by Adam Hartung | Dec 4, 2008 | Current Affairs, Defend & Extend, General, In the Swamp, In the Whirlpool, Innovation, Leadership
Well the heads of GM, Ford and Chrysler are back in Washington asking Congress for cash. According to Senator Dodd it's a sure thing they'll get it (read article here). And accordinto the the Government Accountability Office even if Congress doesn't approve bailout money, Treasury or the Federal Reserve can provide assistance from the TARP fund (read article here). So, it looks like something will happen.
This time the auto companies are saying they intend to "reinvent" themselves with the money. Uh-huh. And exactly who's going to lead this re-invention? Why the same leaders that got into this problem. Now, do we believe that? A lot of people in Congress have their doubts – seeing as how the bankers didn't seem to change much after being told they would get bailed out. So these Congressional folks are saying they want the auto leaders to report back on their plans to change – and of course GM's head said he'd be happy for the oversight. "It would be very helpful for us, whether it's a board or an individual, to have someone to work with on this, to submit our proposals and then for that person to say,'OK, don't agree with that. You've got to change this," said GM CEO Richard Wagoner. (Read quote and more here.)
So Senator Dodd and Speaker Pelosi – for the good of America – I volunteer for the job. I'll review GM, Ford and Chrysler's plans for innovation and report back on the likelihood of them revitalizing the industry. Now that I've put that on the table – I'll just wait for your phone call or email – you can reach me right here through this blog if you like (see the "contact me" area).
Oh, you don't think I'm the guy Mr. Wagoner had in mind? Why not? Do you suppose he was looking for some "industry guru" who is already sympathetic to his claims that the problems are not of management's making – but rather due to economic circumstantces? Do you think Mr. Wagoner prefers someone who is more traditional, on corporate boards that have been agreeable to CEOs for years – accepting of their tough jobs and approving their extreme paychecks? Do you suppose he doesn't want somebody who has expertise in innovation at all, but rather someone who wants to slowly seek change via one small, incremental step at a time, because that's the way big companies do things? Perhaps someone with government experience, used to the pace of change in government agencies? Or perhaps a lawyer who will be sure all actions are within current legal boundaries – whether they actually create benefit or not?
I do think GM and Ford can be saved. But I don't think current management will do it. They are so Locked-in, so used to the "boundaries" of convention, that there is no way they can create companies competitive with Honda, Toyota and Kia. The first thing any oversight agency should do is change the leadership teams, attack the industry Lock-ins and establish White Space to build a new company. Maybe look at Tessla – the electric car company auto execs love to laugh at — but that hasn't asked for any money from Congress as it's built its sold-out sports car using laptop batteries – for some new management. Or ask John DeLorean to quit dealing drugs long enough give up a few ideas (Ok, that is going to far). But surely, with all those talented graduates at the University of Michigan and Northwestern there has to be some people ready to actually do things differently.
GM needs more than oversight. It needs change. Big change. Let's hope Congress takes Mr. Wagoner's words to heart and finds somebody who knows something about innovation to watch over the billions they give these companies.
by Adam Hartung | Dec 1, 2008 | Disruptions, General, In the Rapids, Innovation, Leadership
You don't have to agree with Rupert Murdoch's politics to recognize his business savvy (in fact, ignore them if you want to understand his business acumen). A new book is coming out today on his life, and according to reviews and interviews with the author, it continues to reinforce how Mr. Murdoch followed The Phoenix Principle for building News Corp. into a major, industry leading, corporation. (read about the book here)
Don't forget that News Corp. began as a small Australian newspaper company. As large as Australia is physically, it is sparsely populated. While you may recognize an Australian accent, I bet you struggle to name an Australian corporation. It's relatively small population, abundant natural resources and remote geography (don't forget, it's an island continent) means it is easy for Australia to be missed on the global business landscape. But it is from these humble roots that Rupert Murdoch saw great opportunities for growth if he first moved into newspapers around the globe - eventually becoming what is now America's largest media empire.
Not only does Mr. Murdoch plan for the future, rather than fixating ont he past, but that Mr. Murdoch obsesses about competitors is made clear in his biography. His fixation on CNN helped move Fox News from a fledgling idea to the #1 rated news channel. He fixated on CNBC when deciding to recently launch Fox Business Network. Obsessing about competitors, especially when in a different field, is a trademark of Phoenix Princicple companies that make long-term higher rates of return. They let competitors lead them into new businesses – where they learn and grow.
Mr. Murdoch is certainly Disruptive, and his biographer describes him as "the least corporate person I've ever met in corporate life." And this sort of willingness to Disrupt is what made it possible for News Corp. to win the bidding for MySpace.com. News Corp. is not just a newspaper company – it has vast interests in fim, broadcast television, cable television, direct broadcast satellite, magazines, inserts, books and the internet. Such widespread White Space keeps News Corp. out front of its competitors. (See News Corp holdings and business interests here.)
Contrast this with Ted Turner's empire, for example. Like Rupert Murdoch, Mr. Turner started with a company that was almost exclusively a billboard enterprise – and almost exclusively in the south. Yet, he was able to see that the future of broadcast media was much stronger than billboards, leading him to move forward with projects in radio, broadcast TV and eventually cable television. Launching CNN as the world's first global news network put his company in the forefront of the media industry.
But, eventually Mr. Turner sold his company to another television, film and magazine company – Time/Warner. Rather than continuing to branch out with White Space onto the internet, Mr. Turner agreed to a "grand play" by merging with AOL. Instead of White Space where Turner could learn to expand and grow, with multiple investments in the new media environment, Turner/Time/Warner became trapped in a very costly, and over-committed, situation with AOL. Too early in the lifecycle, and with insufficient learning opportunities, this became a grand disaster leaving Time/Warner a far weakened competitor – and making it possible for Google to emerge as the leading American on-line media company.
I don't ask that you like Rupert Murdoch. Nor that you like News Corporation. Nor that you agree with the heavy political overtones of Mr. Murdoch and those on his executive team. In fact, feel free to disagree with their politics vehemently. But if you look at their business results you see an organization that followed The Phoenix Principle to great success. And, as the media business keeps changing, we will see many competitors disappear – especially those too closely aligned with print and broadcast news. But I would not expect News Corporation to be one of those struggling to survive. Its practices have positioned the company well to continue growing, despite dramatic industry dynamism. And that's what being a Phoenix Principle company is all about.
by Adam Hartung | Nov 15, 2008 | Defend & Extend, Disruptions, General, In the Whirlpool, Innovation, Leadership, Lock-in, Openness
On Tuesday, New York Times columnist Thomas Friedman (author of The World is Flat) chided the auto companies for their lack of innovation and desire for government assistance (read article here). Setting off a firestorm of comments across the web, he not only recommended replacing the Board of Directors and executives at GM (as I have blogged), but went so far as to recommend asking Steve Jobs to take over GM leadership as an act of national service.
The other side of this argument was made by columnist John Dvorak on Marketwatch (read article here). Mr. Dvorak says this is a foolish idea, because the auto industry is so integrated and unique that only someone within the auto industry could hope to run an auto company. He recommends searching within the bowels of the auto companies for some overlooked wonderkind who is able to turn around the organization while maintaining the existing business model. He goes on to say that the only reason Steve Jobs has been successful is due to the unique features of the tech industry, implying no tech manager could hope to run a company as complex as GM.
Mr. Dvorak suffers from the sort of traditional management thinking that has gotten GM (Ford, Chrysler, Citibank, Washington Mutual, Sears, General Growth Properties, Sun Microsystems, etc.) into big trouble. As he lists off the "unique features" of the industry, and discusses "the manufacturing, inventory, subassemblies, delivery and other systems that are in place…too delicately balanced and complicated for a newbie to deal with" he describes Lock-in. Mr. Dvorak views what's been done in the name of Defend & Extend Management as good – and therefore necessary to keep. Thus, any turnaround would require doing more of what's been done – hoping somehow doing it better, faster and cheaper can make the company successful again. But he completely ignores the fact, which he actually makes in his article, that there are a lot of other auto companies competing with GM, Ford and Chrysler — and they are better at running these complexities than GM, because they are able to make autos that customers purchase at a higher profit. Mr. Dvorak ignores the obvious fact that it is very likely the structural and behavioral Lock-ins which he thinks impossible for a new leader to manage that are causing the horrible results in the U.S. auto companies. He ignores the notion that it is the very heart of the GM Success Formula that is competitively outdated, and thus causing these horrible results.
Successful turnarounds are rarely accomplished by people who are part of the industry. Because those in the companies are Locked-in to the Success Formula which is producing the poor results. Existing leders and mangers accept those Lock-ins, and that old Success Formula, thus trying marginal changes – or more of the same but with less resource. What really works is when a new leader implements significant Disruptions that cause people to approach the work with a very different frame of mind, and then implement White Space projects (usually several, and with lots of resources and visibility) which allow the company to develop a very different Success Formula to which the company can migrate. Example – consumer products leader Lou Gerstner's turnaround of tech giant IBM.
While Steve Jobs likely could make a significant difference in GM, I don't think it has to be Steve Jobs. We so love our heros we start thinking only they can make a difference. What GM needs is new leadership that works like Steve Jobs. Leadership that (a) focuses on future needs rather than current problems (b) obsesses about competition rather than thinking all solutions lie within the company (c) is not only willing to be Disruptive – but enjoys creating Disruptions to the Lock-ins which overwhelm the Status Quo Police and (d) set up White Space projects where leaders are given permission to do things very differently, and the resources to achieve significant goals.
It can happen in the auto industry. About 25 years ago much maligned Chairman Roger Smith took cost savings from closing outdated plants in places like Flint, Michigan (the reason for Michael Moore's first docu-story Roger and Me) and invested them in a start-up company called Saturn. Saturn was White Space where the leaders were not forced to follow old G.M. Success Formula tactics – like keeping the same union contracts, or using the same components, or using the same dealers, or using the same customer pricing mechanisms. Saturn came on the scene with great fanfare. With only 3 vehicles in their initial line-up, the company's brand became "Apple-like" with its near-cult status. People loved the smaller cars, the focus on safety and consistency, the no-negotiating price method and the low-pressure dealerships. This was a great example of White Space that produced a very significant change in customer opinions about American cars - and car companies – and in just a few years.
Unfortunately, Roger Smith retired and over the years GM's management has dismantled what made Saturn great. Rather than migrate GM in the direction of what made Saturn a winner, they slowly pulled Saturn into the old Success Formula of GM, killing its advantages. Away went all the uniqueness of Saturn as it was turned into just another division GM. Similarly, the acquisition of Hummer from American General offered an opportunity for GM to move in unique directions – but quickly Hummer became just another division which focused on a narrow product range and eliminated much of its uniqueness homogenizing the brand into something far less desirable. GM spent billions on developing an electric car, more than a decade before the hybrids were launched by Toyota and Honda. But management's Lock-in to preset ideas about what that car needed to do caused them to kill the project — and go so far as to sue test customers to retrieve the electric autos they LOVED.
GM desperately needs leaders willing to Disrupt. And willing to implement White Space to develop a new Success Formula. Leaders willing to let the company migrate toward new ways of operating – who believe it is essential. People like Steve Jobs. People the auto companies weeded out long ago when forcing those who move up to slavishly accept the failing Success Formula and focus on Defending & Extending it – despite the declining results. It will take people from outside GM, Ford and Chrysler to turn them around. It can be done.
by Adam Hartung | Oct 17, 2008 | General, Innovation, Leadership, Openness
Ever heard of "confirmation bias"? It’s a term that refers to how our behavior changes due to Lock-in. As we develop Lock-in we don’t see all the information around us. Instead, we start filtering information according to our Lock-ins – focusing on the things related to what we know and mostly ignoring things not related. As a result we often start missing things that could be really important. Consider someone who makes hammers (or pheumatic hammers) and nails. They can easily ignore glues, or super-powerful adhesive tape, when those solutoins might well be a greater long-term profit threat than offshore hammer and nail manufacturers!
Another example. A recent headline in The Chicago Tribune read "Abbott Absorbed with new Stent Therapy" (read article here). (See Abbott chart here) The article talks about how newly engineered dissolvable stents have been working extremely well in trials. If you aren’t in the health care industry, or being treated for a possible heart attack, or an investor in Abbott, you might well completely ignore the article. But, that would be a mistake.
Bio-engineering is going to be as important to our future as air travel and computers became. It was easy for people in 1928 riding horses, or driving a Model A, to think air travel was something exotic and only interesting for people obsessed with flight. But, we all know that by the end of WWII airplanes had changed the world, and the way we travel. Likewise, it would have been easy for people with slide rules and adding machines in 1968 to ignore computer discussions when they were mostly about mainframes in air conditioned basements. Yet, by the 1980s computers were everywhere and businesses that were early adopters figured out how to gain significant advantages. And that’s the truth about bio-engineering today. It will make a huge difference in all aspects of our lives.
Fistly, simple things. Like we’re more likely to live longer. But beyond that, injuries will be less onerous. As we learn how to engineer products that are somewhere between inanimate and living, we are able to come closer to the bionic man/woman. We’ll be able to repair major injuries in a fraction of the time. We’ll be able to regrow damaged organs – from skin to livers. We’ll regrow nerves – making paralyzation a temporary phenomenon and dramatically lowering the impact of strokes. Injured soldiers will return to the battlefield within days – instead of going home badly hurt. Senior citizens will regrow damaged or arthritic joints, instead of replacing them with major surgery making it possible for them to work much longer. Athletes will be able to increase performance in ways we’ve never before imagined – and the line between "natural" and "performance enhanced" will become impossible to define.
But think bigger. There is no computer in our bodies, yet we do amazingly complex analytics in record speed. Even a 2 year old can recognize the difference between a bird and a plane in a fraction of a second. Ask a computer to do that simple task! So we can expect a wave of bio-computers to be developed. Devices that use chemical reactions to process information rather than electrons acting in logic gates. How will we apply this technology to our lives and work? Cars that drive themselves? Super-secure baby walkers? Pens that never misspell words? Foods that never overcook? Foods that never spoil? Clothes that change to dissipate or hold-in heat depending on ambient temperature? Floors that purge themselves of dirt – pushing it to the surface for automatic removal?
When we are able to make chemicals – even cells – smart, what happens to the world around us? Do we ever need to go to a dentist if we can have smart toothpaste that eats away tarter and placque, applying flouride, without going into the enamel? Can we eat anything we want if we take products that absorb poison – or possibly fats – and discharge it through the system? Do cosmetics become obsolete if we all have skin creams that repair damage and keep skin forever young? What happens at companies like Procter & Gamble?
As you go to work and do your job, it’s easy to get focused on the industry in which you compete – and the traditional way that industry worked. You stop looking sideways at technologies in other fields not related to what you do today. And that can be a huge mistake. Because it’s often someone that takes a technology you ignored and apply it to your customers’ needs who makes you less valuable. Microsoft singlehandedly, and without much thought, destroyed the encyclopedia business by giving away what was considered a third-rate product (Encarta – for more on this story read Blown to Bits by Evans & Wurster). Encyclopedia Britannica never saw it coming as they kept trying to print a better product.
Spend some time reading ALL the headlines – and keep your eyes open for opportunities that you previously never considered.
by Adam Hartung | Sep 18, 2008 | General, Innovation, Leadership, Openness
After my blog on Tuesday, I was bashed by a number of folks as a pessimist – or worse. Some have said my willingness to discuss America’s financial crisis in a negative light based on the assessment it is likely to worsen, as well as the loss of America’s manufacturing base and jobs, is far too negative. I’ve also been accused of being Chicken Little and claiming the sky is falling – when we’re only in for a patch of rough weather. Some have quoted presidential candidate John McCain and said that our best days are surely ahead of us, and I should be less gloomy. So are my detractors right?
I don’t know what the future will bring. I have no crystal ball. I have no ability to time travel. I cannot foresee the future. And that was not my point. Rather, what I’m recommending is that we all use scenario planning to help us create a strong future for our lives, our work teams, our functional groups, our businesses, our industries and our economies. Whether our futures are bright or gray has everything to do with what actions we now take – and those must be based on our scenarios of the future. If our actions prepare us to be more competitive in the future, we can be far more successful than we were in the past. Yes, our best days will lie ahead for all of us who are preparing for the shifted marketplace – who are moving to implement based on future scenarios that are different from the past. What these news headlines are telling us is that markets have shifted, and the future will not be like the past.
The risk is that our planning is not effective. Too often planning is based on extending the past. "This is what it was always like, and I’m sure things will return to the old ways soon enough." When we build plans based on the past we start using confirmation bias to help us believe our extension planning is the most likely case. After all, up until a market shift the planning has been right – hasn’t it! Recently one fellow told me that while several of America’s largest and most powerful financial institutions were failing he wasn’t worried because a local bank he knew was doing quite well, according to its leaders. His bias that things will work out allowed him to take this piece of information and use it to discount all the information in the news that America’s financial system is in crisis. He’s not stupid or foolish – he just allows his Lock-in to the past to permit using data in a way that confirms what he wants to believe. We all do this, and often it’s no big deal. But, when market shifts happen, confirmation bias that allows us to keep faith in a future similar to the past can be deadly.
The folks running Bear Stearns, Lehman Brothers, Merrill Lynch, AIG, Freddie Mac, Fannie Mae and Washington Mutual were/are some of the smartest people in business globally. (Add up the incomes of the "C" level execs in these companies and you’d have enough money to operate several state governments). But their belief that "things would work out" allowed them to keep following a plan which did not meet market reality. Shifts were happening in the worlds of real estate, manufacturing, commodities and finance that were preparing to upset their proverbial applecarts in a major way. They weren’t stupid, but they also weren’t prepared. Their scenarios of the future did not account for these shifts, and as a result they have been struck down. For them, there best days definitely don’t lie ahead. For some of them, there is no future. Not for the companies, and not for their employees or customers. Not only are the shareholders being wiped out, but those customers that depended on these institutions for financing are now scrambling to figure out what to do next. A lot of people are finding life very tough this week because these organizations had plans based upon extending the past – rather than cold assessments of what might happen in the future.
There will be winners coming out of this financial crisis. Some will be in the USA. Some will be elsewhere. Those who will succeed will be those who compete based upon where the markets are headed – not where they have been. While some analysts are recommending people invest in Coke, Pepsi, General Mills and Kraft, the reality is that those recommendations are nothing more than looking for a life raft (any raft, no matter the quality) so you can escape the sinking ship (and ignores that the best life raft is simply cash or treasury bills). The winners will be those competitors that build on the underlying factors which created this crisis, implementing new solutions. Because there will be loans tomorrow, and there will be banks, and there will be a need for financing. But the market will be different. And those who are prepared for this difference, for this new market, will do much, much better than those who are not. A situation like we’re seeing now in American finance is only a problem if you aren’t prepared.
Those competitors that perform well year after year after year after year are the ones who don’t simply plan by extending the past. They build scenarios that take into account many factors – including factors which can doom their Success Formula. They don’t ignore the scenarios that put them at risk. In fact, they invite outsiders to their planning (advisors, consultants, investors, lost customers, etc.) who will point out confirmation bias. They invite the creation of scenarios that require a different Success Formula – so they can understand what they will have to do if they are to continue succeeding regardless of market shifts.
I’m not pessimistic about the future. I’m optimistic. Creative Destruction (see Joseph Schumpeter here) means that out of every failure you have the creation of a new opportunity. I can only be seen as pessimistic by those who want the future to be like the past. Only if you are wedded to past extension do you find this "crisis" something to ignore, avoid or hope simply isn’t going to really happen. If you are committed to a successful future then this is an opportunity. It is an opportunity for those who are willing to Disrupt their Lock-in and use White Space to develop new Success Formulas that take advantage of the market shift.
Smoothing out the ups and downs is all about effective scenario planning. If you are willing to use big trends to develop scenarios of the future you can prepare for almost any circumstance. And those who are prepared find market shifts the time to take advantage of competitor weaknesses and grow. Are you planning for the past to return, or are you developing scenarios of the future that could be very different from today? If you’re the former, it’s going to be a rocky ride. If you’re the latter, you could be the next Google. The DJIA can fall 1,000 points, and that is immaterial if your plans are based on the market requirements of the future. Those companies which are focused on the future scenarios are the ones to invest in.
by Adam Hartung | Sep 16, 2008 | Disruptions, In the Rapids, Innovation, Leadership, Openness
There has been a lot of press recently about the terrible situation for retailers. With house prices plunging, incomes stagnating for 6 years, and credit tight we’ve entered a consumer-led receission in the USA. Analysts are giving plenty of reasons for retail companies to do poorly. About all the big boys are seeing declining revenues – and even the behemoth Wal-Mart is barely growing and it’s doing all the price-chopping it can. Walgreens, the nation’s fastest growing retailer, has slowed its store openings. Jewelers are going bankrupt. A single stumble seems to have led clothier Steve & Barry’s into bankruptcy despite a great reputation with college students. In the middle of this, one company is going into the retail business, opening new stores in hotly contested markets like Chicago. L.L. Bean (read story here).
L.L. Bean has been around a long time, selling product via catalogs. Of course as the internet blossomed and web pages replaced catalogs, their sales on–line grew as well. They’ve long made money as a catalog-based retailer. Their distinctive product line of outdoor-oriented gear, coupled with their catalog distribution, has been the L.L. Bean Success Formula. Yet, now in one of the worst retail markets in recent history the company is moving into traditional brick-and-mortar retail. To traditional analysts, this seems nuts. But L.L. Bean is showing all the strengths of a Phoenix Principle organization. Like Virgin, that launched a profitable airline when everyone said airlines were impossible to make money, L.L. Bean is moving now when the traditional retailer’s Success Formulas are most at risk.
- Traditional retailers are suffering. This shows that the industry Success Formula is producing diminishing returns. The industry is primed for change, because Locked-in existing players are trying to "hunker down" and do "more of the same." This provides a great opportunity for a new player with game-changing ideas to enter the market.
- L.L. Bean’s stores are not targeted at existing retailers. They are targeted at what will make retail stores successful in future years. The plan is all around what people will want in the future to shop at retail, not what has worked in the past.
- L.L. Bean is focused on competitors, and how it can beat them. This move is not about trying to Defend & Extend the old L.L. Bean business, it is about taking advantage of weakened competitors at a time of market shift. L.L. Bean isn’t opening these stores in Chicago (and other places far removed from its traditional market of Maine and the Northeastern U.S.) because customers told them to – they are doing it as a way to be more competitive. For a long time the midwest was a difficult competitive market because of Lands End based in Dodgeville, WI. But since being acquired by Sears Lands End has grown considerably weaker, creating an opportunity for L.L. Bean.
- L.L. Bean is disrupting it’s old Success Formula. These stores have nothing to do with the old centralized catalogue sales and distribution tactics. And the stores are industry Disruptive environments that are as different from a Sears, Wal-Mart, Eddie Bauer or Aeropostale as they can be. L.L. Bean isn’t just trying to sell more stuff in new markets, it is creating an entirely new approach to how it sells.
- L.L. Bean is not trying to extend its old Success Formula. It is using White Space to develop a new Success Formula that will allow the company to be far more successful in 2015 than it was in 2005 or 1995 or 1985. By using White Space since launching its first stores, L.L. Bean is experimenting – trying new things – and learning how to be more successful in a shifting retail marketplace.
When markets shift the existing leaders often stumble. By trying to Defend & Extend their old Lock-ins they hope to regain past results. But shifting markets make old approaches create declining returns. The result is an opening for new competitors, with new Success Formulas, to take advantage of the shift. These new competitors, whether brand new, or a company willing to retool like L.L. Bean, use White Space to figure out what works in the new marketplace. So even when you hear how bad things are in any market, and the existing players are talking about cutting back, there’s always room for a winner. If they are willing to undertake Disruptions, and use White Space to learn what creates the new Success Formula.
by Adam Hartung | Sep 3, 2008 | Defend & Extend, General, In the Swamp, Innovation, Leadership, Openness
Today Coca-Cola (see chart here) announced it was planning to acquire the largest juice company in China (read Marketwatch article here.) At a cost of $2.4 billion Coke is hoping to expand its footprint in the most populous country on earth. Are you excited? Most people aren’t – and there’s no reason to be.
What’s the innovation in this move by Coca-Cola? What are they doing that’s new? Nothing, of course. This is a simple extension of the same soft-drink business Coca-Cola has been in for decades. More of the same. Yes it’s good that they would want to do more business in the very large and growing Chinese market – but this is more Defend & Extend behavior trying to support existing Lock-ins. At first it may sound obviously good, but what’s not discussed is how much local competition Coke will face. Nor how much competition from European and other competitors. Without innovation, this kind of extend tactic will face all the traditional market competition and is unlikely to produce exciting (above-average) results. Just look at how little difference offshore acquisitions and expansion have made to Wal-Mart or GM – because as D&E plays they allow competitors to keep banging away at the company’s declining Success Formula. Just because a company announces it is entering a new market does not mean they will sell more stuff, nor make more money.
We can see that Coke is struggling to innovate when the same announcement says that the company is planning to spend $1billion in a stock buyback this year. This is an admission that without anything innovative to invest in the company is going to use its cash to prop up the stock price (which will benefit the bonus of the top execs.) Coke cannot regain its great growth glory if it’s spending all its money to do more of the same and buy its own stock. That’s the cycle of doing only what the company knows, which is why the business has been suffering from declining marginal returns for almost 20 years (Coke is down almost 50% from its highs reached in the mid-90s, see long-term chart here). Even the recently published memoirs of the ex-COO at Coke is a study in how to try avoiding failure – rather than seeking success (The Ten Commandments for Business Failure is currently paired with Create Marketplace Disruption on Amazon – a distinct contrast in approach to business management.)
This is the flip side of the discussion in yesterday’s blog about Google’s Chrome release (see video about Chrome’s launch on Marketwatch here). Chrome is significant innovation by Google trying to move beyond its traditional markets. Chrome is not about Defending & Extending Google Lock-ins to traditional markets and products. Chrome is using White Space to implement Disruptions taking Google into new markets with much higher growth, which will allow Google to remain in the Rapids. Coke’s planned acquisition is a yawner because it supports historical Lock-ins and keeps the company in the slow-growth, unexciting, non-innovative mode that has made its returns lackluster for several years. No White Space in the Coke move – just more of the same – which makes life much easier for its competitors, whether traditional or new.
by Adam Hartung | Sep 2, 2008 | Disruptions, In the Rapids, Innovation, Leadership, Openness
Today Google (see chart here) announced the launch of its new web browser – called Chrome (see Marketwatch article here). At first blush this may seem quite techie, thus uninteresting to most of us. But it is big news for some very important companies – and well worth watching.
Is Chrome better than Internet Explorer from Microsoft (see chart here)? I don’t know, but I don’t really care right now. There can be a lot of technical debate about what browser is best – but we all know that with IT products being a great product isn’t what’s important. If the market were dominated by great products we sure wouldn’t be using applications from Microsoft – nor databases from Oracle – or software packages from SAP. As Geoffrey Moore has written about extensively in his books (Crossing the Chasm, The Gorilla Game, and Dealing with Darwin to name just 3), success in high tech products – like success in most products – has more to do with your ability to manage the product lifecycle and attract customers than how good the product is.
What we should care about is that Google, a company known for its search engine and its ad placement machine just launched a new product into a very large market against the world’s largest software supplier (based on number of individual users). With a product that’s ostensibly free. This is a clear action by Google demonstrating its ability to follow The Phoenix Principle:
- Google is taking a product to market based upon their scenario of the future – not the market today. They see how a better browser makes getting your work done easier and faster.
- Google is focused on the competition, not currenct customers or their own internal machinations. They see a Locked-in, moribund competitor that is unable to move into new solutions.
- Google is willing to be internally Disruptive by entering entirely new markets, using entirely new metrics and with entirely different requirements for success.
- Google is using White Space to figure out how to grow revenue in the application market that everyone who uses the internet needs – a connection page/application we call a browser.
This is a very big deal. It means Google is not at all willing to rest on its laurels. Yes, it pretty much owns the "search" business and it is hugely in front with on-line ad placement. But it’s not just Locked-in to those markets and focused on Defending & Extending them. It’s ready to go into a very different market with a very different requirement for Success. It’s willing to use White Space to learn how to maintain its extra-ordinary growth rate. This is a very big deal. Google has shown it will give its people permission to do very different things, in very different markets, and authorize the resources to push into those markets aggressively. This is a very, very important step for Google that portends quite good things.
Now to the company with 75% market share – Microsoft. You might laugh and think Microsoft has little to fear. That would be like laughing when Alfred Sloan started selling all those different kinds of cars at General Motors when Ford had 75% share with the Model T. Or laughing at Honda when it first brought the Civic to American and GM + Ford + Chrysler had almost 90% of the U.S. auto market. Microsoft is big, but it’s not invulnerable. Microsoft has sat on its laurels. It’s efforts at "search" were a dismal failure. It completely missed the ad placement market. Microsoft has not offered customers an exciting advance they are willing to buy in desktop applications for years. And its last effort to excite customers with a new operating system was so ignored it had to force distributors to take Vistage by refusing to ship its old product – to howls of complaints. Microsoft is big and has lots of money – but so did Ford, GM, Woolworth’s, Xerox and a long list of other companies that once dominated a market only to fall prey to Disruptive competitors while they practiced Defend & Extend management.
What’s worse is the likely impact on Yahoo! (see chart here). Yahoo! was first to make "search" into a business (not the first search engine, but the first to make it a profitable business). But it’s share has consistently eroded as Yahoo! kept trying to do more of what it always did – while Google went out and used White Space to develop Disruptive solutions. While Yahoo! clung to its ad agency roots, Google developed the world’s largest data center to house servers for those billions of searches we all do. Google developed its own servers, and its own facilities located near rivers to cool them all. And Google kept doing things on the cutting edge of internet use to find out what would create more and better on-line advertising generating new revenue for itself. Yahoo! is trying to find a way to survive – while Google is going into whole new business initiatives with White Space Yahoo! hasn’t even considered.
Today’s announcement wasn’t just a product release by Google. Chrome shows us that Google is a company doing all the right things to stay in the Rapids of fast growth. Unlike Microsoft and Dell that Locked-in early and built a business on Defend & Extend tactics which eventually left them without innovation – Google is using White Space to get into markets that attack the heart of its biggest —- and most Locked-in —- competitor. We can expect Microsoft will do nothing – nothing but try to argue that it is biggest so best. Meanwhile, Google is taking advantage of Microsoft’s Lock-in to take customers into new solutions. This is very good news for Google investors, and very bad news for Microsoft and Yahoo! investors. Not because Chrome is a great product, but because it shows Google is a Phoenix Principle company while Microsoft and Yahoo! are Locked-in to D&E practices that are sending them to declining returns and marginal performance.
by Adam Hartung | Aug 19, 2008 | Defend & Extend, General, In the Rapids, In the Swamp, Innovation, Leadership, Lifecycle, Lock-in
Last week BusinessWeek reported on how Dell was making a strong play to catch Apple’s iTunes in the digital music marketplace (read article here). On the surface, it sounds like a good set of tactics that might work. But it probably won’t.
Apple (see chart here) is a company filled with Disruption. In fact, Disruption is the lead in the Businessweek story. The reporter, Peter Burrows, discusses how a very disruptive Steve Jobs made it impossible for one of Apple’s engineering execuutives to remain at Apple – subsequently causing a lawsuit and payout by Apple. Typical for Mr. Jobs, he was ready to Disrupt rather than continue on a path he had lost faith in. So he made a hard turn to drop Tim Bucher. It is through this process of Disruption (painful as it is) and using White Space that Apple’s market value has increased by some 13x the last 5 years.
As a disruptive leader, heading a Disruptive organization, Mr. Jobs has Apple constantly creating White Space and doing new things. Apple has gone from the Swamp – practically the Whirlpool – back into the Rapids. It is sustaining its big hit products like iPod and iTunes with new innovations, while using White Space to jump into new markets like mobile telephony and wireless hand held computing. These Disruptions and White Space projects keep Apple working on the process of innovation to grow existing markets and enter new ones.
Dell (see chart here) is a very different company. Dell is still working hard to "leverage" its "core competency" in direct-to-customer sales. This approach has led Dell to attempt augmenting its "core" product lines of PCs and laptops with high definition televisions, and even its own mobile MP3 device. Both are long gone. Dell is still Locked-in to the culture, processes, IT systems, HR practices, decision-support approaches, vertical silos and knowledge sets that are focused on personal computing. Dell keeps trying to find ways to Defend & Extend its "core" in the hopes that late entry into new markets will allow the company to regain past rates of return. And it’s market value is down about 1/3 in the same timeframe.
Dell has added an acquisition (Zing) to its market approach, along with the engineering exec formerly fired by Mr. Jobs. But what Dell has not done is Disrupted itself. It has not admitted it must change its Success Formula to really be successful. And, it has not created White Space with permission to do whatever is neccessary to succeed – rather than operating within the confines of the old Success Formula and old Lock-ins. Without Disruption and Lock-in this project will be hamstrung by old assumptions, culture and structural restrictions which will stand in the way of creating a new Success Formula and market success. So even though the new Dell project sounds pretty good, it is probably won’t work because the project is still in an organization that first and foremost wants to sell more PCs – it wants to sell boxes in very, very high volume to businesses that can buy thousands.
You may ask if this isn’t possibly a replay of Apple versus Microsoft (see chart here)? And the answer is no. In both markets Apple took early leadership. But in the case of the Mac versus the PC Apple Locked-in on its hardware and software platform as a system sale and was unwilling to consider any other option. At that time Apple fixated on Defending & Extending the Mac. Meanwhile, Microsoft focused solely on software – and not only the operating system but the most critical and common applications (word processing, spreadsheet, presentation and database). By changing the competition to a "Windows + Intel" platform Microsoft was able to focus on software innovations which it could then take to market faster than Apple could react.
In the early 1980s, Microsoft was not saddled with a two decade Locked-in legacy like Dell, and Microsoft was not trying to Defend & Extend its DOS operating system when it launched Windows followed fairly quickly with Word, Excel, Powerpoint and Access. Meanwhile in 2008 Dell is a 25 year old company that has historically eschewed R&D and new product development, relying on vendors to do such work as it put all energies into supply chain management and direct-to-customer selling. Now in its effort to compete with Apple, Dell is trying to build its new solution inside this old fortress – which is designed to do something entirely different. Because Dell won’t Disrupt itself, admitting it needs to evolve, and won’t create White Space, it’s Lock-ins will be the hurdles that will stop progress. It’s this legacy – a very successful one producing above-average results for most of the 1980s and 1990s – that will hinder Dell’s success. One it can overcome – but shows no signs of taking the necessary actions.
by Adam Hartung | Jul 22, 2008 | General, In the Rapids, Innovation, Leadership, Lifecycle, Openness
Apple Computer company (see chart here) has been rather remarkable. After eschewing the Newton and other products it Locked-in on the Macintosh – and almost failed. After years of declining PC market share and no new products Steve Jobs returned – and with a lot of Disruption and White Space he turned the company around. For the last 4 years Apple has been a model Phoenix Principle company.
Today Apple announced earnings (read article here), and again they were up. But analysts were concerned because the company indicated margins could decline in the next quarter to account for costs of launching new products. This is exactly the kind of feedback that ended up driving Motorola (see chart here) into its bad situation. After Ed Zander Disrupted Motorola, installed White Space and had the company acting like a high-tech power again he fell victim to the lure of margin maintenance. Instead of following up the Razr with a new product every quarter – some hitting well and some maybe not – he let disappointing sales of Rokr and other new products push him toward D&E behavior. He started focusing on Razr sales for market domination – and in the end he pushed the Motorola cellular handset division over the brink when competitors eclipsed him. Short-term margins looked great, longer-term Motorola is fighting to survive in cellular handsets (it’s biggest business).
Apple is showing all indications of continuing to do the right things. After entering new markets, it shows the ability to bring out a series of sustaining product technologies to grow revenues. Each Disruptive product opens the door for these new products which help grow revenues with new customers. Now the CFO is telling investors that new products are planned, and since sales are never assured he has to be conservative about the margin estimate! Good!! No one introducing new products can be sure of their early sales and margin. But to be like a Phoenix, and continually keep rejuvenating, you must continue to launch new products in search of new opportunities. And that is exactly what Apple indicates it is going to keep doing. For investors, employees, customers and suppliers this is good!
The worry is Apple’s reliance on the CEO. Marketwatch quotes an analyst who said investors are worried about Steve Jobs’ health after a recent pulbic appearance "Question’s about Steve’s health will weigh on the stock until he, at some point, looks better in a public forum" (read quote here.)
There’s no doubt Jobs is a good manager. His willingness to Disrupt and instill White Space has allowed him to do well for all the constituencies benefitting from Apple’s turnaround and ongoing success. But for Apple to be a truly great, evergreen, Phoenix company it must build into its architecture the ability to renew itself. Rather than rely on its leader, it needs the systems to seek out the low-return businesses to exit, and to create Disruptions that self-develop White Space which can be monitored and guide growth. Otherwise, the company will stumble when Jobs inevitably leaves. And that would be unfortunate. Businesses can become evergreen, but not if their longevity relies on the leader – the hero CEO.
At Cisco Systems (see chart here) the company mission includes obsoleting its own products. This credo promotes Disruption as it keeps managers from becoming too Locked-in and staying with a product too long in an effort to avoid "cannibalization." As a result, Cisco is not too dependent upon its CEO to keep moving it into new markets, using new technologies and launching all new products. Until Apple develops a system for Disrupting itself its reliance on Jobs will be too high – just as was true at Microsoft – and investors have reason to be wary of the long-term results.
