by Adam Hartung | Feb 9, 2007 | Defend & Extend, In the Swamp, In the Whirlpool, Leadership, Lifecycle
Because most companies never build a capability to internally Disrupt, and they don’t regularly implement White Space, they develope a Re-Invention Gap between what they do and what the market wants. This leads businesses to milk a Success Formula too long, and not start developing a new Success Formula until too late.
Take for example Kodak. Founded in 1881, this venerable company was synonymous with photographic film. The company grew like mad as its founder made photography cheaper, better and available to everyone. But then the market "matured" (that famous euphemism for slow growth) in the 1970s. Kodak missed the digital photography wave, and in the 1990’s was kicked off the Dow Jones Industrial Average. Kodak has recently layed off nearly 30,000 employees – reaching a smallness not seen since the 1930s (see more on layoffs here.)
Like most companies, Kodak waited too late to Disrupt and implement White Space. The company was actually a pioneer in digital photography. It holds over 1,000 patents. R&D efforts in the field were strong going back nearly 30 years. But Kodak waited to Disrupt until the film market was already long-past its peak, and the digital market was well developed and full of competitors (it was 2001 when Kodak finally introduced a digital camera line). And because the Re-invention gap between their business (film) and the market direction (digital) had become huge, the company almost didn’t survive (note Palaroid, also once a leader now no longer exists). The jury is still out on Kodak’s survivability, which has had 8 consecutive quarters of losses as it has attempted to turn itself around.
The simple fact is that companies pay too little attention to the market, and too much attention to the existing Success Formula. By trying to Defend & Extend the Success Formula, they delay the necessary Disruptions and avoid White Space. Far too many companies are stuck in the Swamp, spending all their time battling aligators and swatting mosquitos while completely forgetting their main objective was to drain the darn thing. Before they know it, they are caught in the Whirlpool spinning down the drain when competitors open the plug in the swamp where they are stuck.
To avoid being too late in reacting to market Challenges, it is critical businesses implement a program of regular Disruption. You have to practice the ability to Disrupt yourself. And regular Disruptions create openings for multiple White Space projects which breed new Success Formulas. Just look at Jack Welch at GE. GE could easily have spent the 1980s and 1990s milking their businesses. But with the aid of Neutron Jack, GE constantly Disrupted itself (some might even say "unnecessarily"), and it kept putting in place White Space projects. (remember "Destroy Your Business.com" teams that every business was required to have?) That led to an incredible string of growth and above average returns that is almost unprecedented for a company of any size. Institutionalized at GE is the notion that Disruptions are good and White Space projects are normal – and that is why the company keeps itself constantly ahead of competitors and out of the Swamp.
Don’t wait. Start Disrupting your organization today. Set up some White Space. The more you practice, the better you become. And you’d sure prefer finding yourself in the position of GE than Kodak.
by Adam Hartung | Feb 8, 2007 | Disruptions, General, Innovation, Leadership, Lifecycle, Lock-in, Openness
It’s easier to recognize a problem than it is to find a solution. I’m sure you’ve noticed this. In practically everything we do we can see the need for improvement, but we often find that nothing happens to make things better. Even when a crisis happens,we often see lots of people discussing the problem – and some talk about potential solutions – but not much progress is made.
Take for example the U.S. health care situation. We now have a country where 20% to 40% of the population has no health care coverage with between 30% and 50% are significantly under-insured (ranges are offered because it depends on what study you read.) Virtually everyone agrees that this is a big problem, because the U.S. health care system is not designed to deal with the uninsured. We hear stories of people waiting for hours in hospitals for basic care that is often poorly administered. We hear about total health care costs rising because the uninsured drive up costs that are then born by insured patients. And the medicare and medicaid system we are told is nearly bankrupt, unable to meet many basic needs and not providing necessary life-sustaining assistance. Increasingly, doctors, clinics and even some hospitals refuse to take uninsured patients.
The problem has been easy to see. In America, the system has been based upon employer-provided health care. But, as employees have changed jobs they have lost insurance due to "pre-existing condition" clauses that deny coverage. And people who lost jobs to downsizings lost all coverage completely. Employment has shifted dramatically from manufacturing to services in the U.S., yet a far higher percentage of service employers offer very limited insurance, or no insurance at all. And the vast army of those who work part-time (under 40 hours per week), have no access to insurance as employers limit their hours and limit access to coverage as a cost saving measure. Employer-provided health insurance worked in the far more stable employment practices of the 1940s to 1970s, but the program simply isn’t sufficient to meet the needs of nearly half of Americans today.
Yesterday, Wal-Mart agreed with the largest service union in the USA (their bitter enemy, the Service Employees International Union) that dramatic changes were needed in health care coverage (see article here.) Obviously, Wal-Mart does not believe it can provide universal coverage to its 1.3 million employees and compete. But interestingly, the unions which have fought hard to get employees health benefits agree that far too many employers cannot be expected to offer health care and compete in a global economy. Democrats have easily joined the ranks of those asking for a different system, but interestingly now noteworthy Republicans agree – including Howard Baker former Chief of Staff to Ronald Reagan.
So, what is to be done? There is no shortage of opinions about the solution (see article here). Many people want universal coverage from the federal government – but that has many detractors as well. Some states say a universal program should be implemented state-by-state, and Massachusetts has taken this direction. The President has offered to push for universal coverage with a series of changes to taxation of health care benefits. Lots of ideas – but most of these have existed for well over a decade. So it hasn’t been a lack of ideas that has stopped progress toward a different solution.
What we have with Wal-Mart’s announcement is a Disruption inside the business community. A Disruption saying "stop, we have to do something different here. The old way won’t work. We’re Locked-in to an outdated health care solution that must change." Having the country’s largest employer, in tandem with one of the largest unions, make this admission serves as a Disruption.
But this will make no difference if we don’t find White Space to actually create, test, pilot, learn, and define a new Success Formula for health care. Politicians often say "we need a debate on the options." Debates we’ve had. What we need is to try new solutions, and see if they work. We need to begin variations of the multiple scenarios so we can see what works, and what doesn’t. Massachusetts, for example, is a great experiment in a state-implemented program. But we also need to experiment with changes to the federal systems (Medicare and Medicaid) to see what they can actually do. And we need to experiment with subsidies and tax changes in the workplace to see what private programs can be developed. In the end, only in White Space do we actually test possible answers and thereby develop a new solution to which people migrate. The best solution is not the one debated to success, but instead the solution which is proven to work – and that is the solution to which people migrate. Anyone will change when they can see a better result, and that can only happen in White Space.
This is exactly what businesses have to do as well. The Phoenix Principle has demonstrated that whether a problem needs to be solved at the macro level (like national health care coverage) at an industry level (like national access to broadband telecommunications) or at a company, or function, work team or even an individual level Disruptions must be supplemented with White Space if a solution is actually to be developed and implemented. New solutions don’t come out of the universities or other "brain trusts". They come out of White Space where new Success Formulas that include strategies and tactics are actually tested and demonstrated to work. Then these new Success Formulas don’t have to be foisted upon people, because the better results attract people to them. Of course there are laggards, but we see that migration to a better result works far better than trying to debate, design, declare and then demand change – a model that almost never gets implemented nor works well.
So, we need White Space for experiments in health care coverage. And the state programs fit as one example. Let’s hope this Disruption will lead to more experiments. And we need more White Space in our companies, our departments and our lives so that we can experiment and find ways to produce better results. In the end, we can equate long-term success with White Space – and we’ve never needed more of it than we do today.
by Adam Hartung | Jan 30, 2007 | General, Innovation, Leadership
Readers of this blog know I am a big fan of Motorola. From a moribund company laying off tens of thousands of employees, in just 3 years Motorola has become a financially stronger, more profitable and much higher growing company. By using Disruptions and creating multiple White Space efforts, the company’s equity value has more than doubled under new leadership (see chart here.)
But recently, Motorola’s equity value dropped. The company announced it would miss an earnings forecast due to lower mobile phone margins. Note, Motorola did not say sales or earnings were declining – because both were up substantially. Market share had grown in all its key markets and products, and revenue growth was on track. The company did not stall, but it did miss an earnings forecast. At the time I blogged that investors should look at other key metrics beyond the earnings miss, since the company’s efforts all portend a great future with much improved revenue and earnings. But I was in the minority, as the majority of analysts unleashed a series of concerns about Motorola’s ability to keep profitably growing.
And that’s when Motorola’s management blinked. Instead of taking to the airwaves with its story of planned growth in order to reset investor expectations, leadership chose to announce a 3,500 employee lay-off (see article here.) And that created a target for corporate raider, Carl Icahn. Today he announced that he owned 1.4% of Motorola shares, and he wants a seat on the Board of Directors (see article here.) On CNBC’s Faber report (see article here), Mr. Icahn informed investors he wanted to pay out the company’s $10B cash hoard in a special dividend, sell several businesses, take on substantial debt and use cash to buy up outstanding shares. Innovation be danged! Mr. Icahn wants to take the money and run.
When public speaking I ask audiences what the fastest way is to create cash value in a business. I tell them you can immediately create cash value by selling the desks, chairs, copiers, intellectual property, new product designs, customer lists, distributor contracts and vendor agreements. Then you can layoff the workforce, because in the short term they are purely cost. "But what about tomorrow, next week, and next year?" is the audience’s standard reply. And that is the key. For everyone can see that by selling these assets it kills the ability to create what might be far greater future value. Somewhere, someone has to invest in White Space, or there is no innovation nor growth.
Phoenix Principle companies create above average value by combining profitability with growth. By using White Space to develop new products, new markets, new customers, new services and launch innovation of all kinds these companies create value. Managers that optimize the business, run it for immediate cash, destroy value by seeking to get the most possible cash as fast as possible. And that is Mr. Icahn – shooting at the Phoenix in order to get meat today rather than generate more value from many eggs and chicks both today and tomorrow.
How did this happen to Motorola? The leadership did not do an effective job of communicating their future opportunities. Google, Cisco and Microsoft all have a cash hoard, a good credit rating and several businesses they could sell. They also have an equity value (aka stock price) high enough that it reflects the future expected value. Motorola’s leadership did not shed the old mantle of the stodgy midwestern company. Thus when iPhone was announced at MacWorld it eclipsed the fact that a similar product (ROKR) has been on the market from Motorola for several months and already sold more units than iPhone predicted to sell in its first 24 months! Phoenix companies not only have to follow The Phoenix Principle, they have to get investors on board to the expectations of future growth and profits.
I am a Motorola shareholder, which should surprise no one that has read this blog. But I am not overjoyed that my investment is worth more today due to Mr. Icahn. Mr. Icahn will at best put a few extra dimes in my pocket short term. But as a Phoenix company Motorola can put many dollars in my pocket soon enough. If Mr. Icahn succeeds with his plans he will kill the bird laying the proverbial golden eggs, and that is in fact bad news for investors, employees, suppliers and customers who will see Motorola lose market share to Nokia, Sony, RIM and others. And Chicago will watch another great company, like happened at Sears, move from market leadership to the whirlpool of demise.
by Adam Hartung | Jan 28, 2007 | Disruptions, General, In the Rapids, Leadership, Openness
How can we recognize a Phoenix company? One that will sustain its success for a prolonged period? We can start by looking at the one and only company which has been on the Dow Jones Industrial Average ever since it was created. The one company that has overcome Schumpeter’s dire predictions of individual company failure, and demonstrated it is possible to earn above average rates of return for extended time and simultaneously grow. That company is General Electric.
A recent article on GE’s Medical Devices business (see article here) highlights key characteristics of how to overcome Lock-in to an existing Success Formula by internally Disrupting and using White Space. Mark Morita is the Manager for Disruptive Technologies within this GE business. Mark is not an engineer, nor is he in product development. GE recognizes that it must maintain a powerful group always focused on making incremental improvements in their products and markets. But, they simultaneously must have a Disruptive focus that can produce breakthrough results.
And that is where Mark comes in. Mark Disrupts the engineers by introducing technologies from entirely other fields. While they attend medical equipment conferences, Mark attends gaming and consumer electronics conferences. While they try to make sonogram machines that are 10% lighter or 10% cheaper, Mark looks for ways to make them the size of a GameBoy at less than half current cost. His role is not only tolerated in GE – it is mandated. All across the many GE businesses they maintain roles which are dedicated to attacking Lock-In and Disrupting the existing Success Formula. Mark and his counterparts constantly keep the GE businesses operating White Space to create new Success Formulas leading to growth.
Jack Welch, the famed former CEO of GE, had the nickname "Neutron Jack." This referred to his willingness to Disrupt GE in order to seek above average results and growth. No business was sacred in GE, and no market was beyond their reach. Welch constantly Disrupted GE from within, and kept Lock-in from leading to deteriorating performance. It wasn’t mere goal-setting that kept GE dynamic, it was an institutionalized practice of internal Disruption and extensive use of White Space. New CEO Jeffrey Immelt is now continuing that practice, with dramaticly large recent acquisitions of about 2/3 of Abbott Labs (medical diagnostic equipment) and Smiths Group (aerospace) while indicating he plans to sell the $10B plastics business (see article here).
Even a huge company, such as GE, can operate according to The Phoenix Principle and sustain success. The Phoenix Principle does not apply only to small companies, nor those in high-tech markets. Any company can achieve and sustain success if they are willing to identify their Success Formula and Lock-ins, attack those Lock-ins with programs designed to generate internal Disruptions, then fund White Space in which permission is given to develop new Success Formulas. These steps may seem mundane, but those who follow them can become the next GE – and that would not be a bad thing.
by Adam Hartung | Jan 21, 2007 | General, In the Rapids, Innovation, Leadership, Lifecycle, Openness
Walgreen’s is the kind of company that can make an investor very worried. It’s an "old fashioned" retailer, and the company has certainly seen dramatica changes in its markets. Over the last decade, we have changed how we purchase licensed pharmaceuticals, as well as how we think about "drug stores" as many competitors have begun offering to fill prescriptions. The "corner pharmacists" has practically disappeared. Is Walgreen’s a company on the brink of disaster?
As I’ve written before, look for a growth stall. Any time a company sees declining revenue or profits for 2 or more consecutive quarters, or two or more quarters of declining year-over-year sales or profits, the company enters a growth stall. When this happens, there is a less than 7% chance the company will ever again sustain growth of a meager 2% per year. Interestingly, Walgreen’s has not stalled. This despite all the changes in insurance rules about drug payments, the advent of on-line and mail-order pharmacies, corporate moves to drastically cut employee drug costs, the entry of new competitors such as discount retailers (WalMart and Target) and just about every grocer, and competitor moves to offer generic drugs at extremely low prices.
At its recent annual meeting (see article here), the new CEO very clearly identified many of these influences as Challenges the company must face. He followed this up by listing all the actions Walgreens had taken to set up White Space projects to maintain company growth, which include but are not limited to: digital photo processing, refilling printer ink cartridges, introducing exclusive department store type cosmetics, and now even opening in-store health care clinics for walk-in customers. As the CEO, Jeffrey Rein said, "We’re testing everything we possibly can to see what happens, to see what does work. We don’t know until we put it out there." After a very clear statement that the company faces many market shifting Challenges, similarly clear statements about using White Space to drive new growth.
This new CEO is not an outsider by the way. He’s a 25 year company veteran. So it’s clear that companies can internally develop leaders who can recognize Challenges, Disrupt and establish White Space. Whether Walgreens can maintain its 32 years of ongoing growth is no sure thing. The fact that the company has not stalled however is a great testament to identifying Challenges and reacting. As a company that is facing tremendous Challenges, Walgreen’s leadership is a model of how to keep up the growth by using White Space.
by Adam Hartung | Jan 12, 2007 | General, In the Rapids, Innovation, Leadership, Lifecycle, Openness
My last blog led to a reader comment "Can there be White Space without Innovation?" (click here to read full comment) Quite simply, I don’t see how. Of course, innovation is a term open to wide interpretation. Some think that innovation requires a huge breakthrough invention, a new product, or a never-before-seen business model. Maybe a patent or a copyright. In fact, innovation simply means introducing a new way of operating for yourself or your customers. Defined this way, we can innovate in all parts of our business model, and innovations can be "small" or "large". What’s important about White Space is that we use innovation processes to attack old Lock-ins and develop a new Success Formula.
Take for example Foulds, a 121 year old $25million revenue company that makes pasta in Libertyville, IL (see full article here.) Pasta is far from a "high-tech" business. And the distribution channels are extremely stable and well known. Suppliers are HUGE agribusinesss competitors like Cargill, and customers are HUGE supermarket chains like Jewel, Dominick’s, Safeway and Kroger. Many competitors are extremely well funded such as New World Pasta that spend millions of dollars on ad campaigns for Prince and Creamette brands. In this competitive situation, the world changed in the late 1990s when the Atkins diet craze swept across America and many people stopped eating pasta entirely. Suddently, Foulds was facing a stagnant market, surrounded by industry forces much, much better resourced than they were.
The easy answer for Foulds would have been to drop into a price war to drive volume. Or to have dumped money into advertising – largely to no avail. Or possibly closing shop, or looking for a buyer to "consolidate" the industry. Doing "more of the same" to Defend & Extend the 121 year old business model would have led to loss of share to the big players and possibly failure. So, company CEO Chris Bradley opened White Space in the company he ran. He allowed his employees to face the Market Challenge, and atack the Lock-ins so prevalent. In their effort, the team overcame commitment to a century-old recipe for pasta. They experimented with different ingredients and then different manufacturing processes (literally adjusting the time-proven work of generations). In the end they developed a pasta with 6 times the normal fiber of regular pasta and a taste and texture that is considered better than what dry pasta was like before.
This new pasta is not a patentable product. And it doesn’t open some new "food category." But it does allow people who seek a high-fiber, high-protein and healthy product for their diet to eat pasta – something not allowed on some diets at all and heavily restricted on others. And this innovation has helped the company to not only deal with the Market Challenge, but actually to thrive. Foulds recognized a Market Challenge, Disrupted its Lock-in to old recipes and hand-made manufacturing processes, and then gave permission to the team to innovate a new Success Formula which could appeal to a shifting market. The value of White Space is that it gives innovation a place to flourish, a place to succeed, by intentionally acquiring permission to break old Lock-ins and thereby develop a new Success Formula that incorporates innovation – of any type or scale that addresses Market Challenges.
by Adam Hartung | Jan 9, 2007 | Defend & Extend, General, In the Swamp, Leadership, Lock-in
If you aren’t tuned-in to ad agencies, and if you don’t live in Chicago, you might well have missed a furor that erupted in early December regarding America’s largest retailer. Wal-Mart made a switch in ad agencies last fall, moving their $500million account to DraftFCB. But then, shortly after making the switch, Wal-Mart fired the company’s head of marketing and fired the agency. Wal-Mart then, and now, was unwilling to offer an explanation. They hid behind a veiled claim of "ethics violations," using besmirching language to imply wrong-doing while offering no facts.
Since then, Susan Chandler at The Chicago Tribune has unearthed a pretty good explanation of what went on (see article here.) [Like lots of news stories, it takes some time and research to start piecing together what really happened.] Seems more than a year ago Wal-Mart hired a new 35 year old marketer to help change the Wal-Mart image and promotion program. Given how Wal-Mart’s growth prospects, and stock price, had stagnated since 2000 this appeared like a very good idea.
The new marketer started moving Wal-Mart away from selling on Price, Price and Price. As my old marketing professor said "Price is nothing but a blunt club that has no meaning. Skilled marketers use other tools to create customer value and over time make a lot more money." So this new marketer’s actions looked like a good move to actually help Wal-Mart get back on the growth track.
She actually had Wal-Mart underwriting fashion shows. And launched advertising in Vogue magazine. And she moved much trendier merchandise into the stores. She also started Wal-Mart selling higher margin products, such as wine, gourmet coffee and sushi. She did this in selected stores, testing her ideas. In effect, she set up her own White Space and began working on a new Success Formula to replace the old, tired one at Wal-Mart.
But, she made a small mistake. She didn’t really have Permission to use Market Challenges to create a new Success Formula. Wal-Mart had not (and still has not) Disrupted itself. The company has not agreed that it’s Success Formula needs to change, and its leaders have not expressed any need for a new Success Formula. Operating in denial of the marketplace Challenges which have let Target, Kohl’s and JCPenney take away customers and sales, Wal-Mart really wanted the new marketing head to Defend & Extend the old Success Formula. She may have thought she had White Space, but she didn’t. While she had resources, she lacked Permission – Permission to attack old Lock-ins and Permission to develop new solutions.
So the top brass at Wal-Mart fired her. And they fired the ad agency. It’s easier to deny Challenges, and fire those who take on Lock-ins, than it is to Disrupt your thinking and commit to White Space. It’s easier to live in Lock-in than use White Space to find a new and better Success Formula.
Wal-Mart has had many "industry experts" support these actions. According to the Tribune, once the firings were done the Chairman of a retail consulting company (Howard Davidowitz) said "Wal-Mart’s lifestyle advertising is all wrong. It shows in the sales." Uh, with 99% of the company stuck in doing wat it’s always done, you don’t suppose the weak results are dure more to a failing Success Formula than some new White Space efforts? The consultant is as Locked-in as Wal-Mart’s maangement. Even this outsider was willing to give the new marketer permission to try new things. Supporting management may help him get future fees, but it isn’t doing the investors or vendors much good.
Or, take this quote from George Whalin, another "industry expert," – "They [Wal-Mart] don’t attract 25-year-old trendy women. Their customers are older women. They’re not skinny-jeans buyers…. They [Wal-Mart] lost their minds." Maybe the need for new customers is the problem, George. You think it’s a poor idea to attract younger customers? It’s bad to expand your customer base? To upgrade your product lines to higher margin items and to improve your competitiveness against your fastest growing and most successful competitors is "losing your mind"? Not only is Wal-Mart Locked-in, so are the "experts." If they won’t support White Space, with Permission to develop a new Success Formula, how do they suppose Wal-Mart is to turn-around its sales trends?
As this firing happened, Wal-Mart had its worst November sales in a decade. How does Wal-Mart talk about this performance? According to the company spokesperson, "We have found the thing that appeals to everyone is price… We will continue to emphasize price leadership."
Reinforcing the old Success Formula isn’t going to solve Wal-Mart’s competitive problems. If you keep doing what you just did, you’re going to get what you just got. Without Permission to Disrupt Lock-ins and create a new Success Formula, all the size and resources of even a Wal-Mart won’t create success. Too bad for Wal-Mart’s top marketer, too bad for the agency, too bad for shoppers looking for an improved Wal-Mart, too bad for vendors that want Wal-Mart to do more than beat them up for lower prices, and too bad for investors.
by Adam Hartung | Jan 5, 2007 | General, In the Rapids, Innovation, Leadership, Lifecycle
Boy, Motorola‘s stock had a rough day today. The company announced lower than expected earnings, and the price dropped 7.8%! A recent chart (see here) shows this has been the extension of a slide that started back in October, with the latest decline bringing the free fall to over 25%! Wow. Meanwhile the DJIA and NASDAQ 100 have all gone up substantially. This is ugly. Should you sell the stock if you’re an investor?
If you’ve read this blog a while, you probably know that I’m recommending you don’t sell Motorola. In fact, consider buying more. Why would I say that – and what do I see that all these other investors don’t? Well, just take for example the MarketWatch article on Motorola (see here). It’s all about mobile phone handsets. Although volume is up, and Motorola is taking share from competitors, it’s prices have gone down and thus revenue and profit have been hurt. The companion article on new products at Motorola (see here) also talked only about handsets. Merrill Lynch issued a report on Motorola, cutting its rating to Neutral from Buy, and through several pages of analysis the only discussion was about sales of mobile handsets. All of these would lead you to believe that all Motorola does is make and sell mobile handsets. But we know that’s not true.
Why, just before Christmas (12/21/06) Motorola announced its acquisition of Tut (see here), a company that helps Motorola’s Network and Enterprise unit expand its market in IPTV and the "connected home" marketplace. Tut helps telephone companies get into the TV business, and enriches the communications at the home. Tut built upon Motorola’s earlier acquisition of Symbol Technologies (9/20/06 see here.) And that, of course, had expanded the acquisition of General Instruments in 2000 that made Motorola a major player in the DVR business (see here). Don’t forget, Motorola also bought Good Technology (11/11/06 see here) which gave them a boost in the mobile communicatinos business we think of now as "blackberry." Now Motorola is not only in the network, data and video technology for businesses, but home use as well. Both growing at double digit rates annually.
Simultaneously, Motorola has been expanding its R&D in new ways. They have expanded development operations in Brazil (see here) as well as India (see here.) And don’t forget their 2006 partnerships with Kodak and Google to develop and launch new products (see here.)
And the company has expanded other very large and growing businesses. Have we forgotten that Motorola makes the infrastructure equipment for mobile phones (and all other mobile devices) and they recently won the deal to rebuild the Sprint network (8/9/06 see here.) Have we forgotten that Motorola is #1 (by a huge amount) in the radio systems for Police, Fire, Ambulance and other safety services? And that business got a shot in the arm after 9/11/01 when the government asked to connect these systems – leading to Motorola’s launch of MotoVision as a product which can link these emergency services and is now rolling out across the U.S. (see here.)
Motorola is much more than a handset business. And even that is growing – and gaining share on all competitors. Motorola isn’t a story of a company stalling. It’s a company that has been investing in multiple White Space projects simultaneously as it expands into new businesses and finds new opportunities. Yes, these need to produce higher revenues and higher profits. And it is important Motorola learn how to forecast its sales dollars and earnings to help investors know what to expect. But we must not lose sight of the fact that Motorola is a company that is growing, at double digit rates, and earning above market average rates of return on its sales. It has put in place a new management team (new CEO and new Marketing head – see articles on Zander as 2006 CEO of the year here and on Keller here ) who are willing to bring Challenges to the fore and use Disruptions to drive new innovation.
Motorola has attacked old Lock-ins head on. It has established White Space, and is developing new markets to expand its sales. Now, and in the future, mobile handset sales are only a part of the business. It’s time Wall Street analysts, news reporters and investors take a broader view of Motorola. Anyone who does should see "a future so bright they need to wear shades."
by Adam Hartung | Jan 3, 2007 | General, In the Rapids, Innovation, Leadership, Lifecycle, Lock-in
Did you buy any CDs this Christmas? If you did, the odds re you didn’t buy as many as you did in previous years. A freefall in sales of physical music products (CDs and music DVDs) has been going on since 2000. (For more data see Chicago Tribune article here.) That year CD sales peaked at 942 million units. By 2005, the volume was down to 705 million – a full 25% decline! And sales were off an additional 15.7% in the first six months of 2006.
Meanwhile, according to the Recording Industry Assocition of America, Sales of digital singles increased 71.3% in the first half of 2006. Since inception in 2003, sales of iTunes have reached a staggering 1.5BILLION songs – making Apple Computer Company the 4th largest music seller in the U.S. According to ComScore networks (see more data here), sales at iTunes increased a whopping 84% in the first 3 quarters of 2006. According to the V.P. of communications at RIAA, Jonathan Lamy, "This is a markeptlace that went from nothing 3 years ago to this year surpassing a billion dollars in retail revenue" (quote from Tribune.)
You have to wonder, why is Apple capturing all these sales and all this value? After all, they didn’t invent MP3 technology – the format that made digital music possible had been around for several years before Apple created its iPod version of the music storage and playback device. Likewise, Napster had gone on to great infamy demonstrating the huge demand for a digital music site years before iTunes was launched. Obviously it wasn’t a technology breakthrough that gave Apple this big success.
Furthermore, before Apple launched either iPod or iTunes Sony had already been a long-term leader in consumer electronics. Sony’s famous Walkman, Discman and other products had pioneered portable music. Sony had a global distribution for its products in stores of all types, including its own. And Sony was a brand synonymous with quality in consumer electronic devices and music playback. Sony even owned its own music label, and a huge archive of popular songs as well as contracts with several popular artists. Sony had all the pieces to create and dominate the digital music business. But it didn’t.
Sony was, and is, trapped in its Lock-in. The company had two separate division for hardware and software (music), and the two didn’t talk to each other. Worse, both divisions committed to the old music industry Success Formula, and had Locked-in on the physical distribution method for selling music (CDs). [For White Paper on music industry Success Formula and Lock-in visit here.] Both feared cannibalization more than they sought breakthrough solutions, as Sony joined EMI, RCA and others in suing Napster into oblivion during 2000, hoping it would stop digital music sales and help them regain sales and profits.
Today the traditional music companies are still Locked-in, and Apple is making enormous profits. Like Southwest in the airline industry, Apple is simply doing what the market wants and is reaping huge benefit because the most likely, and most powerful, competitors are more interested in preserving Lock-in than succeeding. Just because competitors are large, and well funded, and full of good product development does not mean you can’t effectively compete against them. When markets shift Lock-in often means that the most logical activity – that of existing competitors reaping the benefit – is often NOT what occurs. And it makes enormous markets available for new competitors to develop new Success Formulas that create above average returns.
by Adam Hartung | Jan 2, 2007 | Leadership, Openness
What is strategy? To far too many people, strategy is thought of as "how can we succeed doing what we’ve always done." To be honest, most of what is written on strategy, going back to the seminal work by Michael Porter "Competitive Strategy", deals with how to identify a strategy and then execute it. What strategy must be is developing an approach to win in a competitive marketplace.
On New Year’s Day, 2007 I observed one of the best uses of strategy I’ve seen in a long time. Little known Boise State University went into the Fiesta Bowl to compete with Oklahoma University. This was truly a David and Goliath match-up. Oklahoma has been a top 10 powerhouse in football for decades. Its annual funding for the football program is 10x the entire athletic department at Boise State. Why, Boise State wasn’t even qualified to be considered as a top-ranked football team because they weren’t considered a BCS team (BCS is the acronym for the people who determine the bowl games and how they will determine the national college football champion.) Nonetheless, Boise State was in the game and they were projected to be killed by the much better funded, more experienced and far larger Oklahoma football program.
But, Boise State did something no one predicted. They did not enter the stadium and play a traditional game. From the opening salvo, Boise State was executing plays not expected by Oklahoma. Within the first 5 minutes they had used unexpected play calling to jump into a 14 point lead. And Oklahoma was scratching its head. The game played on, and Oklahoma slowly scratched and clawed back. With just over a minute left in the game, Oklahoma finally went into the lead. But, Boise State did more than not give up. They came back with a series of unexpected plays. On what was destined to be the final play of the game, and needing to go a third of the field for a touchdown, Boise State executed a play from the 1930s – something never seen on the modern football field any more – the "hook and ladder" play. They scored, and tied the game. In overtime, Oklahoma jumped into the lead. But Boise State came back, once again with unexpected plays. On the final play, needing to score or lose, Boise State again used a play almost never seen any more – the Statue of Liberty play – and they won the game as the Boise State player walked all alone into the end zone.
After the game the announcers kept commenting on how Boise State kept Oklahoma off kilter. "They used every play in the playbook" an announcer said – by the way, that announcer was Barry Switzer who used to be the head coach at Oklahoma and had won a national championship. What was even more telling was how the announcers reacted. When asked who should be the "most valuable player" the agreement was they wanted to select THE COACH! By using plays that his competition did not expect, he managed to beat a team that was far better funded, with lots more resources and a lot more coaches.
Strategy mattered. Boise State did not play the game that the entrenched and better funded competitor wanted to play. They avoided the Lock-in, which was sure to beat Boise State. Instead, the coach kept Challenging the large competitor, and Oklahoma could not react. The much larger competitor had not ignored their smaller competitor, but they were not prepared for the use of an unexpected strategy. In the end, the team that pushed competition into White Space won by demonstrating a different Success Formula than what the traditional, entrenched competitor was prepared for.
We all can learn from Boise State and their upending of Oklahoma. As individuals, work teams and businesses we can recognize that those who develop strategies which change the competitive field have a distinct advantage. If we can overcome our Lock-in to traditional practices, and try new things that are unexpected, we can come out on top even if our competition is much larger, better funded and loaded with advantages we don’t have. Whenever you need reassurance of the value of innovating to change the competitive field, just remember the coaches at Boise State.
