by Adam Hartung | Jan 2, 2006 | Disruptions, General, In the Rapids, Innovation, Leadership, Lifecycle
Most people I know think Howard Stern is an oddity. Although he’s had a loyal following for 30 years, most business people never listen to his show. And they can’t believe he’s being offered $500M to change his broadcast to satellite radio. Of course, few of them listen to satellite radio, either.
But, I think anyone who uses radio advertising had better get serious about Sirius. Many electronics stores (Best Buy, Circuit City) sold out of satellite radio equipment this Christmas. Sirius now has over 3 million subscribers. XM Radio (the competitor) has over 5 million subscribers. Quarterly subscriber growth, before Christmas, exceeded 20%.
Back when Ted Turner launched 24 hour news, and "America’s Team" (the Atlanta Braves) to fill programming for his cable TV stations most people thought cable TV was an oddity. Now, the networks have long lost their grip on market share as customers flock to targeted stations on cable TV and increasingly avoid commercials with Tivo and other Digital Video Recorders. Do we think the transition in radio will be slower, or faster? History would say that the adoption rate of similar technologies is exponentially quicker.
If you own stock in a radion station, and think people want "local programming", you’d best be taking stock of Sirius and XM. This is a serious shift in behavior. Sirius only needs 1 million new subscribers to make the Stern offer profitable. Since they added nearly 360,000 new listeners in the third quarter that looks pretty likely.
Challenges to business don’t often present themselves like a hurricane. They are subtle. Business people have to read the Challenges to catch winds early and make changes. The Telltales are showing that something is happening in radio-land. Don’t take long to prepare. If you invest, or if you depend on radio advertising, you had better pay close attention and start making your contingency plans. As shocking as Howard Stern is, he won’t cost you money like the shock of missing the lastest shift in behavior.
You don’t want to be committed to CDs when iTunes hits. You don’t want to be long on newspapers when Google’s classified ads start making inroads. And right now, I’d be paying close attention to listener behavior in radio — and thinking about how it will impact your business and investments.
by Adam Hartung | Dec 23, 2005 | Disruptions, General, Innovation, Leadership, Lifecycle, Lock-in, Openness
This week before Christmas, 2005 I had a great lunch. I was in L.A. and I called an old acquaintance to join me for lunch. He’s a great guy, somewhat trapped in an "old-line" American manufacturing company that’s been Locked-in for several years. They’ve not done their shareholders, nor their employees, much good for a decade. Executive turnover hasn’t helped as new leaders just follow worn-out strategies that have eroded their pricing and competitiveness.
"How about some Sushi?" I asked. Now, this buddy was a "meat and potatoes" guy, so my question was intended as a ribbing. I was surprised when he said, "Sure. Whatever you like." "You must be kidding" I said, "since when do you eat so adventurously?" "Over lunch" he said, leading me to wait for a juicy answer.
During the last year, he had taken on a new role helping develop a company strategy. In that role, he had made a half dozen trips to China. "You know" he said to me "I never really understood just how dramatic the globalization changes were going to be to our business until I went to China. They do work entirely differently than us. It’s beyond culture and how smart we versus they are. The Chinese are using resources we ignore, and approaching the opportunities differently. If our company doesn’t change – fundamentally change – we won’t survive another 10 years. The decision, the opportunity, is up to us. If I can get our top management to see what I’ve seen, and we step up to the Challenges, we can get out of our Lock-in and create a future that exceeds everyone’s expectations. But, if we sit doing what we’ve done – well, we’re a gonner."
My friend got outside the box. When he changed roles and entered strategy he Disrupted his thinking about the business. He visited foreign companies, and he saw opportunities for sales, marketing, product development, and manufacturing that he believes obsolete the existing Success Formula and create opportunities for a new one. And, while doing this, he changed himself. His personal Lock-ins to "the way this business is done" for the last 20 years disappeared and he sees a new industry competition developing.
Now he eats Sushi. And he eats all kinds of Chinese food I’ve never had the opportunity. He also eats Indian, or whatever food is served. He got outside the box, he started thinking, and the old barriers fell away as he moved toward a new definition of success
I hope everyone enjoys their Christmas, Hanukah or Kwanzaa meals in joy and peace this year. Whether it’s roast beef, turkey, goose, lamb — or Sushi.
by Adam Hartung | Dec 7, 2005 | In the Rapids, Innovation, Leadership, Openness
Marketwatch has named Ed Zander of Motorola as it’s CEO of the Year. What a well deserved compliment. Motorola’s revenues are up an eye-popping 59% since before Zander joined, and the stock price has doubled. The culture has changed from moribund and stifling to open and aggressive as they chase new opportunities in not only cell phones, but set top boxes and MP3 players.
We blogged Motorola’s success story in early September. The story has been a classic Phoenix Principle implementation as Zander first Disrupted the organization and then implemented several White Space projects. As early as mid-2004 we predicted the success of Motorola (and recommended buying the stock) due to the classic Phoenix Principle steps being taken (see case study here.)
Extremely few turnarounds ever actually regain any sustainable growth – and less than 7% achieve the success of Motorola. It is great that the company should be noted for what’s been accomplished.
by Adam Hartung | Oct 26, 2005 | Defend & Extend, General, In the Swamp, Innovation, Leadership, Lifecycle, Lock-in
Imagine you bought stock in a small restaurant concept in 1993 (12 years ago) with a handful of restaurants. Today, that chain has expanded to 450 locations, profits have grown five-fold since turning profitable in 2004 and sales are up 33 percent in the first six months of this year after doubling between 2002 and 2004. Would you want to sell that stock?
I wouldn’t either. But that’s what McDonald’s is doing, by selling off ownership in Chipotles. Chipotles is growing faster, and more profitably than McDonald’s. But McD is saying they can’t afford to invest in Chipotle, they need to sell their ownership to have others pay for continuing to grow this skyrocketing opportunity. Why? Because McD wants to focus on their 37,000 stagnant hamburger restaurants.
The urge to Defend & Extend the hamburger business is greater than the urge to grow at McDonald’s. McDonald’s shareholders and franchisees would all benefit from McD getting behind expanding Chipotles. The growth and profit opportunities in the new business are multiples of the hamburger business. Yet, even though the data is clear, the Lock-in to perpetuating its outdated Success Formula keeps McDonald’s from taking advantage of its own opportunity. Instead of migrating McDonald’s Success Formula toward this overwhelmingly successful White Space project, they are sending it out the door.
McDonald’s is horribly Locked-in. Leadership doesn’t understand how to Disrupt that Lock-in in order to move the company from the Swamp back into the Rapids. They only difference between McD and GM is that McD hasn’t moved far enough into the Swamp. But time will tell.
For employees and investors, now’s the time to run, not walk, toward Chipotle. It’s always better to be in the Rapids of Growth than stuck in the Swamp of mediocre performance.
by Adam Hartung | Oct 25, 2005 | Disruptions, General, In the Rapids, Innovation, Leadership, Lifecycle
What is ESPN? Many people would say "a TV channel about sports." What an understatement. ESPN has not one, but several channels (in multiple languages) and radio channels. Beyond that ESPN is a magazine, an internet portal (over 17million hits/month), a provider of on-demand video, book publisher, apparel maker and retailer, restauranteur, video game producer, and soon to be provider of cell phone services.
Is all this just so much brand extension? I don’t think so. All of these are different businesses that ESPN has entered, learned, and now makes money on. Cable TV content is a tough, low margin business with more failures than successes, yet ESPN has grown its viewership and revenues by more than double digits every year for a decade. Radio listenership has been declining for almost a decade. Periodical publishing has had negative growth in ad dollars and pages printed for over 5 years (just review the declining fortunes of New York Times and Gannett). Apparel makers and retailers are struggling with changing market tastes and offshore competitors, while restaurants is the #1 most likely to fail start-up business and video games are dominated by a handful of very large, trendy shops. And ESPN has entered all these extremely competitive businesses and turned a profit within only a few months.
ESPN has profitably grown by staying in the Rapids, rather than resting on it’s original Success Formula to provide sports news over cable TV. The company has overcome its Lock-In to the past by hunting out opportunities which aren’t obvious, and certainly aren’t core competencies, and then openings White Space for these opportunities to succeed. Instead of trying to optimize its old Success Formula, the company keeps trying to invent a new one. Every time you’d think the growth would flatten, they run right past the market Challenges to put more projects into the Rapids for ongoing growth.
At the top of ESPN is a mild-mannered 47 year old named George Bodenheimer who for the last 7 years has led the charge into all these initiatives. Like all leaders that keep their organizations growing, he constantly Disrupts his organization. He creates White Space, and he works to make the new projects a success. He’s atypical of many executives (especially media executives) in his emphasis on teamwork rather than ego, and success rather than promotion. Things simply get done – maybe not because he tries to "own" all the success and instead by unleashing his organization to succeed.
by Adam Hartung | Oct 6, 2005 | In the Rapids, Innovation, Leadership, Lifecycle, Lock-in
Fashion to Figure is a very small retailer that recently learned how to apply The Phoenix Principle the hard way (see full story).
When founded, the hard working Harvard MBA behind this start-up locked-in on what he thought he would need for success. Unfortunately, he was so locked into his business plan that even after he obtained seed funding he lost 9 months trying to open his first store. He kept trying to perfect his execution plan. And his investor walked.
But his investor finally got the founder to wake up, and now he realizes "the biggest thing I’ve learned is that it’s not getting everything right as much as fixing the things you get wrong." For this young fellow it took the Challenge of losing his seed money to Disrupt his approach (taught at B-School) and get himself into White Space.
Markets are dynamic. Entrepreneurs jump in because they see opportunities that existing competitors leave available. But capitalizing on an opportunity is not about hard execution of guesses made in the business plan. Execution focus leads to Lock-In and failure. Start-up companies live in White Space, where versatility and agility are requirements for creating a Success Formula which will lead them into the Rapids.
by Adam Hartung | Sep 20, 2005 | General, In the Rapids, In the Swamp, Innovation, Leadership, Lifecycle
It’s always risky to challenge a company as large and successful as Microsoft – but read these quotes from the recent BusinessWeek article:
"Employees… feeling trapped in an organization whose past successes seem to stifle current creativity."
"Microsoft faces serious long-term challenges: the rising popularity of the Linux open-source operating system, a plague of viruses attacking its software, and potent rivals such as Google in the consumer realm and IBM (IBM ) in corporate computing. It’s the company’s ability to respond to these challenges that current and former employees fear is being compromised by Microsoft’s internal troubles."
"When Ballmer took over, he was determined to overcome the looming challenge of corporate middle age. He pored over how-to management books such as Jim Collins’ Good to Great. But since Ballmer took the helm, Microsoft has slipped the other way. The stock price has dropped over 40% during his tenure, and the company, whose revenue grew at an average annual clip of 36% through the 1990s, rose just 8% in the fiscal year that ended on June 30. That’s good for a company of Microsoft’s size, but it is the first time the software giant has had single-digit growth."
"..monopolies are at the root of the company’s malaise. As Microsoft fought the federal government and litigious rivals, it developed an almost reflexive instinct to protect Windows and Office, sometimes at the expense of looking for groundbreaking innovations." "Every time Bill and Steve made a change to be more like other big companies, we lost a little bit of what made Microsoft special" "So much of what Microsoft is doing right now is maintenance" "Instead of coming up with the next great technology, Microsoft programmers have to cater to itsmonopolies"
"With revenue growth slowing, Ballmer has tried to squeeze more down to the bottom line to make the company more appealing to investors. In the past fiscal year he slashed $2.6 billion out of operating expenses."
by Adam Hartung | Jul 21, 2005 | Defend & Extend, General, In the Swamp, Innovation, Leadership, Lifecycle
Motorola announced a great profit leap this week. Sales keep going up in all markets, and most notably sales of Motorola handsets have been gaining share. It was just 2 years ago that most analysts had given up on Motorola. They tagged the company as unresponsive to customers and a bad investment. But now, analysts all over are trumpeting the success at this aged, but recovering, company and recommending investors buy the stock (as well as the products).
Unfortunately, the same can’t be said for Kodak. Since dropping off the DJIA Kodak has been struggling to re-orient the company toward markets and renewed growth. Kodak announced a loss last quarter, and longer delays before returning to profitability. Although Kodak has been working on its "turnaround" for over 5 years (from film to digital photography) they still are saying that reaching their goals is at least 18 months away. Eighteen months ….. that’s longer in the future than Motorola has been executing its turnaround. And analysts are far from optimistic about the Kodak’s future.
Motorola is opening two new R&D centers, while Kodak is planning to lay-off 20,000+ employees.
Last January (2004) Motorola undertook a pattern interrupt and launched a host of new white space initiatives. The new leader (Ed Zander) escshewed massive layoffs in favor of reigniting his employees and seeking new growth markets. In fairly short order, Motorola has unleashed creative energy trapped in the organization and taken new products to market which are growing the company again. Motorola, in about a year, moved from the Swamp back into the Rapids by effectively disrupting itself then creating and managing White Space projects.
On the other hand, Kodak keeps trying to Defend and Extend its old business while "transitioning" to a new future. The leaders at Kodak won’t let go of the past and unleash their own organization to seek the future. Kodak has plenty of talented people, a great brand, and good distribution. But it keeps trying to defend its past instead of taking the actions to reignite growth in new markets. Its a shame, since Kodak was one of the early pioneers in digital imaging (they held many of the first patents) and its employees have had a clear view of "the future" for 20 years. But management has let lock-in to an old success formula keep them from unleashing their own resources.
Two big and "mature" companies found themselves stuck in the Swamp. Growth had stopped and financial results tanked. One followed the Phoenix Principle, and the other followed traditional management practices. One is now regaining share and growing again, the other remains seriously troubled.
by Adam Hartung | Jun 8, 2005 | Disruptions, In the Rapids, Innovation, Leadership
It’s easy to beat up on old businesses. But lately, a very old business is making some very smart moves.
The venerable New York Stock Exchange came under some severe attacks last year. It Chairman was accused of improper compensation and the Exchange Board was accused of improper oversight. Things weren’t looking too good as prosecutors went after specialists and floor traders.
But hand it to the new CEO. He used the troubles to create an internal Disruption. The NYSE’s troubles were more a reflection of its inabilities to address its challenges from the NASDAQ than malfeasance (although the latter is still being argued.) So he used the attacks to rethink the future of the exchange.
Viola – in a master stroke the new Chairman of the 200 year old exchange has acted to revitalize the NYSE by buying Archipelago. Instead of taking actions in defense of the past, he is moving quickly to push the Exchange into the forefront of trading for the new millenium. This acquisition is a classic example of using a Disruption to create White Space – and develop a new Success Formula for an old business.
In the hectic pace of change in business, many have paid little attention to this action. But it’s a great example of a new leader identifying the real challenge to the business – rather than reacting to its problems. And then taking actions to create a pattern interrupt and new opportunities to learn. And possibly saving a venerable, and horribly locked-in, organization.
This is a great move for the NYSE – and a stellar example of The Phoenix Principle in action.
by Adam Hartung | May 12, 2005 | Disruptions, General, In the Swamp, Innovation, Leadership, Lifecycle
Poor GM. When you’re a big target, lots of people find it easy to take their shots at you. No doubt GM is in trouble. But there are few pundits offering solutions for GM’s woes. And no one knows what Mr. Kerkorian is likely to do.
The most prevalent thinking across the press is that GM needs to retrench. Kill products, and whole brands. Never mind that killing Oldsmobile cost GM more than keeping it alive, and that killing Oldsmobile simply made GM smaller as those customers switched to competitors rather than other GM cars. The overwhelming view is GM needs to cut, cut, cut. Remember, GM is not short of cash. It has enough cash to last years and years. So why does it need to do all this cutting and/or selling? Is GM supposed to save its way to prosperity?
GM needs to grow if it wants to remain a vital company. In the short term, this probably means selling more cars. Longer term, it probably means doing lots more than cars (look at GE, no longer just an electric production company.)
Amidst all these calls for belt tightening, busines jettisoning and head lopping we need to remember that GM needs to grow. Last Sunday’s Chicago Tribune interviewed the head of marketing for GM, and for the first time I heard a glimmer of what might turn around GM. He’s out to sell more cars. To compete with those stealing GM’s share. He hears this crisis as a call for GM to change the way it does business and become more customer focused.
That’s a plan that might work. It’s not without risk. But the plans to simply shrink GM have no future. GM needs to turn loose the folks in the divisions to find better ways to compete for customers. Less corporate purchasing and corporate consolidations and more white space for those divisions to do something new. You never know, there might be another John Z. DeLorean somewhere in the giant GM with the next GTO on her mind just waiting for someone to give her the permission and resources to make something new happen.
