by Adam Hartung | Jan 16, 2009 | Current Affairs, Defend & Extend, Disruptions, General, Leadership, Lock-in, Web/Tech
Sprint's prepaid mobile unit, Boost Mobile, announced today a new pricing plan. Customers can get nationwide unlimited calling, text and web access – with no roaming charges. The company President said "This plan is designed to be disruptive." (read article here)
That's a poor choice of words. All this new plan does is lower price. And the predominant reaction is that this may spur a deepening price war. There's nothing new being offered. Just a lower price. Offering more at a lower price isn't disruptive. It might challenge competitors to match that price, and hurt profits, but it isn't disruptive. It doesn't offer a new technology curve that can provide better service at lower pricing long term, it's just another step along a price discount curve.
This change might be very good for consumers. But it's not as good as a really Disruptive action. For example, cell phones were disruptive because they offered a service never before available – mobile telephoning – and offered an entirely new cost curve. In the beginning they were more expensive, so limited only to those who really needed the service. But as time went along and volume increased it became possible for wireless telephony to eclipse old fashioned land-line service. In many emerging countries wireless is the phone service – just as it is for many younger people who have no land line service in their homes relying entirely on mobile phones.
If the CEO at Sprint Mobile wants to be Disruptive he has to come up with a new solution that creates the opportunity for entirely new users who are under- or even unserved. Perhaps telephony that is free because it's linked to a simple radio. Or perhaps a telephone that can translate languages for international use. Or perhaps a phone that can scan documents and send as emails in popular applications like MSWord. Or maybe phones that offer free netmeeting services with document transport and manipulation operating simultaneously with voice service. Or these might just be new features down the road for existing phones – and not even disruptive themselves.
Disruptive innovations are not just price discounts or changes in pricing structures. They bring in new customers and offer the opportunity for dramatically lower pricing because of a different technology or solution format. And they require White Space to develop new customers that can effectively use the new technology and prove its value.
Therefore, we can expect competitors to quickly match the new pricing offered at Boost Mobile. And profits to be curbed.
by Adam Hartung | Jan 15, 2009 | Current Affairs, Defend & Extend, General, Leadership
It was only 2003 when Ed Zander joined Motorola as its new CEO. In the midst of lost market share and declining revenue, analysts were calling for massive layoffs. But, Mr. Zander layed off no one. Instead, he eliminated the executive dining room, focused all executives on customers (even staff positions) and emphasized new product releases. It wasn't long before Motorola spit out the RAZR, a product tied up in product release, and a revitalized Motorola started growing again.
The easiest thing Mr. Zander could have done was increase the already extensive layoffs. Analysts and investors were all calling for more reductions. Instead, he Disrupted long-held lock-ins at Motorola that kept products from making it to market. And Mr. Zander was rapidly named "CEO of the Year." Yes, the RAZR predated him, and he was not a new product genius. But he did unleash new products on the marketplace that created new growth and pushed Motorola back into the forefront of wireless competitors. And his push for White Space created joint product development projects with Apple, and new design centers from Brazil to Bangalore.
Unfortunately, Mr. Zander did not stick to his Diruption and White Space programs. When an outsider bought up company stock and attacked Motorola for continuing its investment in new products, Mr. Zander was cowed. He retrenched. And quickly – very quickly – Motorola found itself without exciting new product introductions. The RAZR was not replaced with additional new products. And innovations remained stuck in R&D and product development instead of making it to market. As the old joint project with Apple allowed the iPhone to hit the market, Mr. Zander found results down and himself on the market as well.
Now, Motorola is cutting heads again. Despite decades of leadership in product development in markets from two-way land mobile radios (like police radios) to television DVR boxes to mobile infrastructure towers to mobile handlhelds you would now think there are no longer any new ideas coming out of Schaumburg, IL. The replacement leadership is taking the easy road. After laying off some 3,000 employees recently Motorola has announced it intends to lay off 4,000 more (read article here). You would think there are no new product ideas at Motorola, as company leadership does what's easy — cutting costs with layoffs. Introducing new products, especially now that Apple has lost its iconic leader Steve Jobs, might produce better results. But since analysts expect layoffs, why not simply do what's easy?
Similarly, Google has announced it is laying off 100 workers (read article here). Google is the fastest growing large company in America; and possibly on the globe. Google has continued hiring new workers, expanding into cell phones and other new markets as competitors have made highly qualified employees readily available. But The Wall Street Journal has been calling for Google to stop hiring and launching new products, pointing out the economy is in a recession. Like Google is un-American for trying to continue growing when other companies are stalled. How dare they!
So now Google is laying off some of its recruiters. On the surface, it would be easy to say this is immaterial. 100 is only .5% of the 20,000+ Google employees. But why is Google doing this? Does it simply feel it must? Does it feeled compelled to lay off workers just because it can? Or because other large companies are doing so? Is this "hey, as the new kid on the block maybe we're missing something and need to play follow-the-leader"? It makes little sense why Google would want to jeapardize its future when it has an incredible opportunity to continue muscle-building its organization with some of the best and brightest folks available – only because old employers (like Motorola) aren't smart enough to take advantage of the talent.
Growth is necessary for all profit-making companies. Without growth, the business stalls and really bad things happen. When competitors start to retrench, it opens opportunities for successful companies to push forward with new growth projects. As long as the population grows, demand for products and services grows as well. Even in recessions, successful businesses grow. Layoffs are never a good thing for any company. Layoffs indicate you can't grow, and if you can't grow you simply aren't worth much. Why should you have a P/E (price/earnings multiple) of 45, or 30, or 20, or 15, or even 8 if you can't grow?
It's incredily easy to lay people off. In America, there are precious few laws preventing it. And almost no longer is there any social stigma. If you have a bad quarter, or even just a bad product launch, you can lay-off some people claiming its for the good of the business. Leaders regularly hide their bad decisions behind layoffs claiming "market conditions" are to blame for weak results. But what investors, employees, vendors and customers want from leaders isn't layoffs. They want new products, new services, new markets, new innovations that spur increased demand from added value. They want growth. Growth may not be easy, but it's necessary.
Instead of laying off 100 workers, why isn't Google deploying them into new business opportunities? Are there simply no new growth areas that could use the talent of these people Google hired out of the thousands of applicants that sought these jobs? And the same is true at Motorola. The new mobile devices CEO was hired from Qualcomm at millions of dollars expense – why isn't he putting all these engineers and product development experts to work? Why isn't he launching new products that increase the capabilities of wireless services so consumers do more calling, texting, emailing and application sharing? The easiest thing he can do is fire 3,000, 4,000 or 7,000 employees. Anyone can do that. But is it going to help Motorola grow? If not, why isn't he doing what will take the company to better competitiveness and an improved market position versus competitors? Is he simply doing what's easy, instead of what's necessary?
by Adam Hartung | Jan 14, 2009 | Defend & Extend, General, In the Swamp, In the Whirlpool, Leadership
Yesterday Yahoo! announced it was replacing its old CEO with Carol Bartz, former CEO at Autodesk. Interestingly, most analysts aren't very excited – because they don't think Ms. Bartz brings the right experience to the challenge (read article on analyst reaction here.) The complaint is that Ms. Bartz is not steeped in consumer goods or advertising experience, so she's not the right person for the significant challenges facing Yahoo!
Yahoo! does not need "more of the same." Yahoo! needs to adapt to the technology requirements necessary to succeed in on-line ad placement. Google is way, way out front in internet advertising sales, and there's not a single executive at Google with experience in ad sales or consumer goods! Google has changed the game in advertising largely because it has not been Locked-in to old notions about advertising, and has instead created new competitive approaches leaving old players in the dust. And largely because its executives have eschewed historical advertising lore in favor of creating new solutions.
Yahoo! doesn't need someone with advertising experience. Yahoo! needs someone that will Disrupt the organization and change its Success Formula. And for this, Ms. Bartz may well be exactly the right person. While she led Autocad the company which changed the world of CAD/CAM (Computer-aided-design/computer-aided-manufacturing software), and in the process brought down a large GE division (Calma) and in the end crippled DEC (Digital Equipment Corp.) which was extremely dependent on CAD/CAM workstation sales. Autocad was supposedly a "toy" running on cheap PCs, but it became the software used by many engineers that was a fraction of competitor's cost and operated on machines a fraction of those needed to run competitor software.
In the process, Ms. Bartz became known as "one tough cookie." A CEO who understood that competitors gave nothing easily, and it takes a very tough smaller competitor to unseat market leaders. Year after year she led a company that brought forward new products which challenged competitors – all better financed, with larger market share and long lists of large, successful customers. And after 15 years or so Autocad emerged as the premier competitor. Isn't that the experience most needed by Yahoo!?
Meanwhile, one of the old leaders in ad sales – Chicago Tribune – is now changing its format from broadsheet to tabloid (read article here). For those not steeped in newspapers, broadsheets (like Wall Street Journal or USAToday) have long been considered "quality" journals, while tabloid format (like a magazine) has been considered a lower quality product. Although this switch is a cost saver, and any implication on journalistic quality is largely symbolic, the reality is that Tribune Corporation has slashed its journalistic staff in Chicago, L.A. (L.A. Times) and other markets to a shadow ghost of the past. In just a few years, a leading news organization has become almost irrelevant – and left two of America's largest cities with far too little journalistic oversight. Now it's trying to save itself into success (read article here).
Yahoo! is changing its CEO, and appears to be putting in place someone ready to Disrupt and install White Space. Tribune Corporation has slashed cost, slashed cost, slashed cost, increased its debt, and turned itself into a shell of what it used to be. Now the company is taking actions to lower paper cost – in an effort to again save a few more pennies. After watching its local classified advertisers go to CraigsList.com, and its display ad customers go to Google, its new leader, Sam Zell, remains unwilling to Disrupt and invest in White Space to become an effective internet news organization. Today even HuffingtonPost.com is able to offer more news on more topics faster than any news properties at Tribune Corporation to an avid internet news readership.
Following the Tribune lead, Gannett – publisher of USAToday – has announced it intends to force everyone in the company to work for one week for no pay (read article here). Apparently not even color pictures and feel-good journalism can attract advertisers. Probably because not even hotel guests care any more about getting a newspaper. Not when they log on to the wireless internet upon awakening to check e-mail and news alerts before they even open the room door to go to breakfast. Gannett will have no more success trying to save its business by forcing employees to work for free than Tribune has had with its cost cuts. Ignoring market shifts is not successfully met by trying to do more of the same cheaper.
What Gannett, Tribune Corporation and other news organizations need is their own Carol Bartz. Someone who may not be steeped in all the tradition and experience of the industry – but knows how to Disrupt the status quo and use White Space to launch new products and move toward products customers want.
by Adam Hartung | Jan 13, 2009 | Defend & Extend, In the Swamp, Leadership, Lock-in
Today one of the world's leading pharmaceutical companies announced it was cutting R&D staff (read article here). This is a very big deal because pharmaceutical companies rely on new drugs (new innovations) to extend their Success Formulas. American drug companies rely on big R&D investments, followed by big FDA approval investments. These big investments are seen as "entry barriers" that smaller companies cannot overcome, and thus provide high profits to the big drug companies. That's the core of their Success Formulas – which have been huge profit producers for more than 4 decades.
So what does it say when Pfizer lays off R&D workers? Clearly, there's less faith in the company developing the new products which will pay off. Thus, the old "entry barrier" is clearly not as valuable as it once was. But do you think we're on the brink of no new medical solutions?
Hardly. Today, genetic drug programs and other solutions are being developed and evaluated at greater numbers than ever. Only, you don't need a multi-billion dollar R&D center to develop these solutions. With the explosive knowledge expansion in bio-engineering and nano-technology breakthroughs are happening in universities, university spin-offs and start-ups of former pharmaceutical engineers. The old approach to disease treatment is reaching diminishing returns, while new approaches (namely genetic drug therapies and mechanical approaches such as nano-tech) are making rapid progress. The old "S" curve is nearing its peak, while the emerging "S" curve – that started in the 1980s with Genentech – is coming of age and entering the fast upward slope of the new "S" curve.
But unfortunately, Pfizer, Merck, Bristol Meyers and most other historical drug companies have missed this shift. They kept investing in the "traditional" (substitite "old") approach even as new approaches showed growing promise. They kept hiring M.D.s, pharmaceutical Ph.Ds, chemists and biologists. Meanwhile, bio-engineers and nano-engineers were making faster progress with new approaches. Of course initially regulators were skeptical of these new approaches, forcing additional testing — and reinforcing sustaining the old Success Formulas in the traditional "drug" companies. But it was clear to those on the leading edge of medicine that these new approaches were offering all new baselines for improvement, and possibly cures.
Now, Pfizer is (and its dominant competitors, to be sure) are in a tough spot. They hung on to the old Success Formula a really, really long time. In fact, almost 3 decades after alternative solutions began showing promise. Each year, the drugs they had protected by patents (thus proprietary) were coming closer to commercial replication and lower profitability. But each year, they redoubled their efforts in the traditional approach. Now, debt is hard to come by – and traditional solutions are even harder. But they are woefully short on the ability to offer solutions using the latest and greatest technology.
Unlike most companies, drug companies make most of their money from patented products. That means they make huge profits while there is no competition – but see dramatic (80%+) price erosion within days of losing patent protection. Thus, more than most companies, they can literally "peer over the edge" into the abyss of decline.
Pfizer just admitted it is a boat on the upper Niagra, in Canada, looking over the falls. It stayed way too long on its leisurely approach, and did noy prepare itself for the next step. On the other side are aggressive new competitors with new technology, new solutions and vastly superior results. But Pfizer has not prepared to be part of that new marketplace. So they are cutting specialized scientists in an effort to cut costs and protect profits. A bit like throwing the elderly overboard as you see your boat approaching the falls in an effort to slow your approach to the brink.
To survive long-term busineses have to evolve to new technologies. They have to overcome their dedication to old technologies and solutions in order to invest in new approaches. The have to invest in White Space which brings these new answers to the forefront, and attracts the traditionalists to move into the new market space. But unfortunately Pfizer has delayed these investments far too long. Cost cutting cannot save a Pfizer (or Merck, Bristol-Meyers, or Ely Lilly, etc.). When technology shifts, like it did from typewriters to PCs, the move happens fast and the fortunes of major players can shift dramatically (anyone remember Smith Corolla?). Pfizer is admitting it's unlikely to make the technology shift, and investors better pay close attention to the other industry leaders.
There's a new cowboy in town, he's showing he's one heck of a good shot, and it's time to pay close attention. The old sheriff may be closer to unemployment than he thinks.
by Adam Hartung | Jan 11, 2009 | Current Affairs, Defend & Extend, In the Swamp, Leadership, Lifecycle
Do you remember when Jim Cramer of Mad Money fame told his viewers to buy Sears Holdings because "his good friend" Ed Lampert, hedge fund manager, was going to make them all rich? That was in back in 2005 and 2006. For many months analysts, investors, vendors and customers watched what was happening at Sears, wondering what Mr. Lampert was going to do. In the end, he followed a very traditional turn-around strategy, slashing employment, benefits, pay and inventory – and Sears became a much smaller business. But the value of having friends hosting TV shows was clear. Sears went from $30 to nearly $200/share on the strength of Cramer's chronic recommendation. As it became clear Sears was getting smaller with no benefit to investors, and no strategy to grow, the value crashed back to $30/share in 2008 (see chart here).
Lately, some shareholders are bidding Sears value up again. Largely entirely due to additional cost cuts, store closings and inventory sell-downs, Sears profits exceeded expectations (read article here). At the same time, senior leaders admit Sears has "a long way to go catching up to competitors that have been more consistent in merchandising and driving traffic to their stores." Creating profits by financial engineering and asset sales has not made Sears a more competitive retailer, and not likely to grow. Investors will be well served to ignore Jim Cramer, and recognize the fundamental decline Sears has undergone – and is continuing.
This same week, Walgreen (chart here) announced it was cutting 1,000 management jobs (read article here). As I've previously blogged, Walgreen has to figure out how to grow revenues in its existing stores – not just open new stores. The old Success Formula has run out of gas, and Walgreen needs a new one. But we don't see any plans for how it intends to open White Space and find that new Success Formula. Instead, only cost cuts have emerged, intended to improve profits if not revenue growth. Not a good sign.
And Best Buy (chart here)is finding that even as its #1 competitor, Circuit City, slowly goes bankrupt it can't grow revenues or profits (read article here.) Many were hopeful that the failure of Circuit City would create an opportunity for Best Buy. But faster than Circuit City can shut stores, new competitors are filling the gap. Not only are general merchandisers, like Wal-Mart, trying to sell similar products – but independents (like Abt and Grant's in Chicago) are fighting to bring in customers with product selection and better pricing. Last month, a basic refrigerator at Grant's was half the price of a basic unit at Best Buy, and the selection of high-end products was more than twice as large at Grant's and 4 times larger at Abt.
Retailing has been hit with significant challenges from market shifts the last few months. Critically, low cost and easily available credit that financed not only customer purchases but lots of inventory is now gone. Cost and supply chain efficiency will not sustain a retailer any longer. Nor will simply opening lots of new stores, financed by low cost mortgage debt. But none of these 3 leaders have Disrupted their old Success Formulas. Instead, each keeps trying to fiddle with minor changes, hoping their size and past legacy will somehow drive new revenue and profit growth. Rather than Disrupt, all 3 keep trying to Defend & Extend the old Success Formulas with cost cutting measures.
When big market shifts happen rarely are the old winners able to maintain their leadership position. Why not? Because they react by trying to do more of the same. These Defend & Extend actions – usually cost cutting and efforts at efficiency and execution – only serve to push the business further into the Swamp, and closer to the Whirlpool. In Sears case, the company is rapidly becoming irrelevant as a retailer. Honestly, what retail analyst closely monitors sales and profits at Sears any longer? Sears is closer to the Whirlpool than most would like to admit. Walgreen and Best Buy aren't nearly as close to irrelevancy, but we can see that the are stuck in the Swamp. Lacking Disruptions and White Space to develop a new Success Formula, we can only expect mediocre (or worse) performance out of them.
So who is the frequent winner from market shifts? New competitors more closely aligned with new market conditions. We don't yet know who the biggest winners will be. Perhaps it will be on-line players. Perhaps it will be an emerging retailer that today has only a handful of stores (like Abt or Grant's). Some kind of hybrid customer distribution? Some new sort of merchandiser? New competitors will do some things very differently than the old leaders, and in so doing offer better value that more closely aligns new market needs. Look not at large, traditional names. Instead, look on the fringe at competitors you may not know well, but that are continuing to grow even as times are tough.
As we move into 2009, we must keep our eyes closely on changing market conditions. As old leaders stumble, we can expect recovery only if we see Disruptions and White Space. And this becomes a wonderful opportunity for new competitors, perhaps not well known today, to emerge with new Success Formulas poised for growth. If so, a new wave of Creative Destruction will change retailing – just as Woolworth's (now gone in both the U.K. as well as the U.S.) once did a long time ago.
by Adam Hartung | Jan 8, 2009 | Defend & Extend, General, In the Swamp, Leadership, Lock-in
"You never get a second chance to make a first impression." I'm not sure who said that first, but it's appropriate for the speech given by Steve Ballmer, Microsoft's head, at the current Consumer Electronics Show.
Almost 2 years ago, after almost 2 years of delay, Windows launched its new operating system named Vista. In the past, such announcements caused great excitement as customers looked forward to upgraded capability. But when Vista came out, it was like the old joke "he threw a party, and nobody came." Customers ignored the release, preferring to keep keep using Microsoft XP. New PC buyers even requested that vendors supply their computers with XP instead of Vista. And competitor Apple had an advertising field day making fun of the complaints PC customers had about Vista as Apple promoted its Macintosh. Microsoft simply didn't offer customers the necessary innovation to make Vista interesting.
Now Microsoft (chart here) has announced it intends to launch Windows 7 (read article here). What struck me most about the announcement was its lack of interest. On Marketwatch.com, the article wasn't even on the first page – you have to scroll down to find it. The equivalent of "not making it above the fold" in old newspaper lingo. Worse, Microsoft's announcement didn't even get top billing regarding the CES show – as its announcement took second fiddle to the article lead about Palm's announcement of a new device and operating system.
Clearly, reporters are savvy to what's important in information techology these days. And efforts to Defend & Extend the PC platform is not where the excitement is. Customers are quickly moving from the PC to handheld devices and remote applications. Interest about what you can do on your handheld is now eclipsing what you can do on a bigger, heavier PC. It's clear to most people, even if not to Microsoft leadership, that Defending & Extending the PC platform is suffering diminishing returns.
Simultaneously, folks woke up today and realized that "not failing" is not the same as succeeding.
As retailers went through the worst holiday season in possibly forever, some folks kept talking about how good Wal-Mart (chart here) was doing. In reality, at best Wal-Mart was possibly holding even or slightly growing. Wal-mart wasn't failing, like Circuit City, Bed Bath & Beyond, Linens & Things and Sharper Image – but it wasn't doing well. Sales at Wal-Mart have been stagnant for years. Now, even Wal-Mart has admitted its sales for December and the fourth quarter were below forecast (read article here). So the stock dropped 7.5%
Really. What did folks expect? Wal-Mart hasn't done anything new to attract customers in well over a decade. The ASSUMPTION analysts kept making was that because Wal-Mart was synonymous with cheap, in a bad recession Wal-mart would do well. But consumers showed that there's more to being a good retailer than being cheap. And gift giving is about more than giving any gift. People still want a good shopping experience, even when unemployed, and the concrete floors and cheap merchandise at Wal-Mart doesn't make them feel any better. Many decided it was better to go on-line looking for values, where overhead is even lower than at Wal-Mart, and where merchandise quality was top rate and wide brand selection was available.
Both Microsoft and Wal-Mart were great companies. They made huge differences as leaders in their industries. But both are now trying to Defend & Extend out of date Success Formulas. And even in a recession – maybe especially in a recession – that does not excite people. Customers want innovation, not just more of the same, but finally working right or at a cheaper price. And when dimes get tight, innovation speaks even louder. Customers want to know how innovation can create greater satisfaction – not just how the same old thing can be — cheap. Until Microsoft and Wal-Mart disrupt their Lock-ins and open White Space there is no reason to be optimistic about their futures.
by Adam Hartung | Jan 7, 2009 | Uncategorized
So, in 1900, who had:
- the richest country in the world
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the largest military
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the center for world business & finance
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the world's strongest education system
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the world center for innovation and invention
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the currency used as the world standard of value
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the highest standard of living?
England.
My, how things changed in the last 100 years for this great country. I remember watching 1940s and 1950s movies with British actors, and they were full of "Stiff upper lip, old man" and similar phrases as England was portrayed as a country of people stiff as starch, tied to a long history of Victorian behavior and a sense of superiority belied by its loss of leadership in the world. America, with its larger physical size and population took the lead in agriculture, and later manufacturing. Slowly, America took the lead on all the measures mentioned above.
Now, England is facing additional crises. One of the oldest, most popular and largest retailers, Woolworth's, has gone bust and all stores are closing. As America's first lady shows off new half-million dollar china in the White House, the famous crystal and china maker Waterford Wedgewood is in the British equivalent of bankruptcy and may not survive. Housing mortgage approvals are down more than 70% this year as real estate values tumbled (despite Russion buying). So now the Bank of England is expected to cut the primary lending rate between banks to the lowest level ever since the creation of the central bank in 1694. (read article here) Yet, there are those who think this move unwise because they fear the British currency will fall versus the Euro and other currencies.
Stiff upper lip? Hold on and wait for things to get better without an historical rate cut? Bankers in England are already showing a great reluctance to make new loans, despite central bank prodding. These are the same bankers who have felt they should not agree to joining the European common market – and converting to the Euro currency – they seem willing to "go it alone" even if such actions crash the economy, kill businesses, jobs and the lifestyle of a few million residents in the United Kingdom.
What do Britain's economic leaders expect to happen? What was not so long ago an English colony, India, is rapidly becoming a global economic engine far more important than England. Serious change has happened over the last 100 years – and if England, its businesses and its people are to remain serious competitors they have to adapt to global changes. England may be a great place, but so are a lot of other places on the globe. Today, it's not about who you were – but who you are becoming. And it's unclear that the U.K. is becoming a stronger competitor able to deliver solutions to global customers that are superior and at a fair price (perhaps Guinness and single malt Scotch being the long-term exceptions).
The shifts in competition unleashed by digitization and globalization will not bypass England and the other U.K. countries. They must adapt to these changes if they want to maintain a lifestyle to which its citizens have become accustomed. Right now, what England needs all the adaptability it can muster to deal with global changes unlike any ever before seen. And lowering the interest rate to record levels will be just the first change in the old status quo if England is to remain a world competitor. Perhaps a Prime Minister with the last name Singh or Gupta is in the country's future?
by Adam Hartung | Jan 6, 2009 | Current Affairs, Defend & Extend, Innovation, Leadership, Lock-in
The Marketing Executives Network Group (site here) has just released its second annual top marketing trends study (read press release and overview here, and study results here). Kudos to MENG for keeping up the effort – and especially so given the surprising results.
Many people think marketers lead their customers. Often, employees think marketers are the people charged with being ahead of customers, scanning the horizon for market shifts that can affect future sales. The perception is that marketers are looking for ways to Disrupt markets, introducing new technologies, products and services to generate competitive advantage. But the results of this survey show that isn't exactly what's going on – at least today. Statistically, according to responses, it appears that most marketers are firmly Locked-in to Sustaining past company sales. The results indicate that the 650 people responding to this survey are more deeply rooted in the past than in the changes now happening which are affecting results at many businesses to their core.
- The #1 business book was considered Good To Great by Jim Collins, and #2 was The Tipping Point by Malcolm Gladwell. No doubt, both of these books have been big sellers. But, the first was published in 2001, and the second in 2000 – neither are exactly "latest thinking" about business, marketing or innovation. Worse, both have been extensively reviewed in academia – and despite their popularity have been proven to be without merit as guidebooks for success. While their logic is appealing, when backtested and when applied, both led to worse results, rather than better, than average. Rosenzweig even has taken the time to publish The Halo Effect which is dedicated to disproving the validity of Mr. Collins (and other's) tales as benefactors of increased sales or profits. A book not even on the list.
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As gurus, the marketers like Seth Grodin, Warren Buffet and Malcolm Gladwell in the first 3 spots, with Tom Friedman in fifth. Again, interesting array. While Seth has an MBA, he was never a successful marketer – until he started selling short books with catchy titles and simple answers for complex problems. Malcolm Gladwell and Tom Friedman neither have any business training or business experience at all – both having been writers and editors by academic training and career (The New Yorker and The New York Times, respectively). I asked Malcolm what led him to write "The Tipping Point" and he said "you get paid a lot more to write a catchy business book than to do serious writing." And Warren Buffet is famous for his total disdain for marketing. As he said in an interview once "if you have to spend on marketing your product doesn't sell itself – so what good is it? Marketing dollars can be spent better elsewhere."
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By far the #1 target market is considered Baby Boomers. Interesting, given that all studies show that as Boomers are nearing and entering retirement their spending (in dollars, and as percent of income) is declining precipituously. Neither Gen X or Gen Y received more than 2/3 the interest of Boomers – even though both are driving more consumption individually than the long-focused-upon but aging Boomers. Given that by 2015 there will be more non-European ancestry Americans than European, hispanics were only 76% as interesting as Boomers, and Asians were only 1/3 as interesting. With President-elect Obama taking the most recent election while losing a majority of the Boomer vote – yet winning the younger and the non-white vote, it is interesting where these marketers showed a preference to focus.
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Aligned with other responses, these marketers felt that Marketing Basics were the #1 issue for marketers, more than twice as important as innovation or "green"and more than 3 times as important as using technology. Further, the leading disliked buzzwords included Web 2.0, Social Networking, Social Media, Blogs and Viral marketing. Yet, the President-elect pulled off an incredible upset primarily by jumping past the old marketing basics and using the latter techniques to reach a new audience, build an amazing brand and create intense loyalty surpassing much better known and initially better funded competitors. At the same time, in 2008 MTV stopped running music videos entirely because they could not compete with YouTube.com, and blogs have shown the ability to spread messages at a fraction of the speed used by traditional advertising or public relations
There is no doubt business saw a lot of change happen in 2008. And we all expect considerable additional change in 2009. But it would appear that the marketers in this study are customers of their own product – potentially to a fault. Old brands (Collins, Buffett, Boomers) still captivate their attention, while newer, upcoming trends and messages are considered far less interesting. As market shifts are happening, they seem more interested in defending past marketing approaches than moving to the front edge of what's working in a rapidly changing, digitized, globally competitive marketplace.
There's no doubt that a lot of marketing is about sustaining an existing business. In most companies, Defending & Extending old products, old brands and old distribution systems get the lion's share of attention. Unfortunately, this behavior can set up many companies to be "knocked off" by emerging competitors who don't operate by the old rules, or in the same way. Google paid absolutely no attention to the gentlemanly behavior of the media as it systematically pulled advertisers to the internet – leaving newspapers and magazine publishers to decline, merge, declare bankruptcy and completely fail. It's these Disruptive competitors, using new techniques, that today are putting many of our oldest businesses at risk.
At times of great change, great opportunity emerges. Someone has to lead the charge for identifying these opportunities and moving forward. Success cannot happen by trying to Defend old Success Formulas after market change makes their rates of return sub-optimal. For many of us, we want to turn to marketers. And my guess is that marketers ARE the best people to discern these opportunities, and take the lead. It's important that now, more than ever, we encourage them to lead customers, rather than follow old markets. Now, when investing in legacy brands, products and technologies is suffering rapidly declining returns, is when we most need our marketers to take to the forefront of exploration and chart a course toward new markets and opportunities.
by Adam Hartung | Jan 5, 2009 | Current Affairs, Defend & Extend, Disruptions, General, In the Swamp, Leadership
The New York Times Company is in a heap of trouble (see chart here). Long the #1 daily newspaper in the USA, advertising revenues fell 21% versus a year ago in November – a feat similar to its revenue decline in December, 2007. NYT is in a growth stall – and shows no signs of making a turnaround. The decline in ad revenue and subscriptions is horrific. The company has recently slashed its dividend 74%, and is taking out a $225million loan against the value of its headquarters location raising cash to keep its newspaper operations going. The company is running television ads in most major markets – like Chicago and LA – to seek out new subscribers. And now the newspaper is placing ads on its page 1 – an act that is a big deal to people in the newspaper business. (Read about New York Times front page ads here.)
So by taking these actions, is the New York Times Company preparing itself for change? After all, the problem with newspapers is that increasingly people want their news via the internet – not a paper. So even though the management at "the Times" is distressed over the actions they have taken, investors should be asking if these actions are likely to turn around the company. Value fell 67% in 2008 – and is down practically 90% for the last 5 years.
Long term successful companies Disrupt their Lock-ins – those behaviors, decision-making practices and policies that keep the company doing what it always did. As businesses grow, developing their Success Formulas, they figure out ways to Lock-in that Success Formula so it repeats. While the market is growing, and the Success Formula is meeting customer needs, these Lock-ins help the business focus on execution and grow with the market. Lock-ins are great, helping people do more, better, faster.
That is, until markets shift. When external markets shift – because of new technology, new services, new competitors or other factors – the Success Formula loses its advantage. The solution to market shifts isn't to continue optimizing the Success Formula. Returns are declining because the Success Formula is becoming obsolete. The solution is to migrate the business to a new Success Formula which supports market needs and regain growth. And that migration happens after the old Success Formula is Disrupted – through attacks on the Lock-ins – demonstrating to everyone that the company is serious about advancing to meet new market needs.
Unfortunately, far too many companies claim they are Disrupting – and preparing for the future – when in fact they are merely disturbing the Success Formula. Layoffs, financial adjustments, asset sales and outsourcing may be painful, but they don't attack the old Lock-ins nor alter the Success Formula. People are often dramatically disturbed by the changes, but the Success Formula is unaffected. When this happens, the business keeps deteriorating despite the actions.
And that's what's happening at the New York Times Company. Leadership has not taken the actions necessary to demonstrate to customers, employees, vendors or investors that they have to change. They have not Disrupted. To be a world leading news organization now requires deep expertise and success on the internet – yet NYT is in no way a major player on the web. And they have shown no signs of investing there in a major turnaround effort. NYT has not Disrupted its operations to set the stage for new White Space where a powerful new Success Formula can be developed (similar to the major programs like MySpace.com at News Corp., for example). To the contrary, the actions taken by the New York Times Company are directed at trying to preserve an outdated past. Advertising on page 1 is almost unimportant to the vast majority of readers – and completely unimportant to internet news mavens. It's not even newsworthy.
Like Tribune Corporation (owner of The Chicago Tribune and the Los Angeles Times as well as other papers), New York Times Company is focused on the wrong things. And as a result, is just as likely to end up in bankruptcy. Even Tribune management invested in Careers.com, Cars.com and Food Network along the way – each of which show demonstrably more promise for growth than any of the newspaper companies. But because management won't Disrupt – won't attack old Lock-ins – these companies keep hoping for a return to the days when newspapers were central to life. And that isn't going to happen. The world has moved onward. So, like Tribune, New York Times will eventually run out of resources and find itself in bankruptcy as well.
Unwillingness to Disrupt is a key indicator of a company likely to fail. Over time, all markets change. New competitors create new products that serve customers differently. Old Success Formulas see their returns evaporate as customers move to the new market solutions. And these companies end up, like Polaroid, being companies with a great past – but no future.
by Adam Hartung | Jan 4, 2009 | Defend & Extend, General, In the Swamp, Leadership, Lock-in
2009 starts in earnest for businesses this week. And for many leaders and managers, the focus will be about "what should I do now?" Things were tough in 2008, and many are wondering if 2009 will be even worse. So the tendency is to look at how things have been done, talk to existing customers, and see if there's a way to keep doing things but possibly with fewer resources. Many businesses are looking for some new way to Defend & Extend the old business – even as leaders realize the returns are declining.
And that just might make you a target for competitors – thus worsening your situation.
Think about what's gone on in Detroit. GM, Ford and Chrysler have kept focusing on what they should do. In the process, they've paid precious little attention to competitors. As a result, they've kept slipping share year after year, while profits have disintegrated. Now, each American company keeps focusing on its own problems, and trying to find a way to deal with them. Meanwhile, as the Wall Street Journal is reporting (link to article here), competitors such as VW and BMW – at the least – are targeting the U.S. Big 3 automakers.
Recognizing how weak these U.S. companies have begun, the German manufacturers are taking aim. The other German manufacturers, as well as Japanese, Korean and Indian are doing the same, we can be sure. And why not? In business, the best time to attack your competitor is when they are ignoring you and focusing on themselves. All the layoffs, reorganizations, pay cuts, plant shut-downs and other internal actions give the company a false sense of "doing something" to solve their problems, when in fact it makes them a target for more market-aware competitors. By focusing internally, even if talking to existing customers, these companies make themselves targets for those who understand their Success Formulas and have developed ways to attack it.
Woolworth's was a leader in American retailing for decades – until they were displaced by more aggressive retailers they chose to ignore. But after going bankrupt in the U.S., the chain lived on in the U.K. until this week – where after 99 years the chain will close on Tuesday (see video about Woolworth's failure here). Woolworth's spent its energy trying to figure out what it should do in a weak market environment, and it missed more aggressive competitors who moved faster to liquidate inventory at lower prices and keep customers coming in the store as sales declined. Yet, Sears and its KMart subsidiary keep trying to find ways to "resurrect" their out-of-date business – oblivious to more aggressive competitors such as Kohl's that are rapidly making Sears obsolete. How long will Sears survive ignoring the aggressive actions of competitors that would like to drive it out of business?
It's tempting, especially in a tough economy, to look inward. Phrases like "cut the fat" and "get lean" sound very appealing. It makes managers think solving problems is all about improving execution of the old Success Formula. But it's the Success Formula itself that needs addressing – not execution! When markets shift, it's competitors that make the Success Formula value decline. It's competitors that create the market evolution obsoleting your business. Competitors generate the "Creative Destruction" which pushes down results.
Competitors are what makes for tough business conditions. Instead of talking to ourselves, and customers that know us only for what we've been in the past, we should be a lot more focused on competitors and what they are doing. The competitors that act quickly to introduce new products, new technologies, new services and new customer programs are the ones that will steal share in these tough times. It's competitors that deserve a lot more of our attention – because they are the ones who are causing our market share to decline, our prices to stagnate and our profits to drop.
Phoenix Principle companies obsess about competitors. They eschew spending lots of planning time on what they used to do, and what the old plans were. Instead, they spend time talking about actions taken by competitors – and then figuring out how those competitors accomplish those actions. Competitors show us new technologies to introduce, new features and variations desired by customers, and new ways to improve sales and profits. As the chairman of Intel, Andrew Grove, once said about competitors "only the paranoid survive."
No one wants to get chewed up in this recession. But focusing internally makes you a target – like GM, Ford, Chrysler, Woolworth's U.K. and Sears have become. While they obsess internally, competitors are taking innovation to market. Those who want to not only survive, but thrive, in 2009 will be the ones who look at competitors to understand the actions they take, and to move competitively to thwart those actions. As they understand competitors, they will launch actions intended to make competitors' lives miserable – thus stealing share from them. Winning in 2009 is about being a tough competitor, not waiting for someone to bail you out.
Success rarely comes from doing more of the same – even if better, faster or a touch cheaper. Success comes from developing and launching new offerings that steal sales from competitors. To hold onto your share, you have to fight off competitors. To grow, you have to outdo competitors. And in 2009, with things as tough as they are, those companies who will avoid having a target on their backs will be the ones who focus on competitors, rather than themselves.
