Friday we learned, as the New York Daily News headlined, “August 2011 Jobs Report: NO Net Jobs Created.” U.S. unemployment, and underemployment, remain stubbornly stuck at very high levels. This situation is unlikely to improve, as reported at 24×7 Wall Street in “August Lay-off Plans Up 47%” with the latest Challenger Gray report telling us 51,144 people are soon getting the axe. No wonder we saw a dramatic decline of nearly 15 points, to 44.5, in the Conference Board’s Consumer Confidence Index – near record-low levels.
This has all the Presidential candidates talking about jobs, and President Obama signed up to deliver a jobs speech to Congress.
The problem actually goes beyond just jobs. Buried within consumer concerns lies the fact that for most people, their incomes are going nowhere. Adjusted for inflation, almost everyone is making less now than they did when the millenium turned. Generally speaking, about 15% less than 11 years ago! Most family incomes are about where they were in 1998. For the wealthiest, income since the mid-1960s has grown only about 1.5%/year on average. For everyone else the improvement has only been about .5%/year. And universally almost all of that increase occurred between 1992 and 2000 (for anyone who wonders about Bill Clinton’s resurgent popularity, just look at incomes during his Presidency compared to every other administration on this chart!)
But will anything the President, or the candidates, recommend make a difference?
So far, the politicos keep fighting the last war, and seem surprised that nothing is improving. The recommendations for putting people back to work in factories, such as autos and heavy equipment, or building roads simply defies the reality of work today. America has not been a manufacturing-dominated jobs country for over 60 years! All job creation has been in services!
For this entire period, productivity has been climbing. Just 50 years ago most people spent 1/3 to 1/2 their income on food. No longer. Today, few spend more than 5 to 10%, and everyone can enjoy an automobile, telephone, television and computer – regardless of their income! We have all the stuff anyone could want, and in many cases a lot more of some stuff than we need – or want!
The old notion of “what’s good for G.M. (General Motors) is good for America” is simply no longer true! As we recently witnessed, a multi-billion dollar bail-out of the largest American auto maker may have saved some unemployment – but it did not create an economic turn-around, or create a slew of jobs!
Today’s jobs are all in information – the accumulation, assimilation, analysis and use of information. Few “managers” actually manage people any more – most manage a data set, or a computer program, or some sort of analysis. The vast majority of “managers” have no direct reports at all! The jobs – and incomes – are all in information. Job growth is in places like Facebook, Google, Linked-in, Groupon, Amazon and Apple (the latter of which outsources all its manufacturing.)
No President or economist can manufacture jobs today. As we’ve seen, interest rates are at unprecedent low levels – yet nobody wants to take a loan to hire a new employee! In fact, business productivity is at record high levels as business keeps accomplishing more and more with fewer and fewer workers!
Public companies aren’t going broke, by and large. Most have cash balances at record levels. Only they keep using the money to buy back their own stock! Every month sees a wave of new stock buy back commitments, as 24×7 Wall Street reported “August’s New Massive Stock Buybacks… Over $30 Billion!” Business leaders find it less risky to buy back their own stock (supporting their own bonuses, by the way) than invest in any sort of growth program – something that might create jobs.
So what’s the President to do?
We need to radically jack up the investment in innovation! Think about that last period of very low unemployment and growing incomes – in the 1990s. We had the explosion in technology as people began using PCs, the internet, mobile phones, etc. New technology introduced new business ideas (mostly services) and created a rash of growth! And that created new jobs – and higher incomes. Innovation is the jobs engine – not trying to save another tired manufacturing company, or pave another highway or extend another bridge! Today those projects simply do not employ very many people, and the “trickle down” affect of a highway project creating more jobs has disappeared!
Government spending on higher education has been declining since the 1970s reducing the number of graduate students and innovation projects
Federal share of R&D has been less than 1% since 1992 – all while corporate R&D spending has declined dramatically! The days of spending “to put a man on the moon” has disappeared, as we fairly quietly mothballed the space program and commence to dismantle NASA
The number of entrepreneurs is actually declining! There were fewer startups with 1 or more employees in 2007 (before the financial collapse and ensuing economic mayhem) than in 1990
New companies are not employing people. In the 1990s the average startup employed 7.5 people, but now the number is 4.9
Meanwhile “infrastructure” spending today is the same as it was in 1968!
We’ve done a great job of cutting taxes, but we’ve simultaneoously gutted our investment in R&D, innovation and doing anything new! If you wonder where the jobs went it wasn’t oversees, it was into higher corporate cash levels, more stock buybacks, increased bank reserves and dramatically higher executive compensation!
We don’t need more tax cuts – because nobody is investing in any new projects! We don’t need more unemployment insurance, because that – at best – delays the day of reconning without a solution.
Here’s what we do need today:
Implement a tax on corporate stock buybacks. At least as great as the tax on corporate dividends. Buybacks simply drain the economy of investment funds, with no benefit. At least dividends give returns back to shareholders – who might invest in a new company! And if buybacks are taxed, executives might start investing in projects again!
Quit giving such large depreciation allowances for physical assets. We don’t need more buildings – we’re overbuilt as we are right now! Again, it’s not “things” that make up our economy, it’s services!
Re-introduce R&D credits! Give businesses a $3 tax break for every dollar spent in R&D and new product development! Prior to President Reagan this was considered normal. It’s not a new idea, just one that’s been forgotten. If we can give credits for oil and gas drilling, which creates almost no jobs, why not innovation?
Cut payroll taxes on the self-employed and small business. Today self-employed pay 2x the payroll taxes, so it’s a big dis-incentive to entrepreneurship. Give start-ups a break by lowering employment taxes on small employers – say less than 50 employees.
Allow investors in start-ups to write off up to 2x their losses. It takes away a lot of the risk if you can get most of your money back from a tax break should your investment fail. And for all those corporations that abhore taxes this would incent them to invest in small enterprises that have new ideas they’d like to see developed.
Remember the Small Business Administration (SBA)? Re-activate it by giving it $100B (maybe $200B) to guarantee bank loans of small businesses. Bank lending has ground to a halt as banks eliminate risk – so let’s get them back into their primary business again. In WWII the government guaranteed every loan for the construction of the Liberty Ships – and behold business built 2,751 of the things in 4 years!
Increase funding for higher education. Increase the grants for science, engineering and new product research at America’s universities. Increase grants for students in science and engineering, and allow students to deduct out-of-pocket educational expenses from their taxes. Allow corporations to deduct all the expense of employee education – uncapped! Allow corporations to deduct the university grants they make!
Invest in today’s digital infrastructure. Once we paid to send men to the moon – and a flood of innovation (from microwave ovens to powdered drinks and frozen food) followed. Today we should invest in a nationwide WiFi network that’s everywhere from rural forests to city buildings – and make it all FREE. Digital networks are the highways we need today – not concrete ribbons. Create tax deductions for people to buy smartphones, tablets and other products that drive innovation, and make it easy for innovators to network for solutions to emerging needs.
Streamline the process for small companies to test and sell new bio-engineered products. The existing complicated process is a legacy of big companies and traditional pharmaceutical research. Make it easy for entrepreneurs to test and launch the next wave of medical technology based on the new bio-sciences. Offer federal-backed safety insurance to protect small businesses that show efficacy in new solutions.
These are just 9 ideas. I’m sure readers can think up 90 more (in fact, I challenge you to offer them as comments to this blog.) If we invest in innovation, we can create a lot of jobs. But we need to start NOW!
“You’ve got to be kidding me” was the line tennis great John McEnroe made famous. He would yell it at officials when he thought they made a bad decision. I can’t think of a better line to yell at Leo Apotheker after last week’s announcements to shut down the tablet/WebOS business, spin-off (or sell) the PC business and buy Autonomy for $10.2B. Really. You’ve got to be kidding me.
HP has suffered mightily from a string of 3 really lousy CEOs. And, in a real way, they all have the same failing. They were wedded to their history and old-fashioned business notions, drove the company looking in the rear view mirror and were unable to direct HP along major trends toward future markets where the company could profitably grow!
Being fair, Mr. Apotheker inherited a bad situation at HP. His predecessors did a pretty good job of screwing up the company before he arrived. He’s just managing to follow the new HP tradition, and make the company worse.
HP was once an excellent market sensing company that invested in R&D and new product development, creating highly profitable market leading products. HP was one of the first “Silicon Valley” companies, creating enormous shareholder value by making and selling equipment (oscilliscopes for example) for the soon-to-explode computer industry. It was a leader in patent applications, new product launches and being first with products that engineers needed, and wanted.
Then Carly Fiorina decided the smart move in 2001 was to buy Compaq for $25B. Compaq was getting creamed by Dell, so Carly hoped to merge it with HP’s retail PC business and let “scale” create profits. Only, the PC business had long been a commodity industry with competitors competing on cost, and the profits largely going to Intel and Microsoft! The “synergistic” profits didn’t happen, and Carly got fired.
But she paved the way for HPs downfall. She was the first to cut R&D and new product development in favor of seeking market share in largely undifferentiated products. Why file 3,500 patents a year – especially when you were largely becoming a piece-assembly company of other people’s technology? To get the cash for acquisitions, supply chain investments and retail discounts Carly started a whole new tradition of doing less innovation, and spending a lot being a copy-cat.
But in an information economy, where almost all competitors have market access and can achieve highly efficient supply chains at low cost, there was no profit to the volume Carly sought. HP became HPQ – but the price paid was an internal shift away from investing in new markets and innovation, and heading straight toward commoditization and volume! The most valuable liquid in all creation – HP ink – was able to fund a lot of the company’s efforts, but it was rapidly becoming the “golden goose” receiving a paltry amount of feed. And itself entirely off the trend as people kept moving away from printed documents!
Mark Hurd replaced Carly, And he was willing to go her one better. If she was willing to reduce R&D and product development – well he was ready to outright slash it! And all the better, so he could buy other worn out companies with limited profits, declining share and management mis-aligned with market trends – like his 2008 $13.9B acquisition of EDS! Once a great services company, offshore outsourcing and rabid price competition had driven EDS nearly to the point of bankruptcy. It had gone through its own cost slashing, and was a break-even company with almost no growth prospects – leading many analysts to pan the acquisition idea. But Mr. Hurd believed in the old success formula of selling services (gee, it worked 20 years before for IBM, could it work again?) and volume. He simply believed that if he kept adding revenue and cutting cost, surely somewhere in there he’d find a pony!
And patent applications just kept falling. By the end of his cost-cutting reign, the once great R&D department at HP was a ghost of its former self. From 9%+ of revenues on new products, expenditures were down to under 2%! And patent applications had fallen by 2/3rds
The patent decline continued under Mr. Apotheker. The latest CEO intent on implementing an outdated, industrial success formula. But wait, he has committed to going even further! Now, HP will completely evacuate the PC business. Seems the easy answer is to say that consumer businesses simply aren’t profitable (MediaPost.com “Low Margin Consumers Do It Again, This Time to HP“) so HP has to shift its business entirely into the B-2-B realm. Wow, that worked so well for Sun Microsystems.
I guess somebody forgot to tell consumer produccts lacked profits to Apple, Amazon and NetFlix.
There’s no doubt Palm was a dumb acquisition by Mr. Hurd (pay attention Google.) Palm was a leader in PDAs (personal digital assistants,) at one time having over 80% market share! Palm was once as prevalent as RIM Blackberries (ahem.) But Palm did not invest sufficiently in the market shifts to smartphones, and even though it had technology and patents the market shifted away from its “core” and left Palm with outdated technology, products and limited market growth. By the time HP bought Palm it had lost its user base, its techology lead and its relevancy. Mr. Hurd’s ideas that somehow the technology had value without market relevance was another out-of-date industrial thought.
The only mistake Mr. Apotheker made regarding Palm was allowing the Touchpad to go to market at all – he wasted a lot of money and the HP brand by not killing it immediately!
It is pretty clear that the PC business is a waning giant. The remaining question is whether HP can find a buyer! As an investor, who would want a huge business that has marginal profits, declining sales, an extraordinarily dim future, expensive and lethargic suppliers and robust competitors rapidly obsoleting the entire technology? Getting out of PCs isn’t escaping the “consumer” business, because the consumer business is shifting to smartphones and tablets. Those who maintain hope for PCs all think it is the B-2-B market that will keep it alive. Getting out is simply because HP finally realized there just isn’t any profit there.
But, is the answer is to beef up the low-profit “services” business, and move into ERP software sales with a third-tier competitor?
I called Apotheker’s selection as CEO bad in this blog on 5 October, 2010 (HP and Nokia’s Bad CEO Selections). Because it was clear his history as CEO of SAP was not the right background to turn around HP. Today ERP (enterprise resource planning) applications like SAP are being seen for the locked-in, monolithic, buraucracy creating, innovation killing systems they really are. Their intent has always been, and remains, to force companies, functions and employees to replicate previous decisions. Not to learn and do anything new. They are designed to create rigidity, and assist cost cutting – and are antithetical to flexibility, market responsiveness and growth.
But following in the new HP tradition, Mr. Apotheker is reshuffling assets – closing the WebOS business, getting rid of all “consumer” businesses, and buying an ERP company! Imagine that! The former head of SAP is buying an SAP application! Regardless of what creates value in highly dynamic, global markets Mr. Apotheker is implementing what he knows how to do – operate an ERP company that sells “business solutions” while leaving everything else. He just can’t wait to get into the gladiator battle of pitting HP against SAP, Oracle, J.D. Edwards and the slew of other ERP competitors! Even if that market is over-supplied by extremely well funded competitors that have massive investments and enormously large installed client bases!
What HP desperately needs is to connect to the evolving marketplace. Quit looking at the past, and give customers solutions that fit where the market is headed. Customers aren’t moving toward where Apotheker is taking the company.
All 3 of HP’s CEOs have been a testament to just how bad things can go when the CEO is more convinced it is important to do what worked in the past, rather than doing what the market needs. When the CEO is locked-in to old thinking, old market dynamics and old solutions – rather than fixated on understanding trends, future scenarios and the solutions people want and need bad things happen.
There are a raft of unmet needs in the marketplace. For a decade HP has ignored them. Its CEOs have spent their time trying to figure out how to make old solutions work better, faster and cheaper. And in the process they have built large, but not very profitable businesses that are now uninteresting at best and largely at the precipice of failure. They have ignored market shifts in favor of doing more of the same. And the value of HP keeps declining – down 50% this year. For HP to change direction, to increase value, it needs a CEO and leadership team that can understand important trends, fulfill unmet needs and migrate customers to new solutions. HP needs to rediscover innovation.
effectively Google will now compete with its customers like Samsung and HTC that offer Android-based phones and tablets, and
because Motorola Mobility had pretty much been written off as a viable long-term competitor in the mobile marketplace. With less than 9% share, Motorola is the last place finisher – behind even crashing RIM.
Truth is, Google had a hard choice. Android doesn’t make much money. Android was launched, and priced for free, as a way for Google to try holding onto search revenues as people migrated from PCs to cloud devices. Android was envisioned as a way to defend the search business, rather than as a profitable growth opportunity. Unfortunately, Google didn’t really think through the ramifications of the product, or its business model, before taking it to market. Sort of like Sun Microsystems giving away Java as a way to defend its Unix server business. Oops.
In early August, Google was slammed when the German courts held that the Samsung Galaxy Tab 10.1 could not be sold – putting a stop to all sales in Europe (Phandroid.com “Samsung Galaxy Tab 10.1 Sales Now Blocked in Europe Thanks to Apple.”) Clearly, Android’s future in Europe was now in serious jeapardy – and the same could be true in the USA.
This wasn’t really a surprise. The legal battles had been on for some time, and Tab had already been blocked in Australia. Apple has a well established patent thicket, and after losing its initial Macintosh Graphical User Interface lead to Windows 25 years ago Apple plans on better defending its busiensses these days. It was also well known that Microsoft was on the prowl to buy a set of patents, or licenses, to protect its new Windows Phone O/S planned for launch soon.
Google had to either acquire some patents, or licenses, or serously consider dropping Android (as it did Wave, Google PowerMeter and a number of other products.) It was clear Google had severe intellectual property problems, and would incur big legal expenses trying to keep Android in the market. And it still might well fail if it did not come up with a patent portfolio – and before Microsoft!
So, Google leadership clearly decided “in for penny, in for a pound” and bought Motorola. The acquisition now gives Google some 16-17,000 patents. With that kind of I.P. war chest, it is able to defend Android in the internicine wars of intellectual property courts – where license trading dominates resolutions between behemoth competitors.
Only, what is Google going to do with Motorola (and Android) now? This acquisition doesn’t really fix the business model problem. Android still isn’t making any money for Google. And Motorola’s flat Android product sales don’t make any money either.
There was a lot of speculation that Google would sell the manufacturing business and keep the patents. Only – who would want it? Nobody needs to buy the industry laggard. Regardless of what the McKinsey-styled strategists might like to offer as options, Google really has no choice but to try running Motorola, and figuring out how to make both Android and Motorola profitable.
And that’s where the big problem happens for Google. Already locked into battles to maintain search revenue against Bing and others, Google recently launched Google+ in an all-out war to take on the market-leading Facebook. In cloud computing it has to support Chrome, where it is up against Microsoft, and again Apple. Oh my, but Google is now in some enormously large competitive situations, on multiple fronts, against very well-heeled competitors.
As mentioned before, what will Samsung and HTC do now that Google is making its own phones? Will this push them toward Microsoft’s Windows offering? That would dampen enthusiasm for Android, while breathing life into a currently non-competitor in Microsoft. Late to the game, Microsoft has ample resources to pour into the market, making competition very, very expensive for Google. It shows all the signs of two gladiators willing to fight to the loss-amassing death.
And Google will be going into this battle with less-than-stellar resources. Motorola is the market also ran. Its products are not as good as competitors, and its years of turmoil – and near failure – leading to the split-up of Motorola has left its talent ranks decimated – even though it still has 19,000 employees Google must figure out how to manage (“Motorola Bought a Dysfunctional Company and the Worst Android Handset Maker, says Insider“).
Acquisitions that “work” are ones where the acquirer buys a leader (technology, products, market) usually in a high growth area – then gives that acquisition the permission and resources to keep adapting and growing – what I call White Space. That’s what went right in Google’s acquisitions of YouTube and DoubleClick, for example. With Motorola, the business is so bad that simply giving it permssion and resources will lead to greater losses. It’s hard to disaagree with 24/7 Wall Street.com when divulging “S&P Gives Big Downgrade on Google-Moto Deal.”
Some would like to think of Google as creating some transformative future for mobility and copmuting. Sort of like Apple.
Yea, right.
Google is now stuck defending & extending its old businesses – search, Chrome O/S for laptops, Google+ for mail and social media, and Android for mobility products. And, as is true with all D&E management, its costs are escalating dramatically. In every market except search Google has entered into gladiator battles late against very well resourced competitors with products that are, at best, very similar – lacking game-changing characteristics. Despite Mr. Page’s potentially grand vision, he has mis-positioned Google in almost all markets, taken on market-leading and well funded competition, and set Google up for a diasaster as it burns through resources flailing in efforts to find success.
If you weren’t convinced of selling Google before, strongly consider it now. The upcoming battles will be very, very expensive. This acquisition is just so much chum in the water – confusing but not beneficial.
And if you still don’t own Apple – why not? Nothing in this move threatens the technology, product and market leader which continues bringing game-changers to market every few months.
"If you can't dazzle 'em with brilliance – Baffle 'em with Bulls**t" – W. C. Fields
Just 18 months ago Kraft CEO Irene Rosenfeld was working very hard to convince investors she needed to grow Kraft with a $19B acquisition of Cadbury. This was after her expensive acquisition of Lu Biscuits from Danone. Part of her justification for the massive expenditure was an out-of-date industrial manufacturing adage, "Scale is a source of great competitive advantage. " How these acquisitions provided scale advantage was never explained.
Now she wants to convince investors Kraft needs to be split into two companies, saying the acquisition trail has left her with "different portfolios." (Quotes from the Wall Street Journal, "Activists Pressed for Kraft Spinoff") For some reason, scale is now less important than portfolio focus. And the scale advantages that justified the acquisition premiums are now – unimportant?
If Ms. Rosenfeld was a politician, she might be accused of being a "flip-flopper." Remember John Kerry?
Ms. Rosenfeld would like to break Kraft into 2 parts. Some brands would be in a new "grocery," or "domestic" business (Oscar Mayer, Cool Whip, Maxwell House, Jell-O, Philadelphia Cream Cheese, Kool Aid, Miracle Whip is a partial list.) The rest of the company would be a "snack" or "international" business. Although the latter would still include the North American snacks and confectionary brands. (More detail in the Wall Street Journal "Kraft: Breaking Down the Breakup.")
We will ignore the obvious questions about why the acquisitions if your strategy was to split up the company. Instead, looking forward, the critical questions to have answered would be "How will this break-up help Kraft grow? And what is the benefit for investors, employees and shareholders of this massive, and costly, change?"
Kraft was split off from Altria at the end of 2006, with Ms. Rosenfeld at the helm. At its rebirth, Kraft became a Dow Jones Industrial member. Rich in revenues and resources, at the time, Kraft was valued at about $35/share. Now, 5 years and all the M&A machinations later, Kraft is valued (with optimism about the breakup value) at about $35/share! Between the two dates the company's value was almost always lower. So investors have gained nothing for their 5 years of waiting for Ms. Rosenfeld to "transform" Kraft.
The big winners at Kraft have been their investment bankers. They received enormous multi-million dollar fees for helping Ms. Rosenfeld buy and sell businesses. And they will receive massive additional fees if the company is split in two. In fact, given her focus on M&A as opposed to actually growing Kraft, one could well assess Ms. Rosenfeld's tenure as more investment banker than Chief Executive Officer. She didn't really do anything to improve Kraft. She just moved around the pieces, and swapped some.
Kraft has had no growth, other than from the expensive purchased acquisition revenues. Despite its massive $50B revenue stream, what new innovation – what exciting new product – can you recall Kraft introducing? Go ahead, take your time. We can wait.
What's that – you can't think of any. Nor can anybody else.
In Kraft's historical businesses, volume declined 1.5% over the last couple of years. The company has been shrinking. According to Crain's Chicago Business in "Kraft's Rosenfeld's About Face Spurred by Dwindling Options," the only reason revenues grew in the base business was due to rising commodity prices, which were passed along, with a premium added, in retail price increases to consumers! A business doesn't have a sparkling future when it keeps selling less, and raising prices, on products that consumers largely could care less about.
When was the last time you asked for a Velveeta sandwich? Interestly, Tang now seems to have outlived even NASA and the American space program. Have you enjoyed that sugar-laden breakfast delight lately? Or when did you last look for that special opportunity to use artificial ice-cream (Cool Whip) in your desert?
BusinessInsider.com tried valiantly to make the case "The Kraft Foods Split is the Grand Finale of an Epic Transformation." But as the author takes readers through the myriad re-organizations, in the end we realize that all these changes did nothing to actually improve the business – and managed to tick off Kraft's largest investor, Warren Buffet of Berkshire Hathaway, who has been selling shares!
The argument that Kraft has 2 portfolios as a justification for splitting the company makes no sense. Every investor is taught to have a wide portfolio in order to maximize returns at lowest risk. That Kraft has multiple product lines is a benefit to investors, not a negative!
Unless the leaders have no idea how to use the resources from these businesses to innovate, and bring out new products building on market trends and creating growth! And that's the one thing most lacking at Kraft. It's not a portfolio issue – it's a complete lack of innovation issue! As Burt Flickingerof Strategic Resources Group pointed out, Kraft has been losing .5% to 1% market share every year for the last decade in its "core" business, and he understatedly commente that Kraft has "very little innovation."
Markets have shifted dramatically the last 5 years, and food is no exception. People want fewer carbs, and fewer fats. They want easily prepared foods, but without additives like sugar (or high fructose corn syrup,) salt and oil that have negative long-term health implications for blood pressure, heart disease and diabetes. Also, they don't want hidden calories that make ease of preparation a trade-off with their wastelines! Further, most families have changed from the traditional 3 times per day standard meals to more grazing habits, and from large portions to smaller portions with greater variety.
But Kraft addressed none of these shifts with new products. Instead, it kept pouring advertising dollars into the traditional foodstuffs, even as these were finding less and less fit with 2011 dietary needs – or consumer interest! When the most exciting thing anyone can say about a Kraft launch the last 5 years was the re-orientation of the Triscuit line (did you catch that, or did you somehow miss it?) then it's pretty clear innovation has been on the back burner. Or maybe stuck in the shelf with the Cheez Whiz.
It is clear that Ms. Rosenfeld offered no brilliance as Kraft's leader. Uninspiring to consumers, investors and employees. She made very expensive acquisitions to create the illusion of revenue growth; financial machinations that hid declines in the traditional business which suffered from no innovation investment. After all that money was thrown around, and facing very little prospect of any growth, it was time for the biggest baffling bulls**t of all – split the company up so nobody can trace the value destruction!
Andrew Lazar at Barclay's Capital Plc gave a pretty good insight in another Crain's Chicago Business article ("Kraft Jettisons U. S. Brands so Global Snack Biz Can Fly Higher.") He said Kraft (aka Ms. Rosenfeld) is "Taking action before it ever has to potentially disappoint investors in a struggle to reach overly optimistic sales growth targets."
Yes, I think Mr. Fields had it pretty right when it comes to describing the leadership of Ms. Rosenfeld and her team at Kraft. They have been unable to dazzle us with any brilliance. The question is whether we'll be foolish enough to let them baffle us with their ongoing bulls**t. What Kraft needs is not a break-up. What Kraft needs is new leadership that understands how to move beyond the past, tie investments to market needs, and start Kraft growing again!!
This week most people don't really care about Kraft. After the U.S. debt ceiling "crisis," followed by the Friday night announcement of the U.S. debt downgrade, the news has been dominated by mostly economic, rather than company, items. The collapse of the DJIA has been a lot more important than a non-value-adding split-up of a single component. And that is unfortunate, because the leadership of Kraft have been playing chess games with company pieces, rather than actually doing what it takes to help a company grow. With the right leadership, Kraft could be creating the jobs everyone so desperately wants.
Bernie Ebbers (of WorldCom) and Jeff Skilling (of Enron) went to prison. Less well known is Conrad Black – the CEO of Sun Times Group – who also went to the pokey. What do they have in common with Rupert Murdoch – besides CEO titles? The famous claim, “I am not responsible” closely allied with “I’ve done nothing wrong.” While Murdoch hasn’t been charged with crimes, or come close to jail (yet,) there is no doubt people at News Corp have been charged, and some will go to jail. And there is public outcry Murdoch be fired.
Investors should take note; three bankruptcies killed 2 of the organizations the ex-cons led and investors were wiped out at Sun Times which barely remains in business. What will happen at News Corp? Given the commonalities between the 4 leaders, I don’t think I’d want to be a News Corp. stockholder, employee or supplier right now.
How in the world could something like this happen?
Like the infamous trio, Rupert Murdoch was, and is, a leader who defined the success formula of his company. As time passed, the growing organization became adroit at implementing the success formula, operating better, faster and cheaper. Loyal managers, who identified with, and implemented intensely, the success formula were rewarded. Those who asked questions were let go. Acquisitions were forced to conform to the success formula (such as MySpace) even if such conformance created a gap between the business and market needs. Business failure was not nearly as bad as operating outside the success formula. Failure could be forgiven – but better yet was finding a creative way to make things look successful.
Supporting the company’s success formula – its identity, cultural norms and operating methods – using all forms of ingenuity became the definition of success in these companies. This ingenuity was unbridled, even rewarded! Even when it came to skirting the edge of – or even breaking – the law. Cleverly using outsiders to do “dirty work” was an ingenious way to create plausible deniability. Financial machinations were not considered a problem if there was any way to explain changes. Violating accounting conventions not really an issue if done in the pursuit of shoring up reported results. Moving money wherever necessary to avoid taxes, or fines, and pay off executives or their friends, not really a big deal if it helped the company implement its success formula. Any behavior that reinforced the success formula, as the leader expressed it, made employees and contractors successful.
Do the ends justify the means? Of course! As long as the results appear good, and the leader is taking home a whopping amount of cash, everything appears “A-OK.”
Is this because these are crooks? Far from it. Rather, they are dedicated, hard working, industrious, smart, inventive managers who have been given a clear mission. To make the success formula work. Each small step down the ethical gangplank was a very small increment – and everyone believed they operated far from the end. If they got away with something yesterday, then why not expect to get away with a little more today? What are ethics anyway? Relative, changeable, difficult to define. Whereas fulfilling the success formula creates clear, measurable outcomes!
What is the News Corp’s Board of Directors position? The New York Times headlined “Murdoch’s Board Stands By as Scandal Widens.” Mr. Murdoch, like any good leader implementing a success formula, made sure the Board, as well as the executives and managers, were as dedicated to the success formula as he. Through that lens there are no difficult questions facing the Board. Everything was done to defend and extend the success formula. Mr. Murdoch and his team have done nothing wrong – except perhaps a zealous pursuit of implementation. What’s wrong with that? Why should the Board object?
Could this happen to you, and your organization? It may already be happening.
Answer this option, what’s more important to you and your company:
Focusing on and identifying market trends, and adapting your strategy, tactics, products, services and processes to align with emerging future trends, or
Focusing on execution. Setting goals, holding people to metrics and making sure implementation remains true to the company’s history, strengths and core capabilities, customers and markets? Rewarding those who meet metrics, and firing those who don’t?
If it’s the latter, it’s an easy slide into Murdoch’s very uncomfortable public seat. Very few will end up with an Enron Sized Disaster, as BNET.com headlined. But failure is likely. Any time execution is more important than questioning, implementation is more important than listening and conforming to historical norms is more important than actual business results you are chasing the select group of leaders exemplified today by Mr. Murdoch.
Here are 10 questions to ask if you want to know how at risk you just might be. If even a couple of these ring “yes,” you could be confidently, but errantly, thinking everything is OK :
Is loyalty more important than business results? Do you have people working for you that don’t do that good a job, but do exactly what you want so you keep them?
Do you hold certain aspects of your business as being beyond challenge – such as technology base, meeting key metrics, supporting historical distributors (or customers) or operating according to specified “rules?”
Do you ask employees to operate according to norms before asking if they have a better idea?
Does HR tell employees how to do things rather than asking employees what they need to succeed?
Do employee and manager reviews have a section for asking how well they “fit” into the organization? Are people pushed out that don’t “fit?”
“It’s easier to succeed in the Amazon than on the polar tundra” Bruce Henderson, famed founder of The Boston Consulting Group, once told me. “In the arctic resources are few, and there aren’t many ways to compete. You are constantly depleting resources in life-or-death struggles with competitors. Contrarily, in the Amazon there are multiple opportunities to grow, and multiple ways to compete, dramatically increasing your chances for success. You don’t have to fight a battle of survival every day, so you can really grow.”
Today, Amazon(.com) is the place to be. As the financial markets droop, fearful about the economy and America’s debt ceiling “crisis,” Amazon is achieving its highest valuation ever. While the economy, and most companies, struggle to grow, Amazon is hitting record growth:
Sales are up 50% versus last year! The result of this impressive sales growth has been a remarkable valuation increase – comparable to Apple!
Since 2009, valuation is up 5.5x
Over 5 years valuation is up 8x
Over the last decade Amazon’s value has risen 15x
How did Amazon do this? Not by “sticking to its knitting” or being very careful to manage its “core.” In 2001 Amazon was still largely an on-line book seller.
The company’s impressive growth has come by moving far from its “core” into new markets and new businesses – most far removed from its expertise. Despite its “roots” and “DNA” being in U.S. books and retailing, the company has pioneered off-shore businesses and high-tech products that help customers take advantage of big trends.
Amazon’s earnings release provided insight to its fantastic growth. Almost 50% of revenues lie outside the U.S. Traditional retailers such as WalMart, Target, Kohl’s, Sears, etc. have struggled in foreign markets, and blamed poor performance on weak infrastructure and complex legal/tax issues. But where competitors have seen obstacles, Amazon created opportunity to change the way customers buy, and change the industry using its game-changing technology and capabilities. For its next move, according to Silicon Alley Insider, “Amazon is About to Invade India,” a huge retail market, in an economy growing at over 7%/year, with rising affluence and spendable income – but almost universally overlooked by most retailers due to weak infrastructure and complex distribution.
Amazon’s remarkable growth has occurred even though its “core” business of books has been declining – rather dramatically – the last decade. Book readership declines have driven most independents, and large chains such as B. Dalton and more recently Borders, out of business. But rather than use this as an excuse for weak results, Amazon invested heavily in the trends toward digitization and mobility to launch the wildly successful Kindle e-Reader. Today about half of all Amazon book sales are digital, creating growth where most competitors (hell-bent on trying to defend the old business) have dealt with stagnation and decline.
Amazon did this without a background as a technology company, an electronics company, or a consumer goods company. Additionally, Amazon invested in Kindle – and is now developing a tablet – even as these products cannibalized the historically “core” paper-based book sales. And Amazon has pursued these market shifts, even though these new products create a significant threat to Amazon’s largest traditional suppliers – book publishers.
Rather than trying to defend its old core business, Amazon has invested heavily in trends – even when these investments were in areas where Amazon had no history, capability or expertise!
Amazon has now followed the trends into a leading position delivering profitable “cloud” services. Amazon Web Services (AWS) generated $500M revenue last year, is reportedly up 50% to $750M this year, and will likely hit $1B or more before next year. In addition to simple data storage Amazon offers cloud-based Oracle database services, and even ERP (enterprise resource planning) solutions from SAP. In cloud computing services Amazon now leads historically dominant IT services companies like Accenture, CSC, HP and Dell. By offering solutions that fulfill the emerging trends, rather than competing head-to-head in traditional service areas, Amazon is growing dramatically and avoiding a gladiator war. And capturing big sales and profits as the marketplace explodes.
Amazon created 5,300 U.S. jobs last quarter. Organic revenue growth was 44%. Cash flow increased 25%. All because the company continued expanding into new markets, including not only new retail markets, and digital publishing, but video downloads and television streaming – including making a deal to deliver CBS shows and archive.
Amazon’s willingness to go beyond conventional wisdom has been critical to its success. GeekWire.com gives insight into how Amazon makes these critical resource decisions in “Jeff Bezos on Innovation” (taken from comments at a shareholder meeting June 7, 2011):
“you just have to place a bet. If you place enough of those bets, and if you place them early enough, none of them are ever betting the company”
“By the time you are betting the company, it means you haven’t invented for too long”
“If you invent frequently and are willing to fail, then you never get to the point where you really need to bet the whole company”
“We are planting more seeds…everything we do will not work…I am never concerned about that”
“my mind never lets me get in a place where I think we can’t afford to take these bets”
“A big piece of the story we tell ourselves about who we are, is that we are willing to invent”
If you want to succeed, there are ample lessons at Amazon. Be willing to enter new markets, be willing to experiment and learn, don’t play “bet the company” by waiting too long, and be willing to invest in trends – especially when existing competitors (and suppliers) are hesitant.
Companies today struggle to maintain dominant positions in markets that are changing faster than ever. What is the right response when doing the same thing – just faster and leaner than before – doesn’t achieve goals or create growth? When focusing on your core threatens to make your business irrelevant, and the marketplace is changing so fast predicting its twists and turns seems impossible, your organization needs guidance — and fast.
As a sought-after public speaker, Adam shows audiences how to create “white space” in their organizations, develop new business, create new products and seize previously hidden marketplace opportunities. Through a rich collection of case studies and stories, Adam keeps his presentation relevant and focused on your industry, business and marketplace. He reveals four steps to innovation that have been proven successful over and over in a wide variety of industries. Your leadership team and employees will understand what it takes to turn your organization in a new direction and seize new opportunities in a turbulent market via innovation creating growth.
How to identify market trends early so you can prepare for change
How to identify and become a game changer
How to grow revenue while lowering your Status Quo Risk
What Audiences Say
As I reflected on Adam’s comments throughout the course of the conversations, I was struck by how he immediately challenged our thought processes in many areas such as working from an assumption of status quo and focusing on now vs what the future might really bring in by assessing and thinking about marketplace shifts. I thought the process was challenging, thoughtful and provocative. And most importantly, provided new ways of thinking that can be applied immediately across many areas.
Robert Lee, Chief Marketing & Communications Officer, ASAE
Adam presented his half-day workshop “The Phoenix Principle: Success Across the Lifecycle” to the TEC group of CEOs that I chair. He expertly wove his own real-world experiences with business facts and examples to convey a thought-provoking message. The interactive session included multiple opportunities for small group work, and Adam challenged us to identify the trends impacting our businesses. We left the workshop focused on the future and exhilarated by the possibilities of identifying new markets and innovating.
Trisha Huizenga, Chair of TEC 23 and 54, Faciliatate LLC
Adam both entertained and educated out conference attendees. His presentation was thought provoking and timely. He was a great addition to our conference.
Spencer Hoole, Co-chair, Summit Directors and Officers Conference 2012
Adam Hartung was one of the best speakers we have ever retained. He was a dynamic and engaging presenter and left our attendees thinking and talking about eliminating their lock-in’s and generating the white space needed to innovate. His insight was thought provoking and delivered in a way that resonated with the audience. Our meeting is targeted at C-level executives which can be a tough crowd. Adam did not disappoint!
Rene Soltis Shepherd, Senior Director Meetings and Education, The Vision Council
We invited Adam to be the keynote speaker at a recent event where we were hosting a select group of our most important customers. It was important that we impressed our customers and Adam delivered in a big way. His message was thought provoking, entertaining, well research, clear and delivered in an energetic and engaging way. He has a real talent for distilling his message into simple and memorable take aways. Our audience was very attentive and the feedback we got after Adam’s presentation convinced us that we accomplished what we set out to do.
Greg Kadens, American Hotel Register Company
Adam spoke at a recent Cars.com strategic leadership meeting, with a focus less on inspirational rhetoric and more on a hard-headed dose of reality about what’s hard about innovation and what’s at stake. His insights encouraged us to look beyond today’s market structure and made an immediate impact on our leadership dialog and the need to allocate resources to “white-space” product development.
CEO, Cars.com
Adam’s talk was an eye opener for me. While I knew that my business would change drastically in the next few years, this was a wake up call that we needed to get in front of market demand. Defending the past was not going to help us survive. Since Adam’s talk, we have keyed in on what our customers value and have allocated time and money to pursue disruptive products and services. While I don’t know if we will be the next Apple, I am getting reactions from clients such as, “Wow! That sounds easy, like it would serve us better and cost less!” Thanks for the wake up call Adam!
Thomas Dodds, President of slashBlue
Adam is a dynamic speaker with his pulse on strategies for a fast evolving global world. His presentation fired up our teams with real world examples and exceeded our expectations. The message to prevent ‘lock-in’ to our strategies and push the envelope in new areas where we can see opportunity was perfect for our leadership conference. Everyone should read his book.
John H. Jacko Jr. VP and Chief Marketing Officer, Kennametal Inc.
Adam presented practical, actionable viewpoints to our management team. Using a combination of examples and specific to-dos, he explained how we can avoid a lock-in mindset that has resulted in the downfall of many a company! His engaging style made it easy for our team to internalize the concepts.
Sudhakar Ramakrishna, Corporate VP, Home — Networks Mobility, Motorola, Inc.
Adam, THANK YOU! The compliments just keep on rolling in about your presentation to our Members and guests. YOU WERE TERRIFIC and we really appreciate your time and insights!
Sandy Weissent, University of Chicago CEO roundtable
Your recent presentation to The Association for Corporate Growth CEO group was remarkable. The feedback we got from the leaders who attended was outstanding. Your researched based concepts and real world work experience challenged our members to create new success formulas for their business. I’m confident that the practical ideas you shared will be the foundation of new innovation and profitable growth for years to come. I look forward to having you come back and share more thoughts on how leaders can create significant breakthroughs in performance.
Bill Durkin, Vice Chair, Corporate Network, The Association for Corporate Growth
Just wanted to let you know that the Members and I enjoyed your presentation and found it to be insightful and impactful. We continue to discuss different aspects of your presentation and, in particular, use your “locked-in” concept… especially during these times.
Gregory C. Vrablik, The President’s Forum
Adam Hartung presented to our University of Chicago Booth School of Business’ Consulting Roundtable (CRT). His presentation focused on how to galvanize our companies and clients — insights that are valuable in any economy and urgent in this one. Whether in a tough times or good, Adam’s insights are applicable — companies, and individuals, have to be adaptable. Adam’s presentation demonstrated what makes a company adaptable, able to manage through a downturn or market shift, and enlightened us with the surprising strategies and stories of those companies. Our audience was engaged, asked many questions and the presentation was energizing — so much so that when the session was officially over, 70% of the attendees stayed an extra hour of further discussion.
Rachel Patterson, University of Chicago
It is rare that we have a speaker so engaging and so loaded with key insights that most people miss. We always pack the house when Adam speaks. He locks-in and fully engages the audience providing such relevant data that he has become a regular speaker for MENG (Marketing Executives Networking Group). Our attendees rave about Adams ability to deliver excellent content in a captivating and motivating way. I recommend Adam to anyone who wants a professional, polished speaker, who can read the audience and deliver exceptionally well!
Juli Bohm, MENG Chicago Chapter Chair and Board Member
Adam Hartung, author of “Create Marketplace Disruption”, was my guest speaker at a recent FEI Career Management Group Breakfast. Adam did an excellent job of enlightening the group on the concepts in his book, tying in current business events (eg. the GM Chapter 11 filing) and bringing topic relevance to the Finance executives in attendance. Adam conveyed his material with the authority one would expect from someone who had conducted extensive research but also with a sense of humor and engaging style that sparked many questions from the audience. Adam is the type of speaker who will make business leaders think differently about what they need to focus on and how to lead so they will have successful businesses not only today but in the future.
Ron Zoromski formerly VP of Finance with Siemens Building Technologies, Inc. and current FEI Career Management Group committee member
Adam delivered an outstanding workshop for an Executive group of the Scanlon Leadership Network member companies. Utilizing the results of over 800 case studies, Adam Hartung of Spark Partners helped our executives realize that by asking the right questions and following some new steps they can identify opportunities to grow, regardless of economic conditions. By overcoming internal Lock-ins, one can adapt to become whatever you want, and thus regain growth and future success. We asked Adam to return and present again for the Scanlon Leadership Network this time delivering the keynote address for our 46th annual conference May 11-13, 2009, in Kalamazoo, MI. See www.ScanlonLeader.org for details. Adam will also lead a whole group experiential learning process for all conference attendees. Adam is a popular speaker with a solid message and our members are excited he is returning. I also recommend Adam’s book “Create Marketplace Disruption: How to Stay Ahead of the Competition”.
Wayne Lindholm, President, Scanlon Leadership Network
Adam Hartung was a featured panelist for our event “Stump the Innovator”. Adam was an engaging panelist who demonstrated not only a mastery of innovation, but also great insights on how organizations really need to strategically re-align their operations in order to survive. Adam’s unique style lent itself to a wonderful mix of down to earth practical advice with forward thinking expertise that helped our audience grasp a realistic way in which they could impact their own business transitions.
Nancy Munro, Co-Chair of Programs and Chair Leader for Executive Education Chicago MIT Enterprise Forum
Adam opened the eyes of our MENG members to the importance of businesses consistently re-inventing themselves. His insights are innovative, thought-provoking and challenge old-world thinking. He has given much-lauded presentations to our membership and I strongly recommend him to any organization looking to be a leader in its industry.
Lisa Petrilli, Program Director, Marketing Executives Networking Group (MENG)
Adam Hartung spoke to College of DuPage’s Executive Network group about Career Success and really WOWed the audience. He was so energetic and full of information, everyone felt fulfilled. We will definitely have Adam return to speak to our group in the future.
Janeen Paul, Manager, Career Services College of DuPage
Adam Hartung presented a lively and thought-provoking session at the IMC Chicagoland March 13, 2009, meeting. Our members gave Adam rave reviews and commented on the timeliness and relevance of his topic. Overall, we were very pleased to have Adam on our Spring roster and look forward to having him back again.
Christy Erbeck, Marketing and Program Chair, Institute of Management Consultants Chicago
Adam Hartung was one of the best speakers we have had in years. His presentation definitely contributed to the success of our semi-annual membership meeting. We have received nothing but favorable comments from our attendees. Even though it had been a long morning and Adam’s presentation followed lunch – a good time for a nap or golf – no one left the room as Adam spoke. Adam’s entertaining and lively style captivated the audience, while pulling them into his material with real-life cases to which they could all relate. We offered free copies of Adam’s book to our attendees, and everyone stood in line to get their copy and speak briefly to Adam. They obviously found the presentation content valuable. Adam is very knowledgeable about his subject matter, while also being an engaging speaker. He gave our attendees thought-provoking insights to long-term success that could be applied to any market., offering them clear strategic information on how to improve growth. Adam was a pleasure to work with, and we highly recommend his presentation, especially in these tough times.
First, let me recommend you strongly consider Adam Hartung’s presentation. It was very well received and valued by my two audiences – all 5’s out of 5. I believe that Adam’s presentation couldn’t come at a more opportune time. The challenging of some of our strongly held paradigms and “sacred cows” may end up being just the breakthrough some need. You want to get this man, Adam Hartung in front of your groups and engage with them in some fierce conversations.
John N. Younker, PhD, Associates In Continuous Improvement (ACI), Vistage Chair
Thank you, thank you, thank you!! Excellent job at the FSA Spring Meeting in Savannah, Georgia. Many members came up to me and indicated you were one of the best speakers we have had at any of our meetings. Your topic was very timely and helps all of us clarify the direction we are headed as a trade association. I am so pleased we were able to get you in to talk at this event.
William V. Adams, New Business Development, Corporate Marketing, Flowserve Corporation
After seeing Adam speak at a very well-attended ACG meeting, I asked him if he would like to speak at one of our events on the spot. As the incoming President for the 2 year old Chicago Chapter of the Association for Strategic Planning, I wanted to bring in a high-impact speaker to give our members and prospective members a clear sense of the quality of value that we provide as an organization and to draw others to attend. Adam was thoroughly knowledgeable, entertaining, but best of all, very insightful and provocative – I had many people thank us for having him present and I believe it helps our image and growth plans.
Rick Kaufmann, Vice President, Middle Market Commercial Banking, Charter One Bank
Connect With Adam
How To Grow — Don’t Stick To Your Core
For years we have been told stick to your core to succeed. Listen to Adam’s story on how his study of 900 companies will prove that sticking to your isn’t the best strategy.
Are you constantly in a pricing battle with your competitors? Do you find it harder and harder each year to build margins into your product or service? How can you be more like the darlings of the last five years – such as Apple – who not only survived the greatest financial crisis our generation has known but realized double-digit growth as well?
This workshop will take you down a path of becoming a game changer. Your sales team will first examine what key trends are shaping where the market will be in the next 3-5 years. Then by examining your current competitors, you can begin to map out where your market and growth opportunities are.
Workshop Activities
Assess key trends
Build scenarios for new markets
Map competitors against market shifts
Learn how to disrupt your current sales process
Find your customers “Lock-Ins”
Map out your internal disruption to overcome Lock-in
Minimum Length
1 – 2 Days
Delivery Options
Whether you have a small team of key senior executives or a large departmental group we can facilitate this training program in four ways:
Adam Hartung and team facilitate
Trained facilitator delivers onsite at your location or conference location
Train-the-trainer
Self-guided workshop materials including video, worksheets, posters, online tools
Are you constantly trying to out-maneuver the competition but realize it’s an endless battle? Do you know who all of your competitors are – including fringe competitors who may take you by surprise?
This workshop will help your team grasp a better understanding of why you should really pay attention to competitors and how to manage their lock-ins so you can gain an edge on the market. The goal of this workshop will be to uncover how to position your products and services in a way that gains a competitive advantage with existing and new customers.
Workshop Activities
Brief look at market shifts
Map competitors against market shift
Find your customers Lock-Ins
Identify one to two strategic moves against competitors that will provide higher rate of return
Minimum Length
1/2 – 2 Days
Delivery Options
Whether you have a small team of key senior executives or a large departmental group we can facilitate this training program in four ways:
Adam Hartung and team facilitate
Trained facilitator delivers onsite at your location or conference location
Train-the-trainer
Self-guided workshop materials including video, worksheets, posters, online tools
If your organization has unsuccessfully implemented a new innovation, Lock-In was most likely the culprit. Most innovations fail because Lock-in to existing practices blocks you from doing important new activities, not poor management. Obvious signs in the market allow an organization to recognize innovation is necessary, but because existing processes are so ingrained, the business becomes paralyzed – unable to make the necessary changes to survive.
Workshop Activities
Pre-workshop survey
Lock-in Analysis – Behavioral, Structural and Financial
Lock-In Grid
Innovation comparison to Lock-In
Yes Game
Select one Lock-in and create Lock-In Correction Matrix
Take Aways
Participants will have an understanding of what Lock-in is, as well as how it impacts decisions and behaviors in the organization. Focusing on one lock-in we identify what innovation is blocked, and how disruptions can un-lock it.
Minimum Length
1 – 2 Days
Delivery Options
Whether you have a small team of key senior executives or a large departmental group we can facilitate this training program in four ways:
Adam Hartung and team facilitate
Trained facilitator delivers onsite at your location or conference location
Train-the-trainer
Self-guided workshop materials including video, worksheets, posters online tools
