by Adam Hartung | Apr 18, 2005 | Disruptions, General, In the Rapids, Innovation, Leadership, Lifecycle, Openness
Far too often we see companies merge in an effort to save an old Success Formula. The goal of the acquistion is to Defend & Extend an outdated business model by bringing together two less than stellar competitors. Because this is so common, it’s easy for analysts and pundits to become very jaded regarding acquisitions and mergers.
Today, however, just the opposite happened. Two good, high growth companies decided to merge in order to create new growth opportunities. Rather than merging to find cost synergies, they are merging in order to find new markets, develop new products and further grow.
The two companies are Adobe and Macromedia. According to MarketWatch "Both companies said the long-rumored acquisition was not to consolidate and cut costs but to help Adobe expand into new markets, particularly in the area of providing content to mobile phones and other handheld devices….This is not a consolidation play. This is all about growth," said Bruce Chizen, Adobe’s chief executive."
Because most acquisitions are about D&E, the stock market punished Adobe upon the announcement – sending it’s stock down about 10%. However, acquisitions and mergers can be very effective tools for creating white space and developing new growth opportunities. We should keep our eyes on Adobe, and consider it for a long term investment, since this could be the move that spurs its growth for another decade.
by Adam Hartung | Apr 12, 2005 | General, In the Rapids, Innovation, Leadership, Lifecycle, Openness
Louis Gerstner’s best selling book on IBM was "Who says elephant’s can’t dance." Now his successor looks to be a pretty good elephant trainer himself.
IBM has loaded itself up with more White Space projects. This behemoth is fast moving out of hardware (selling its PC business, for example) and moving into value-added process management. It’s using both divestitures and acquisitions to disrupt itself, and then using White Space to develop new opportunities.
Read the latests article in BusinessWeek for details. Let’s just say here that if IBM keeps spawning these White Space projects it can keep itself in the Rapids for quite a long time. You don’t have to be small to succeed – just willing to be disruptive and use White Space
by Adam Hartung | Apr 8, 2005 | Books, Defend & Extend, Disruptions, In the Swamp, Leadership, Lock-in
Hewlett Packard has been having a tough time the last 5 years. As reported in Business Week, most analysts realized in 2004 that HP had stalled. The HP printer business was the only unit making money, and growth was weak as resources were being poured into the faltering PC/server business — which was not helped by the Compaq acquisition.
Jim Collins did a great job of describing the decades of early success at HP in Built to Last. The HP Way gave work teams permission to create new solutions and pushed the decision making, as well as resources, as low as possible. Great innovation was the result, and years of prosperity.
But with the acquisition of Compaq HP definitely lost its Way. Decision making moved up, often to the CEO. As HP adopted the Compaq Success Formula in its effort to grow PC sales management found itself focused on Defend & Extend management practices like budget slashing, R&D reductions, new product cuts and layoffs (over 17,000 since 2002). This was not the HP Way, and business results went from bad to worse.
Now some are calling for the new CEO to even more aggressively pursue cost cutting and layoffs. To "execute – then strategize." That surely won’t turn around HP. What’s needed is unleashing the innovation amongst those thousands of silicon valley employees. What’s needed isn’t price slashing, but new products, new markets and new competitive models to deal with Dell. HP needs to go back to creating and managing those high performance White Space teams that made it great.
Changing leaders at HP certainly provides a pattern interrupt to the business. If he takes the popular route with analysts, and executes more disturbances like his predecessor, he can expect to continue the string of results below expectations. Instead, HP’s new CEO needs to follow through with effective disruptions that create White Space and returns HP to the HP Way.
by Adam Hartung | Apr 4, 2005 | Defend & Extend, Disruptions, Ethics, General, Leadership, Lifecycle, Lock-in
Those of you familiar with The Phoenix Principle are familiar with our statistical review demonstrating the high failure rates of companies. Company longevity is far shorter than most of us realize. One significant impact of this phenomenon affects all of our company retirement accounts.
America largely depends upon private retirement. Social Security is considered substistence funding, and we are expected to make up the difference with either private funds or a retirement plan. For our parents, who expected near lifetime employment, these private retirement plans were their safety net. They depended on "the company" to fund their retirement and health care.
But let’s consider someone today who wants to retire at 65. They need to work, and pay into, a corporate retirement plan for at least 10 years, so they have to start at age 55. And they would expect to live until 80 (the current average). So, they want that company retirement plan to be around for at least 25 years. Yet, when we look at performance of the S&P 500 we know that only about 1 in 3 companies (yes, only 1/3) of the S&P 500 can expect to survive for 25 years. So where does that leave your retirement plan?
It’s even worse if you start your retirement planning at 45. Now you need your employer to stick around for you for 35 years. The odds of that are no better than about 1 in 4 (25%). So, where comes the funding for the retirement plan?
Now look at the problem from a large employer’s viewpoint. US Steel and GM are just 2 recent examples (out of several dozen) where the company has said they can’t afford to maintain the retirement program. Not surprising. Their lock in to their old Success Formula has pushed them way out into the swamp. So what happens to those retirees? Or those near retiring that had planned on that pension? They have gone along for 10, 20, 30 or more years believing in the Myth of the Flats, thinking that their employer would always be there for their retirement. But that myth is about to implode on them with painful consequences.
In an age of Creative Destruction, corporate retirement programs are little more than a wish. If the companies don’t succeed long enough to support the programs they are of little use to retirees.
Perhaps this should be part of the current debate regarding the future role, and funding, of Social Security. For sure it should be part of your plans for retirement.
by Adam Hartung | Mar 24, 2005 | Disruptions
Today John Dvorak claimed that Sony can no longer innovate. Looking at recent history, he looks right. But I’d say he’s kneeling over the gravestone a bit early. Yes, Sony somehow missed the whole MP3 phenomenon and let Apple steal what should have been their big show. But given the half life of gee-whiz technology and entertainment, this movie is far from over.
Sony is still full of innovators. Both in devices and content. But they are hamstrung by applying old school best business practices that cut off the ideas before they get to market. The change in Sony to "professional management" when Morita retired has caused too much internal focus and inhibited taking highly innovative insights to market.
Morita was a very un-Japanese businessperson. He enjoyed innovation, and bristled at the bureaucracy and conformance that typified Japan. He couldn’t help looking for entrepreneurial new products and markets. Now, the new CEO is an America-trained businessman. America is known worldwide for its entrepreneurism and openness to new ideas. Perhaps he will turn Sony toward this American style – and a return to the days of Morita.
What would we look for? Stringer needs to disrupt the organization a bit by pointing out how their existing processes inhibit innovations working their way through the company. And he needs to loosen up the organization. Fewer number reviews in meetings and more gadget reviews might be a good start. Stringer needs to put both content and gadget folks in the same teams and see what they develop. With so many innovative folks, he needs to create White Space teams with permission to ignore the Sony business systems and create new success formulas. Give these teams permission to be different, and resources to succeed.
Look for White Space in Sony. If you see it, buy the stock. Sony is loaded with ideas – heaven help competitors if they set those ideas free!
by Adam Hartung | Mar 21, 2005 | Defend & Extend, Disruptions, In the Swamp, Lock-in
GM is having a tough time. Last week, the stock (already beat up) dropped nearly 20% on news of weak sales and lower profit expectations. You have to go back more than 10 years (see chart) to find a time the company’s market value was this low. So, what should GM do? What action will turn this venerable company around?
GM has responded to its problems by continuing decades of Defending & Extending its failing business model. It continues to avoid addressing the real challenges to its business while it resorts to white collar layoffs and traditional cuts. These are sure to make the problems worse for GM, and further inhibit the company’s ability to reinvent itself.
GM once tried to re-invent itself. Saturn was created as a way for GM to learn what works in today’s market. Remember the "GME" when they bought EDS? Remember "GMH" when they bought Hughes electronics? Chairman Roger Smith was first lauded, then later pilloried for these forays. Over time, GM let it’s lock-in to the past move them toward getting rid of both EDS and Hughes. That’s too bad, because they offered the White Space for GM to create a company much better at sustaining itself.
Saturn offered GM the capability to turn its auto business around. You CAN succeed making and selling cars in America – look at Toyota. If GM could have given up its lock-in long enough to look at Saturn as White Space they could learn from, and migrate toward, GM could have succeeded. Instead, GM leaders hated the new division and the attack on their lock-in it represented. So they acted to starve it to death.
Whacking a few more jobs isn’t going to save GM. I doubt even GM believes it will. If they want to avoid "junk" status on their bonds, stay on the DJIA, and continue to represent American industry they better start using some White Space to undertake substantial change. Our research has shown that turnarounds such as GM needs happen less than 10% of the time. What works? Changing the company business model via attack on the old operating parameters and the use of White Space to develop a new Success Formula.
When you’re as deep in the Swamp as GM you can’t fine-tune or marginally improve your way back to success.
by Adam Hartung | Mar 15, 2005 | Books
C.K. Prahalad is a colleague of Adam’s. His most recent book The Future of Competition is going to be highlighted March 30, 2005 at a University of Michigan symposium on experience co-creation. The university is launching its co-creation center. Good luck to Professor Ramaswamy on his efforts to get more businesses to incorporate customers in the marketing process!!
Ramaswamy and Prahalad use the same facts about business troubles as we use. They then use these facts as a burning platform to say businesses need to change their approach to marketing. They recommend bringing customers into the marketing process – co-creating products, distribution, promotion and pricing with customers. Overall, the act of co-creation is undoubtedly a good thing. I think better competitors already recognize the need for co-creation, and some are beginning to adopt such activity.
My speaking experience confirms that these facts are easily absorbed and agreed to by audiences. Unfortunately too often these facts are not "compelling" to people. The facts do not create a great enough sense of fear to cause people to change. Despite the ominous predicted outcomes (and they are ominous), reciting the facts does not create a Disruption (pattern interrupt) for people. The fact that businesses are in trouble is accepted. People seem willing to live with a disquieted concern while continuing past practices. In order to consider change, audiences want to know what to do about it. And here the co-creation authors say "go undertake experience co-creation."
As good as this idea is, it seems to me the authors have underestimated the organizational challenges faced when implementing a transformation of the magnitude they propose. We would recommend the authors augment their recommendations with more about how companies will change their embedded process, which (after all) was built upon past success. Our fear is that existing organizational Lock-in will keep organizations from embracing the next practice of experience co-creation.
It would seem to us that the only way experience co-creation can be implemented is if people incorporate it into their Success Formulas, and accomplishing that requires starting the effort in White Space and then migrating the organization toward these new processes. Our experiences would indicate that for most companies existing processes will be totally effective roadblocks to any organization actually attempting to implement this powerful new approach.
Overall, what these authors want readers to do is clear, but we would recommend they more powerfully explain the re-invention gap which exists between what companies do (from a traditional firm-centric vantage) and what would be more successful (a robust two-way dialogue with customers) in sufficient detail to drive leaders toward undertaking a disruption (pattern interrupt). Our case work has shown that only after this challenge-based disruption can White Space for these ideas take root. It’s unclear from this book exactly what these authors would have companies do to implement, but we would observe that simply attempting to change existing processes to incorporate co-creation is extremely unlikely to work.
Our work indicates that readers who want to fully capitalize on the promise of experiece co-creation can increase markedly the odds of a big win if they apply co-creation to White Space projects which can operate freed from existing Lock-in and thus develop a new Success Formula built on co-creation. These new Success Formulas forged in White Space can then act as magnets for the existing organization to migrate toward a more customer-centric approach to marketing. The co-creation idea is clever, and combined with our approach using disruption and white space can have tremendously beneficial impact – quickly.
by Adam Hartung | Mar 8, 2005 | Books, Disruptions, Leadership, Lock-in
On February 11, 2005 BusinessWeek printed an article by the President of an ad agency specializing in small-budget clients. The article said that a survey of 400 companies indicated growth stalls were caused by external factors, but that overcoming these stalls was up to internal company dynamics.
Adam wrote to BusinessWeek in an effort to overcome this traditional, but wrong interpretation. The solution to growth stalls is not found in an internal analysis and improvement in operations. Rather, it requires understanding the use of White Space in order to develop new Success Formulas which can overcome the market challenges and simultaneously address existing Lock-In which got the enterprise in trouble in the first place.
Read the letter by clicking here
by Adam Hartung | Nov 27, 2004 | Defend & Extend, Disruptions, In the Whirlpool, Leadership, Lifecycle
Does anyone think KMart + Sears = a better company? It doesn’t look that way. Most experts say the company is worth nothing more than it’s inventory value plus the real estate. Too bad, for both companies started as tremendous innovators in American retailing.
Kmart pioneered the discount store concept. And Sears pioneered the retail catalog, store credit, private label tools and appliances, and lifetime warranties. Both companies saw tremendous growth during their cycles of innovation.
Was it inevitable that they would both be relegated to below average returns? Absolutely not. Both simply stopped innovating. They turned to defending and extending what they already knew, while other competitors attacked them with new innovations.
But why not change the game now? The bankruptcy of KMart opened the door to new options – including the acquisition of Sears. If the two chains view this latest action as a chance to simply defend and extend their outmoded businesses, they will both simply die off. But if they view this as a major disruption to their business, and realize success will not come from chasing the two entrenched leaders (Wal*Mart and Target), they have the chance to create substantial value for their investors, employees and customers.
The new company needs to open its organization to innovation. The new CEO, coming from restaurants, should eschew the conventional merchandisers and strike out for something new. With the stock worth no more than the real estate, he has nothing to lose and everything to gain.
We haven’t yet heard the new CEO make any claims about the future. If he heads down the road of putting Craftsman in KMart and Martha Stewart in Sears – with great goals of a turn-around – run for the hills! Investors should sell the stock and employees find new jobs. But if he creates a new company that innovates away from the old business and toward something brand new he has a chance of creating a new company that could produce great returns.
The fate of KMart and Sears is not cast in concrete. But the leadership must act quickly while the cement is still wet! They must use this disruption to create something new — not defend and extend "the best parts" of what’s already not working.
by Adam Hartung | Nov 18, 2004 | Uncategorized
Adam Hartung was quoted in the Chicago Tribune today regarding the announcement of the Sears and K-Mart merger. Here’s what Adam had to say:
Kmart Corp.’s cheeky proposal to
acquire Sears, Roebuck and Co. for $11 billion may be wowing Wall
Street, but it doesn’t do anything to fix the serious problems
afflicting two of the country’s largest retailers, retail and business
strategy experts say.
Kmart’s retail business is shrinking at an alarming double-digit
rate. Sears is only slightly better off, closing in on its fourth
straight year of sales declines. Neither company has articulated a
strategy for attracting shoppers in a retail world increasingly
dominated by discount juggernauts Wal-Mart Stores Inc. and Target Corp.
"If I put Kmart and Sears together, I’m putting together two broken
business models," said Adam Hartung, managing partner in Spark
Partners, a business strategy firm in Long Grove. "You put a bad heart
and a bad liver together, and you don’t get a healthy body."
You can go to the Chicago Trib site to read the entire article: "Will Bigger Be Better: Retail experts not sold on the wisdom of combining 2 ‘broken’ companies".
