by Adam Hartung | Jun 24, 2005 | Defend & Extend, In the Swamp, Lock-in
McDonald’s is spending $20M this week to feel better about itself. Unfortunately, it won’t help shareholders. McDonald’s hit a growth stall 4 years ago, and ever since has been trying to use Defend & Extend management to regain growth. That’s included selling off assets and shutting stores.
Now it includes McDonald’s bringing 5,000 store managers (most at franchisee expense) to Vegas in an effort to pump them up and thereby improve store execution. The goal? To regain a future by focusing on better execution in the store. But, even the North American President admits "the U.S. would continue with ‘solid’ sales next year but probably not the double-digit growth..seen at times during the recent past."
So, a big chunk of one of America’s largest training budgets is going into a straightforward Defend & Extend program. Why? According to the Chicago Tribune, "The store managers’ performance will largely determine just how successful McDonald’s is going forward." Amazingly, we’re to believe the future of this DJIA multi-billion dollar corporation’s growth relies on the execution of 5,000 front line store managers in making and delivering Big Macs? "Results are [expected to be] evident through better execution of procedures in the restaurants." Where’s the leadership in that?
McDonald’s cannot rely on execution to regain its growth rate. The company heritage – consistency – is all focused on execution. So it’s comfortable for leadership to lean on execution as ‘the fix.’ But McDonald’s needs more than new chicken sandwiches – it needs to find a way to compete with the likes of Starbucks. And that won’t come from doing magic shows for 5,000 store managers in Vegas.
by Adam Hartung | Jun 23, 2005 | Defend & Extend, Disruptions, In the Swamp, Leadership, Lifecycle
Readers of my BLOGs might think I am always opposed to layoffs. It is true that the majority of layoffs are efforts to Defend & Extend outdated Success Formulas with short-term cost reductins that do not effectively address Challenges. Those layoffs (such as across the board reductions) do nothing to improve a business and are difficult to support. They simply push the business closer to the Whirlpool. But, layoffs can also be important Disruptions tied to turning a troubled company around.
Troubled Success Formulas are turned around by White Space projects. And White Space requires both permission and resources. But where is a troubled company supposed to get the resources? In many cases, it requires making tough decisions to STOP doing some things in order to refocus the business on developing a new Success Formula. Layoffs targeted at redirection and resource generation for new projects are very effective Disruptions that can unleash new innovation and move toward renewed success.
HP and Time Warner have both stalled. They must undertake serious redirection. And both are taking Disruptive actions intended to generate Pattern Interrupts plus unleash resources to be invested in White Space.
According to BusinessWeek, HP is going to redirect what it sells and how it sells it. An action intended to get much closer to customer needs – something HP desperately needs to do. And in order to finance this action it will likely layoff 15,000+ workers.
TimeWarner is selling its cable business in order to invest in AOL. A risky move – but one to applaud. Cable franchises are not high growth businesses. Capitalizing the future value of cable into current cash creates a treasure chest for developing new growth opportunities — which likely lie in AOL as it moves aggressively to reposition and compete with Yahoo!
Both companies are far from out of the Swamp and back into the Rapids. But both are doing exactly what they need to do to prepare themselves for the transition. Investors may applaud these moves simply because these changes raise cash that will improve the balance sheets of both firms. What investors should cheer is raising cash to invest in transitional White Space projects that could return both companies to higher growth.
by Adam Hartung | Jun 19, 2005 | Uncategorized
Wall Street Week on PBS featured an interview with Richard Florida author of The Flight of the Creative Class. Try to catch the episode if you can.
In this second book by Dr. Florida, he makes a great argument that growth comes from the efforts of those in society who are most creative. His arguments are compelling. In a nutshell, those companies (and economies) that help develop and then use the talents of our most creative people are most successful.
This may not seem insightful, until you think about how we actually have been treating creative people since 2000. Business R&D budgets actually declined in 2002 – for the first time in 15 years. And with those budget declines went many jobs for those leading our economic innovation engine. Businesses went even farther, though, by actually farming out much of their R&D to offshore companies in an effort to lower development costs. As a result, non-U.S. companies began gaining ground in the ability to innovate and create competitive advantage.
Defend and Extend behavior can be deadly. Using the need for profits as the justification, management can literally shoot the goose which laid the golden eggs. Lock-in to old business ideas leads managers to believe they don’t need innovation, just better execution. They prefer the cost reductions to the investment in innovation. Yet, the data would indicate otherwise. Execution quickly becomes meaningless (and not very profitable) in a highly competitive world — where a more innovative competitor can obsolete your superior execution in a heartbeat.
Despite what the politicians might say, businesspeople know its tough out there. Profits are harder and harder to come by. Every trip to China or India produces less return. What’s needed is a change in management thinking. Away from a focus on execution, and a return to recognizing the importance, and value, of innovation.
Internal innovation is as critical to business as oxygen is to human life. Businesses won’t competitively win in a dynamic world unless they ask for, develop, seek out, relish and promote innovation.
Businesses need those highly creative people in Marketing, Sales, Product Development, R&D – and all aspects of the company. Businesses need to hire, and listen to, those outside organizations (lawyers, ad agencies, consultants) filled with "outside the box thinkers". These outsiders have been proven to drive innovation – and innovation drives growth!
by Adam Hartung | Jun 8, 2005 | Disruptions, In the Rapids, Innovation, Leadership
It’s easy to beat up on old businesses. But lately, a very old business is making some very smart moves.
The venerable New York Stock Exchange came under some severe attacks last year. It Chairman was accused of improper compensation and the Exchange Board was accused of improper oversight. Things weren’t looking too good as prosecutors went after specialists and floor traders.
But hand it to the new CEO. He used the troubles to create an internal Disruption. The NYSE’s troubles were more a reflection of its inabilities to address its challenges from the NASDAQ than malfeasance (although the latter is still being argued.) So he used the attacks to rethink the future of the exchange.
Viola – in a master stroke the new Chairman of the 200 year old exchange has acted to revitalize the NYSE by buying Archipelago. Instead of taking actions in defense of the past, he is moving quickly to push the Exchange into the forefront of trading for the new millenium. This acquisition is a classic example of using a Disruption to create White Space – and develop a new Success Formula for an old business.
In the hectic pace of change in business, many have paid little attention to this action. But it’s a great example of a new leader identifying the real challenge to the business – rather than reacting to its problems. And then taking actions to create a pattern interrupt and new opportunities to learn. And possibly saving a venerable, and horribly locked-in, organization.
This is a great move for the NYSE – and a stellar example of The Phoenix Principle in action.
by Adam Hartung | Jun 8, 2005 | In the Whirlpool
GM is cutting another quarter of its workforce. That’s really not too surprising an announcement, given what’s been made public about the company this year. What is amazing is how so few people saw it coming.
There are lots of pundits screaming about the high cost of health care in each GM care. Or talking about how the pension plan is too expensive. And of course some simply say GM designs me-too product, or doesn’t produce to enough quality. But in fact, none of that is the real issue.
In 1980 Chairman Roger Smith of GM saw that GM’s future was in jeapardy. He undertook a series of actions to help GM move from a large, cash rich car company into new growth markets of IT, electronics and avionics – while creating a new division that would compete with Japanese producers like a Japanese producer. He saw that GM needed to expand its markets and be more than a "car company." GM needed to learn how to do new things.
No one expects GM to regain its glory. The amazing thing is that this bullet has been flying at GM for the entire period. Like a 5 mph bullet.
GM couldn’t get out of the way. It’s desire to remain locked into its old business model, at the risk of complete failure and the destruction of thousands of jobs and billions in shareholder wealth, was greater than its willingness to explore new opportunities. GM had visions – but it never learned how to address its lock-in.
Now GM is moving faster than ever toward the Whirlpool. Slashing jobs and creativity as fast as it can. All in a last ditch effort to dodge that 5 mph bullet. Ever heard the phrase "too little, too late"? It’s obvious that after this long, the executives simply don’t know what else to do. Creativity and innovation have atrophied and disappeared from what was once an innovative and growing company.
But, executive after executive since Smith has retrenched GM to its old business. And pundit after industry expert has pushed GM to be a "better" car company. And year after year, GM has struggled. Now, 20+ years later GM is finally tilting into the Whirlpool
by Adam Hartung | May 21, 2005 | Defend & Extend, In the Swamp, Lock-in
WalMart is an amazing company. From a small rural store a behomoth of retailing emerged in just a few years. No one seems able to compete with WalMart in discounting.
Despite its success, WalMart is now struggling to grow. Poor revenue growth has stalled the share price. Now, more than at any previous time, WalMart needs to find new ways to grow. Its Success Formula has worked so well that no one can outperform WalMart at being WalMart. But, it’s unclear that there’s a need for more WalMarts. And foreign markets aren’t nearly as excited about WalMart as Americans. So, how is WalMart to grow?
WalMart needs White Space projects that can launch new revenues. Just as Sam’s was once a new project that became large. But WalMart has become so focused on its retail store strategy that it’s lost the ability to do new things. Last week WalMart gave up on its effort to rent videos on-line, handing that business to NetFlix.
Amid the announcement WalMart pointed out that its stores sell more in one day than NetFlix does in a year. But the real story is that WalMart can’t figure out how to compete on-line. At WalMart, it’s all about the stores. How to drive more revenue to the stores. And that’s getting increasingly difficult.
There was another retailer that never rose to this challenge. Once the biggest innovator in retail, they were the first to capture the rural customer (with mail order) and they became a powerhouse across the country. But, when they couldn’t adapt to changing times and learn to do new things they fell to an acquirer’s axe. That company was, of course, Sears.
So, it may seem silly to think that WalMart’s failure to sell videos, or anything else, on-line is a serious concern. But people thought Sears’ on-line failures were no big deal 6 years ago. It’s actually a very, very big concern when any company becomes so locked in that it can’t undertake new projects. It portends very bad things ahead.
by Adam Hartung | May 18, 2005 | Defend & Extend, In the Swamp, Leadership, Lifecycle
HP’s stock is destined to jump in the next few weeks. What will benefit short-term investors is bound to cost long-term employees, suppliers and investors.
HP’s new leader is indicating HP will benefit from deep layoffs and cost restructuring. The CFO is publicly stating that there will be no change in strategy nor business direction. Investment analysts and traders are cheering. Deep cuts are sure to provide short-term P&L improvement.
But at what cost to long-term growth and viability? HP’s businesses are highly competitive in all areas. They are fighting battles on all fronts, with little in the way of new fighting materials. Reducing the army size will lower the demands, but how will they win? Where’s the White Space for new growth initiatives when the focus is on draconian cost reductions?
Traders are buying, but these actions look about as sustainable as floating a cardboard balloon.
by Adam Hartung | May 12, 2005 | Disruptions, General, In the Swamp, Innovation, Leadership, Lifecycle
Poor GM. When you’re a big target, lots of people find it easy to take their shots at you. No doubt GM is in trouble. But there are few pundits offering solutions for GM’s woes. And no one knows what Mr. Kerkorian is likely to do.
The most prevalent thinking across the press is that GM needs to retrench. Kill products, and whole brands. Never mind that killing Oldsmobile cost GM more than keeping it alive, and that killing Oldsmobile simply made GM smaller as those customers switched to competitors rather than other GM cars. The overwhelming view is GM needs to cut, cut, cut. Remember, GM is not short of cash. It has enough cash to last years and years. So why does it need to do all this cutting and/or selling? Is GM supposed to save its way to prosperity?
GM needs to grow if it wants to remain a vital company. In the short term, this probably means selling more cars. Longer term, it probably means doing lots more than cars (look at GE, no longer just an electric production company.)
Amidst all these calls for belt tightening, busines jettisoning and head lopping we need to remember that GM needs to grow. Last Sunday’s Chicago Tribune interviewed the head of marketing for GM, and for the first time I heard a glimmer of what might turn around GM. He’s out to sell more cars. To compete with those stealing GM’s share. He hears this crisis as a call for GM to change the way it does business and become more customer focused.
That’s a plan that might work. It’s not without risk. But the plans to simply shrink GM have no future. GM needs to turn loose the folks in the divisions to find better ways to compete for customers. Less corporate purchasing and corporate consolidations and more white space for those divisions to do something new. You never know, there might be another John Z. DeLorean somewhere in the giant GM with the next GTO on her mind just waiting for someone to give her the permission and resources to make something new happen.
by Adam Hartung | Apr 28, 2005 | Lock-in
Today is "Take your children to work day." As all of us know, there is much more to life than what’s taught in school, and having children visit the workplace to obtain a sense of what goes on after school is a valuable learning experience.
Unfortunately, the educators of Illinois don’t agree. This week the Illinois state education board advised schools in Illinois to consider all children who go to work with their parents an unexcused abscence. And, they strongly hinted that next year they would mandate such a position. Their reason? It’s a lost day in school for these students and therefore a lost day to teach them.
Clearly, these education leaders are completely locked into their own traditional views of education. It’s not hard for all us non-educators to see the value of expanding children’s horizons with such an activity. Because we aren’t locked-in to the idea of education as being something that has to happen in an official school according to a state curriculum.
Everyone runs the risk of becoming locked into their own view of what they do. Pretty soon, the ability to think outside the box simply evaporates. Operating the traditional Success Formula overwhelms other options. When that happens, it’s time to get outside the box so the lock-in can become obvious and new options can emerge.
by Adam Hartung | Apr 18, 2005 | Books, Disruptions, General, In the Rapids, Innovation, Leadership, Lifecycle
I wrote recently that IBM looked like an elephant that could continue to dance (taking off on the title of Lou Gerstner’s book about his days at IBM.) Shortly after that, IBM announced quarterly earnings and its stock accelerated a 2005 decline. A fair question might be "would I like to retract my earlier BLOG?"
Definitely not! Yes, IBM missed its earnings projection by $05/share. Right; a nickel. That was about 6% lower than expected but a nickel higher than last year. The stock sold off like you’d think they’d announced a quarterly loss – falling about 10%. From its peak at the beginning of 2005, the stock is down about 25%.
Over the long term, the markets are efficient. But in the short-tem — well it’s anyone’s guess. Not even the famed Peter Lynch could make money timing a market. What makes money long-term is finding companies that can sustain success (read the latest great book on long-term investing by Jeremy Siegel for more info.)
IBM is taking actions to continue sustaining its success. The stock might be volatile, both up and down, along the way. But few make money trading stocks. The way to riches in a creatively destructive world is finding companies that can sustain success. Since its turnaround in the 1990s IBM has regained its ability to disrupt itself and demonstrate the characteistics of a long-tem sustained growth company.
If you want a portfolio of long-term winners I would say that IBM is a company worth considering. Even moreso today.
