by Adam Hartung | May 18, 2009 | Books, Culture, Economy, Investing, Lifecycle, Phoenix
Twelve years in the making.
As professional business consultant with almost 30 years experience, Adam Hartung is all too familiar with a common malady among today’s businesses. Regardless of how much the leaders and organizations are struggling to grow revenues and profits they cannot seem to break out of below-expectation performance. Even when hiring top advisors, consultants and employees, results do not respond as expected. They seem stuck, and unable to make changes which will lead to superb performance.
Why? This question which sparked a more than 12 year analysis to determine the root of—and the solution to—the problem. Geoffrey Moore encouraged Adam to put his findings into a book, which he now endorses on the cover. The principles now covered in Create Marketplace Disruption have been affirmed as “fresh and much needed” by Tom Peters, and “a revolutionary message” by Malcolm Gladwell. Bill Gates’ co-author, Collins Hemingway, considers Create Marketplace Disruption a must read, as he details in the Foreword.
Business leadership has not yet made the transition from management in the industrial economy to management in the information economy. While much has been written about an information economy it has yet to fundamentally affect how leaders manage their organizations. True, computer technology has unleashed new business models and methods of competition. Yet most leaders are still using management techniques which were taught in the 1970s and developed for the industrial economy.
To a large degree, the current disconnect is to be expected. The Russian economist Kondratiev demonstrated that economies move on a particularly long wave of approximately 75 years. He postulated that this was due to major changes in technology which took a very long time to reach adoption, massive use, decline and eventual replacement by another important new technology. Initially, the technology is used merely to improve existing processes and speed existing competitive models as we have seen with computer technology. Eventually, the full impact of the new technology creates new methods of competition which obviates the old, ushering in new rates of productivity and new methods of growth. We are at this fulcrum today.
For decades companies have prospered through “Defend and Extend” (D&E) Management—establishing a Success Formula, then improving and protecting it against competitors. In the Industrial Economy this worked well because size, economies of scale, and entry barriers were important. But today, due primarily to the emergence of information transparency, Success Formulas are being duplicated practically overnight—robbing companies of their competitive advantage. Practicing D&E Management in this environment is a prescription for failure, and yet that is what almost every company, large and small, is doing. And how most leaders are trying to get ahead.
In the three year period ending in 2003, bankruptcies of public companies increased 855% over the three year period ending just five years prior, and for companies with assets over a billion dollars the increase was an astounding 1,750%. To reverse this trend, companies must turn conventional wisdom on its head. Instead of looking to their Success Formulas as the solution to their problems, companies must learn to see their Success Formulas as the source of their problems. Companies must embrace the Phoenix Principle and become both willing and able to reinvent their Success Formulas… over and over again.
In recent years, Adam Hartung met with hundreds of senior executives. Almost every business leader sang the same sad refrain: every quarter of every year is a brutal struggle to make their numbers. Most admit that they don’t really know what to do to make things any better—nothing they have tried has made a sustainable difference. Historical tactics, including mergers and acquisitions, extensive cost-cutting, streamlining processes, outsourcing, and various quality programs have made little or no impact on competitiveness.
Well-meaning but increasingly outdated advice from business gurus such as Jim Collins and Larry Bossidy to focus on execution and optimize the core business are only making matters worse. Create Marketplace Disruption uses The Phoenix Principle to rebut the “optimize and execute” message while providing simple but powerful models that explain why so many companies are struggling to such an extent. The author illustrates with many convincing examples and case studies how the inevitable consequence of D&E Management has been lock-in to outdated Success Formulas leading to worsening performance. This has resulted in a vicious cycle of cost-cutting and profit erosion, eventually leading to failure.
D&E Management causes managers to behave as if their organizations are exempt from market and competitive shifts which can make their Success Formula obsolete. Many managers cling to the myth of business perpetuity as a rationalization for their mature companies to use continuous improvement as a way to create, then maintain, above average returns—even when the evidence overwhelmingly indicates otherwise. The hard truth is that the techniques Michael Porter published for competing in the 1980s no longer generate sustainable competitive advantage. Entry barriers are now exit barriers, supplier and customer leverage are short-lived, and focus on product innovation and cost reduction is far less likely to create success than implementing alternative business models.
Business leaders must embrace a new model for managing based on The Phoenix
Principle. This entails rethinking the traditional approach to organizational lifecycle management in several ways, including making profits in the growth stage, planning on very short periods of competitive advantage, and exiting businesses much quicker than before. The Phoenix Principle emphasizes leaders’ responsibility for disrupting existing Success Formulas in order to experiment with new and innovative profit opportunities. While agreeing with author Clayton Christensen on many points, the author confronts Clayton’s claim that established companies cannot compete against, nor implement, disruptive technologies. Instead, the author demonstrates a process whereby any organization can most definitely enhance innovation, growth and change, including installing a culture of continuous renewal through new processes and changes in the employee mix.
Create Marketplace Disruption provides readers with hope that even the most locked-in organizations can renew themselves. Through a four-phase approach backed up with solid examples, business managers will learn how to reinvent locked-in Success Formulas at the individual, work team, business function, operating unit and company levels. This book provides the vernacular and practical “how to” information to undertake the “Re-Imagining” recommended by Tom Peters. Additionally, the author introduces readers to breakthrough thinking, which is the ability to challenge and change assumptions at the individual level. Readers are given powerful tools for transforming Locked-in behaviors, and developing new solutions for today’s dynamic business competition in the Information Economy.
This book will help beleaguered business managers understand why their organizations are struggling, why their actions not only aren’t helping but are contributing to the problem, and how leaders and individuals can Disrupt and reinvent their Locked-in Success Formulas to generate significant breakthroughs in performance.
by Adam Hartung | May 8, 2009 | Current Affairs, Defend & Extend, Disruptions, Food and Drink, General, Innovation, Leadership, Lock-in, Openness, Television, Web/Tech, Weblogs
Where the people go, advertisers will follow. Why pay for an ad at the end of a never traveled dead-end street? The purpose of advertising is to reach people with your message. And now "Forrester: Interactive Marketing to grow 11% to $25.6 Billion in 2009" reports MediaPost.com. When print advertising is dropping (direct mail down 40%, newspaper down 35% and magazines down 28%), the on-line market is growing and expected to reach over $50billion by 2014. Search ads is the biggest, with over half the market, but social media is expected to grow the fastest at over 34%/year.
Such a market shift indicates that those who buy ads need to be very savvy about what works. Like I said, you don't want to be the fool who jumps into billboards, only to get placed on the one at the end of a dead-end road. Success means Disrupting your assumptions about advertising, and learning what work by entering White Space with tests and measurements.
In "Mobile Marketing Won't Work Here" Bret Berhoft explains why GenY simply won't tolerate intrusive ads – especially on their mobile devices. Social media are different conduits, with different users and different behaviors. Where older folks (and our parents) were content to be interrupted by ads – such as on TV – the avid users of new media aren't. And they've been known to create counter-movements attacking advertisers that don't adhere to their on-line behavior requirements.
What won't work is trying to do what Sears has done. Instead of learning how people use social media, and how you can connect with them to meet their needs, "Sears to Launch Social Networking Sites" we learn. Where everybody is using Facebook, MySpace, Twitter, Linked-in, etc., Sears decided to open two new sites called MySears.com and MyKmart.com. They hope people will go to these sites, register, and tell stories about their experiences in both retail chains. Then Sears intends to flow through good comments to Sears.com and KMart.com sites.
The horribly Locked-in Sears management keeps trying to Defend & Extend its outdated model. As people have left Sears and KMart in droves for competitors, they aren't looking for a site to "connect" with other people who are Sears centric. People use social networks to learn, grow, exchange ideas, keep up with trends. They don't register for a site because their parents used to shop there.
Sears has missed the basics of Disrupting its old Success Formula, so it keeps trying to apply it in ways that don't work. It keeps doing what it always did, only trying to do it in new places. These sites aren't White Space projects trying to participate in the social networks that are growing (like everything from illness questions to home how-tos). Rather, they are still trying to take the position that Sears is at the center of the world, and people want to be part of Sears.
Exactly how advertisers will capture the attention of participants still isn't clear. Some ideas have gone "viral" producing mega-returns for minimal investments. Other ideas have flopped despite big spending. The market is shifting, and variables keep changing (Marketers Search for Social Media Metric.) But for those who Disrupt their old Lock-ins, those who attack their assumptions, they can use White Space to learn what does work.
"Pizza Hut 'Twintern' to Guide Twitter Presence" is a great example of creating White Space to study social media advertising by participating. The new position will interact with Twitter users, and be a leader in how to interact with Facebook and other sites – even the notorious YouTube! where user content can include the very bizarre. By participating where the customers are, these leaders can develop insights to how you can consistently advertise effectively. Already Sony and Dell have demonstrated they can achieve high recall (Word of Mouth goes Far Beyond Social Media) beyond Social Media with their on-line efforts. These participants, who Disrupt their assumptions and bring in others to work in White Space will be the winners because they aren't trying to Defend & Extend the old Success Formula. They are trying to create a new one to which they can migrate the old business.
by Adam Hartung | Apr 26, 2009 | Books, Current Affairs, Food and Drink, Games, General, In the Rapids, Innovation, Leadership, Openness, Sports, Television
I recently listened to a great presentation on innovation by Bill Burnett, partner at Launchpad Partners. I recommend you download the slides to his presentation, "The CEO's Role in Innovation," in order to understand just how important innovation is to profitability as well as the CEOs role in creating the right culture. I also hand it to Bill that he not only lays out the CEO's role, but discusses what it takes organizationally to implement innovation – including getting the right people involved to go beyond just coming up with good ideas.
Markets shift. Sometimes there are long periods in which the market is reasonably the same (like newspapers). And sometimes it seems like new changes are happening rapidly (like computers). How long between shifts is impossible to predict. But it is certain that all markets shift. Some new technology, or a new form of solution, or a new way of pricing, or a new competitor will enter the market and change things such that the profitability of previous solutions declines. And it is the role of CEOs to create an open culture in which the management team feels it must keep its eyes peeled for market shifts, bring them to the company for discussion, and propose innovations which can increase the longevity of company sales and profits by addressing the market shifts.
Take for example the current shift in the sports market. This is important, because a throng of businesses advertise in the sports market. Everything from TV or radio ads during games, to ads inside event brochures, to putting logos on equipment and uniforms, to paying athletes as endorsers. Being aligned with the right sports, the right teams and the right athletes is worth a lot of money. You can legitimately ask, would Nike be Nike if they hadn't been the first company to sign up Michael Jordan – and later Tiger Woods? So the money is very large (billions of dollars) making mistakes very expensive. But getting it right can be worth billions in returns.
So catching a recent MediaPost.com blog "The Allure of Action Sports" is important. While most of us think of basketball, baseball, American football and possibly NASCAR – for GEN Y (young folks) sports is taking on an entirely new meaning. These are sports with almost no rules – just technique. They pack the stands at events such as the Dew Tour and X Games. Active participants include almost 12 million skateboarders, 7 million snowboarders and 3 million BMX riders. Not only do people watch these sports, but the most popular performers have their own cable TV shows – like "Viva La Bam." Just like football and basketball overtook our fathers' love of baseball as America's pastime – young competitors are shifting to watch and practice action sports. For people in consumer goods and many retailers, it becomes critical that the CEO provide an environment where the company can Disrupt its old marketing practices and create White Space to explore how to link with these new markets. The winners will rake in millions of higher profits. The laggards will see the value of their sports market spending decline.
Have you recognized this shift in the sports market? Are you prepared to take advantage of this shift? Are you considering sponsoring a local skateboard competition – for example – to promote a restaurant, quick stop, or T-Shirt store? You can react faster than Wal-Mart, Coke or GM – are you considering the options to grab loyal customers when they are still "McDonald's targets"?
A great example of the right kind of CEO has been Jeff Bezos of Amazon. As I reported in this blog back in January, book sales declined about 10% in 2008. You would think this would spell a huge problem for the world's largest bookseller. But SeattlePI.com recently reported "Amazon Profits Jump Despite Recession." CEO Bezos recognized long ago that book readership was jeapardized by changing lifestyles. Fewer people have the willingness to buy printed books, carry them around and take time to read them. So he Disrupted his retail Success Formula and implemented White Space to develop something new. This led to Kindle, a product which is small, light, can hold hundreds of books, can be read "on the go", accepts downloads of journals (magazines and newspapers) and can even read the book to you (Kindle has an audio feature.) And that's just product rev 2 – who knows where this will be in 3 years. By focusing on the future he could see the market for reading shifting – and he created an environment in which new innovation could be developed to keep Amazon growing even when the traditional products (and business) started declining. Kindle is now outselling everyone's expectations.
Innovation is the lifeblood of businesses. Without innovation Defend & Extend management leads to declining returns as competitors create market shifts. So it is crucial leaders, from managers to the CEO, keep their eyes on the future to spot market challenges and obsess about competitor actions that are changing market requirements. Then be willing to Disrupt the old Success Formula by attacking Lock-ins, and use White Space to test and implement new innovations which can lead to a new Success Formula keeping the business evergreen.
by Adam Hartung | Apr 20, 2009 | Current Affairs, Defend & Extend, Film, General, In the Swamp, Leadership, Lock-in, Television
How do you pick a movie to see – whether at the theatre or at home? The movie studios think you pick movies by what you see on TV ads, according to the Los Angeles Times "Studios struggle to rein in marketing costs."
I remember the old days when my friends and I grabbed a newspaper and shopped the ads looking for a flick to go see. And we were influenced by television ads as well. But, as time went by, we started asking each other, "Is that movie any good, or are all the best parts in the ad?" (Admit it, you've asked that question too.) Then we found out we could get sneak peaks from shows like "Siskel & Ebert at the movies," so one of us would try to watch that and see if we liked the longer scenes. And we didn't ever agree with the critics, but we could listen to hear if they described a movie we would like. Now, not only myself but my sons follow the same routine. Only we go to the internet looking for a YouTube! clip, and for reviews from all kinds of people – not just critics. Mostly when we see a TV ad we hit the mute button.
Everywhere, businesses are still wasting money on old business notions. For movie studios, they keep trying to get people to watch a big budget by advertising the thing. (To death. Until nobody watches the ad any more because they have it memorized. And get angry that the ad keeps showing.) But even the above article admits that studios know this isn't the best way any more. With the internet around, we all listen less to advertisements, and gain access to more real input. From web sites, or Twitter, or friends on Facebook, or colleagues on Linked-in. We watch a lot less TV, and what we watch is more targeted to our interest and available on cable. Or we download our TV from the web using Hulu.com. Yet, the studios are so Locked-in to their outdated Success Formula that they keep spending money on TV ads – even though they know the value isn't there any more.
So why do the studios spend so much on advertising? Because they always have. That's Lock-in. Lacking a better idea, a better plan, a better approach that would really reach out to potential viewers they keep doing what they know how to do, even as they question whether or not they should do it! The industrial era concept was "I spent a fortune making this movie, and distributing it into theatres, so I better not stop now. Keep spending money to advertise it, create awareness, and get people into the theatres." The studios see movie making as an industrial enterprise, where those who spend the most have the greatest chance of winning. Spend a lot to make, spend to distribute, spend to advertise. To industrial era thinkers, all this spending creates entry barriers that defends their business.
And that's why movie studios struggle. It's unclear how well those ideas ever worked for filmmaking – because we all saw our share of blockbuster bombs and remember the "American Graffiti" or "Blair Witch Project" that was cheap and good. But for sure we all know the world has now permanently shifted. Today, small budget movies like "Slum Dog Millionaire" can be made (offshore in that case – but not necessarily) quite well. The pool of new actors, writers, directors, cinematographers and editors keeps growing – driving production quality up and cost down. And distribution can be via DVD – or web download – between low cost and free. A movie doesn't even have to be shown in a theatre for it to be commercially successful any more. And any filmmaker can promote her product on the internet, building a word of mouth driving popularity and sales.
From filmmaking to recordings to short programs to books, the market has shifted. Things don't have to be big budget to be good. The old status quo police, like Mr. Goldwyn or Mr. Meyer, simply have far less role. Digitization and globalization means that you don't need film for movies – or paper for books. Thus, democratizing the production, as well as sales, of "media" products. Thus the old media companies are struggling (publishers, filmmakers, magazines, newspapers and recording studios) because they no longer have the "entry barriers" they can Defend to allow their old Success Formulas to produce above average returns. And they never will again. The world has changed, and the market has permanently shifted.
Is your business still spending money on things that don't matter? Does your approach to the market, your Success Formula dictate spending on advertising, salespeople, PR, external analysts, paid reviewers or others that really don't make nearly as much difference any more? When will you change your approach? The movie studios are preparing to spend hundreds of millions of dollars on summer ad promotions for new movies. Is this necessary, given that the downturn has increased the demand for escapist entertainment? Is your business doing the same?
If you want to cut your cost, you shouldn't cut 5% or 10% across the board. That won't help your Success Formula meet market needs better. Instead, you need to understand market shifts and cut 90% from things that no longer matter – or that have diminishing value. Quit doing the things you do because you always did them, and make sure you do the things you need to do. You want to be the next "Slumdog Millionaire" not the next "Ishtar." You want to be Apple, not Motorola. You want to be Google, not Tribune Corporation. Spend money on what pays off, not what you've always spent it on.
by Adam Hartung | Mar 30, 2009 | Current Affairs, Defend & Extend, General, In the Rapids, In the Whirlpool, Leadership, Quotes, Television
"This is the future of media. Whether in print, over the air or online — the delivery mechanism isn't as important as the unique, rich nature of the content provided." That's what the Tribune Corporation's COO, Randy Michaels, said in "Tribune Merges Conn. paper, stations" as reported on Crain's ChicagoBusiness.com. After filing bankruptcy, and seeing both newspaper subscribers and advertisers hacked away dramatically, Tribune is merging together all operations – newspaper and 2 TV stations – in Hartford, CT. They are cutting costs again.
We can hope Mr. Michaels means what he says, but excuse me if I'm doubtful. Despite the rapid acceleration of on-line news readership, and the fact that in most major markets Tribune has one or more TV stations as well as a newspaper, Tribune has never consolidated it's news operations or its advertising sales force. This is sort of remarkable. Going back at least 5 years, it made sense when gathering the news, or talking to an advertiser, to discuss how you could maximize his value for ad money spent. That meant a sharp company would have laid out programs showing how they could give advertisers access to eyeballs from all sources. But instead, at Tribune each station had its own salesforce, each newspaper, and each on-line edition of the newspaper. There was little effort to give the customer a good value for his spend – and no effort to discuss how he could transfer dollars between media to be a big winner. Even though Tribune was an early investor in the internet, it has not learned from its investment and migrated to a new Success Formula.
At a time when advertisers are unclear about how to justify their spending, a sharp media company would be explaining how many eyeballs in are in each format, the demographic profiles and the cost to reach those eyeballs. A company that really is "media independent" would have a big advantage over one trying to sell only the legacy products, because it isn't learning from the marketplace how to offer the best product at the best price and make a profit.
And Tribune had better move quickly. Arianna Huffington has announced the launch of the "Huffington Post Investigative Fund," as announced on the website HuffingtonPost.com. This is her effort to create a pool of investigative journalists for on-line sites who will do the kind of work we historically expected newspapers to do. She is throwing in $1.75million, and asking others to put up additional money. Thus giving this White Space project not only permission to figure out a "new age" model for investigative reporting, but hopefully the resources with which to experiment and learn. Whether this project will succeed or not is unclear, but that it is intended to make on-line news (and her website) more powerful and successful is clear. With each step like this, and this one she took all over the airwaves Monday discussing on multiple television stations, the case against quality of on-line news declines – and increases the on-line competition for eyeballs with television, radio and newspaper formats.
What we'd like to see is an announcement that the Tribune project in Hartford is a White Space project intended to figure out the Success Formula for future media. As we come ever closer to the "Max Headroom" world, depicted in the 1980s of a future where there is 24×7 news around all of us all the time, what no one knows for sure is how the profit model will work. Those who experiment first, and learn the fastest, will be in a strong position to be the leader.
Unfortunately, the Tribune announcement does not look like White Space. The Tribune leadership has still not Disrupted its grip on the old Success Formula. The project in Hartford looks more like a cost-saving effort, trying to defend the old newspaper, than a learning proposition. The project seems to lack the permission to do whatever is necessary to succeed (like perhaps stop printing), and it has no resources coming its way with which to experiment as it keeps trying to maintain all 3 of the legacy business units. Rather than a learning environment, this looks more like an effort to save 3 troubled businesses by cost saving - a Defend practice that doesn't work when markets shift and new competitors are trying all kinds of new things.
by Adam Hartung | Mar 27, 2009 | General, Innovation, Openness, Television, Travel, Web/Tech
If you can read this blog and not grin (or maybe even laugh) you're more grisly than me.
MediaPost.com posted "P&G Backs Public Toilet Database Site, App." Proctor & Gamble, supporting Charmin branding, has agreed to financially support the web site www.SitorSquat.com, which was originally developed by a New York homemaker. According to the Charmin brand manager this is considered part of the overall marketing effort which includes providing toilets at public events. His goal is that by helping people find clean places to go, it will help them remember to buy Charmin when they are at the grocery.
You have to admit, it's a clever and far from traditional idea. And certainly most of us have been in situations whether for ourselves or for someone with us (including children) we'd like to know the location of a toilet – especially a clean one. That the database can be downloaded, or accessed via the web or iPhone or Blackberry makes it a usable tool. Perhaps as valuable as an on-line restaurant guide. In times of "crisis" it could be the most valuable app on your iPhone.
But, despite the cleverness, P&G is operating in D&E mode rather than really growing toilet paper sales. The app does not discern whether the facility's paper is nice, soft Charmin, or more industrial single ply product. Nor does it even promote Charmin in rating the toilets. The stars seem to be more closely tied to mop and rag use by janitors, and accessibility, than anything else. It's unclear that this will increase demand for Charmin, much less toilet paper, and probably does little more than reinforce the brand name, by merely putting it on the site.
If P&G really wanted to grow the market for toilet paper, it would be more aggressive. For us world travelers, there are many places where toilet paper isn't as common as the USA – such as India. We all know of various health risks in India (mostly due to water issues), and P&G would be well served to promote hygiene in the developing world, including the use of disposable personal cleaning products like toilet paper. Further, P&G could develop products that use less wood pulp thus having less environmental impact, in effect a "green" toilet paper, that would incent additional use by the ecology-oriented. Or P&G could develop product from recycled or other waste material that has an even lower carbon footprint than paper (corn stalks? corn husks? banana leaves? straw?), again promoting use in the developing world (that often lacks enough wood) as well as environmental advocates.
While the database is interesting, and no doubt will get used, its business value will most likely be nill. A funny news column, but of no value to P&G shareholders. It doesn't help P&G address future needs of people regarding toilet paper (ecology, etc.), nor does it address the use of competitive products (which is non-use, or natural fibers [leaves] in the developing world). P&G has taken a clever new generation product like an iPhone app, and turned it into a very traditional, industrial use which is basic brand awareness reinforcement. Really not White Space, because no goals are given the project nor any positive results expected from it.
But, you have to admit, it's definitely "outside the box" thinking – especially for a company as stodgy as P&G. There is no doubt, this is an innovative (if sustaining) innovation in brand marketing – including the building of a web/iPhone app to promote a product. You'd just like to see P&G go a bit further in its efforts to find growth for shareholders. Have a happy weekend!
by Adam Hartung | Mar 23, 2009 | Current Affairs, General, Leadership, Lock-in, Television
Jon Friedman's Media Web Blog got it right today in it's article "How Fox Business and Bloomberg Can Gain Ground." Business news coverage was in the spotlight when Jon Stewart's The Daily Show on Comedy Central started attacking CNBC for being too business/executive friendly (see the running debate clips in the "on the Tape" section of the Daily Show homepage.) Whether Stewart was right or not, it didn't help CNBC to have some of it's spotlight personnel being trashed daily by a popular comentator, especially using their own tapes.
One would expect that financial news viewership is down, just because the recession has lessened interest in investing. But that doesn't mean CNBC is losing position. For that to happen, it's competitors – which are much smaller in share of market – have to do something to take advantage of the Stewart attacks. If everyone keeps doing what they always did, CNBC probably won't suffer much damage when the investing marketplace recovers.
So Mr. Friedman recommends that Fox Business News and Bloomberg news need to be the "anti-CNBC." I'm not sure what he means by that. But the idea is right. CNBC has been the market leader for several years, and it's Success Formula is Locked-in. It's viewer surveys have been with people who already watched CNBC, so its coverage has remained almost the same. And as more and more corporations and investment firms put CNBC on those flat-screen TVs in their lobbies, CNBC kept touting the market pitch that seemed to win them over as viewers and advertisers. As CNBC became apologists for these big advertisers, they reinforced their Lock-in to the Success Formula, and even as they Defended corporate titans and executive pay they extended their Success Formula onto the web with information that largely copied the television.
Suddenly, CNBC has been Challenged by a market shift. Like most market shifts, it didn't surface where CNBC expected, or how CNBC would have expected. CNBC was blindsided by the appeal of Stewart's attacks to mainstream television viewers, and many reporters who don't cover "the business beat." Like any good Locked-in organization, the CNBC reaction was to Defend itself, and do even more of what it always did claiming to be better and faster than the competition at reporting from Wall Street and the executive suites.
But right now CNBC is vulnerable. If Fox Business News and Bloomberg have been obsessing about the competition, now is the time to take advantage of its weakness. But to do that means attacking the Lock-in on which CNBC is built – it's very pro-Wall Street, pro-big company, pro-deregulation, pro-executive (and often pro-Republican party) positioning on practically every issue. Being a similar CNBC won't help the competition – even when CNBC is under attack. Because the attack is from a market shift, and the competition will win by moving to where the market moved.
So, what outlet reports on business news that isn't pro-Wall Street, pro-big company, pro-deregulation, pro-executive, pro-Republican? See what I mean – you can't really think of one. But are there people who invest in a 401K account, or a Roth IRA, or any IRA, or in their employer, or in their own home, who might be interested in a more "main street" and less "Wall Street" sort of positioning? Or a more balanced coverage of the pros and cons of America's biggest companies? Or those big company (and bank) executives? Or the issues related to debt, getting it and repaying it? Is there a market for business news that's been ignored, but Stewart has tapped into? Maybe call it the Suzie Orman approach to business news rather than the Larry Kudlow or "Fast Money" approach.
When companies obsess about competitors, they understand the competitors' Success Formulas and Lock-ins. And they prepare competitive actions that attack those Lock-ins. Entering a gladiator battle where everyone competes the same way just creates a lot of blood for spectators to watch, with no gain for the competitors. Phoenix Principle competitors don't attack where the competition is strong, but rather where the competitor is weak. Attack their Lock-in, so they can't react because they are stuck doing what they always did (and believe in it.). Right now is a good time for someone to attack CNBC and start stealing away viewers. To position themselves as a different kind of financial network that more people want to watch – especially when business news becomes less toxic and more interesting.
by Adam Hartung | Nov 24, 2008 | General, In the Rapids, Openness, Television
As consumers, it's easy to forget that news is a business. After all, we don't directly pay for news. It comes free to us via television, radio, print or the web. Thus, it's easy to forget that the providers rely on advertisers to foot the bill. Of course, they attract advertisers by competing to get us consumers to watch, read or listen to their news programming. So, you may not have noticed the change in competitors recently in national news – and the big difference this is having on some valuations.
Focusing on television, CNN was the first at making news into a stand-alone business. For many years, CNN was practically uncontested. But in the late 1980s Rupert Murdoch woke up to realize that any business with one player deserved some competition, and he launched Fox. Using tools right out of The Phoenix Principle, he managed to unseat CNN and become #1:
- Fox looked into the future and predicted the market for news was likely to grow, even if the market for newspapers was not. Thus, even though News Corporation had been a newspaper company up until that time, Murdoch invested the vast bulk of all money he could raise into creating a brand new, from scratch, television news company that would be on broadcast television as well as cable. Many people thought he was nuts – but he quickly proved them wrong creating enormous profits.
- Fox obsessed about competition. The new leaders studied what the competitors in broadcasting (NBC, CBS, ABC) did, and studied CNN. They looked for what they could copy – and the weaknesses.
- Fox Disrupted. Where everyone thought news had to be neutral, Fox chose to be non-neutral. Recognizing that many advertisers were corporations that perceived news media were biased liberally politically, Fox news proposed to counter that bias by being biased conservatively politically. Not only was this opportunity available, but Fox recognized there was no way to counter this position by the existing competitors. What could they say they would do differently once Fox said they were going to be conservatively biased? That they would be more neutral? Fox found a way to change how viewers thought about news coverage and what they would watch.
- Fox used White Space to develop new programming. News was not just reporting, but stealing an idea from Nightline people were hired to interpret the news. Bill O'Reilly, Sean Hannity and many others were hired to interpret the news for viewers, not merely report it. While not all of these efforts succeeded, some were wildly successful drawing so many viewers Fox surpassed CNN as #1 in cable news.
Fox developed a Success Formula that grew revenues quickly. The Lock-ins helped Fox attract viewers, and grow revenues and produce prodigous profits. But, that's not the end of the story.
In the 1990s Microsoft joined with NBC investing in a new company to launch a cable channel and internet presence. That company had wide berth, but was intended to provide news. MSNBC faced the competitive marketplace that now had both powerhouses Fox News and CNN. So, what did they do?
- Looking into the future, the leaders recognized that if there was a market for neutrality, and for political conservatism, there was probably a market for political liberalism. So they identified a counterpoint to Fox and CNN.
- They studied what worked at CNN, Fox and cable news. They identified weaknesses in them all. They recognized that many of the programs on both stations had audiences that weren't growing, leaving time slots available for alternative programming.
- And they Disrupted. MSNBC mixed general news coverage with "special investigation" programs into prisons and other locations with news interpretation programs that took a distinctly politically liberal bent. Additionally, program hosts directly compared their programs to Fox and CNN, and even blatantly compared their competitive audience size ratings.
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And there was plenty of White Space. Programs were tried, added and dropped as fast as they could get them to market. Some were produced fewer than 2 months. Others were tried in multiple time slots. And as programs were shown to have audiences, they were moved around to compete directly with similar programs on the other channels. Newscasters from other NBC programming, such as CNBC or NBC news, were shared with MSNBC creating a different operating model than existed at either CNN or Fox News. Links to MSNBC web programming were added to augment the television programs, offering multi-media capability for viewers.
As a result, MSNBC is now closely tied with Fox News and has a lead in many age groups and time slots (read Marketwatch article here.) The valuation at News Corp. has fallen 67% in the last year (see chart here) – a staggering $10.5billion.
In any market, no matter how strong the competition, the opportunity exists to attack competitor Lock-ins and introduce a new Success Formula which can grow. Even if earlier competitors used The Phoenix Priniciple, if they change to Defending & Extending Lock-in on their Success Formula and do not keep applying the principles to remain evergreen new competitors can re-apply the principles to grow and take share.
Now, in this soft economy, the tendency is to focus on what you always did. But it is during this kind of economy that weaknesses in competitors become more apparent. Opportunities to change competition can become clearer. Customers are more willing to try alternative solutions, giving new competitors a better chance of success. Suppliers are willing to take greater risks to develop new business, making new business launch easier. If you programmatically apply The Phoenix Principle, it is possible to tackle the new economic/customer requirements more quickly, and improve your competitive position.
