by Adam Hartung | Jan 1, 2009 | Uncategorized
The #1 New Year's resolution is to lose weight. By far, it is the most common goal people set. That's why we see so many weight loss program ads on television from Christmas through January. Not surprisingly, however, achieving weight loss (especially long-lasting weight loss) is also by far the goal least achieved.
There's no magic to losing weight. You have to eat less, and exercise more. Yet, this is incredibly hard to achieve. Why? People focus on the result, rather than the necessary behavior change. If we try to maintain the same schedule, doing the same things, then we're not going to implement or maintain a weight loss program. To lose weight we have to focus on the behavior change, changes in routines, which creates opportunities for more exercise and less exposure to calories. Because weight loss is a RESULT of the behavior change. If we focus on doing the right things – such as taking the stairs instead of the elevator, exercising at lunch break instead of eating, and portioning food on our plate instead of helping ourselves from the family table – then weight loss happens.
But for most of us, changing behaviors is very hard. How will we find the time to exercise in an already busy schedule? How are we to eat less when we eat lunch with co-workers and dinner with our families? Lock-in to our routine is practically invisible – but it is that Locked-in routine which created the weight gain. Unless we change the routine - Disrupt the Lock-in – we won't be able behave differently.
For many of us this can be helped if we create a competition. If we challenge a family member or co-worker to "who can lose 20 pounds first", or "who can lose the most weight in 90 days" it helps us to focus on the necessary changes which will lead to weight loss. We see how the competitor behaved in the past, and recognize the changes we need to make. And we see the competitor's actions and steal ideas. Focusing on a competitor is very helpul at identifying behavioral and structural Lock-ins in our lives, and recognizing the necessary Disruptions that can lead to changes.
Of course, we all have to build our own unique new routine. This takes experimentation. Some arise earlier in order to exercise. Some switch from eating lunch to exercising at the noon break. Some start portioning their food onto their plates prior to sitting down, rather than eating "family style", in order to eat less. Others change their diets to eating more vegetables, or no carbohydrates. Successful weight loss involves giving ourselves permission to try new things (recognizing that others will very likely not be as keen on our changes) and dedicating resources to the effort – from time to money (possibly for gym fees or exercise equipment). Those who achieve long-lasting weight reduction always say they had to experiment, sometimes for weeks, before finding a new routine which they could Lock-in to that maintained exercise and proper nutrition.
Achieving the weight loss goal means (1) recgnizing we are Locked-in to a routine that must change if we want different results (2) select a competitive challenge to increase and maintain focus on change (3) Disrupt our old routine (4) create White Space to experiment with new behaviors until a new routine can be developed aligned with achieving and maintaining the weight loss goal. Don't focus on losing weight. Focus on changing behaviors which leads to the result of lower weight.
The same is true for businesses. Layoffs in reaction to a bad economy are like a crash, starvation diet. Because existing Lock-in isn't addressed, old behaviors aren't Disrupted, and White Space isn't deployed to develop new solutions to market challenges there is no real improvement in the business. Far quicker than expected, cost increases return. Competitive challengers create advantages by altering their behaviors. And the goal of improved business returns remains illusive. The 2009 New Year's resolution for businesses needs to be focused on changing old behaviors which will lead to the desired result – better profitability which can be maintained. When business leaders focus on Competitors, Disruptions and White Space improved profitability is the short- and long-term result.
by Adam Hartung | Dec 31, 2008 | Current Affairs, Innovation, Leadership, Openness
The prognosticators are busy forecasting a tough 2009. Coming after the big slowdown in 2008, it would be tempting to do like Microsoft (see chart here) and cut costs in an effort to improve short term profits (read article here). Microsoft hasn't developed new products generating excitement or growth for a few years. It's botched effort to take on Google by purchasing Yahoo! was a disaster, leaving the company with no growth projects of note. Meanwhile, Vista had a lackluster launch, and is now being forced on new computer purchasers who regularly say they would prefer to run the older Windows XP. And every month Linux eats into Microsoft's market share. So for the first time ever, Microsoft appears to be planning to layoff employees - of as many as 10%. For a tech company dependent upon growth, this is not a good sign.
A better response can be seen at Domino's (see chart here). Since inception, Domino's has been synonymous with home delivered pizza. Although a leader in its segment, the company has not fared well for years, causing it's equity valuation to fall precipitously. Price wars in pizza are constant, and new product varieties are consistently being brought to market by endless competitors. In the last quarter, sales in open stores fell 6% versus a year ago, and net income fell almost 10%. It would be easy for Domino's leadership to redouble its effort to Defend & Extend its pizza business, and let some franchisees fail as it shrunk the open store base and cut costs.
Instead, Domino's is going into 2009 with an attack on Subway's Sandwich shops (read about launch here). In 2008 Domino's leadership recognized that following the pizza market into price warring would not improve sales or profitability. So it Disrupted and explored new opportunities to grow. After various tests, the company identified an opportunity in sandwiches, and a target competitor in Subway's. Using White Space to test and refine the approach, the company developed its initial Success Formula modifications to move beyond pizza – which has long been part of the company name and identity – and enter this market, reaching new customers at new times of day with new products. Confronting a difficult market, instead of "digging in" to an unprofitable war Domino's used scenario planning, competitor focus, Disruptions and White Space to identify a growth opportunity — even in a tough economy.
There are no rules requiring businesses keep doing what they always did. Those who prosper realize that when growth slows it's smartest to find new markets in which to compete. For every market suffering from price wars and over-competition there is a market with opportunity. Maintaining long-term success requires moving into new markets, launching entirely new products and acquiring new customers. Those companies exhibiting these Phoenix Principle behaviors will do a lot better in 2009 than those who focus on layoffs and cost cutting.
by Adam Hartung | Dec 29, 2008 | Current Affairs, Disruptions, General, Innovation, Leadership, Lifecycle, Openness
2008 was quite a year. Many businesses came out far worse than they dreamed possible when the year started. The Wilshire 5000 (one of the broadest measures of U.S. equity values) declined 40% – losing some $7trillion dollars of value. More than 1.2million jobs disappeared in the USA. Foreclosures and bankruptcies are at record levels. Although we'd like to think this has been a very recent phenomenon, bankruptcies and business failures took a dramatic turn upward in 2000 (to what were then record levels) and remained at rates far above any historical norms for the decade. Not only small, but very large companies (those with assets greater than $1B) have been failing at rates exceeding 10x the failures of almost all decades in the 1900s. 2008 was more the climax of a trend than really something totally new.
So, what should you do about it? One option would be to cut costs and try to "survive the downturn." Unfortunately, that approach is very likely to doom the business. Firstly, the recovered economy won't look like the previous economy. Macro shifts in competitiveness and required capabilities to succeed have been happening since the 1990s, so the recovery will not benefit those who did well (and certainly not those who were mediocre performers) in previous times. Second, more innovative competitors who are better aligned with current markets will steal sales, customers and share while you retrench. Innovation doesn't stop during weak economies, and retrenching companies fall further behind while in survival mode to those who embrace the shifts and alter their Success Formulas. Just look at previous recessionary cost cutters like Xerox, DEC and Montgomery Wards.
With companies like Circuit City, Bed Bath & Beyond, The Bombay Company and Sharper Image failing while WalMart sales increased 3% in November, it might be tempting to say that now is the time simply to grow by doing more of what you've previously done. Or by focusing on ways to cut costs. But that would ignore the underlying trends that caused these companies to fail – and WalMart to stagnate with wickedly weak performance the entire last decade. While the credit crisis pushed the failures over the brink, their troubles were tied to broader themes in consumer demand and retail expectations. These companies were doing poorly long before the credit crisis emerged. And customers didn't flock to WalMart. 3% growth isn't what would be called spectacular. When WalMart looks good only because it isn't failing, it tells us that the future opportunity isn't to be like WalMart (which is the retail leader in low cost operations) – but instead to lead customers in new trends. Customers don't want all retailers to be like WalMart (which happened to be in the right place when this once in a lifetime crisis happened). They want innovation which will attract them.
Darwin himself said, "It is not the strongest that survive, nor the smartest…It is the most adaptable."
Increased use of digitization opened the floodgates to greater globalization. The search for "low cost" went global seeking the cheapest labor and lowest currency values. But it has also opened doors for more innovation. Companies in the U.S., Europe, India and China all have the opportunity to bring forward innovation in new products and new services to delivery value. The search for lower cost does not create growth, merrely lower cost. Innovation leads to real growth. Those companies which will emerge much stronger will be those who identify opportunities for real growth in these changed markets – by looking internally and externally for innovation.
If you find it hard to get excited about Delta, which is now the largest airline since merging with Northwest, don't feel bad. Just because higher fuel prices pushed some airlines over the brink, and left others (like United) badly crippled doesn't mean Delta is going to be a leader. Lower fuel prices short term, combined with decreased capacity due to failures, may increase short-term airline profits, but does not mean customers are any happier flying now than before. To the contrary, now that customers have to pay for their own soft drinks and sandwiches (at incredibly expensive prices, by the way), pay extra fees for checking bags, have to take connecting flights more often with longer travel times and greater risks of delays, and deal with unhappy airline employees who are working for less pay, benefits and pension means customer satisfaction is at an all-time low. It's not likely that Delta will lead people back onto flights. Instead, customers are looking for a supplier that will use innovation to provide a better experience and value — possibly Virgin America?
If we all go into 2009 with plans only to cut costs and "wait it out" then 2009 will not be a good year. What are we waiting out? How can we expect things to "get better"? But if we use 2009 to identify innovation which can better meet customer needs, we have every reason to be optimistic. Now, more than ever, it is time to Disrupt our Lock-ins to old behaviors. We don't need "more of the same, but cheaper". We need to be aware of the limits in our existing Success Formulas by Disrupting. And we need to explore White Space where innovations can be tested. White Space will create new Success Formulas which will create growth – and that could make 2009 into a great year for those companies focused on the future and willing to adapt to this latest market shift.
by Adam Hartung | Dec 28, 2008 | Current Affairs, General, Leadership, Lock-in, Openness
It's that time of year when people take to making forecasts. From Marketwatch.com (see how you can enter as a forecaster at Barron's here) to networking groups, organizations are asking for forecasts. Many executives will turn to their favorite journalist, economist, internal strategy leader, or perhaps marketing leader and ask for a forecast for 2009.
But seriously, why bother? Did you read any forecasts in December of 2007 that came close to predicting the events and outcomes of 2008? From current events (such as the U.S. election), to the markets (such as the DJIA or S&P 500) to business conditions (such as GDP performance, manufacturing indeces, unemployment), to commodities (such as the price of oil, corn and gold) no one guessed hardly any of these correctly.
Actually, it's surprising anyone tries to forecast. All forecasts are based upon taking some historical time series and predicting it into the future. The forecasting process itself is flawed because it tries to project some sort of similarity to the past – with variations explained by some predicted event. Things really aren't much different than they were when Benjamin Franklin made his forecasts in Poor Richard's Almanac. The odds of things going along the same are not very good, and the odds of predicting the unusual events is almost impossible. So forecasting doesn't help managers much at all – unless we can expect things in the future to be mostly like the past. And after 2008 – who would think that's very likely?
Instead of forecasting, we should spend some time now developing scenarios. These vary considerably from forecasts because they don't project the past. Instead, scenario planning starts by looking into the future, and describing a scenario. Then, working backward to see how we should prepare in case that scenario happens. Rather than planning from the past, the process begins with a view of the future. Because we all can recognize major trends, like uncertain energy supplies, ongoing religious conflicts, increased globalization of trade, declining value of labor, etc. it's actually a lot easier to imagine what the future will look like. Building an impression of how people are likely to live, based upon how we see major trends emerging, is more accurate than trying to forecast based upon history. After all, we all knew the U.S. was in a recession months ago – but it took the experts almost a year to identify a recession had begun! The closer people are to the "data", especially historical data, the harder it is to identify shifts.
No one should plan their future based upon a single scenario. Because none of us know which trends will dominate, or be offset by another trend. So it's best to develop several scenarios. By working through multiple views it is possible to best understand the strategy most likely to succeed given multiple possible outcomes. Most importantly, this helps us understand how we're likely to perform, given our current Success Formula and the various scenarios.
Scenarios can help us understand likely market shifts. Maybe not today, but likely. And then to evaluate our Success Formula not on how we've done in the past, but how we're likely to do in the future. When gaps emerge, we can then assess how to Disrupt outselves – and determine what White Space projects to pursue in order to evolve our Success Formula to remain competitive.
Forecasting can be fun sport. But as a business exercise – it's not worth the bother. No one trusts the forecast, so no one uses it. And worse, it will most likely further Lock-in the old Success Formula by projecting a future not dissimilar to the recent past. What will help us succeed in 2009, 2010, 2011 and onward is to have scenarios which help us plan for the future and pull us toward better competitive position as things change.
by Adam Hartung | Dec 22, 2008 | Current Affairs, Defend & Extend, Leadership, Lifecycle
Walgreens (see chart here) has been one heck of a company. It's growth has been unparalleled for such a large retailer the last 2 decades. But quarterly earnings just came out, and management announced they were down 10% versus a year ago (read here). That's a big warning signal. Two consecutive quarters of such performance and Walgreens will officially hit a Growth Stall. Company's that hit Growth Stalls only find the ability to grow a mere 2% a remarkably low 7% of the time. Or – stated another way – after a growth stall 93% of companies never again find consistent growth.
Why would such short term performance – only 6 months – indicate such horrible ongoing performance years into the future? The answer is that most companies Lock-in on a Success Formula, and they practice perfecting it. As long as they grow, such behavior is sensible. But, when markets shift and growth slows the company is unable to change to meet market needs. It only takes a couple of quarters to bring out the market shift. And most organizations react by trying to do more, better, faster, cheaper of what they've previously done (the old Success Formula) hoping results will return. But because what's needed is a change in the Success Formula – not just cost cutting or "better execution" – the returns stagnate. Companies fail to realize that they were already executing really well, so execution isn't the problem. The market has shifted and what's needed is more permanent Success Formula change.
Walgreens has been a marvel at opening new stores. Somewhat like Starbucks, there seemed to be a new Walgreens opening every time we drove down the street. All across the country. Similar to WalMart, Walgreens was riding a wave of perfecting the success of their unique stores – which were a rare combination of goods unlike any other competitor. So Walgreens kept opening more and more of them – almost one per day. Many of us have wondered if that sort of new store opening rate could continue. When would there be all the Walgreens (like all the McDonalds or all the Starbucks) we need. With the recent credit squeeze, we've found out that in fact the number of additional stores needed may not be nearly as great as thought. And as store openings have slowed the overheads are rising as a percent of sales – and results are struggling. Walgreens NEEDS to open all those stores to keep the Success Formula working, without them it's unclear the company is worth anywhere near its old valuation.
Walgreen has had other options. I've even blogged about them. Walgreen's brought out its own cosmetic line, including "cosmoceuticals" which are cosmetics with pharmaceutical properties. Walgreen's brought out exclusive clothing. The company built relationships to offer unique photo services for digital photographers seeking prints. And they launched a printer ink cartridge refill service. These are just some of the things they brought to stores the last few years.
But Walgreens didn't create any Disruptions when launching these new business ideas. The ideas did not find true White Space – because although they had permission to do new things, they were not given adequate resources. Instead, money was poured into opening new stores rather than developing new Success Formulas which could generate growth. As a result, they consistently did not receive sufficient management attention. And they consistently fell by the wayside as management kept focus on opening new stores. Certainly some of these ideas (or others not on this list, but taken to market), would have been able to generate incremental revenue across all stores – had they been pursued, analyzed, developed and grown to take a leading market position. But that didn't happen because everyone was happy to keep pushing the old Success Formula – opening more stores. Lacking a Disruption, the White Space didn't "stick" and the opportunities disappeared.
Now, Walgreens' growth has slowed. Walgreen's needs to figure out how to make more money with the stores it has, not just open more stores. But the organization and people at Walgreens are not geared for this new task. They are Locked-in to the new store opening Success Formula. Unless Walgreens Disrupts really fast, growth will remain slack – and profits will struggle. We can expect the reaction to be layoffs and other cost cutting – but that will not help Walgreens become a "great" retailer. "Survival" behavior does not make for "great" companies.
Walgreens is on the precipice of change. The stock is down over 50%, to values not seen for almost a decade. Either they Disrupt and fast open White Space to learn how they can change their Success Formula and regain growth — or they will end up cost slashing to prop up profits but erode their ability to succeed. We need to watch Walgreens closely, because the direction they take NOW will determine what employees, investors, customers and suppliers can expect for the next several years.
by Adam Hartung | Dec 18, 2008 | Current Affairs, Defend & Extend, Leadership, Lock-in
I was talking to a restaurant waiter this week. He was bemoaning his fate. He had a large van, complete with overstuffed chairs, movie player – the works – for his family to drive in comfort and his children to enjoy. But when gasoline hit $4.00 a gallon he thought it unaffordable. So, as he told me, when he paid $150 to fill it one day he quickly sold it for almost nothing. He took out a loan and bought a car that used less gasoline. Now gas is under $2.00, and his family is tired of his smaller car. But he's locked-in to the payments, so now he can't afford to switch back. (Read about low oil prices here.)
He didn't plan for oil to go over $100/barrel, and he was caught with too costly transportation. But he didn't do a careful analysis of the fixed versus variable cost of trading for a higher gas mileage car – and now he's unhappy with oil at less than $40/barrel. Because he didn't think about the future possibilities he was unprepared for BOTH scenarios – and he's "one unhappy camper" these days.
But like my waiter, most businesses don't do enough scenario planning either. Instead, they simply plan for the future to be mostly like the past. When things shift, they simply try to Defend & Extend old business practices without thinking about what is most sensible. Most were unprepared for higher energy prices when they came along – even though analysts had been saying for years that America was primed for supply chain shocks from natural events or refinery problems. So too many made investments on the short-term price run-up, investments that are likely to take a lot longer to pay off with lower energy prices.
Likewise, most businesses aren't planning for unexpectedly low energy prices. Instead of investing these savings on new innovations that could make them big winners when the recession subsides, most are using what's likely to be a fairly short-term windfall to subsidize old business practices that are rapidly becoming obsolete. Instead of using the gains to create a new future, they are using them to subsidize out-of-date business models at a time when investing is likely to have enormous future payoffs. They are acting like cheap oil will be here forever – a situation we know isn't likely to occur from all we've heard the last 2 years!!!
Planning isn't about doing more of the same – and trying to figure out how to preserve past practices. Planning is about looking into the future and asking "what if something unexpected happens? Am I prepared?" We don't have crystal balls, and for that reason it is incredibly important to plan for situations which aren't like the past – because those are the ones which create competitive opportunities for us, and against us.
Scenario planning isn't done by many organizations. Instead, planning is designed to whittle down the number of potential options. As a result, the forecast is for something most like what is occuring today. Six months ago, everyone was planning for $150 oil. Now they are planning for $35 oil. And the answer is to plan for both! By understanding the impact of both options it allows us to be far better competitors, and to guide our businesses toward opportunities. And never had that been more true than in the chaotic competition characterized by our currently shifting global markets!
by Adam Hartung | Dec 17, 2008 | Uncategorized
Steve Jobs is a Phoenix Principle leader. He's never afraid to Disrupt himself or his organization. He's always working to make sure new ideas are surfaced, and applied, and new markets developed. He keeps White Space alive, trying new products in new markets — unwilling to let himself or his organization become pigeonholed into narrow definitios that weaken revenues and returns. No wonder analysts, investors and employees want him at the helm of Apple.
But, no organization can survive long-term if it depends on a leader to maintain all Disruptions and White Space. Apple stock is down about 50% since the middle of this year, dropping 5% today (see chart here). This could be because Apple is ignoring the netbook marketplace – and possibly not introducing anything terribly knew this holiday season. Some think it's because there is a rumor that Mr. Jobs is in poor health because he's said he won't address the MacWorld trade show in December. His health has been something that has captured news attention since his bout with pancreatic cancer in 2006 (read more about Jobs and Apple's stock here.)
Apple's rise, fall and rise can largely be traced to its leadership by Mr. Jobs. But that's really too bad. Apple should move to institutionalize processes which would insure the company keeps Disrupting itself and implementing White Space. Even if Mr. Jobs is in great health, at some time he will leave Apple. And the company's employees, investors and vendors deserve the company to continue with the kind of performance it's seen since Mr. Jobs' return to the top spot.
Over at neighbor Silicon Valley tech company Cisco Systems Disruption has been institutionalized, rather than relying on Chairman John Chambers. At Cisco, the company works constantly to cannibalize and replace its own products. This policy keeps the company from resting on the laurels of good products, protecting them from competition and allowing the company to fall behind. Instead, product managers constantly work to either find replacement products or improve their products so they stay at the forefront of competition – or get out of the product line altogether. With this chronic product Disruption, they use White Space to find the replacement products growing revenues year after year.
Great Phoenix Principle leaders are good role models. But companies can't rely on them to keep the organization vital. Leaders leave. Too often, the organization then falls victim to Lock-in as Disruptions stop and White Space dries up. Defend & Extend management takes hold – as we saw at Apple when Steve Jobs was fired by John Scully in the 1980s. After his departure, the company focused entirely on the Macintosh and attempted to protect its share from the Wintel PC onslaught. Even though Mr. Scully tried to lead the company into the PDA market by championing the Newton, he was unsuccessful because he lacked Mr. Jobs Disruption skills (Mr. Scully was a corporate leader cut from a more traditional mold) and didn't know how to use White Space to get his product supported. As a result, the D&E managers at Apple rose up, had the Board fire Mr. Scully, and proceeded to focus on the Macintosh until it became a niche product and the company was in jeapardy of failure.
And that's what could happen again when Mr. Jobs leaves. That's why mentions of his health, or departure, draw so much press. Apple has not become an evergreen Phoenix Principle company, because it relies too strongly on its existing Phoenix Princple leader. There's time to change this – and that should be one of the highest priorities Mr. Jobs undertakes – long before he decides to leave.
by Adam Hartung | Dec 16, 2008 | Current Affairs, Defend & Extend, In the Whirlpool, Leadership, Lock-in, Quotes
In 1993 Pulitzer Prize winning author David Halberstam wrote a book about the 1950s – called appropriately "The Fifties". He takes time in this book to talk about GM – a company today that has seen its leadership embarrassed, and its value for investors disintegrate in the face of mounting competition. It's humiliated executives have asked Congress for a bailout to save the employees and customers from total failure – because they seem unable to figure out a solution themselves. Read what Mr. Halberstam, a New York Times reporter, had to say about GM's rise to prominence:
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"No one at GM could ever have dared forecast so much prosperity over such a long period of time. It was a brilliant moment, unparalleled in American corporate history. Success begat success… The postware economic boom may have benefited many Americans, but no one benefited more than General Motors. The average car, which had cost $1,270 at the beginning of the decade, had risen to $1,822 by the end of it…twice as fast as the rest of the wholesale cost index.
There was in all of this success for General Motors a certain arrogance of power. This was not only an institution apart; it was so big, so rich, and so powerful that it was regarded in the collective psyche of the nation as something more than a mere corporation: It was like a nation unto itself, a seperate entity, with laws and a culture all its own.
The men who ran the corporation, almost without exception, came from small towns in America… Everything about them reflected their confidence tht they had achieved virtually all there was to achieve in life. Others, critics, outside Detroit, might believe that these men were not such giants and might believe that they did not so much create that vast postwar economic wave as they had the good fortune to ride it… As for the intellectuals, if they wanted to drive small foreign cars, live in small houses, and make small salaries, why even bother to argue with them?
As success of the company grew, its informal rules gradually became codified. The culture was first and foremost hierarchical: An enterprising young executive tended to take all signals, share all attitudes and prejudices of the men above him, as his wife tended to play the sports and card games favored by the boss's wife, to emulate how she dressed and even to serve the same foods for dinner.
The essential goodness of the corporation was never questioned. It as regarded as, of all the many places to work, the best, because it was the biggest, the most respected, made the most money and, very quietly, through bonuses and stock, rewarded its top people the most handsomely."
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If this was the world of GM, codified as Mr. Halberstam explains, it becomes easier to understand the behavior of GM in the 1960s, 1970s, 1980s and 1990s - as competitors kept chipping away at market share and power. From 50% share of all automobiles sold in the 1950s, GM's share is now only half that. Executives, managers and even union employees quickly came to believe (in the late 40's and 50's)the future would always be like the past. But Toyota, Honda, Nissan, Subaru, Kia and others didn't accept GM's claim to a monarchy. And now, everyone is paying for it.
Lock-in is built when companies are doing well. And Lock-in keeps the organization from changing. It is easy to belittle challenges, and blame poor performance on others. As competitors evolve, at times making big improvements, the Locked-in organization will explain away poor performance – but resist accepting the need to change. In the end, if we don't learn how to Disrupt the Lock-in and use White Space to become more competitive we all end up in the Whirlpool. Even GM.
by Adam Hartung | Dec 15, 2008 | Uncategorized
Want a winner, regardless of market changes? Look at Illinois Tool Works (ITW) (see chart here).
ITW has grown, regardless of market shifts and economic changes, for over 20 years. And this troubled year, 2008, ITW has grown another 2.4 percent (see article here). While other big companies are seeing revenue declines of nearly 50% (look at Chrysler), and some are disappearing overnight (Lehman Brothers and Bear Sterns) it's a rare story to hear of a company growing these days. Yet, ITW keeps plugging along.
ITW is in a wide variety of businesses. The company has over 800 subsidiaries – and it doesn't even require they all use the same accounting system – much less adhere to a common "core". Businesses are expected to meet their forecasts, or change in order to meet them. Acquisitions help the company keep trying new things in new markets – constantly maintaining White Space. It's not important what market they're in, or what products they sell, or what technology they use. What's important is if the business is able to sell more product and meet profit targets while doing so.
That willingness to keep White Space wide open has served ITW well for over 2 decades – and is doing so now. Revenues keep growing, via acquisition and ongoing business, despite changes in markets around the world. ITW is avoiding the draconian downsizings we read about across the country, and is not harping about insufficient capital while pursuing sales globally. Instead of focusing on a core business, and watching that market disappear out from under it, ITW keeps itself firmly growing in a wide variety of businesses creating better results for employees, suppliers and investors.
Long term success comes from avoiding Creative Destruction. Focus is of no value when your focus becomes obsolete. Companies that focus eventually end up out of step with changed markets – and wondering how to save themselves. ITW avoids that problem by constantly entering new markets, and trying new business models. A company based on White Space has proven it can grow, even in an economy like this one.
by Adam Hartung | Dec 14, 2008 | Uncategorized
The stories of woe in the newspaper business have been dire for a while. But lately they've gotten worse, as Tribune Company filed for bankruptcy and rumors abound that The New York Times Company is looking to sell real estate in order to stay alive. Of course, selling an asset like buildings to subsidize a business like printing newspapers is not a good idea – robbing Peter to pay Paul only delays the day of reckoning. And in the meantime investors are robbed of value while employees are given false hopes of improved business conditions. As we've seen at GM, selling EDS, Hughes and GMAC to subsidize auto manufacturing has not helped management build a stronger company.
And speaking of Detroit, rumor now is that the Detroit Newspaper Partnership, which runs the Detroit Free Press for Gannett and Detroit News for MediaNews Group, will stop printing the newspaper for delivery except on Thursday, Friday and Sunday. Other days will be a single-copy purchase product, very limited. (Read about the changes here.)
The only thing suprising about this announcement is how long it took to happen! By far the highest cost of a newspaper is printing it. Second is delivering it to homes. With subscriptions falling, the economics of distribution have been worsening dramatically. You really want everyone to take the paper as you drive down a street – not one in 3 or one in 4. That creates a compelling reason to advertise, and the cost of distribution low. But the news organizations have been cutting costs of reporters, editors, copyeditors, graphic artists, page layout professionals – all the people who report and relay the news. And in the process, the product has gotten considerably worse. In all cities – not just Detroit.
Obviously, what people value is the news. Not the paper. Today, acquiring news is far faster and easier by checking on-line than reading a newspaper. Thus, newspaper subscribers have been dropping fast. Of those that continue subscribing, estimates range as high as 50% who only continue because they want the advertising inserts on Sunday. But increasingly those ads are being delivered directly to the mail box. As for browsing the news, almost everyone today has multiple options for keeping up with current events via CNN, Fox, MSNBC, CNBC, Fox Business and other television sources. Many businesses run these stations in the background during the workday, making current events very immediate and a lot easier to track than reading a day-old rendition via a paper.
Unfortunately, when we look for news on-line we find that the leading newspaper companies have not been good at taking their most valuable proposition to the distribution system people most want. There are no markets where the "newspaper" has the leading news website. People don't go to NYT.com, or ChicagoTribune.com or LATimes.com or even WSJ.com for most of their news. Readers get what they want faster and easier from superior sources that know not only how to find news, but how to post it fast and make their sites a lot more valuable. And learning how to have a valuable (and profitable) web site is not where these companies have invested their money the last 10 years. By trying to Defend & Extend the paper, they missed learning how to maintain their status as news distribution shifted on-line.
There's an old phrase in newspapers – "Don't bury the lead." It refers to writers spending too long on facts before getting to the "so what." Within these newspaper companies, they buried the value of their business. News was their business – not printing on paper. But Lock-in to old ways of doing business kept them focused on printing papers until…. well…. we see many shutting down and some declaring bankruptcy. Meanwhile, the demand for current news is growing faster than ever! The number of web searches for news articles, and news sites, and blogs keeps growing every month!
Back in Detroit, it's high time some newspaper group finally Disrupted itself and started focusing on what it needs to do, rather than what it want to do (and has always done). In Detroit, people are very worried. Business is terrible. Advertising has fallen off the proverbial cliff. It was only when facing extinction that these papers finally considered focusing on-line rather than focusing on print. It may be too late in Detroit. These organizations have not built strong capability, and they've run out of resources before trying to change. When you fall into the Whirlpool of failure, not much can save you.
But for other news companies, the time for Disruption is NOW. Everyone knows that newspapers are an inefficient news mechanism. Everyone knows that eventually they will be obsolete. Instead of leading the change to on-line, these companies have resisted – hoping they could Defend & Extend their models "another year or two." That is not a strategy – and the tactics rarely work. To be a vital competitor, businesses have to address market shifts by building future scenarios that take into account changes. And then Disrupt their old ways – create a pattern interrupt allowing themselves to fully realize that the future simply canNOT be like the past. Only after Disruption can White Space help develop a new Success Formula.
Let's hope many of struggling news organizations take the time now to Disrupt. If not, if they try to Defend & Extend much longer, they will disappear. And that will be terrible for all of us that depend on these local news groups to tell us what's happening in our towns, counties and states. Not only will investors be wiped out, but the fabric of our communities will be shattered if we lose these local reporters keeping us current about what's happening at the school board and city meetings – and we can't depend upon 15 second television bites to really inform us.
