknesses. But we too often focus on the problems created by the Challenges rather than the Challenge itself. We quickly reach for Disturbances that make a lot of noise, but don’t really change our Success Formula. When that happens, you can predict the future quite well – for behavior will remain unchanged. Only by Disrupting – implementing pattern interrupts that cause us to question the status quo – and bringing in committed White Space can we meet the Challenge head-on and create Success.
by Adam Hartung | Dec 7, 2005 | Leadership
What’s the most critical element for a successful business? Without a doubt, it’s growth. Growth is the primary requirement for good business health.
Look no further than GM. Because GM didn’t maintain growth, the company now has 1 retiree for every 3 employees. The "legacy costs" now killing GM are a result of insufficient growth – which has created more out-of-work union members and pensioners than they ever anticipated. Without growth, they’ve created a huge number of people relying upon the productivity of a relatively small group. Had GM maintained it’s market share, and grown, it wouldn’t have nearly as difficult problem today.
Or look at our U.S. consumer sentiment. While some politicians tell us we’re in a "good economy" the fact is that we are going to end this year with 5 consecutive years of over 1 million layoffs from large firms (source – Challenger and Gray.) This doesn’t count all the small and medium-sized firm layoffs, which the government tallied at 1.77million in September alone. It’s hard for consumers to feel good when the government brags about creating 215,000 new jobs in a month where that is less than one-fifth the layoffs. So, lack of growth in jobs and you have trouble believing there will be a pension, social security, medicare/medicaid — or even a decent future income.
The key to success is growth. Growth can hide a multitude of mistakes undertaken in the pursuit of growth. But without growth, every hiccup is a potential disaster.
