by Adam Hartung | Oct 2, 2006 | Disruptions, In the Swamp, Leadership, Lifecycle, Openness
Two very unlikely companies demonstrated this week that anyone can Disrupt and create White Space to develop a new Success Formula. IBM and General Motors both showed signs of what any company can do.
Last spring the leaders of IBM Disrupted their product development process when they opened it up to all employees, suppliers and their family members (read article here). As a result, they involved 53,000 people and generated 37,000 ideas. How, by simply asking for their input. CEO Palmisano attacked hierarchy and sacred notions of product development in high-tech, and as a result he achieved a breakthrough in the potential to redefine IBM’s Success Formula. Now IBM is creating White Space to develop those ideas, committing (in advance!) $100million for operation InnovationJam to see what can work. When Louis Gerstner wrote "Who Says Elephants Can’t Dance" about IBM’s turnaround he demonstrated that size does not preclude innovation and growth. And now that legacy is living on in a tremendous example of just what any company can do.
Even more surprising is what is happening at GM – a company I have unabashadly beat up on the last year. Yet, within the confines of a horribly Locked-in organization we now can see the use of White Space in product design (see complete article here.) As recently as 2001 the hierarchy gave vehicle line executives the say on a car’s appearance – the kind of analytical, cost saving process that produced such great autos as the Pontiac Aztek (don’t remember it? – that’s the point!). "Design had been relegated to putting a wrapper on something that everyone else had decided what the dimensions, the proportions and the interior package were going to be", according to design head Bob Lutz.
What’s different now? "Tom Peters, a GM designer for 22 years called Lutz a ‘breath of fresh air’ because he lets designers start with a fresh sheet of paper." Lutz was brought in, at almost age 70 mind you, by CEO Waggoner as a Disruption to the old hierarchy. As head of design, he reports outside the old hierarchy and directly to the CEO. And his dedicated budget was carved out of the old product groupls. Thus permission and resources were both granted up front, and Lutz has made the most of it.
Many people accept the notion that older companies are unable to change. Like somehow organizations are destined to Lock-in and eventually fail. Unfortunately there is no data to support that notion. The ability to Lock-in and fail is just as apparent in start-ups as in behemoths. And, behemoths can Disrupt and use White Space just as well as a start-up. IBM has shown it’s ability to do so, and we can hope they will keep up their efforts to again be reborn – continuously, like a Phoenix. GM has a much longer and tougher road, but it can be done. If they can just get the rest of the company to behave like Bob Lutz and his design group!
by Adam Hartung | Sep 29, 2006 | General, In the Rapids, Innovation, Openness
As I talk with various groups many tell me that they simply can’t see any White Space opportunities in their area. I tell them the opportunity is always there, you just have to see it. Their problem is too many people try to "think outside the box." What they need to do is "Get outside the box, now think."
A great recent example comes to us from education. For all our uproar about education in America, and expressions of concern, little has changed in the last 50 years. Lock-in still dominates, and most of us see our children going through the same steps as we did. Meanwhile, we know that other countries, India in particular, are finding ways to educate more people to higher levels faster and cheaper than we are. But, when our education professionals get into meetings they mostly come up with minor improvements to the existing system.
Reuters reported today (see article here) that Americans can get tutoring now for as little as $2.50/hour. By going on-line, and using a combination of web tools and internet phone service, our children can receive quality 1-on-1 tutoring, by professionals with master’s degrees in the subject area, every single day for only $100/month. This is about what one hour of traditional face-to-face tutoring costs. And those students who are using the resource are findng huge value.
Of course, these tutors are in India.
Our education professionals are trying to solve problems by "thinking outside the box." Their obvious problem is that when you’re in the box it’s really impossible to think outside. At best, you can push on the sides a little and consider small improvements. But everything about the box keeps you Locked-in to the old Success Formula.
The founders of these offshore services used the approach of "Get outside the Box, now think!". By going offshore, by viewing the capabilities of new technologies without focusing on limitations, and by omitting the concerns created by traditional Lock-in, they identified a new Success Formula. And then, they didn’t try to launch this in the U.S, or with traditional education suppliers. Instead, they developed their own approaches for marketing, distribution and sales. Removed from the Lock-ins (removed from "the box") they were able to develop new solutions.
We all can benefit from getting outside the box. Existing industry conferences and trade shows are primarily focused on Defending & Extending the existing Success Formula. To see new ideas, to identify White Space opportunities, you need to move beyond those forums. You have to find some new terrain for the conversation. Take a trip to India, China or the Phillipines, and visit with companies that have a whole different approach to what you’ve done. And instead of looking for why it won’t work, see if you can create some White Space to try and make it work.
You won’t find White Space if you stay inside "the box." Get outside the box, go to nontraditional sources, and then start thinking about how to make it work. There’ll you find your opportunities for White Space.
by Adam Hartung | Sep 21, 2006 | Defend & Extend, General, In the Rapids, In the Swamp, Innovation, Lifecycle, Lock-in, Openness
On my web site I have a case study comparing Motorola and McDonald’s (download paper here.) As a reader of this BLOG, it won’t surprise you to guess that I think Motorola is a company for the future, and one into which you should consider investing, while McDonald’s is so horribly Locked-in to its past that I see precious little chance it will remain a great company.
Just look at today’s newspaper for further verification. Motorola has announced the launch of a new vending machine to sell mobile phones and accessories (see article here.) Now this might seem pretty bizarre. Who would buy a mobile phone from a vending machine? Honestly, I don’t know who and I know it won’t be me. But, I am impressed. It takes organizational flexibility, a willingness to see market challenges to conventional distribution, an openness to Disrupting old behaviors and the capability to experiment with changes to the Success Formula to try this. The idea had to be created, it had to move through the organization, receive permission for testing and get funding to make it to market. These are all traits of a company trying to stay in the Rapids, trying to maintain its growth, and organized to create and use White Space. While not all projects in such companies succeed, long term the companies do generate higher growth and long-term above average rates of returns.
Meanwhile, today McDonald’s announced their next big idea was to start selling Egg McMuffins all day (see article here.) Now there’s a big dash of creativity! The epitome of Defend & Extend Management, the company is so Locked-in to its old Success Formula it actually considers it exciting, newsworthy and innovative to simply consider expanding the hours it sells an existing, and decades old, product. I doubt Starbucks is quaking with worries about this change impacting their growth. Even by a consultant’s best estimate this will be considered a success if it adds a mere 3% to 5% to the bottom line. What tremendous ambition!
Motorola is Disruptive, willing to create White Space and test new ideas. Who knows what the value of alternative distribution for mobile phones is – such as a point of purchase vending machine. But they are willing to test the idea and see. Maybe it will turn out to be something that young people, or travelers, or some segment really wants. Meanwhile, McDonald’s is doing more of the same, and bragging about how hard it is to actually pull off this simple time-of-day extension for an existing product.
by Adam Hartung | Sep 20, 2006 | Disruptions, General, In the Rapids, Innovation, Leadership, Lifecycle, Openness
I recently blogged about the way Honda managed to be in so many markets, from lawn mowers to airplanes. Maybe not focused, just consistently growing revenues and profits. A very good thing for employees, suppliers, investors and customers.
In that vein, I was delighted yesterday to hear that Motorola is buying Symbol Technologies. Most analysts thought the acquisition "ho-hum" (see Chicago Tribune article here). But they should be excited, because in fact it demonstrates another clear move into White Space.
Most people would think of Motorola as a cell phone manufacturer. And there is no doubt that is their largest business. So, analysts get excited when Motorola talks about cell phones. But there is so much more to Motorola. Their last big acquisition was General Instrument in 2000 (before Ed Zander took over), growing their dominant business in set-top boxes and helping them grow their DVR business. Remember a fast-growing gadget called TiVo? That’s a DVR.
Now, Symbol gets Motorola into bar code readers, mobile computers and enterprise software for inventory management and retail. Included in this business is RFID systems, a new market that lots of people are trying to develop. You could challenge this kind of acquisition as being "off focus", but then you wouldn’t understand the importance of White Space. Here Motorola has just bought itself a nice business, at a good price, that it can use to explore expanding technologies and solutions for people on trucks, in warehouses, using all kinds of wireless technology. New markets, new technologies, new solutions – and even more important new customers.
This is not one of those "restructuring" acquisitions intended to drive up revenue through industry consolidation. This is bona fide expansion into new markets, and creation of more White Space. An effort that can create Disruption opportunities and help define a new Success Formula. All hallmarks of what has been turning Motorola around the last few months. Bravo to management for doing the right thing again!
by Adam Hartung | Sep 17, 2006 | Defend & Extend, Disruptions, General, Lock-in, Openness
I am not terribly mechanically inclined. Yes, I do work on lots of things I own, but I do not consider myself a skilled professional.
I was surprised recently when my 18 year old son told me he was going to buy an old Jeep. "But you already have an old Jeep I bought you" I said. "Yes," he told me "but I want the transmission out of this other one because it is much better for my V-8 than the original one installed. I can switch these transmissions and it will be better for both vehicles, and I should make some money on the situation."
I immediately recognized that this was not a simple job. Heck, he was talking about switching transmissions in two vehicles from different years with different engines and other configuration issues. What if things didn’t line up? What if they didn’t fit? "Son," I said "this is no simple job. I’m afraid it is beyond my skills these days. Do you know what you’re doing?"
To which I got a tremendous answer. "No dad," he said "I’m not sure what it will take. But I have enough money to pull off the job, even if things go really wrong and I have to change the clutch and many other parts. I have lined up a consultant (a professional mechanic) who will advise me on problems. And even though I’m not sure what to do, I’m confident I can figure it out. And, when I’m done, the Jeep I buy will be worth at least what I paid for it and my Jeep will be worth a lot more. I just need permission to tear into it."
Voila! White Space was requested. He didn’t have all the answers, but he was certain he could figure it out. And he had prepared all the resources. Not only to do the job, but what he would do for transportation while his machine was under repair. He had created personal White Space, and all he needed was to Disrupt my Lock-in – my Lock-in that said such a job required a "professional."
Now the transmissions are switched, and things are better all around. Why? Because he created some personal White Space – and I accepted the need for a little Disruption.
by Adam Hartung | Sep 9, 2006 | Defend & Extend, In the Rapids, In the Swamp, Lifecycle, Lock-in
Now is the time to Supersize a stock that might be in your portfolio. McDonald’s has announced that it will allow every shareholder of McDonald’s to swap that stock for Chipotle’s – and in fact investors can received $1.11 of Chipotle’s stock for every $1.00 of McDonald’s stock you tender (see Chicago Tribune article here). So investors get a 10% discount on the Chipotle’s stock (see prospectus.)
Let’s see, we have a horribly Locked-in McDonald’s, with practically no growth, that is spinning off it’s best White Space project. And McDonald’s will allow investors to move from the traditional mired-in-the-Swamp business to the high-growth Rapids business and get a 10% discount in the process. Talk about Supersizing the opportunity!!
McDonald’s stock is currently propped up by a hedge fund operator who’s buying up shares in order to attempt forcing McDonald’s to spin off company owned stores and sell company owned real estate. He’s trying to force a 1980’s-style asset play, and in doing so he’s buying thousands of shares. So despite sluggish growth and limited prospects, McDonald’s shares have been rising. McDonald’s is so desparate to preserve it’s Lock-in, and beat back this guy, that they are making an incredible offer in order to bring back in more shares, hopefully raise the EPS, and beat back this fellow. Like the leaders of too many Locked-in businesses, McDonald’s is following the tactics of "If you can’t figure out how to run a good business, then you use financial machinations!"
So, here’s the "golden" opportunity to get out of McDonald’s while the value is high, and get into a high-growth company without any transaction costs – and at a 10% discount to boot. Now that is an Incredible offer!
by Adam Hartung | Sep 7, 2006 | Uncategorized
Today Budweiser, that venerable beer producer, made a surprising announcement. Starting in February, 2007 they will lanch their own internet network. This was surprising, because Budweiser has spent the last few years in the most traditional sort of competition – spending on media commercials, going toe-to-toe with traditional brands, and doing lots of price discounting. Ugh! Profits had lagged and investors haven’t seen an increase in value since 2004.
But this announcement could be a sign of an important change. The project has all the earmarks of White Space. The company has allocated a significant budget – 10% of its huge ad budget – to give this the resources to succeed. They have partnered with outsiders for internet expertise, and have hired in two new people as producers. They are being public with the commitment, and are demonstrating that they have Disrupted their old approach to reaching customers (while also creating Challenges for traditional media companies.) Even though BUD has not looked like a company to watch, I now would give them very close attention. This could be a good company to add to your portfolio.
Simultaneously, one of America’s historically most innovative companies is going the opposite direction strategically. Intel is announcing it is cutting 10,500 jobs through 2007 in an effort to restructure for 2008. All in reaction to addressing a Challenger one tenth their size (AMD). Although Intel has long dominated the microprocessor marketplace, as this Challenger has shown innovation in its product offerings and marketing Intel is reacting in the least productive way, disturbing its existing Success Formula but not taking steps to create a new one which will address market Challenges.
Rather than reacting with more innovation, more White Space, to regain its leadership position in customer eyes Intel is cutting back and hoping it will put a few pennies toward the company’s earnings per share. They are "selling underperforming busineses" (rather than improve them), and are taking this action on the heels of a "streamlining" project that cut 1,400 jobs just 3 months ago. Now they are caught up in chasing a cost-reduction goal that is never going to be big enough to meet Wall Street’s expectation – and simultaneously offering no new competitive strategy. Who will care if EPS rises if the company isn’t able to regain it’s growth rate and position as market technology and innovation leader?
I was surprised by these two stories, reported on the same day. And you may be as well. It just goes to demonstrate that ANY business can recognize Challenges, Disrupt itself and create White Space to take the lead in its market. And simultaneously even the best thought of company can fall into Lock-in and create excuses for poor performance while retrenching to what it knows rather than seeking a brighter future.
by Adam Hartung | Sep 3, 2006 | General, In the Rapids, Innovation, Leadership, Lifecycle, Openness
When I was young the word Google meant a very large number in math class. Today, Google means "to search" – or even more importantly Google represents the latest meteoric growth company. The interesting question, is Google just lucky (right company in the right market at the right time), or is there something more systematic going on?
It shouldn’t surprise you to hear that I think it is systematic. Let’s just take a look at Google’s IT department, and you can compare it to the typical department. Or possibly your own. (For specifics, go to Information Week article here.) Look for the White Space to innovate growth, and compare to most IT departments.
Firstly, despite spending 50% of revenues on IT, the company has no CIO or CTO. Instead, IT responsibility is distributed amongst several Vice Presidents. The closest thing to a CIO they have is a 36 year old with an undergraduate degree in social and political organizations, then a Ph.D. in Psychology. So much for the "tech bent" requirement in the role – or in Google. The fact is, that having distributed responsibility is a Disruptive design element which keeps projects, and people, from getting Locked in.
When it comes to managing technology he says "What we put on each desktop is not as important as how we think about what to put on each desktop…choice is always better than control…control gets in the way of innovation….sees a distinction between tools that tell you something and tools that stop you from doing something….I try to control as little as possible."
Google manages engineers with a matrix system. Employees have mutliple managers, and projects typically last as little as 3 months. Rather than a "good old boy referral" system for placing people, the project assignment system is automated with AI. Every person and every project is reviewed, and input is put in a database, and the information is completely available to EVERYONE to see. That’s right, performance reviews are public knowledge. Another design element that creates Disruptions and avoids Lock-in.
To encourage collaboration, people stay on projects for only a short time. And, to keep people talking lunch is free in the cafeteria. Most people would say that free lunch is simply wasted money. But then again, most people have never come close to Google’s growth rate.
The fact is, Google is loaded with White Space. Its organizational structure is designed to constantly Disrupt the way people work and think, by moving them frequently and rapidly across projects. Feedback is public, so that everyone knows what is working and what isn’t. AI creates job assignments, rather than people, forcing new collaboration and new insights. And R&D is not budgeted separately from IT, engineering or product development, in order to keep work and people moving freely and focused upon results rather than myopic projects or budgets.
There is very little "Focus" at Google. Just dramatic growth, fantastic new product development and introduction, and superb rates of return.
by Adam Hartung | Aug 28, 2006 | Defend & Extend, General, In the Swamp, Leadership, Lifecycle, Lock-in, Quotes
I need to thank one of my readers for bringing to my attention a recent BusinessWeek article on Dell (see article here.) As he pointed out, this article comes almost exactly 3 months after I talked about how Dell’s Lock-in was disastrous. There are some great quotes worthy of sharing:
Regarding Lock-in:
- "Dell remained slavishly loyal to its core idea of ultra-efficient supply-chain management and direct sales to consumers, even as rivals have stepped up their game and markets have shifted to take away some of Dell’s key advantages. Instead of adapting, critics say, Dell cut costs in ways that compromised customer service and, possibly, product quality."
Some readers may recall on April 16, 2006 when I pointed out Wal-Mart’s problems and discussed the risk of being a 1-Trick Pony:
- "They’re a one-trick pony. It was a great trick for over 10 years, but the rest of us have figured it out and Dell hasn’t plowed any of its profits into creating a new trick."
Regarding identifying Telltales of big problems that indicate a company is moving into the Swamp – or Whirlpool:
- "Dell’s culture is not inspirational or aspirational," says Geoffrey Moore, a tech consultant and author of Dealing with Darwin: How Great Companies Innovate at Every Phase of Their Evolution. "This is when they need to be imaginative, but [Dell’s] culture only wants to talk about execution."
Of course, in an execution focused company there is no room for White Space, and you don’t get innovation:
- "They don’t feel they’re part of something at Dell, and they generally leave because they feel frustrated," says Snyder. "Dell is not a fun place to work, and it’s less fun now than it used to be."
- "Even the CEO admitted so in 2003 – "There are some organizations where people think they’re a hero if they invent a new thing," he said. "Being a hero at Dell means saving money."
- "Inside Dell, ideas that break from the model are discouraged, say former Dell managers. Notes one: "You had to be very confident and thick-skinned to stay on an issue that wasn’t popular. A lot of red flags got waved—but only once."
Lock-in makes you an easy target for competitors:
- "But it was clear some time ago that Dell’s model was not keeping pace and was not going to be such a big advantage in the future… And while experts believe Dell got the best prices on components when it was outgrowing all of its rivals, these days newly ascendant HP and Asian rivals Lenovo Group (LNVYG) and Acer are offering plenty of growth themselves."
Once a company commits to a Defend & Extend strategy, it becomes so structurally Locked-in it becomes almost powerless to change:
- "So why hasn’t Michael Dell—clearly a brilliant guy—changed tactics? For starters, say rivals and Dell alums, shifting gears would upset investors who expect hyper-profitability from Dell’s hyper-efficiency. And having stuck to his guns in the past, he can’t risk letting customers think that "Direct from Dell" is no longer the cheapest, smartest way to go."
By following the Siren’s song of "operational excellence" Dell adopted a Defend & Extend strategy that has placed it at great risk. Now it lacks the tools for innovation that could help the company to have a longer, more successful future. Without a serious Disruption, and new leadership that can implement and manage White Space Dell’s future is easy to predict.
by Adam Hartung | Aug 27, 2006 | Defend & Extend, General, Leadership, Lock-in
Almost two years ago I published a case study comparing McDonald’s and Motorola (download paper here). As a reader of this blog you know the former I don’t care for, while the latter is doing all the right things.
This week, the #2 fellow at McDonald’s abruptly left. Why? Because he was considered to radical, and too quick to try and change things. As you know, McDonald’s dramatically cut back its number of stores 4 years ago. Since then, the company has sold off all it’s growth businesses, and has made minor changes to the existing stores which has helped them to improve sales and profits – although the company still does not support the number of stores it once did. And McDonald’s still is not winning the battle for growth against Starbucks and other less Locked-in competitors.
The thing McDonald’s most needs is someone willing to Disrupt the organization, install White Space and get the company on a growth path for the future. Unfortunately, the current CEO, Chairman and Board members are more interested in historical consistency. Content to Defend & Extend a Success Formula that is no longer leading the marketplace, they have pushed out their best hope for rejuvenating the organization.
Meanwhile Motorola last week again announced it is taking market share from competitors. Its phones simply keep attracting new customes, as unit volumes are up 46% versus a year ago. As you know, Motorola’s Board took the opposite set of actions that McDonald’s took, putting in place a CEO who has Disrupted the company and installed White Space in multiple locations.
While McDonald’s has shown signs of reviving the last couple of years, it is important to remember that it still is smaller than at its peak, it has sold off its growth businesses (such as Chipotles) and it is not the dominant market leader it once was. This most recent action simply demonstrates that the Board is more interested in Consistency than Success. Too bad for all those employees and shareholders.
