by Adam Hartung | Sep 16, 2010 | Current Affairs, Defend & Extend, Food and Drink, Innovation, Leadership, Lock-in, Openness, Web/Tech
Summary:
- Businesses usually try defending an old solution in the face of an emerging new solution
- Status Quo Police use “cannibalization” concerns to stop the organization from moving to new solutions and new markets
- If you don’t move early, you end up with a dying business – like newspapers – as new competitors take over the customer relationship – like Apple is doing with news subscriptions
- You can adapt to shifting markets, profitably growing
- You must disrupt your lock-ins to the old success formula, including stopping the Status Quo Police from using the cannibalization threat
- You should set up White Space teams early to embrace the new solutions and figure out how to profitably grow in the new market space
When Sony saw MP3 technology emerging it worked hard to defend sales of CDs and CD Players. It didn’t want to see a decline in the pricing, or revenue, for its existing business. As a result, it was really late to MP3 technology, and Apple took the lead. This is the classic “Innovator’s Dilemma” as described by Professor Clayton Christenson of Harvard. Existing market leaders get so hung up on defending and extending the current business, they fear new solutions, until they become obsolete.
In the 1980s Pizza Hut could see the emergence of Domino’s Pizza. But Pizza Hut felt that delivered pizza would cannibalize the eat-in pizza market management sought to dominate. As a result Pizza Hut barely participated in what became a multi-biliion dollar market for Domino’s and other delivery chains.
The Status Quo Police drag out their favorite word to fight any move into new markets. Cannibalization. They say over and over that if the company moves to the new market solution it will cannibalize existing sales – usually at a lower margin. Sure, there may someday be a future time to compete, but today (and this goes on forever) management should keep close to the existing business model, and protect it.
That’s what the newspapers did. All of them could see the internet emerging as a route to disseminate news. They could see Monster.com, Vehix.com, eBay, CraigsList.com and other sites stealing away their classified ad customers. They could see Google not only moving their content to other sites, but placing ads with that content. Yet, all energy was expended trying to maintain very expensive print advertising, for fear that lower priced internet advertising would cannibalize existing revenues.
Now, bankrupt or nearly so, the newspapers are petrified. The San Jose Mercury News headlines “Apple to Announce Subscription Plan for Newspapers.” As months have passed the newspapers have watched subscriptions fall, and not built a viable internet distribution system. So Apple is taking over the subscription role – and will take a cool third of the subscription revenue to link readers to the iPad on-line newspaper. Absolute fear of cannibalization, and strong internal Status Quo Police, kept the newspapers from embracing the emerging solution. Now they will find themselves beholden to the device providers – Apple’s iPad, Amazon’s Kindle, or a Google Android device.
But it doesn’t have to be that way. Netflix built a profitable growth business delivering DVDs to subscribers. Streaming video clearly would cannibalize revenues, because the price is lower than DVDs. But Netflix chose to embrace streaming – to its great betterment! The Wrap headlines “Why Hollywood should be Afraid of Netfilx – Very Afraid.” As reported, Netflix is now growing even FASTER with its streaming video – and at a good margin. The price per item may be lower – but the volume is sooooo much higher!
Had Netflix defended its old model it was at risk of obsolescence by Hulu.com, Google, YouTube or any of several other video providers. It could have tried to slow switching to streaming by working to defend its DVD “core.” But by embracing the market shift Netflix is now in a leading position as a distributor of streaming content. This makes Netfilx a very powerful company when negotiating distribution rights with producers of movie or television content (thus the Hollywood fear.) By embracing the market shift, and the future solution, Netflix is expanding its business opportunity AND growing revenue profitably.
Don’t let fear of cannibalization, pushed by the Status Quo Police, stop your business from moving with market shifts. Such fear will make you like the proverbial deer, stuck on the road, staring at the headlights of an oncoming auto — and eventually dead. Embrace the market shift, Disrupt your Locked-in thoughts (like “we distribute DVDs”) and set up White Space teams to figure out how you can profitably grow in the new market!
by Adam Hartung | Sep 15, 2010 | Current Affairs, Defend & Extend, In the Swamp, Innovation, Leadership, Lifecycle, Web/Tech
Summary:
- There is a lot of value to recognizing early trends, and acting upon them
- That Apple is as popular as Dell for computers among college students is a trend indicator that Dell’s future looks problematic, while Apple’s looks better
- It is hard to maintain long-term value from innovations that defend & extend an historical market – they are easily copied by competitors
- Long term value comes from the ability to innovate new product markets which are hard for competitors to copy
- Dell is a lousy investment, and Apple is a good one, because Dell is near end of life for its innovation (supply chain management) while Apple has a powerful new product/market innovation capability that can continue for several years
I can think of 3 very powerful reasons everyone should look closely at the following chart from Silicon Alley Insider. It is very, very important that Apple is tied with Dell for market share in PCs among college students, and almost 2.5 times the share of HP:
Firstly, it is important to understand that capturing young buyers is very valuable. If you catch a customer at 16, you have 50 to 60 years of lifelong customer value you can try to maintain. Thus, these people are inherently worth more than someone who is 55, and only 10 to 20 years of lifetime value. While we may realize that older people have more discretionary income, many loyalties are developed at a young age. Over the years, the younger buyers will be worth considerably more.
When I was 15 popular cars were from Pontiac (the GT and Firebird) Oldsmobile (Cutlas) Dodge (Charger and Challenger) and Chevy (Camaro.) Thus, my generation tended to stay with those brands a long time. But by the 1990s this had changed dramatically, and younger buyers were driving Toyotas, Hondas and Mazdas. Now, the American car companies are in trouble because a generational shift has happened. Market shares have changed considerably, and Toyota is now #1. Keeping the old buyers was not enough to keep GM and Chrysler healthy.
That for a quarter as many college students want a Mac as want a PC from Dell says a lot about future technology purchases. It portends good things for Apple, and not good things for leading PC suppliers. Young people’s purchase habits indicate a trend that is unlikely to reverse (look at how even the Toyota quality issues have not helped GM catch them this year.) We can expect that Apple is capturing “the hearts and minds” of college students, and that drives not just current, but future sales
Secondly, it is important to note that Dell built its distinction on price – offering a “generic” product with fast delivery and reasonable pricing. Dell had no R&D, it outsourced all product development and focused on assembly and fast supply chain performance. Unfortunately, supply chain and delivery innovation are far easier to copy than new product – and new market – innovation. Competitors have been able to match Dell’s early advantages, while Apple’s are a lot harder to meet – or exceed. Thus, it has not taken long for Dell to lose it’s commanding industry “domination” to a smaller competitor who has something very new to offer that competitors cannot easily match.
Not all innovation is alike. Those that help Defend & Extend an existing business – making PCs fast and cheap – offer a lot less long term value. Every year it gets harder, and costs more, to try to create any sense of improvement – or advantage. D&E innovations are valued by insiders, but not much by the marketplace. Customers see these Dell kind of innovations as more, better, faster and cheaper – and they are easily matched. They don’t create customer loyalty.
However, real product/market innovations – like the improvements in digital music and mobile devices – have a much longer lasting impact on customers and the markets created. Apple is still #1 in digital music downloads after nearly a decade. And they remain #1 in mobile app downloads despite a small share in the total market for cell phones. If you want to generate higher returns for longer periods, you want to innovate new markets – not just make improvements in defending & extending existing market positions.
Thirdly, this should impact your investment decisions. SeekingAlpha.com, reproducing the chart above, headlines “Are 2010 Apple Shares the new 1995 Dell Shares?” The author makes the case that Apple is now deeply mired in the Swamp, with little innovation on the horizon as it is late to every major new growth market. It’s defend & extend behavior is doing nothing for shareholder value. Meanwhile, Apple’s ability to pioneer new markets gives a strong case for future growth in both revenue and profits. As a result, the author says Dell is fully valued (meaning he sees little chance it will rise in value) while he thinks Apple could go up another 70% in the next year!
Too often people invest based upon size of company – thinking big = stability. But now that giants are falling (Circuit City, GM, Lehman Brothers) we know this isn’t true. Others invest based upon dividend yield. But with markets shifting quickly, too often dividends rapidly become unsustainable and are slashed (BP). Some think you should invest where a company has high market share, but this often is meaningless because the market stagnates leading to a revenue stall and quick decline as the entire market drops out from under the share leader (Microsoft in PCs).
Investing has to be based upon a company’s ability to maintain profitable growth into the future. And that now requires an ability to understand market trends and innovate new solutions quickly – and take them to market equally quickly. Only those companies that are agile enough to understand trends and competitors, implementing White Space teams able to lead market disruptions. Throw away those old books about “inherent value” and “undervalued physical assets” as they will do you no good in an era where value is driven by understanding information and the ability to rapidly move with shifting markets.
Oh, and if you feel at all that I obscured the message in this blog, here’s a recap:
- Dell is trying to Defend its old customers, and it’s not capturing new ones. So it’s future is really dicey
- Dell’s supply chain innovations have been copied by competitors, and Dell has little – if any – competitive advantage today. Dell is in a price war.
- Apple is pioneering new markets with new products, and it is capturing new customers. Especially younger ones with a high potential lifetime value
- Apple’s innovations are hard to duplicate, giving it much longer time to profitably grow revenues.
- You should sell any Dell stock you have – it has no chance of going up in value long term. Apple has a lot of opportunity to keep profitably growing and therefore looks like a pretty good investment.
by Adam Hartung | Sep 14, 2010 | Current Affairs, Defend & Extend, Food and Drink, In the Swamp, Leadership, Lifecycle, Lock-in
Summary:
- Success Formulas age, losing their value
- To regain growth, you have to identify with market trends – not reinforce old Lock-ins
- KFC is losing sales due to a market shift, but its response is not linked to market trends
- KFC’s plan to invest heavily in its old icon is Defend & Extend management
- Market to what it takes to regain new customers, and lost customers, not what your current customers (core customers) value
- The Status Quo Police have driven a very bad decision at KFC – more poor results will follow
- You have to market toward future needs, not what worked years ago.
Who’s Colonel Sanders? According to USAToday, in “KFC Tries to Revive Founder Colonel Sanders Prestige” 60% of American’s age 18 to 25 don’t know. For us older Americans, this may seem amazing, because we were raised on advertising that promoted the legend of a cooking Kentucky Colonel who “did chicken right” creating the recipe for what became today’s enormous Kentucky Fried Chicken (KFC) franchise. But it’s been a very, very long time since “the Colonel” left KFC in the 1980s, declaring that the chain, then owned by Heublein, didn’t make chicken so “finger lickin’ good” any longer. Were he alive today, the famed Colonel – who became a caricature of himself before death, would be an astounding 120 years old! Now most people don’t have a clue who’s picture that is in the red logo – if they notice there’s even a picture of someone there.
KFC is the largest chicken franchise, with 15,000 stores. But size has not been any help as the chain has lost its growth. Last quarter’s same-store sales fell 7%. A clear sign a deadly growth stall has started that bodes badly for the future! People have stopped going to KFC outletd. So management needs to do something to bring new customers into the stores – in American and globally. In a remarkable display of defending the Status Quo, leadership’s recommended solution for this problem is to put a heavy marketing blitz into “educating” consumers about the Colonel, and the oompany’s history!
Are we to believe that knowing about some long dead company founder will drive customers’ decisions where to eat lunch or dinner next week? Or next year?
I don’t know why people are eating less KFC, but it’s a sure bet it’s NOT because the Colonel has faded from the limelight. Times have changed dramatically. Everything from the acceptance of fried food, to concerns about chicken raising, to menu variety, to store appearance, and alternative competitive opportunities have had an impact on sales at KFC. What KFC needs is to understand these market trends, recognize where consumers are headed with their prepared food purchases, and position the company to deliver what consumers WANT this year and in the future. If KFC finds the trend – even if it’s not chicken – it can regain its growth. KFC needs to give the market what it wants – and is that a heavy education about a dead icon?
KFC is trying to turn back the clock. It is looking internally, historically, and hoping that by promoting the Colonel it can regain the glorious growth of previous decades. KFC leadership is remaining firmly committed to its old and clearly tiring Success Formula (the one that is producing declining sales and profits.) So it is holding fast to its menu, its preparation methods, its store appearance, its “brand” image and now even its iconic founder that is irrelevant to this current generation and any international consumer!
Does anyone really think reviving the Colonel – a white haired senior
citizen in his heyday -will create double digit growth? Or bring in
those young people between ages 18 and 25? There’s not one shred of
market input which says this is the way to grow KFC. Only a belief that
somehow future success will come from an attempt to replay what worked
when the Success Formula was created over 40 years ago.
In a telling quote from the article “KFC’s trying to paint a new picture — actually asking its core consumers to paint it for them.” The marketers are actually hoping a contest to re-sketch the lost icon will drive people to “reconnect” with the franchise. What’s worse, clearly they are hoping to appeal to the “core” customers – current customers – rather than find out why lost customers left, and what new customers might want to encourage a switch to KFC. They are “focusing on their core” rather than figuring out what the market wants.
Add on top of this that management has admitted it expectsmost (possibly all) future growth to come from international expansion, and you really have to question how focusing marketing on the Colonel makes any sense. Why would people in Europe, South America, India, China or elsewhere have any connection to a character more attuned to America’s civil war than today’s global economy and international high-energy brand images?
This is the kind of decision that is driven by a strong Status Quo Police. Of all the options, from changing the menu and name, to developing a new icon, to creating a new image for the alphabet soup that is KFC (most young people don’t even relate KFC to the original name – and international customers have no connection at all) – all the things that could be based on market trends – leadership went down the road of doing more of the same.
It’s a sure bet we’ll be reading about further declines in KFC over the next year. There will be a big store closing program. Then a quality program to improve customer service and cleanliness. Layoffs will happen. Some kind of lean program to tighten up the supply chain and cut costs. Revenues will probably decline another 15-25%. Exactly what McDonald’s did about 6 years ago when it sold Chipotle’s to “refocus on its core.” Management will talk about how its “core” customers relate well to the Colonel, and they are sure if given time the marketing will return KFC to its old glory.
And the only people who will enjoy this are the Status Quo Police. For the rest of us, it’s watching another great company fall victim to its past, rather than migrate toward a better, high growth future.
Read my Forbes.com column “Fire the Status Quo Police” for more insight to how consumer branded companies hurt long-term viability by maintaining brand status quo rather than migrating with market trends.
by Adam Hartung | Sep 9, 2010 | Defend & Extend, Leadership, Lock-in
Leadership
Fire The Status Quo Police
Adam Hartung, 09.08.10, 06:00 PM EDT
Their power to prevent innovation can devastate your business.
“That’s not how we do things around here.” How often have you heard that? And what does it really mean? It is said to stop someone from doing something new. It is no way to promote innovation, is it?”
That’s the lead paragraph to my latest column on Forbes.com, published yesterday evening. Forbes launched a new editorial page covering Change Management, and gave my column’s link the premier placement!
All companies want to grow. But early in the lifecycle they Lock-in on what works, and then implement Status Quo Police that intentionally do not allow anything to change. Their belief is that if nothing changes, the business will always grow. So conformance to historical norms is more important than results to them. To Status Quo Police results will return when conformance to old norms is returned!
Of course, this completely ignores the marketplace. Market shifts, created by competitors launching new technologies, new pricing models, new delivery models or other new solutions cause the value of old solutions to decline. No matter how well you do what you always did, you can’t achieve historical results. The market has shifted!
To keep any company growing you must know who the Status Quo Police are in your organization. They can be in HR, controlling hiring, promotions and pay. In Finance controlling what projects receive resources. In Marketing, tightly controlling branding, product development or distribution. The Status Quo Police are committed to keeping things tightly controlled, and saving the organization from change that could send the company in the wrong direction! No matter what the marketplace may require.
But it’s not enough to know who the Status Quo Police are, its up to leaders to eliminate them! If you want to have a vibrant, profitably growing organization you have to constantly adjust to market shifts. You have to sense what the market wants, and move to deliver it. You have to be very wary of the Status Quo, and instead be open to making changes in order to grow. To do that, you have to hold those who would be the Status Quo Police in check. Otherwise, you’ll find the obstacles to innovation and growth overwhelming!
Please read the article at Forbes, review it and comment! Let me know what you think!
by Adam Hartung | Sep 7, 2010 | Current Affairs, Defend & Extend, In the Whirlpool, Leadership, Web/Tech
Summary:
- Not even dominant industry leaders are immune to decline from market shifts
- It’s easy to focus on what made you great, and miss a market shift
- Competitors drive market shifts, not customers – so pay attention to competitors!
- AOL lost industry domination to competitors with new solutions, and now new technologies, even though it executed its Success Formula really well
- You can become obsolete really quickly when fringe competitors introduce new solutions
- Do more competitor analysis
- Keep White Space teams experimenting with emerging solutions and competing in shifting markets
Do you remember when AOL (an acronym, and updated name, for America On-Line) dominated our perception of the internet? Fifteen years ago AOL was one of the leading companies introducing Americans to the wonders of the web. Providing dial-up access (remember that?) AOL offered users its own interface, and a series of apps that helped its customers discover how the world wide web could make their lives easier – and better. At its peak, AOL had over 30 million subscribers! AOL was so commercially strong, and investors were so optimistic, that a merger with powerhouse publisher Time/Warner, which already owned CNN and HBO, was organized so AOL’s young leader, Steve Case, could take the helm and push the company forward into the digital frontier.
Along the way, something went very wrong. In an example of what happened to AOL and its products, as seen below, after pioneering Instant Messaging as an internet application AOL’s AIM user base has declined precipitously – by more than 50% – in the last 3 years:
Source: BusinessInsider.com
Of course, the same thing that once drove AOL growth is now apparent somewhere else. New markets are emerging. Instead of using PCs with instant messaging, most people today text via their mobile device! Texting isn’t just a youthful activity. According to Pew Research, on PewInternet.org in “Cell Phones and American Adults” 72% of American adults now text – up from 65% a year ago. 87% of teens text. And I’m willing to bet a lot of those teens don’t even have an instant messaging account – on any platform. The amount of “instant messaging” has grown dramatically – just not using “instant messaging” software. It’s now happening via mobile device texting.
Where AOL once dominated the landscape for digital communication, it is now becoming almost insignificant. But it wasn’t because AOL didn’t know how to execute its strategy. AOL was an industry leader, with savvy management, and a blue-ribbon Board of Directors. AOL even bought Netscape in its effort to remain the best server and client technology for a proprietary internet platform.
AOL became obsolete because the market shifted – while AOL tried holding on to its initial Success Formula. AOL did not shift as the market shifted, it has remained Locke-in to its early Identity, original Strategy and all those product Tactics that once made it great! AOL didn’t do anything wrong. It just kept doing what it knew how to do, rather than recognizing the impact of competitors and changing markets.
Shortly after AOL emerged as the market leader, competitors sprang up. First they offered dial-up access, often more cheaply. Eventually dial-up was replaced with high-speed internet access from multiple providers. Instead of using a proprietary interface, competitors Netscape and Microsoft brought out their own internet browsers, making it possible for users to surf the web directly and easily. Instead of using an AOL directory to find things, search engines such as Ask Jeeves, Alta Vista and Yahoo! Search came along that would find things across the web for users based upon their query. Email alternatives emerged, such as Hotmail and Yahoo! Mail. Eventually, one piece at a time, all the proprietary packaged products that AOL provided – including instant messaging – was offered by a competitor. And the value of the AOL packaging declined. As competitor products improved, for most users being an AOL subscriber simply had little advantage.
And now entirely new apps are coming along. As the market quickly shifts to mobile data and applications, devices like smartphones and tablets are replacing PCs. And the apps that made internet companies rich and famous are poised for decline – as users shift to the new way of doing things.
Whether the currently popular internet companies will make the next step, or end up like AOL, will be determined by whether they remain stuck on defending & extending their “core” business, or if they can shift with the market. There is no doubt that the amount of “instant messaging” is skyrocketing. It’s just not happening on the PC. Like many tasks, the demand is growing very fast. But it is via a new, and different solution. If the company sees itself as providing a PC type of internet solution, then the company will likely decline. But, alternatively, the leadership could see that demand is exploding and they need to shift – with the market – to the new solution environment to maintain growth.
Whether you are the market leader or not, you know you don’t want to end up like AOL. Once rich with resources, and a commanding market lead, AOL is now irrelevant to the latest market trends – and growth. AOL stuck to what it knew how to do. It has not shifted with changing market requirements – including changes in technology. For your company to succeed it must be (1) aware of competitors and how they are constantly changing the market – especially fringe competitors, and (2) enlisting White Space teams that are participating in the new markets, learning what works and how to migrate to capture the ongoing growth.
Postscript: I want to thank a pair of colleagues for some great mentions over the weekend. Firstly, to FMI Daily for posting to its readership about my blog on The Power of Myth. Secondly, a big thank you to Management Consulting News for referring its newsletter readers to this blog as notable, and my recent posting on the failure of Fast Follower strategy. I encourage readers to follow the links here to these sites and sign up for future information from both!!
by Adam Hartung | Sep 4, 2010 | Books, Defend & Extend, In the Swamp, Leadership, Lock-in, Religion
Summary:
- When we don’t know what works, we create myths to describe what might work
- Much of business theory is little more than myth
- “Good to Great” has been a best seller, but it is not helpful for good management
- To grow business today requires abandoning management myths and aligning with changing market needs
Good to Great by Jim Collins has been a phenomenal business best seller. Almost 10 years old, it has sold millions of copies. It continues to be featured on end caps in book stores. That it has sold so well, and continues selling, is a testament to a much better book by the legendary newsperson Bill Moyers with Joseph Campbell, “The Power of Myth.” (Original PBS 2001 TV show available on DVD, or get the new release this month.)
When we don’t understand something we develop theories as to how it might work. These theories are based upon what we know, our assumptions, and our biases. They could be right, or they might not. Only testing determines the answer. However, sometimes the theory is so powerfully connected to our beliefs that we don’t want to test it – don’t feel the need to test it. And if the theory hangs around long enough, people forget it wasn’t tested. What easily happens is that “logical” theories (based upon assumptions and beliefs) that don’t explain reality become myth. And the myth becomes very comforting. Over time, the myth becomes part of the assumption set – unchallenged, and actually used as a basis for building new theories.
For example, the founder of modern medicine – Galen – didn’t understand the circulatory system. So he thought blood was oxygenated by invisible pores. As time passed it became impossible to challenge, or even test, this theory. Eventually, blood letting was developed as a medical practice because people thought the blood stored in the affected area had gone bad. It was several hundred years before Harvey, through careful testing, proved there were no invisible pores – and instead blood circulated throughout the body. Millions had perished from blood letting because of a myth. Bad theory allowed to go unchallenged and untested. It just sounded so good, so acceptable, that people followed it. Dangerous practice.
Thomas Thurston now gives us great insight to the popular myth developed by Jim Collins in Good to Great. Published by Growth Science International (http//growthsci.com) “Good to Great: Good, But Not Great” Mr. Thurston puts Mr. Collins thesis to the test. Is it a usable framework for predicting performance, and do followers actually achieve superior performance? In other words, does the advice in Good to Great work?
Mr. Thurston’s conclusions, quoted below, are quite clear, and mirror those of academics and lay people who have studied the storied Mr. Collins’ work:
- Even with the copious guidelines set forth by Collins, sorting CEOs into each category proved a highly subjective process. The classification scheme was ambiguous
- Level 5 leadership was difficult to categorize with reliability and consistency
- Our sample [100 well known firms] did not reveal any statistically significant difference in the performance of firms led by Level 5 and Not-Level 5 leaders. Performance in each category was approximately the same.
- Level 5 leadership classifications were, in practice, highly subjective and not predictive of superior firm performance.
- In other words, our results concluded that one can not predict whether a firm will perform good, great or bad based on its having a Level 5 Leader.
We like myth. It helps us explain what we previously could not explain. Like early Greek gods helped people explain the complex world around them. But, when we build our behaviors on myth it becomes extremely dangerous. We depend upon things that don’t work, and it can have serious repercussions. Mr. Collins glorified Circuit City and Fannie Mae in his book – yet now one is gone and the other in disrepute. Meanwhile his list of “great” companies have been proven to perform no better than average since his publication.
In Good to Great Mr. Collins offers a theory for business success that is very appealing. Be focused on your strengths. Get everybody on the bus to doing the same thing. Make sure you know your core, and protect it like a hedgehog protects its home. And make sure all leaders follow a Christ-like approach of humbleness, and leader servitude. It sounds very appealing – in an Horatio Alger sort of way. Work hard, be humble and good things will happen. We want to believe.
But it just doesn’t produce superior performance. There are no theories that have identified “great” leaders. Success has come from all kinds of personalities. And, despite our love for being “passionate” and “focused” on doing something really “great” there is no correlation between long-term success and the ability to understand your core and focus the organization upon it. Thousands of businesses have been focused on their core, yet failed.
What we need is a new theory of management. As the Assistant Managing Editor of the Wall Street Journal, Alan Murray, wrote in “The End of Management,” industrial era management theories about optimization and increased production do not help companies deal with an information era competitiveness fraught with rapid change and keen demands for flexibility.
Increased flexibility and success can be assured. If companies make some critical changes
- Plan for the future, not from the past. Do more scenario planning and less “core” planning
- Obsess about competition – and listen less to customers
- Be disruptive. Don’t focus on optimization and continuous improvement
- Embrace White Space to develop new solutions linked to changing market needs
This does work. Every time.
update links on Thomas Thurston 5/2014:
http://startupreport.com/thomas-thurston-on-innovation-malpractice-and-the-dangers-of-theory-via-startupreport-com/
http://newsle.com/person/thomasthurston/2870934#reloaded
http://thomasthurston.com/
by Adam Hartung | Sep 2, 2010 | Current Affairs, Defend & Extend, In the Rapids, Television, Web/Tech
Summary:
- Market shifts create losers, and winners
- Demand doesn’t decline, it just changes form – and usually grows!
- We want more entertainment and communcation – but not the old fashioned way
- Losers keep trying to sell what they have, and know
- Winners supply solutions aligned with market needs regardless of old competencies
How would you react if your customers said your product really wasn’t something they needed? Would you work hard to convince them they are wrong? Maybe try to add some features hoping it would regain their attention? Or would you start looking for what they really do need/want?
Pew Research Center, at PewSocialTrends.org headlines “The Fading Glory of the Television and Telephone” describing how quickly people are walking away from what were very recently considered absolute necessities. As a “boomer” and member of the “TV generation” I was surprised to read that only 42% of Americans now think a television is a necessity! This has been a rapid, dramatic decline from 52% last year and 64% in 2006! 1 in 5 Americans have changed their point of view about television as a necessity in just 4 years! And TV as a necessity is in an accelerating decline! I can remember when my generation went from 1 TV in the house to 1 in every room! This trend does not bode well for broadcast television networks, affiliates, advertisers, traditional production companies, television newscasters, manufacturers of TV sets and TV equipment – or many other businesses linked to TV as we know it.
Simultaneously, demand for a land line telephone has declined. Again, my generation remembers the days with one phone in the house – in some areas on a shared “party” line where multiple families shared a single phone line. The phone was in a central area so it could be shared. In the 1970s we saw things change as telephones were added to every room! Now, according to Pew, folks who consider a land-line phone a necessity has declined to only 62%, a 10% decline from just last year (68 to 62) and barely 3 in 5 Americans! Wow!
Of course, for every decline there’s a winner. 47% see the cell phone as a necessity – that’s 5 percentage points greater than the TV score, indicating mobile phones are seen as more of a necessity than television by the general population. And 34% see high speed internet as a necessity – only 9 percentage points fewer than the TV number – and more than half who see the need for a land-line phone.
Demand for entertainment and communication have not declined! If you are in television or land lines you might think so. Rather, that demand is accelerating. But it is just shifting to a different solution. Instead of the old technology, and supplier industry, people are changing to something new. First with video cassetttes, then digital video recorders (DVRs), then the plethora of available cable channels and on-demand TV, and now with on-line entertainment from YouTube to Hulu people have been changing the way they consume entertainment. Demand has gone up, but not from traditional consumption of TV, especially as viewing has switched from the TV to the computer monitor – or the hand held device.
Clearly, access to the internet (facebook, twitter, et.al.), texting and anytime/anywhere calling has increased both our access and use of one-way (such as reading web pages) and two way communication. Communication is continuing to grow, but it will be in a different way. No longer do we need a “dial tone” to communicate – and in most instances people are finding a preference to asynchronous rather than real-time communication.
These are the kind of industry transitions that threaten so many businesses. What Clayton Christensen calls “The Innovator’s Dilemma” as new solutions increase demand while making old solutions obsolete. The tendency is for the supplier of traditional solutions to say “my market is in decline.” But really, the market is growing! Just like Kodak said the demand for film was declining, when demand for photography – now in digital format – was (and is) escalating! When market shifts happen, incumbents have to resist the temptation to try “keeping” the “old customers” by undertaking Defend & Extend efforts – like adding features and functionality, while cutting price. This inevitably leads to disaster! Instead, they have to understand the shift is only going to accelerate, and develop an approach to entering the new market.
As this research comes out, Apple launched a series of new products to augment its set-top box and iPod/iTouch product lines. (San Francisco Chronicle, SFGate.com “Steve JobsUnveils Upgraded Apple TV, New iPods“) by doing so Apple recognizes that people still want entertainment – but they are a whole lot less likely to accept sitting in front of a communal television, serially deploying programming at them. They want their entertainment to be on-demand, and personalized. Why should we all watch the same thing? And why watch what some programmer at CBS, HBO or TMC wants to deliver?
Apple is bringing out products that align with the direction the market is now heading. Ping is designed to help people share program information and identify the entertainment you would like to receive. iTunes is upgrading to bring you in bite-size chunks exactly the entertainment you want, as you want it, aurally or visually. These are products which will grow because they are aligned with what the market says it wants — even more entertainment. Those who are hidebound to the old supply mechanism will simply find themselves fighting for declining revenue as demand shifts – and grows – in the new solutions
by Adam Hartung | Aug 31, 2010 | Current Affairs, Defend & Extend, In the Whirlpool, Innovation, Leadership, Lock-in, Quotes
Summary:
- The Wall Street Journal is calling for a dramatic shift in how business is managed
- Most corporations are designed for the industrial age, and thus not well suited for today’s competition
- Change is happening more quickly, and organizations must become more agile
- CEOs today are concerned about dealing with rapid, chronic change – and obsolescence
- Resource deployment, from financial to people, must be tied more closely to market needs and not defending historical strengths
A FANTASTIC article in the Wall Street Journal entitled “The End of Management” by Alan Murray, If you have time, I encourage you to click the link and read the entire thing. Below are some insightful quotes from the article I hope you enjoy as much as I did:
- Corporations, whose leaders portray themselves as champions of the free
market, were in fact created to circumvent that market. They were an
answer to the challenge of organizing thousands of people in different
places and with different skills to perform large and complex tasks,
like building automobiles or providing nationwide telephone service.
- the managed corporation—an answer to the central problem of the industrial age.
- Corporations are bureaucracies and managers are bureaucrats. Their
fundamental tendency is toward self-perpetuation… They were designed and tasked, not with
reinforcing market forces, but with supplanting and even resisting the
market.
- it took radio 38 years and television 13 years to reach audiences of 50
million people, while it took the Internet only four years, the iPod
three years and Facebook two years to do the same.
- It’s no surprise that
fewer than 100 of the companies in the S&P 500 stock index were
around when that index started in 1957.
- When I asked members of The Wall Street Journal’s CEO Council… to name the most influential business book they had read,
many cited Clayton Christensen’s “The Innovator’s Dilemma.” That book
documents how market-leading companies have missed game-changing
transformations in industry after industry
- They allocated capital to the innovations that promised the largest
returns. And in the process, they missed disruptive innovations that
opened up new customers and markets for lower-margin, blockbuster
products.
- the ability of human beings on different continents and with vastly
different skills and interests to work together and coordinate complex
tasks has taken quantum leaps. Complicated enterprises, like maintaining
Wikipedia or building a Linux operating system, now can be accomplished
with little or no corporate management structure at all.
- the trends here are big and undeniable. Change is rapidly accelerating.
Transaction costs are rapidly diminishing. And as a result, everything
we learned in the last century about managing large corporations is in
need of a serious rethink. We have both a need [for]… a new science of
management, that can deal with the breakneck realities of 21st century
change.
- The new model will have to be more like the marketplace, and less like
corporations of the past. It will need to be flexible, agile, able to
quickly adjust to market developments, and ruthless in reallocating
resources to new opportunities.
- big companies… failed, not…
because they didn’t see the coming innovations, but because they failed
to adequately invest in those innovations. To avoid this problem, the
people who control large pools of capital need to act more like venture
capitalists, and less like corporate finance departments… make lots of bets, not just a few big ones, and… be willing
to cut their losses.
- have to push power and decision-making down the organization as much as
possible, rather than leave it concentrated at the top. Traditional
bureaucratic structures will have to be replaced with something more
like ad-hoc teams of peers, who come together to tackle individual
projects, and then disband
- New mechanisms will have to be created for harnessing the “wisdom of
crowds.” Feedback loops will need to be built that allow products and
services to constantly evolve in response to new information. Change,
innovation, adaptability, all have to become orders of the day.
Well said. Traditional management best practices were designed for the industrial age. For bringing people together to efficiently build planes, trains and automobiles. This is now the information age. Organizations must be more agile, more flexible, and tightly aligned with market needs – while eschewing focus on “core” capabilities.
Companies must understand Lock-in, and how to manage it. Instead of planning for yesterday to continue, we must develop future scenarios and prepare for different likely outcomes. We have to understand competitors, and how quickly they can move to rob us of sales and profits. We have to be willing to disrupt our patterns of behavior, and our markets, in order to drive for higher value creation. And we must understand that constantly creating and implementing White Space teams that are focused on new opportunities is a key to long-term success.
With an endorsement for change from nothing less than the stodgy Wall Street Journal, perhaps more leaders and managers will begin moving forward, implementing The Phoenix Principle, so they can recapture a growth agenda and rebuild profitability.
by Adam Hartung | Aug 30, 2010 | Current Affairs, In the Rapids, Innovation, Leadership, Web/Tech
Summary:
- We like to think we can compete effectively by waiting on others to show us the market direction
- You cannot make high rates of return with a “fast follower” strategy
- Companies that constantly take innovations to market grow longer, and make higher rates of return
- White Space allows you to learn, grow and be smart about when to get out while costs are low
“I want to be a fast follower. Let somebody else carry the cost of learning what the market wants and what solutions work. I plan to come in fast behind the leader and make more money by avoiding the investment.” Have you ever heard someone talk this way? It sounds so appealing. Only problem is – it very rarely works! Fast followers might gain share sometimes, but universally they have terrible margins. Their sales come at an enormous investment cost.
Those who enter new markets early actually gain a lot, for little cost. Take for example Amazon.com’s early entry into electronic publishing with Kindle. Entering early gave Amazon a huge advantage. Amazon may have appeared to be floundering, potentially “wasting” resources, but it was learning how the technology of e-Ink worked, how costs could be driven down and what users demanded in a solution. Every quarter Amazon was learning how to find new uses for the Kindle, making it more viable, finding new customers, encouraging repeat purchases and growing. Now Mediapost.com headlines “Review: New Kindle Kicks (Even Apple’s) B*tt.”
Now there are a raft of “fast followers” trying to catch the Kindle in the eReader market. But the Kindle is far lighter, easier to use, with greater functionality and available at one of the market’s lowest prices. While the cost of entry was low, Amazon learned immensely. That knowledge is not repeatable by companies trying to now play “catch up” without spending multiples of what Amazon spent. Amazon is so far in front of other eReaders that it’s competition is the vastly more sophisticated (and expensive) mobile devices from Apple (iPhone and iPad). By entering early, Amazon has lower cost, and considerably more/better market knowledge, than later entrants.
We see this very clearly in Microsoft’s smart phone approach. Microsoft got far behind in smart phones, losing over 2/3 its market share, as it focused on Windows 7 and Office 2010 the last 3 years while Resarch in Motion (RIM) Apple and Google pioneered the market. Now the 3 leaders have millions of units in the market, low price point establishment, and between them somewhere between 400,000 and 500,000 mobile apps available.
As reported in Mediapost.com “Microsoft Gets Serious with Windows 7 Phone” entering now is VERY expensive for Microsoft. Microsoft spent almost $1billion on Kin, which it dropped after only a few months because the product was seriously unable to compete. So now Microsoft is expecting to spend $500million on launch costs for a Windows 7 mobile operating system. But it faces a daunting challenge, what with 350,000 or so iPhone apps in existence, and Google giving Android away for free (as well as sporting some 100,000 apps itself).
The cost of entry, ignoring Microsoft’s technology development cost, to get the mindshare of developers for app development (so Windows 7 mobile doesn’t slip into the Palm or Blackberry problem of too few apps to be interesting) as well as minds of potential buyers will more likely cost well over $1B – just for communications!! Microsoft now has to take share away from the market leaders – a very expensive proposition! Like XBox marketing, these exorbitant marketing costs could well go on for several years. XBox has had only 1 quarter near break-even, all others showing massive losses. The same is almost guaranteed for the Windows 7 phone. And it’s entering so late that it may never, even with all that money being spent, catch the two leaders! Who are the new users that will come along, and what is Microsoft uniquely offering? It’s expensive to buy mind and market share.
Clearly Apple and Android entered the smart phone market at vastly lower cost, and have developed what are already profitable businesses. Microsoft will lose money, possibly for years, and may still fail – largely because it focused on its core products and chose to undertake a “fast follower” strategy in the high growth smart phone business.
We like to believe things that reinforce our behaviors. We like to think that tortoises can outrun hares. But that only happens when hares make foolish decisions. Rarely in business are the early entrants foolish. Most learn – a lot – at low cost. They figure out where the early customers are with unmet needs, and how to fulfill those needs. They learn how to identify ways to grow the business, manage costs and earn a profit. And they learn at a much lower cost than late followers. They capture mind and market share, and work hard to grow the business with new customers keeping them profitable and maintaining share.
We want to think that innovators bear a high risk. But it’s simply not true. Innovators take advantage of market learning to create revenues and profits at lower cost. Companies that keep White Space projects flourishing, entering new markets generating growth, earn higher rates of return longer than any other strategy. Just look at Cisco, Nike, Virgin, J&J and GE (until very recently). The smart money gets into the game early, developing a winning approach — or getting out before the costs get too high!
by Adam Hartung | Aug 26, 2010 | Defend & Extend, In the Whirlpool, Leadership, Lifecycle
Summary:
- Trends happen much faster than we expect
- Old solutions disappear much faster than we anticipate
- Early adopters are big winners, suppliers who expect markets to last longer are killed in end-stage price wars
- We can anticipate the failure of land line phones in just a few years (as declining demand makes infrastructure maintenance too costly)
- There are a lot of other changes coming very quickly, more quickly than many of us anticipate – putting those who are late to change at risk of survival
How long do you think you’ll keep a land-line based telephone? From the looks of things, it may be only another year or two. They may be as popular as an old-fashioned printing press in just 5 years.
Source: Silicon Alley Insider from BusinessInsider.com
As the chart shows, already about a third of Americans have discontinued their land lines. And, we can see the trend is accelerating. This doesn’t count people that have one, but have quit using it. From about half of a percent dropping their line each quarter early in 2007, by 2009 the trend had increased to 1.2 to 1.5 percent dropping their land lines quarterly. And that’s normal – trends accelerate – much faster than incumbent technology suppliers predict.
Mobile phones started out with limited use. They were big, and had short battery life. It was sketchy if transmission quality would be good enough to hear or talk. They were expensive to use, and had limited service areas. In the early days, only people who had a big need used them. It took a few years before adoption grew to where most people had one. But then, in the last 5 years, it has become clear that almost everyone has one. Even the old and elderly. And many people have two – one for personal and one for business.
When trends begin they are easy to discount. Early versions are less good than the current solution. Costs are high. But early adopters have a reason to pick up the new solution. There is some kind of unmet need that the solution fits. From that small base, the products improve. Most incumbent suppliers plot out a linear curve adoption curve, and expect dropping of the old solution to be some time way out in the future.
But improvements to the “fringe” solution come faster than incumbents – and even big users of incumbent technologies – expect. Adoption starts growing faster. Yet, the incumbent supplier will listen to big customers and expect people to keep their solutions for a long time as they gradually adopt the new:
- People will have an automobile, but they’ll hang onto the horse and buggy because roads are so poor
- He may buy a new copier, but he’ll keep the mimeo machine “just in case”
- Folks will get a phone, and email, but they’ll keep writing letters and thus need a postman daily
- People may buy refrigerators, but they’ll keep the icebox and want weekly ice delivery
- Readers will skim the web for news, but they’ll want to keep reading a daily newspaper
- PCs will be popular, but folks will hang onto that old typewriter “maybe to type envelopes or something”
- Installing spreadsheets on company PC’s will not eliminate the need for adding machines “for when we need the tape”
- Digital cameras will be convenient, but users will want the film camera for picture prints
- Installing a DVR will not eliminate the videocassette player because people “still may want to watch old tapes some day”
- People will keep their cassette players, and DVD players, even as they buy a new MP3 player because they will want to listen to the purchased collections
Actually, once someone adopts the new solution, they rapidly find no need for the old solution. It goes to the closet, and then the trash, quickly. And from a market perspective, once a third to a half the customers quit using a product it will disappear from use almost overnight. From that perspective, those who depend upon traditional land line phones have plenty to worry about. Because we’re near a third. And smart phones keep adding more capability every month – the iPhone now has almost 300,000 apps, and Android phones have over 100,000! It’s easy to see where the functionality, ease of use and ubiquitousness of mobile phones could make the old land line a waste of money within just 24 months!
So, what will happen to bill collectors and political phone ads (robocalls), when we quit using land lines? Along with the loss of land lines is the loss of the traditional phone book to find people. When will the cost of maintaining the poles and lines become so high, relative to the number of users, that we simply take them down to recycle the material? Lots of things change when growth begins to decline for land-lines, causing the decline to happen more quickly. And changing how we all get things done – as consumers and as businesses. Are you prepared?
The tendency is to think change will happen slowly. It doesn’t. When markets shift it happens quickly. Much more quickly than the entrenched competitor expects. The “experts” always say the demand for the old will last much longer than happens. He hopes to have a long life, clipping coupons, across a “maturing” market. Instead, demand falls rapidly and remaining competitors go into price wars trying to stay alive – hoping the market will some day return to the old way of doing things. Those who didn’t anticipate the shift rapidly run out of cash, and fail.
Are you ready for impending market shifts? How prepared are you for a world where
- We don’t print anything, because everyone has some kind of on-line digital document reader. Not just books and magazines, but user instructions, warranty info, etc.
- We don’t need cash because we can Paypal transact anything using our smartphone
- Doctors can monitor all your vital statistics real time, remotely, 24x7x365. Manufacturers can monitor use of their products 24x7x365
- So much retail is on-line that the amount of retail floor space declines 40%
- You can regrow a finger, or organ, if it is damaged
- Television and radio aren’t serially broadcast, you organize what you want when you want it. There are no “commercials” in content delivery
- The primary way of communicating with friends and colleagues is Facebook and Twitter – forget text except for only very private communications
