by Adam Hartung | Nov 20, 2009 | Current Affairs, General, Leadership, Lifecycle, Lock-in, Weblogs
"The Illusion of Brand Control" is a great article at Harvard Business Publishing. Andrew McAfee, who is a research scientist at the MIT Sloan school Center for Digital Business, offers the insight that in today's market it's not possible for a business to "control" its brand. "New media" like the internet and Facebook are bi-directional. People no longer just absorb a crafted message, they are able to push back. Bloggers and internet commenters can have more influence on a brand than traditional advertising and PR. As a result, a business's brand becomes the result of what others say about it – not just what the owner says.
And this mirrors what is happening across business today. As we've moved from the industrial to the information economy, success is no longer about amassing and controlling assets. Scale advantages have disappeared, with scale accessible to anyone who has a browser and a credit card. Where the business leader of 1965 likely felt success required controlling everything from employees and facilities to the brand message, in 2015 success is about adapting to rapidly shifting market requirements.
If you want your brand, and your business, to grow and be profitable, you have to realize the dramatic limits of "command and control." That approach works in very static, clearly defined environments. Like the military. Businesses today no longer operate in slow moving static environments with high levels of regulation and rigid business limits and significant entry barriers. Businesses today operate in complex, highly adaptive systems. Competitors can move fluidly, quickly, globally to offer new solutions and react to changes.
Today's leaders have to recognize that many of the most important impacts on their business (or brand) come from outside their organization. Completely out of management's control. Being Locked-in on what you know how to do has less and less value when you might well have to react very quickly to an external event in an entirely new way in order to maintain product position and growth. Just ask the leaders at Circuity City, who could not adapt quickly enough and saw their company fail. Adaptability to shifting market requirements becomes key to sustaining growth. Competitive advantage is not created by seeking entry barriers. Rather, competitive advantage now comes from understanding market shifts, and moving rapidly to position yourself in the right place – over and over and over.
Executives who feel like they have "control" of their business are under an illusion in 2009. And that has been demonstrated time and time again as this recession has driven home a plethora of market shifts. There are many things managers can control. But many of the most important things to success are completely out of management's hands. Thus, the ones who succeed aren't trying to control their brand, or business. Instead they are building organizations that have great market sensing and are quick to react. Just compare GM to Google and you'll see the gap between what worked in 1965, and what works 45 years later.
by Adam Hartung | Nov 19, 2009 | Current Affairs, General, Innovation, Leadership, Lifecycle, Lock-in
According to Marketing Daily "Electric Cars Set to Tiptoe Into Showrooms." Nissan is supposed to introduce the Leaf. Chevrolet, Toyota and Ford are all supposed to begin offering a plug-in hybrid. None have announced prices, but all indicate they intend to price them at the high end – more costly than a like-sized traditional gasoline powered automobile. One reason for the higher price is that dealers normally expect to make 20% of a traditional vehicle's price in high-margin maintenance and repairs, and because these electrics won't provide that revenue and margin the manufacturers believe the dealer has to make more on the initial auto sale – or they won't sell them.
The manufacturers themselves are not optimistic about sales. They are targeting wealthy early adopter consumers for whom climate change and environment are critical issues. Citing a lack of infrastructure for recharging, and battery technology that takes too long to recharge, the manufacturers are non-committal on how many cars they will make – preferring to wait and see if demand develops.
Sort of sounds like a self-fulfilling prophecy, doesn't it? This approach is very unlikely to succeed, because they manufacturers are trying to sell electric cars to people who are already well served by existing petroleum powered traditional and hybrid cars. These people have little or no reason to pay extra for new technology, so will be a hard sell. And with built-in excuses for the technological limits, the manufacturers aren't being promotional. Simultaneously, the manufacturers are more worried about the impact on dealers than the success of the vehicles.
It's not the product that's wrong, its the approach. These manufacturers are trying to launch a very different product, that really needs to appeal to very different customers. But they are trying to do it in the totally traditional way. Same brand names, same distribution, same sales people, same marketing, same financing – same everything. They are trying to have the existing organization, with all its Lock-ins, do something very different. And that never works.
Electric cars are ideal for White Space team introduction. White Space projects are given permission to do what it takes to make a project succeed. They are given permission to operate outside the Lock-ins. It's that permission to find the right answer, to find the market-based solution, which allows the innovation to develop a new Success Formula that meets market needs.
Electric cars are not a solution for the way automobiles have been used in the past. To succeed requires appealing to different scenarios about the future. Electric cars need to appeal to people for whom a traditional auto has limitations they don't like, and instead the electric auto is something they want. People who are underserved by the current products. The electric car will succeed with buyers who have reasons to want one. For whom the electric car is the solution to their problem – not a second-rate, overpriced solution to an old need.
Cell phones didn't succeed because they were purchased by people who already had wired phones with long distance. Early cell phones, for all their expense and weakness, were bought by people who had a real need for mobile telephony. For years, mobile phones were used only by a small group of people. It took years for cell phones to become commonplace. We all now know younger generation people who have no land line phone – for whom the mobile phone has displaced a traditional phone. But the cell phone didn't succeed by trying to be a high-priced alternative to the existing solution, it was a product that was desired by people for the advantages it offered – even when it was expensive, big and had limited range. Only over time did the cell phone evolve to a new Success Formula that is making traditional phones obsolete – and leaving traditional phone companies with a very hard transition.
Electric cars need an entirely "greenfield" start. Those responsible need to be chartered to "make this work" in an environment where failure is not an option for them. They need to believe their careers depend on finding the right solution, and developing it. And they need permission to do what the market requires. They need to be able to have a stand-alone brand, and its own distribution system, and unique marketing. They need the White Space with permission to do what it takes, and the resources to accomplish the task. Free from worrying about dealer reaction, marketing impact on traditional autos in the brand, or requirements to solve "infrastructure issues."
Imagine urbanites who want cars just for short hauls. Think about the ZipCar business in most major U.S. cities as the target buyer, rather than selling cars to individuals. Or think about other markets – outside the USA. How about places like Taiwan or Malaysia where distances are short and traffic is bad and much fuel is wasted just sitting. Towns like Tel Aviv. Maybe as delivery vehicles in urban areas where traveling is rarely more than 200 miles in a day because most time is spent sitting at lights – or making the delivery. There are places for which an electric car could be an ideal solution – just as they are today. Where a head-to-head match-up favors the electric vehicle.
Secondly, who says a traditional dealer is the right way to sell this vehicle to these people? Maybe it should be sold on-line, with somebody delivering the vehicle to the buyer and offering personalized instruction? Maybe it should be sold out of a Home Depot, or Staples, or Best Buy like an expensive appliance or computer? It's not clear to me that people, or companies, have much value for auto dealers – so perhaps this is the time to change the distribution system entirely — and perhaps take a lot of cost out of auto distribution.
There is a market for electric cars. Today. Just as the technology exists. And if White Space teams were allowed to find and develop that market, we could have a robust electric car industry in just a few years. But it won't happen via traditional approaches, from companies Locked-in to their traditional ways. Those companies only see obstacles, not opportunity. Without White Space, this will be just another example of a technology delayed.
But it does leave the door wide open for a company like Tesla. Tesla is a stand-alone company pioneering the electric car market. They are operating in White Space. Easy as Tesla is now to ignore, they may prove to be the upstart like Southwest Airlines that succeeds and makes money while the traditional industry players keep struggling.
by Adam Hartung | Nov 18, 2009 | Current Affairs, Defend & Extend, Leadership, Travel
Most Americans pay no attention at all to the value of the U.S. dollar. As an island nation, and largely an importer of goods, all most Americans care about is how much something costs at the store. Since the vast majority of Americans never set foot on foreign soil in any year, they just don’t think about how many Euros or Yen you get for a dollar.
But they should. We now live in a global economy. People in foreign countries have a direct impact on the lives of Americans every day. And they watch the value of the dollar constantly. Just look at outsourcing – the transfer of jobs offshore. Or the cost of products at Wal-Mart – mostly made in foreign countries (China) in foreign currency values. All scenarios of the future, all planning, has to include scenarios for the value of America’s currency. And that is true for all companies, in all countries, because the U.S. dollar is the primary basis for pricing everything in the world.
There’s a great chart showing the U.S. dollar value at FXStreet.com. This shows that in 2001 the dollar compared to other currencies was at a value of 120. Since then the value has plummeted to about 75 (there was a rally earlier in 2009, but almost all of that has been given up.) This means if you went to Paris on holiday in 2001 you could buy a Euro for $.75. So taking your own personal “National Lampoon’s European Vacation” was affordable. Now, a Euro costs you almost $1.50. So, it costs twice as much. With all that value loss happening prior to 2009 (during the previous administration and the previous stock market highs.)
So you don’t plan to go to Europe on vacation, you say. That’s a good thing, because you probably can’t afford it. But, as American homes go into foreclosure, who do you suppose is buying them? To foreigners, American houses are extremely cheap. In coastal areas of Florida, as many as half of all home sales are to foreigners – and upwards of 90% of those are cash transactions – no loan! While Americans struggle with mortgages, others are buying American houses as vacation spots.
One way to think about this is how many ounces of gold does it take to buy a house? Gold is a store of value, like a house. Its limited supply and abundant uses to allow it to remain a good measure of value. InvestmentTools.com has a great chart showing the value of U.S. houses. in 1985, as America was crauling out of the horrible 1982 recession it took about 280 ounces. In 2000, the value peaked at about 780 ounces – so by global standards, American houses had tripled in value. But today, the value has declined again to 280! So globally, we’re no more wealthy now than we were at the worst recession since the Great Depression – and value is falling as we’re still in a major recession.
If Americans have trouble paying their child’s college fund, that’s not the problem for students from offshore. Many are so relatively wealthy they now can buy condo’s for $200,000 or $300,000 to live in while attending schools. They relative wealth of their offshore parents means that there are dramatically more offshore students who find an American education affordable – while Americans are finding education increasingly unaffordable for their own citizens.
To someone from outside America, the country is on sale! Because everything in America costs half – or often far less than half because America has no excise or Value Added Taxes. So people from Europe, Asia and the middle east fly to New York to go shopping – and save enough to pay for the plane ticket! Some even fly to America to buy goods from their own country because the products are cheaper priced in dollars and without the taxes!
And actually, America is acting just like a business facing foreclosure. Debts have been mounting. Each year, America sells more assets in order to pay interest on the debt. In this bad economy, as income has declined, even more asset sales happen. States are selling highways to foreigners in order to get cash today in exchange for road tolls the next 100 years. Or in Chicago – the sale of all the parking meters. Those in other countries are buying fire-sale assets to give Americans the money just to pay the interest.
Meanwhile, the debt keeps rising. Each month sales of bonds exceeds redemptions. For those buying the bonds offshore, this is pretty amazing. If a bond yields 3% (or say even 5% of 6%) that value has been overwhelming wiped out by the decline in the principle value. Remember, the dollar value of those bonds has dropped by 50% just in this decade! There’s no way to recover that through interest collection.
So why do these offshore folks buy the American bonds? It’s kind of like townspeople buying bonds to prop up a local business. If the local plant goes bust, then the jobs go away. Then the restaurant has to close shop. Then the bank has to close because the plant can’t repay its loan. So the people keep buying plant bonds to keep it open – to forestall an imminent disaster. And because they hope that the plant will someday start making enough money to repay the bonds. That it will someday see employment rise, not fall. And the restaurateur, and the machine shop owner, and the car dealer all keep buying bonds to keep the plant going. The American central bank calls those folks who buy U.S. bonds the central banks of China and other countries.
How low will the dollar go? If people quit buying bonds, really low. Increasingly, those who produce commodities like oil and gas are asking to price commodities in something other than dollars. They don’t like seeing their prices halved due to currency devaluation. If businesses don’t have to trade in dollars, then they don’t need the dollar value to remain high – and they lose interest in buying bonds to prop it up.
American’s don’t pay attention to other currencies either. So most don’t remember the 1994 Mexican Peso crisis. Mexico had incurred a huge debt, and was selling more debt from the 1970s into the 1990s. The primary source of revenue had been oil and gas sales, but prices collapsed in the 1980s, and production failed to keep up with that from other countries. There was more spending than revenue collection. When the Mexican government stopped propping up the Peso, it dropped more than 50% in a week! Currency devaluations can happen fast, and can be devastating, because suddenly a flood of buyers become sellers – reversing position and cratering the value. To keep the government and economy from collapsing the U.S. central bank stepped in to buy bonds and stop further devaluation.
This blog is sure to not be one of the more popular. Because most Americans simply don’t care about the dollar’s value
– and even more don’t understand anything about currency values. Americans are so used to assuming that the dollar will be the world’s currency, and that it will be propped up by foreign debt buyers, that they simply expect the future to be like the past.
I’m not predicting the future value of the dollar. But what’s clear is that the dollar’s value is really important to the future of your business. Whether in America, or not. What kills businesses isn’t the things management knows and plan for, it’s what they don’t plan for. And most American business planners pay very little attention to the value of the dollar. But having a robust scenario around the future value of the dollar could prove to be the difference between many winners and losers in as quick as 12 to 24 months. There are plans that can leverage these shifts in ways to create enormous value.
Is your company, as it prepares budgets for 2010, prepared to deal with a dramatic shift – up or down – in the value of the U.S. dollar? Have you considered the impact, and developed contingency plans? Do you have White Space projects that will leverage currency shifts? If you’re planning from the past, you may well not be prepared for a very different future if the U.S. dollar’s value shifts dramatically. Especially if it continues falling.
by Adam Hartung | Nov 13, 2009 | Current Affairs, In the Swamp, Leadership, Lock-in
"Rupert Murdoch to remove News Corp's content from Google in months" is the London Telegraph headline. Claiming that Google gets a "free ride" on the newspaper content, the News Corp. Chairman claims he can block Google from referring his content – and that the conclusion will be bad for Google because it will hurt the search engine's ability to add value. He also expects that his newspaper and its website will do fine without Google, including doing fine without any Google-placed ads on the newspapers' web sites.
Really.
Ever heard the phrase "cutting off your nose to spite your face?" It means that you get so mad at something, or someone, that you take a stupid action just trying to get even. Given the gruffness of Mr. Murdoch, I mashed that phrase up into my own explanation of his threat – that he's trying to bite off his own nose.
There is no changing the shift to on-line news readership. People will never again return to reading print-format newspapers. Print demand will continue to decline. Simultaneously, nobody will revert to searching for news on their own – such as by browsing around any particular web site. Users now know they can find news with the aid of powerful search engines, like Google, that deliver them directly to the page that tells them what they want to know. And advertisers now know that they must use services like Google to deliver ads to the pages that present their most likely targets. Advertisers are not willing to accept "views" alone, now knowing that ads can be targeted to specific readers associated with specific page content. Those shifts have happened, and are now trends moving forward. No hoping for "the good old days" will change these shifts.
Google doesn't need the News Corp. newspaper output to succeed as a search engine nor News Corp's pages for its ad placement business. There is so much access to news, from press releases (source news) to bloggers to other newspapers that any individual news source is relatively irrelevant. And Google can place all of its advertisers' ads – whether News Corp. makes its pages available to Google or not.
Simply, News Corp. needs Google. Without Google page referrals, visitors will drop. Lower visitors means fewer ad views means lower revenue. No news organization can stand lower revenues. Simultaneously, News Corp. needs as many advertisers competing for its ad space as possible. To turn down any ad placement service will only hurt revenues further.
Mr. Murdoch said in the article "I don’t believe the media industry can continue to exist in this way." He's right. Media companies are going through a major market shift. But trying to walk away from the #1 search engine and #1 ad placement company is —– foolish. And Mr. Murdoch knows this – because News Corp. owns MySpace and other internet properties. Google may not need News Corp., but News Corp. definitely needs Google
by Adam Hartung | Nov 12, 2009 | Current Affairs, Defend & Extend, In the Rapids, In the Swamp, Innovation, Leadership, Openness, Television, Web/Tech
The Myth of Market Share by Richard Minitar is one of those little books, published in 2002 by Crown Business, that you probably never read – or even heard of (available on Amazon though). And that's too bad, because without spending too many words the author does a great job of describing the non-correlation between market share and returns. There are as many, or possibly more, companies with high profitability that don't lead in market share as ones that do. Even though the famous BCG Growth/Share matrix led many leaders to believe share was the key to business success. Another something that worked once (maybe) – but now doesn't.
"Moto Looks to Sell Set-Top Box Unit" is the Crain's Chicago Business headline. Motorola's television connection box business is #1 in market share. But even though Motorola paid $11B for it in 1999, they are hoping to get $4.5B today. That's a $6.5B loss (or 60%) in a decade. For a business that is the market share leader. Only, it's profitability + growth doesn't justify a higher price. Regardless of market share.
Kind of like Motorola's effort to be #1 in mobile handset market share by cutting RAZR prices. That didn't work out too well either. It almost bankrupted the company, and is causing Motorola to sell the set top box business to raise cash in its effort to spin out the unprofitable handset business.
On the other hand, there's Apple. Apple isn't #1 in PCs – by a long shot. It has about a 14% share I think. Nor is it #1 in mobile handhelds, where it has about a 2.5% market share. But Apple is more profitable than the market leaders in both markets. Today, Apple's value is almost as high as Microsoft – historically considered the undisputed king of technology companies.
Chart source Silicon Alley Insider 11/12/09
While Microsoft has been trying to Defend & Extend it's Windows franchise, its value has declined this decade. Quite the contrary for Apple.
Additionally, Apple has piled up a remarkable cash hoard with it's meager market shares in 2 of 3 businesses (Apple is #1 in digital music downloads – although not #1 in portable MP3 players).
Chart Source Silicon Alley Insider 11/11/09
"While Rivals Jockey for Market Share Apple Bathes in Profits" is the SeekingAlpha.com headline. Nokia has 35% share of the mobil handheld market. It earned $1.1B in the third quarter. With its 2.5% share Apple made $1.6B profit on the iPhone. While everyone in the PC business is busy cutting costs, Apple has innovated the Mac and its other products – proving that if you make products that customers want they will buy them and allow you to make money. While competitors behave like they can cost cut themselves to success, Apple proves the opposite is true. Innovation linked to meeting customer needs is worth a lot more money.
Bob Sutton, Stanford management professor, blogs on Work Matters "Leading Innovation: 21 Things that Great Bosses Say and Do." All are about looking to the future, listening to the market, using disruptions to keep your organization open, and giving people permission and resources to open and manage White Space projects.
If your solution to this recession is to cut costs and wait for the market to return – good luck. If you are trying to figure out how you can Defend & Extend your core – good luck. If you think size and/or market share is going to protect you – check out how well that worked for GM, Chrysler, Lehman Brothers and Circuit City. If you want to improve your business follow Apple's lead by developing thorough scenario plans you can use to understand competitors inside out, then Disrupt your old notions and use White Space to launch new products and services that meet emerging needs.
by Adam Hartung | Nov 9, 2009 | Current Affairs, Defend & Extend, General, In the Swamp, Innovation, Leadership, Lock-in
Leadership
Why The Pursuit Of Innovation Usually Fails
Adam Hartung,
11.09.09, 04:11 PM EST
It's not what we're trained for as leaders or how our businesses are set up to work.
Forbes published today "Why the Pursuit of Innovation Usually Fails." "Most companies everywhere are struggling to grow right now. With their
revenues flat to down, they're cutting costs to raise profits. But
cutting costs faster than revenues decline is no prescription for
long-term success….."
The article goes on to discuss how from Gary Hamel to Jim Collins to Michael Tracy and Fred Wiersema to Malcolm Gladwell to Tom Peters — managers have been taught to identify their "core" and "focus" upon it. Whatever that core may happen to be, the gurus have said that all you need to do is focus on it and practice and in the end – you'll win.
But unfortunately we all know a lot of very hard working business leaders that focused on their core, working the midnight hours, sacrificed pay and bonuses, and kept trying to make that core successful — only to end up with a smaller, less profitable, possibly acquired (at a low price) or failed business. While the best practices make sense when looking at past winners, reality is that they were followed by a lot of people that didn't succeed. Their best practices give no great insight to being successful. They are of no more value than saying "treat people well, be honest, don't lie to customers, don't break the law, don't get caught if you do, show up at work." Nice things to do, but they don't really tell you anything about how to succeed.
The mantra today is for innovation, but thirty years of these "best practices" now stand as a roadblocks to doing anything more than defend & extend the current business. Only by understanding the objective to defend & extend what already exists can you explain how can one of the world's largest consumer product companies can call Tide Basic an innovation.
Enjoy the read, and please comment!
by Adam Hartung | Nov 5, 2009 | Current Affairs, Disruptions, In the Rapids, Innovation, Leadership, Music, Web/Tech
$150billion. That's a lot of money. And that's how much shareholder value has increased at Apple since Steve Jobs returned as CEO. Can you think of any other CEO that has aided shareholder wealth so much? Do any of the cost cutting CEOs in manufacturing companies, financial services firms, or media companies see their share prices rising like Apple's?
Fortune has declared this "The Decade of Steve" in its latest publication at Money.CNN.com. Such over-the-top statements are by nature intended to sell magazines (or draw page hits). But the writer makes the valid point that very few leaders impact their industry like Apple has the computer industry, under Jobs leadership (but not under other leaders.) Yet, under his leadership Apple has also had a dramatic impact on the restructuring of two other industries – music and mobile phones/computing. And a company Mr. Jobs founded, Pixar, had a major impact on restructuring the movie business (Pixar was sold to Disney, and has played a significant role in the value increase of that company.) So with Mr. Jobs as leader, no less than 4 industries have been dramatically changed – and huge value created for shareholders.
No cost-cutting CEO, no "focus on the core" CEO, no "execution" CEO can claim to have made the kind of industry changes that have occurred through businesses led by Steve Jobs. And none of those CEO profiles can say they have created the shareholder value Mr. Jobs has created. Not even Bill Gates or Steve Ballmer can claim to have added any value this decade – as Microsoft's value is now less than it was when the millenia turned. Despite the relative size difference between the market for PCs and Macs (about 10 to 1) today Apple has more cash and marketable securities than the entire value of the historically supply-chain driven Dell Corporation.
Mr. Jobs is constantly pushing his organization to focus on the future, about what the markets will want, rather than the past and what the company has made. It was a decade ago that Apple created its "digital lifestyle" scenario of the future, which opened Apple's organization to being much more than Macs. Jobs obsesses about competitors and forces his employees to do the same, to make sure Apple doesn't grow complacent he pushes all products to have leading edge components. Mr. Jobs embraces Disruption, doesn't fear seeing it in his company, doesn't mind it amongst his people, and works to create it in his markets. And he makes sure Apple constantly keeps White Space projects open and working to see what works with customers – testing and trying new things all the time in the marketplace.
Following these practices, Apple pulled itself away from the Whirlpool and returned to the Rapids of Growth. Almost bankrupt, it wasn't financial re-engineering that saved Apple it was launching new products that met emerging needs. Apple showed any company can turn itself around if it follows the right steps.
As companies are struggling with value, people should look to Apple (and Google). Value is not created by cost cutting and waiting for the recession to end. Value is created by seeking innovations and creating an organization that can implement them. Especially Disruptive ones. Whether he's the CEO of the decade or not I can't answer. But saying he's one heck of a good role model for what leaders should be doing to create value in their companies is undoubtfully true.
by Adam Hartung | Nov 4, 2009 | Current Affairs, Defend & Extend, Disruptions, Food and Drink, General, In the Swamp, Leadership
Walgreens is apparently going through a dramatic change in leadership. Drug Store News reported that the top 2 folks, including the top merchandiser, have left Walgreens in "." The article discusses the "old guard" departure and arrival of younger, new leaders. The magazine clearly paints this as a Disruption.
But I have my doubts. There's no discussion of future scenarios in which Walgreens is going to be a different company – not even a different retailer. There's no discussion about competitors, and how more prescription medications are being purchased on-line from new competiors, or even how Walgreens intends to be very different from historical brick-and-mortar competitors like CVS or Rite-Aid. No discussion about how the company might need to change its real estate strategy (being everywhere.)
There's really no discussion about changing the Walgreens' Success Formula. It's Identity has long been tied to being first and foremost a "drug store" (or pharmacy). A market which has been attacked on multiple fronts, from grocers and discounters like WalMart entering the business to the insurance mandates of buying drugs on-line. To be the biggest, Walgreens' strategy for several years has been tied to opening new stories practically every day. It was shear real estate domination – ala Starbucks. Although it's unclear how profitable many of those stores have been. Tactically Walgreens has moved heavily into cosmetics as a high turn and margin business, then items it an bring in and churn out very quickly – such as holiday material (Halloween, Thanksgiving, Christmas, Valentines Day, St. Patrick's Day, etc.), shirts, sweatshirts, on and on – stuff brought in then sold fast, even if it had to be discounted quickly to get it out the door. Churn the product because the goal is to sell the customer something else when they come in for that prescription.
There is no discussion of these executive changes creating in White Space to develop a new Walgreens. Without powerful scenarios drawing people to a new, different future Walgreens – and without a strong sense of how Walgreens intends to trap competitors in Lock-in while leveraging new fringe ideas to grow – and without White Space being installed to develop a new Success Formula to make Walgreens into something different —– this isn't a Disruption. It's a disturbance. Yes, it's a big deal, but it's unlikely to change the results.
Reinforcing that this is likely a disturbance the article talks about how the company is starting to obsess about store performance – down to targeting every 3 foot section for better turns and profits. The new leaders plan to work harder on supply chain issues, and store plannograms, to increase turns. They intend to put more energy into prioritization and reworking promotions. In other words, they want to execute better – more, better, faster, cheaper. And that's not a Disruption. It's just a disturbance. This may make folks feel better, and sound alluring, but experience has shown that this is not a route to higher growth or higher sustained profitability.
I don't expect these management changes to remake Walgreens. Walgreens has been a pretty good retailer. The Success Formula worked well until competitors changed the face of demand, and market shifts wiped out access to very low cost capital for building new stores. The Success Formula's results have fallen because the market shifted. Refocusing energy on being a better merchandiser won't have a big impact on growth at Walgreens. The company needs to rethink the future, so it can figure out what it needs to become in order to keep growing!
Real Disruptions attack the status quo. They don't focus on better execution. They attack things like "we're a pharmacy" by perhaps licensing out the pharmacy in every store to the pharmacist and changing the store managers. Or by selling a bunch of stores to eliminate the focus on real estate. Or by promoting the Walgreens on-line drug service in every store, while cutting back the on-hand pharmacy products. Those sorts of things are Disruptions, because they signal a change in the Success Formula. Coupled with competitive insight and White Space that has permission to define a new future and resources to develop one, Disruptions can help a stalled company get back to growing again.
But that hasn't happened yet at Walgreens. So expect a small improvement in operating results, and some financial engineering to quickly make new management look better. But little real performance improvement, and sustainable growth, will not occur. Nor will a sustained higher equity value.
by Adam Hartung | Nov 3, 2009 | Current Affairs, Defend & Extend, General, Leadership, Lifecycle
"TribCo Papers Will Try Ditching AP to Cut Costs" is the Crain's Chicago Business headline. Tribune is in bankruptcy because it is losing so much money trying to sell newspaper ads. Subscribers are disappearing as more people get more news from the internet, so advertisers are following them. So what should Tribune Corporation do? You might think the company would focus on other businesses in order to go where customers are headed.
But instead Tribune has decided to stop buying AP content for it's newspapers in a one week test. Not sure what they are testing, as one week rarely changes a subscriber base. What they know is that AP content has a cost, and Tribune is so broke it can't afford that cost. Seems Tribune is redefining its business – to selling papers rather than newspapers. They've dropped much of their content the last 2 years, so now they are going to drop the news as well. This is an example of trying as hard as they can to keep the old business alive, even after it's clear that Success Formula simply won't make money. In this case, we're seeing management ready to throw the baby out with the bathwater trying to keep a hold on the tub.
Interestingly "Vivek Shah Leaving Time Inc. to Go 100% Digital" is the MediaPost.com headline. Mr. Shah headed the digital part of Time, and he's decided to throw in the towel personally, promising that he is going to a 100% digital operation. He's tired of guys who think ink trying to manage bits – and doing it poorly. So another option for dealing with market shifts is to Disrupt your personal Success Formula by going to an employer positioned in growing markets. Not a bad idea if you can arrange it – even though there are lots of risks to changing employers. While the risk of change may seem great, the probability of ending up unemployed because your company fails is a very likely risk if you work for a traditional publisher these days. We often are afraid to go to the next thing because we hope that things will get better where we are. Even when we're standing on a the edge of an active volcano.
"P&G Considers Booting Some Brands" as headlined in the Wall Street Journal is yet another alternative. This one is more like GE used in the past where it sold underperforming businesses in order to invest in new ones. This has a lot of merit, and really makes a lot of sense for P&G. P&G is desperately short of any real innovation, and has been going downmarket to poorer products at lower prices in its effort to maintain revenues. A strategy that cannot withstand the onslaught of time and competitors with new products and better solutions.
I don't know if the new CEO is really serious about changing the P&G Success Formula or not. He hasn't demonstrated that he has any future scenarios for a different sort of P&G. Nor has he talked a lot about competitors and how he hopes to remain in front of companies with new solutions. Nor has he offered to Disrupt P&G's very staid organization or its very old Success Formula – which is suffering from lower returns as ad spending has less impact and younger people show less interest in old brands. So there's a lot of reason to think his buy and sell approach to shifting with markets may not really happen.
What's most important to watch are P&G's business sales. Any big company can make acquisitions to create artificial growth. That's easy. But it doesn't signal any sort of change in the company. What does signal are the kinds of businesses sold. McDonald's sold Chipotle's to invest in more McDonald's stores – that's defend & extend. Kraft sold Altoids and other growth businesses to invest in advertising for Velveeta and "core brands" – that's defend & extend. If P&G sells growth businesses – theres' little to like about P&G. But if the company sells old brands that have big revenues and little growth – like GE has done many times – then you have something to pay attention to. Selling off the "underperformers" that some hedge fund wants (like the guys that bought Chrysler from Daimler) so you get the money to invest in growth businesses can be very exciting.
When markets shift you have to go where the customers are headed. If your employer won't go there, you should consider changing employers. It's not about loyalty, it's about surviving by being where customers are. But what's best is if you can convert your business to one that is oriented on growth. Shake up the old Success Formula by attacking Lock-ins and setting up White Space and you'll remain a company where people want to work – and customers want to buy.
by Adam Hartung | Nov 1, 2009 | Current Affairs, Defend & Extend, Leadership
Jim Collins has decided to start telling people how to manage innovation. In "How Might We Emphasize Cost Effective Evaluation Tools" at the Good.is Blog Collins lays out his prescription for managing innovation. And it's pure Collins, because he's a lot more interested in focus than results. In fact, he is more concerned that before attempting innovation companies put in place a review process to rapidly cut off funds for innovations that go awry than figuring out how to behave differently.
Jim Collins has decided to tell people how to innovate. Only his first recommendations don't sound anything like the road to innovation. His five rules are timely, efficient, focused, sharable and actionable. There's no mention of getting market input, or figuring out how to behave differently. In Collins' world if you are efficient, mindful of the clock, focused and committed to extending your past Success Formula he's sure profits will evolve.
His passion for evaluation is paramount. He loves to talk about being efficient in innovation, prototyping toward some goal that is pre-set. Being "efficient" about the exercise drives his discussion – as if markets are efficient, or understanding how to make money in a shifted future marketplace is an efficient process. And he is obsessed with being vigilant. Collins is fearful that people will waste money on their innovation exercises. Efficiency, ala Taylor and scientific management, is a dogma Collins cannot escape. He wants his followers to be efficient, pre-planned, and obsessed about making sure money is not wasted from this escapade into innovation.
Jim Collins' prescription for success is one of the biggest snake oil
sales in business history. His book sales, and speaker fees,
demonstrate what a big PR budget from an aggressive publisher can
accomplish with content that sounds like "common sense." Jim Collins'
"great" companies are anything but. Just run the list and you'll find
he loved companies like Circuit City, Fannie Mae, Wells Fargo and
Phillip Morris. Companies that failed at innovation and ended up
smaller and less profitable (or gone completely.)
Today's economy has shifted. While Collins and Hamel spent years looking backward to see what worked in the 1970s, 80s and 90s those analyses are of no value today. We aren't in an industrial economy any longer where building economies of scale or entry barriers works. Being good at something is the mantra Collins lives upon, but when the market can shift in months, weeks or days to something entirely different being good at something that's obsolete does not create high rates of return.
Collins is so afraid that companies will over-invest in something new he would rather kill an innovation than possibly spend too much. His obsession with efficiency indicates an approach that is bankrupt intellectually, and has demonstrated it cannot produce better returns. It sounds so good to be very focused, to be fearful of pouring good money after bad. But reality is that businesses regularly accomplish just that – making bad investments – by trying to defend & extend a business that is no longer competitive.
Only participating in changing markets creates high returns. No business, not even huge companies like GM, Chrysler or Sun Microsystems, can "direct" a market. There are no entry barriers in a globally connected digital economy. If companies aren't willing to abandon their BHAGs (Big Hairy Audacious Goals) in favor of creating new solutions they simply are made obsolete. Nobody's "hedgehog concept" will save them when the market shifts and previous sources of value are simply no longer valuable (just ask newspaper publishers, who never imagined that customers would move so fast to the web instead of waiting for their daily paper.)
Almost 100 years ago a little known economist named Schumpeter said that value was created by introducing new solutions. His work demonstrated that pursuing optimization led to lower rates of return, not higher. As a result, he concluded that those who are flexible to market shifts – bringing new solutions to market rapidly – end up the big winners. As we look at companies today, comparing Google, Apple, Cisco and Nike to GM, Kraft, Sara Lee and AT&T we can see that Schumpeter had it right.
The gurus of business management helped us all realize how you could make improvements via optimization. Peters told us to seek out excellence, Hamel and Prahalad encouraged us to understand our core capabilities and leverage them. Collins drummed into us that we should focus. And most recently, a New Yorker editor with no business training or experience at all, Malcolm Gladwell, has admonished us to practice, practice, practice. Yet, when we really look at performance we see that these practices make organizations more brittle, and subject to competitive attacks from those who would change the markets.
We know today that innovation leads to higher rates of return than optimization of old strategies. But few recognize that innovation must be tied to market inputs. We build organizations that are designed to execute what we did last year – not move toward what is needed next year. This can be changed. But first, we have to eliminate the innovation killers — and that includes Jim Collins.
