by Adam Hartung | Nov 5, 2009 | Current Affairs, Disruptions, In the Rapids, Innovation, Leadership, Music, Web/Tech
$150billion. That's a lot of money. And that's how much shareholder value has increased at Apple since Steve Jobs returned as CEO. Can you think of any other CEO that has aided shareholder wealth so much? Do any of the cost cutting CEOs in manufacturing companies, financial services firms, or media companies see their share prices rising like Apple's?
Fortune has declared this "The Decade of Steve" in its latest publication at Money.CNN.com. Such over-the-top statements are by nature intended to sell magazines (or draw page hits). But the writer makes the valid point that very few leaders impact their industry like Apple has the computer industry, under Jobs leadership (but not under other leaders.) Yet, under his leadership Apple has also had a dramatic impact on the restructuring of two other industries – music and mobile phones/computing. And a company Mr. Jobs founded, Pixar, had a major impact on restructuring the movie business (Pixar was sold to Disney, and has played a significant role in the value increase of that company.) So with Mr. Jobs as leader, no less than 4 industries have been dramatically changed – and huge value created for shareholders.
No cost-cutting CEO, no "focus on the core" CEO, no "execution" CEO can claim to have made the kind of industry changes that have occurred through businesses led by Steve Jobs. And none of those CEO profiles can say they have created the shareholder value Mr. Jobs has created. Not even Bill Gates or Steve Ballmer can claim to have added any value this decade – as Microsoft's value is now less than it was when the millenia turned. Despite the relative size difference between the market for PCs and Macs (about 10 to 1) today Apple has more cash and marketable securities than the entire value of the historically supply-chain driven Dell Corporation.
Mr. Jobs is constantly pushing his organization to focus on the future, about what the markets will want, rather than the past and what the company has made. It was a decade ago that Apple created its "digital lifestyle" scenario of the future, which opened Apple's organization to being much more than Macs. Jobs obsesses about competitors and forces his employees to do the same, to make sure Apple doesn't grow complacent he pushes all products to have leading edge components. Mr. Jobs embraces Disruption, doesn't fear seeing it in his company, doesn't mind it amongst his people, and works to create it in his markets. And he makes sure Apple constantly keeps White Space projects open and working to see what works with customers – testing and trying new things all the time in the marketplace.
Following these practices, Apple pulled itself away from the Whirlpool and returned to the Rapids of Growth. Almost bankrupt, it wasn't financial re-engineering that saved Apple it was launching new products that met emerging needs. Apple showed any company can turn itself around if it follows the right steps.
As companies are struggling with value, people should look to Apple (and Google). Value is not created by cost cutting and waiting for the recession to end. Value is created by seeking innovations and creating an organization that can implement them. Especially Disruptive ones. Whether he's the CEO of the decade or not I can't answer. But saying he's one heck of a good role model for what leaders should be doing to create value in their companies is undoubtfully true.
by Adam Hartung | Oct 20, 2009 | Current Affairs, Disruptions, In the Rapids, In the Swamp, Leadership, Openness, Web/Tech
Can you believe a BusinessWeek headline like "Dell's Extreme Makeover"? We read about turnarounds and makeovers all the time. Only most of the time they don't turn, and they don't get made over. Most companies cut a lot of costs, make a lot of promises, but keep on doing the same stuff. They get worse. They get acquired, or they fail. And readers of this blog know that I've long chastised Dell as an example of a Locked-in company with little hope of turning around.
But, I'm changing position today. There's a LOT of the right stuff happening, and the seeds are being sown, doing what really works, for Dell to be a good future story.
Scenario planning for the future:
- Michael Dell admits in the article that he stuck to his original Success Formula of supply chain expertise feeding direct sales too long. He admits that future success requires a new Success Formula. Specific future scenarios aren't disclosed, but it is apparent that the company does not expect future markets to look like the markets of 1995-2005.
Focus on Competition:
- Management says Dell is "not trying to become like the competition"!! That is great, because winners do new and different things. They don't try to copy/catch existing competitors.
- Dell did not chase Apple into opening its own stores. Good move. Dell isn't Apple, and can't win trying to be like Apple.
- Dell was previously obsessed with its top, big customers. Big corporate accounts. It slavishly built a business trying to please the top 10%. Now Dell is winning by putting considerably more attention on customers it previously ignored: consumers, small business, medium business and government. This not only balances the company, it keeps Dell from chasing Locked-in customers into the same old fox holes.
Disruptions:
- Michael Dell has replaced 7 of his top 10 direct reports. That's a huge step in the right direction. GM should follow that lead!
- Dell has defied its old "direct to customer" mantra by taking consumer products into retail stores! The added cost to do that, and new skills required, must have shaken buildings at the Texas headquarters campus.
- A new head of design developed options customers could specify for their consumer computers. Manufacturing said it would violate the supply chain efficiency so "NO." Michael Dell over-rode the manufacturing group and said "do it." He reinforced that efficiency would not save Dell. Manufacturing would have to adjust to innovations for Dell to succeed.
- The company has reorganized away from products (how almost all tech companies structure – including Apple) and installed a new structure organized around MARKETS!! What a great way to quit being product-push and become market-learn!
White Space:
- A board member said that after eating dinner with Michael Dell he could see that this"journey at Dell is just in its first or second inning." Although not much White Space was discussed, this implies some big things are being discussed and planned for the future.
- The article says Dell is preparing to launch smart phone sales soon. This is critical, because smart phones are part of the market shift away from PCs. Dell has a lot of learning to do in that market to be part of the shift.
This is not a "done deal." I wish I knew more about Dell's scenario planning – to be sure the company has switched to planning for the future and away from planning from the past. And I really wish I knew more about what White Space is being planned. Because we know you can't transition by changing the big organization all at once. The behemoth needs some wins it can use to lead the migration. And seeing White Space projects, with a group shepherding them into the lifecycle, is a really critical step to follow-up the many Disruptions.
So things could still go badly for Dell. But they WON'T go as badly has they went from 2005 to 2007. From this one article, the first interview with Michael Dell since he took the reigns back in 2007, it is clear lots of the right things are happening to move Dell from the Swamp backinto the Rapids. There is improvement happening, and The Phoenix Principle looks to be in early implementation stages. If Michael Dell and his team stick with it, this could be a big winner for your portfolio!
by Adam Hartung | Oct 14, 2009 | Current Affairs, In the Rapids, Innovation, Leadership, Openness, Web/Tech
"Samsung Seeks Some iPhone Magic" is the Wall Street Journal headline. Hand it to the Korean company to demonstrate how to make money out of market shifts. Not only is Samsung looking to add more capability to its mobile handsets – the obvious Defend & Extend action – but the company is developing applications for all its products to get into new, emerging markets. It is now adding internet capability into almost all the devices it designs, makes and sells.
Recognizing the market Challenge, in 2008 Samsung set up a White Space project with permission to explore just how it could coordinate software and content for cell phones. But quickly the team recognized this charter was not sufficient permission. They went back and asked to extend their opportunity development to everything Samsung makes (or considers making.) By making sure it had the right permission to really think broadly about the opportunities, this White Space team made sure it could really accomplish the greatest gains.
Kudos to the company for resourcing this effectively. Samsung did not reach into the different business lines and ask each one to devote "some" resource onto this project. That approach usually ends up getting almost no attention until year end when people remember this was on the checklist for bonuses. Instead Samsung dedicated resources – money and people. And Samsung made this into a business unit which is intended to make a profit!! This isn't just an experiment – a lab – it's White Space that is intended to figure out new opportunities, as well as the business model which would make these new innovations profitable.
Samsung is a company historically known for manufacturing skills, supply chain management and lower cost. Yet, it is showing that regardless of size (Samsung is one of the largest companies in Korea and one of the world's largest electronics companies) or history any company can establish White Space to connect with market shifts and introduce innovation.
Do you have White Space in your company? Or are you relying on your old Success Formula to return you to previous growth rates and profitability? What are you doing to take advantage of market shifts – like what's happening with iPhones, Kindles, Tablet devices and other innovations? You might want to take a tip from Samsung and set up some White Space with permission and resources to investigate how you could participate in market shifts to make more money!
by Adam Hartung | Oct 7, 2009 | Current Affairs, Disruptions, General, In the Rapids, Innovation, Leadership, Web/Tech
"Amazon Cuts Kindle Price to $259" is the USAToday headline. This $40 whack is the second price cut this year. Sony is selling its ePocket for $199. Of course Kindle is pushing that it has more content available and easier wireless access than Sony,- even internationally. Expectations are for 3 million e-Readers to be sold in 2009 (about 1 million around the holidays.) Obviously, if you aren't paying attention this is a big deal. It is changing publishing (books, magazines and newspapers.) But the impact goes far beyond publishing.
Simultaneously, The Wall Street Journal reports "Just a Touch Away, the Elusive Tablet PC." According to this article, new devices are being tested that will allow you to do everything from classic PC applications to web interconnection to watch movies – or read books – on a keyboard-less new tablet. Something that is a cross between an iPhone/iTouch (with a bigger screen) and a PC. As iPhone users are learning (quickly) you don't need a keyboard or mouse to have an interface to your machine and the world.
So what will be the future solution? Will it be one of these, or yet something different? I don't know. Do you have a crystal ball? But the answer to that question really doesn't matter to us today. We don't need to know that sort of specific to begin growing our businesses.
Not being widget nuts, or platform forecasters, should not stop us from planning for a different sort of future and changing our approach today. Scenarios for 2013 (you do have scenario plans for 2013, don't you?) should be planning on practically everybody having one of these devices. And perhaps these devices being so cheap they could be included with sales of every major appliance (like a car, or refrigerator). If that sounds silly, just look at how cheap a flash (or thumb) drive is now. Remember when we thought floppy disks were expensive? Now people exchange flash drives that have more capacity than a 2004 laptop without thinking about cost. These made tapes, floppy drives, zip drives and a lot of other technology obsolete in a hurry.
How can your business take advantage of this shift? Can you replace paper manuals, maybe even user instructions with a tablet? Or a tablet app? Can you use an interactive device that grabs input from your appliance to do diagnostics, recommend maintenance, report on failures? Would this help customers pop for the new frig – say if it helped lower electric bills? Or could it encourage that new washer by helping set the cycles to lower water cost? Could you build it right into the console on a washer or dryer? Or could you encourage someone to buy a new car by telling them to forget about maintenance logs and just track the car's performance on a tablet?
If you provide content – are you planning for this? Recently The Economist sent me an email (I've registered on their web site) telling me they were going to start charging for web content. I've heard News Corp. properties, like the Wall Street Journal, intend to do the same. I guess they haven't noticed the world is moving in a direction that makes such a plan – well, impossible. In a recent Harris poll (reported on Silicon Alley Insider "People Won't Pay for News Online") 74% of web users said they'd simply switch sites before paying. With one of these eReader/Tablets in hand, why would they ever pay for content when another provider is a finger streak away? As access becomes easier and easier, the willingness to pay will go down and down. Publishers had better start figuring out how to get paid a different way than subscriptions!
Now is about when executives like to say "so I want to know which format will win before I start doing this. I only want to do this once." That old cry for efficiency. Unfortunately, while waiting for a winner to emerge, the waiter becomes the laggard. The early adopter, that recognizes the value provided to consumers, gets out there and starts using these innovations to drive better customer value. And to capture more sales. When you are part of making the market – like Apple in music – you gain huge advantages. You don't have to know all the answers to compete. You just have to be willing to Disrupt old notions and use White Space to experiment and learn.
I have drawers filled with obsolete electronics. How many obsolete cell phones do you own? How many big old monitors are you recycling to replace with flat screens? Do you still have a fax machine? I have an old keyboard that used something called "sideband technology" to allow me to interact with people and get news and sports info years before the internet was popular – and before wireless internet was available. Obsolete now, that device taught me how valuable the internet was going to be when Congress made it available for commercial use. Fear of throwing away a few products or software – maybe a betamax machine or copy of visicalc – is no reason not to get into the market and learn!
Markets are marvelous things. As these articles discuss, nobody knows how we will be using technology in the future. Not exactly. It will be some combination of eReader – computer – music player – television – telephone. But we do know the broad theme. And if you want to get out of this recession, you can start playing to this market shift now. You'll never grow if you sit on the sidelines watching and waiting. Get in the market. Participate. Use this technology to create new solutions! There are countless applications (as the expanding iPhone app base is proving.) Want to get into the Rapids of growth? You'll never succeed if you don't become part of the marketplace. Nothing creates learning like doing!
by Adam Hartung | Oct 4, 2009 | Books, Defend & Extend, In the Rapids, In the Whirlpool, Lifecycle, Web/Tech
Do you remember when AOL dominated the internet? In the early 1990s most people who used the internet actually were AOL clients. They bought their internet access, via dial-up modems, from AOL. Their interface (browser) was from AOL. And most of the sites – and navigation – was driven by AOL. AOL was the "monster" of the web. And it created enormous value for investors from this leadership position. It's value stormed to over $160billion!
Chart from Silicon Alley Insider
But as we can see, once acquired by Time Warner AOL tried to Defend & Extend its position. These actions pushed AOL into the Swamp, an undefendable position in the rapidly growing internet world. Defending its position proved impossible, as people found better and lower cost solutions for accessing and using the web. Now AOL is in the Whirlpool, fast disappearing – an historical anecdote about early internet days.
Apple has only about 2% market share in mobile phones. On the one hand, this could appear nearly immaterial. But if we look at usage, we see a very different story
Chart courtesy Silicon Alley Insider
iPhone application growth, which is clearly becoming logarithmic, demonstrates a change in the marketplace. People are clearly using these devices for more than making calls. Unlike AOL, which tried to hold people into their environment – or even Motorola's RAZR which tried to dominate sales of phones with pricing – Apple isn't trying to Defend & Extend a market position. Apple is creating a market disruption by changing how mobile devices are used. Promulgating applications increases demand for the iPhone (and iTouch) as not just phones but as replacements for laptops and other internet devices. Possibly ereaders like Kindle. This pulls people toward Apple's devices, which will generate strong future growth. By constantly bringing out new uses, Apple disrupts the market for phones, computers and internet access devices. Positioning its own products to be big winners as demand continues growing, and keeping Apple in the Rapids.
PostScript –
I was pleased to see a recent Wall Street Journal article "What Kills Great Companies: Inertia." The message of Lock-in as a source of business problems keeps spreading. This time Gary Hamel talks about some of the sources of Lock-in he sees. Reads like he bought a copy of "Create Marketplace Disruption"!
by Adam Hartung | Sep 18, 2009 | Current Affairs, Disruptions, In the Rapids, Innovation, Leadership, Lifecycle, Openness, Web/Tech
This week The Economist reviewed the innovation processes at Google. In "Google's Corporate Culture – Creative Tension" the magazine overviews several recent innovations, and actions senior leaders are taking regarding innovation management.
While Mr. Anthony recently chastised Google for its "immature" innovation management in a Harvard Business School blog post, and somewhat The Economist does as well, for not producing more revenue from its innovations – nobody can refute that the company released yet 3 more very important innovations this week – an updated Chrome web brower, new software that allows viewing on-line newspapers in a more natural way (Fast Flip) and Google Wave for collaborative project development. For most companies any one of these would be vaunted to market on piles of ad and PR sending. Products less significant cause Microsoft to throw their Marketing/PR machine into overdrive. But innovative launches are frequent enough at Google that you can completely miss some of them. Even when they continue to change whole industries – like Google has been doing to newspaper publishers and continues.
The best line in the article says that senior Google leadership is very actively trying to counter "the conservatism that can set in as companies mature." The good news is that even though it has 20,000 employees, Google is not "mature." Thankfully, it remains in the Rapids of growth. Size does not equal "maturity." That word is more applicable to companies that begin truncating ideas and activities to optimize their existing business. This is the direction Scott Anthony recently proposed on his HBS blog. And it gets companies into serious trouble.
Instead, Google is working hard to keep ideas from being truncated by hierarchy or people who are focused on narrow opportunities. Senior leaders are making themselves available to everyone in order to make sure ideas get attention – rather than vetted. Through this they are giving permission for ideas to be developed, even when many in the company aren't supportive. This top-level focus on granting permission to new ideas which are unconventional is a CRITICAL component of innovation success. Second, they aren't relying on a priority process for funding (something Mr. Anthony recommends). Instead they are making ample dollars available for ideas to push them to market quickly – and see if the innovation is accepted by the market or needs more work.
By personally engaging at the top levels in this process, Mr. Schmidt and his team are being Disruptive. They aren't allowing structural impediments like strategy formulation, hiring practices, tight IT systems, large historical investments or internal "experts" to Lock-in Google to its past. This is demonstrably exceptional behavior that pushes Google into new markets and growth. Then, by focusing on granting permission – even for things the "organization" may not initially support – and adding resources from outside normal resource allocation systems they are doing the 2 things necessary to keep White Space alive and thriving at Google.
Google has been growing, even in this very tough economy. More importantly, it has not slowed down its releases of innovation on the marketplace that can generate future growth. Mobile phones using its Android software are just now getting to market, and offer (along with other innovations) potentially very large revenue gains in new areas. With smart phones and Kindle-like e-readers to outsell PCs in late 2010 Google is squarely positioned to be part of the "next wave" of personal digital productivity (along with Apple.) And this can be explained by the company's willingness to remain Disruptive and push White Space projects — even with 20,000 employees.
by Adam Hartung | Sep 16, 2009 | Current Affairs, Defend & Extend, In the Rapids, Innovation, Leadership, Openness
Is Google a company who's growth and innovation worry you? Not me. Which is why I was disturbed by a recent blog at Harvard Business School Publishing's web site "Google Grows Up." In this article Scott Anthony, a consultant and writer for HBS, says that he thinks Google has been immature about its innovation management, and he thinks the company needs to change it's approach to innovation. Unfortunately, his comments replay the core of outdated management approaches which lead companies into lower returns.
No doubt Google's revenues are highly skewed toward on-line ad placement. But with the market growing at more than 2x/year, and Google maintaining (or growing) share it's not surprising that such high revenues would dwarf other projects. Google created, and has remained, in the Rapids of growth by leading the market. From its Disruptive innovation, offering advertising through products like Google AdWords to people who previously couldn't afford it or manage it, allowed Google to lead a market shift for advertising. And ever since Google has implemented sustaining innovations to maintain its leadership position. That's great management. No reason to worry about a lot of revenue in ad placement today, with the market growing. Not as long as Google keeps breeding lots of new, big ideas to help grow in the future.
But Mr. Anthony flogs Google for its "unrestrained" approach to innovation. He recommends the company push hard to implement a process for innovation management – and he uses Proctor & Gamble as his role model – in order to curtail so many innovations and funnel resources to "the right" innovations. Even though he's obviously flogging his consulting, and pushing that all "good management" requires some significant stage gate management of innovation – he couldn't be more wrong.
Firstly, P&G is far from a role model for innovation. As recently discussed in this blog, the company recently said one of its major innovations was cutting prices on Tide while introducing less a less-good formulation. As commenters said loudly, this is not innovation. It's merely price cutting – taking another step on the demand/supply curve of price vs. performance. It doesn't change the shape of the curve – it doesn't help people get a far superior return – nor does it bring in new customers who's needs were not previously met.
In a Wall Street Journal article "P&G Plots Course To Turn Lackluster Tide," the CEO freely admits the company has had insufficient organic growth. Additionally, his big future opportunities are to "reposition Tide," to cut the price of Cheer by another 13% and to use Defend & Extend practices to try pushing the P&G Success Formula into other countries. Like people in China, India and elsewhere are in need of 1.5 gallon containers of laundry detergent sold through enormous stores which have big parking lots for all those cars to lug stuff home. None of these ideas have helped P&G grow, nor helped the company achieve above-average returns, nor demonstrate the company is going to be a leader for the next 10 years in new products, new distribution systems or new business models for the developed or developing world.
This urge to "grow up" is a huge downfall of business thinking. It smacks of arrogance and superiority by those who say it – like they somehow are "in the know" while everyone else is incapable of making smart resource allocation decisions. In "Create Marketplace Disruption" I provide a long discussion about how introducing "professional management' causes companies to enter growth stalls. The very act of saying "gee, we could be more efficient about how we manage innovation" immediately applies braking power well beyond what was imagined. If Mr. Anthony were worried about Google managers leaving to start new companies in the past (like Twitter) he should be apoplectic at the rate they'll now leave – when it's harder to get management attention and funding for new potentially disruptive innovations.
Google is doing a great job of innovating. Largely because it doesn't try to manage innovation. It maintains robust pipelines of both disruptive, and sustaining, innovations. Google allows everybody in the company to work at innovation – providing wide permission to try new things and ample resources to test ideas. Then Google lets the market determine what goes forward. It lets the innovators use supply chain partners, customers, emerging customers, lost customers and anybody who can provide market input guide where the innovation processes go. As a result, the company has developed several new products — such as new network applications that replace over-sized desktop apps, and a new, slimmer mobile operating system that expands the capabilities of mobile devices —- and we can well imagine that it may be coming close to additional revenue breakthroughs.
Unfortunately, Mr. Anthony would like readers, and his clients, to believe they are better at managing innovation than the marketplace. However, all research points in the opposite direction. When managers start guessing at the future their Lock-ins to historical processes, products and market views consistently causes them to guess wrong. They over-invest in things that don't work out well, and investing for really good ideas dries up. All resource allocation approaches use things like technology risk, market risk, cost risk and revenue risk to downplay breakthrough ideas. Management cannot help but "extend the past" and in doing so over-invest in what's known, rather than let ideas get to market so real customers can say what is valuable.
Google is doing great. In a recession that has put several companies out of business (Silicon Graphics and Sun Microsystems are two neighbors) and challenged the returns of several stalwarts (Microsoft and Dell just 2 examples) Google has grown and seen its value rise dramatically. To think that hierarchy and managers can apply better decision-making about innovation is – well – absurd. It's always best to get the idea surfaced, push for permission to do things that might appear crazy at first, and get them to market as fast as possible so the real decision-makers can react, and give input, to innovation.
by Adam Hartung | Sep 2, 2009 | Current Affairs, Defend & Extend, General, In the Rapids, In the Whirlpool, Leadership, Openness
"Huffington Says Her Site Is Close To Making Money" is the video headline at Marketwatch.com. For years this blog has chastised traditional news publishers for trying to Defend & Extend their traditional business, when the market has shifted on-line —- both for readers and advertisers. Of course, the newspaper companies counter this argument by saying that they can't make any money on-line. They have to defend their traditional business – even from web competitors.
When shifts happen it's best to get started experimenting and migrating early. You may hate the political bent of HuffingtonPost.com, but that it's near making money shows that the model can work. Just differently than a newspaper or magazine. Unfortunately, most traditional media have been too busy trying to fend off the web to learn anything. For example, Tribune Corporation has long owned equity stakes in CareerBuilder.com and Cars.com as well as FoodChannel.com. But the company refused to learn from these ventures and migrate toward a different Success Formula.
Now it's too late for these traditional companies. You may think that if HuffingtonPost.com is still not quite profitable there's still time to compete. But reality is that Ms. Huffington's organization has been experimenting and learning and creating this Success Formula for 4 years. That kind of learning you can't pick up overnight. You have to participate in the marketplace, then make what you learn (good and bad) available for everyone to see. Then you have to discuss what you've learned openly so the organization can become knowledgable about what works and migrate toward a new Success Formula in which they have confidence. And that's why most companies react to market switches way too late. They think they can jump in at the last minute. But by then the HuffingtonPost.coms and Marketwatch.coms and MediaPost.coms have already learned how to succeed at this business, developed a subscriber base and created a viable ad sales program.
Take for example "Clunkers Program Boosts Ford, But Not GM, Chrysler" as headlined on Marketwatch.com. Now that the results are in from the government stimulated "clunkers" program, we know that the market has shifted away from GM and Chrysler. Year-over-year, Hyundai sales were up 47%, Honda up 9%, Toyota up 6.4%. Ford scored big with sales up 17%. But GM sales were down over 20%, and Chrysler sales fell 15%. We can see from this data that people were ready to buy cars, given a boost. While the overall market was up, we can see that it has shifted to a new batch of competitors. GM and Chrysler simply weren't prepared to compete – and it's doubtful they ever will be. They've missed the market shift, and now they don't have the R&D, products, distribution, marketing, etc. to remain competitive with companies that are seeing volumes and revenues rise.
Of course, every company has the opportunity to shift with markets – or be crushed by changes. The latest economic reports show that too many American businesses, like GM and Chrysler, are waiting to be crushed. "US productivity rises at fastest pace in nearly 6 years, while labor costs plunge in spring" is the ChicagoTribune.com headline. This is bad news for those thinking an economic upturn will save them.
When an economy grows productivity improvements are good. Imagine you sell 100 items. You have 100 employees. Productivity is 1. A growing economy allows you to sell 105, your employment remains the same, and productivity jumped 5%. Lots of winners – between the employees (more pay or bonus), the customers (possibly lower prices down the road based on rising volume), for investors (more profits) and for suppliers (more volume and less pressure on prices.) Let's say the economy slackens – like 2009. Volume drops to 90. But through cost saving measures employment drops to 86. Productivity just went up almost 5%! But nobody won. And that's what's happening today. Labor rates keep dropping because there's more labor supply than product demand – and if businesses keep cutting costs we'll improve our productivity right up while the economy keeps going down.
Business leaders need to be more like Huffington Post, and less like GM. To improve profits they need to recognize that markets have shifted, and move quickly to develop new Success Formulas which get them growing. Trying to Defend & Extend the old business, like newspaper publishers, simply drives you toward bankruptcy. Instead, it's time to Disrupt the status quo and create some White Space projects to learn what the market wants. It's time to experiment and get the whole company involved in applying the collective brainpower to develop new a new Success Formula which gets you growing, making more money, and improving productivity for real!
by Adam Hartung | Aug 24, 2009 | Current Affairs, General, In the Rapids, In the Whirlpool, Leadership, Lifecycle, Lock-in, Music, Openness
"Sears Axes Ad Budget As Sales Slide" is the latest Crain's article. Revenues have been falling at Sears ever since Mr. Ed Lampert took control of the venerable Chicago retailer. His initial actions were to cut costs in order to prop up profits. Which worked for about 8 quarters. But then the impact of cost cutting cracked back like a bullwhip, shredding profits. Mr. Lampert reacted by further cutting costs to "bring them in line with sales." And the whirlpool started. Cut costs, revenue falls, cut costs, revenue falls, cut costs…… And now he largely blames the recession for Sears poor performance. As if his Lock-in, and that of the management, to old approaches had nothing to do with the dismal results now at Sears.
There are those who think these actions are smart, to bring costs "in alignment with retail trends" as Morningstar put it. But reality is Sears is now in the Whirlpool of failure. Looking at the lifecycle, they've gone past the point of no return – out of the Swamp of slow growth – and into the last stage - failure. The stores would be closed and sold to other retailers, except there's a dearth of retail buyers out there these days. Thus shareholders are stuck with underperforming real estate, constantly declining revenues and falling cash flow.
Not all retailers are seeing declining revenues. Bloomberg.com reported today "Apple May Be Highest Grossing Fifth Avenue Retailer." While Sears and others are watching sales go down, Apple's retail store revenues rose 2.5% this year – and it's Fifth Avenue store has seen traffic increase 22% this last quarter. In a town where tourists often put an emphasis on shopping, they used to ask locals how to find Bloomingdales or Saks. Now they want to know where to find the Apple store.
Markets shift. When they do, you have to change your Success Formula or your results decline. When customers change their behavior, you have to change as well or your sales and profits go down. But most leaders react to market shifts by trying to do the same thing they've always done, only faster, better and cheaper. Oops. That only leaves you chasing your tail – just like Sears. You keep working harder and harder but results don't improve. Then eventually something happens that throws you into bankruptcy, or an acquisition for your assets, and it's "game over." Meanwhile, all the time you're watching returns shrink shareholders watch value decline, employees grow disgruntled as you whittle away bonuses, benefits, pay and jobs, and vendors grow tired of the impossible negotiations for lower costs while waiting to get paid on strung-out terms. Nobody is having a good time. Just go ask the folks at Sears.
But there are always businesses that catch the market shift and use it to propel their growth. Like Apple. Once a niche and low-profit computer manufacturer, they've turned into a producer of music players, music distributor and mobile phone supplier as well as computer manufacturer. And when everyone would have said that retail is a terrible investment, they've turned into a surprisingly successful retailer as well. Appple keeps throwing itself back into the Rapids of growth, rather than slipping into the Swamp of stagnation and Whirlpool of failure.
Apple keeps going toward the market shifts. Apple's CEO (and increasingly other executives) Disrupts the company's Success Formula, always challenging the company to do new things. And White Space is constantly created where permission is given to operate outside old Lock-ins and resources are provided for the opportunity to grow. Apple could have done a half-hearted job of retailing, trying to act like Best Buy or Nike with its stores and merchandise, or only funding stores in suburban malls instead of tier 1 retail space on the very best (and most expensive) retail avenues.
The next time you're asking yourself "when will this recession end?" think about Sears and Apple. If your business acts like Sears your recession won't be anytime soon. If you keep doing more of the same, cutting costs and hoping to hold on for a recovery, your doing nothing to end the recession and it's unlikely you'll find much improvement in your business. But if you develop scenarios about the future which allow you to attack competitors, using Disruptions to change your approach and the market, then using White Space to develop new solutions you can bring this recession to an end sooner than you think. People in your business will have chances to grow, and so will your revenues and profits.
For more about how we set ourselves up for failure, and how to avoid the traps download the free ebook The Fall of GM: What Went Wrong and How To Avoid Its Mistakes.
by Adam Hartung | Aug 17, 2009 | Current Affairs, Defend & Extend, In the Rapids, In the Whirlpool, Leadership, Lock-in, Web/Tech
For almost 3 years this blog has discussed how newspapers, and most traditional media, have ignored the changes being created by shifting markets for news readers and advertisers. Unfortunately, not a lot has changed in how newspapers, magazines and traditional media companies operate. They still don't put enough energy into using the web, for distribution or revenue generation. They keep trying to Defend & Extend their old models – and these companies keep going bankrupt. So much the worse for investors, employees and suppliers.
Today the Chicago Sun Times reported "Everyblock acquired by MSNBC.com." The sort of short article you could easily miss. Because the Sun Times, and most traditional media, still don't like to talk about the web. But this is a pretty big deal.
Everyblock was started 2 years ago by a 28 year old in Naperville, Il. He acquired $1M on a Knight Foundation grant to see if he could build a reporting engine that would supply information at the local level to web sites. An ambitious undertaking. Something you would think every major newspaper would try to do. But they didn't. They were so Locked-in to their old business model that they kept crying about the decline in subscriptions and print ads – but didn't do anything beyond cost cutting. That's what Lock-in will do to you – leave you crying about the past but taking no affirmative action to deal with shifting markets. They left the market for on-line local reporting available for someone more ambitious. Someone age 28 who really wanted to see if he could make it work.
After Everyblock hired some folks and figured out this would work you'd think Tribune Corporation would be all over how to apply this in order to build its on-line business. Guess again. Mr. Zell is so Locked-in to his big debt deal that he's too busy trying to sell the Cubs and otherwise raise money. He doesn't have a dime to invest in building the future. Same at the Sun-Times where leadership is still realing from the old owner's plundering of traditional assets with no game plan for how to succeed long-term. Both companies are well into the Whirlpool. So close to failure they've lost track of any plan to grow. So they ignored the local talent, cutting costs to prolong the ride instead of investing smartly.
Now MSNBC.com is going where the newspapers wouldn't go. It's acquiring the Everyblock business, one that's desperate for cash to grow, in order to expand its footprint. MSNBC.com is ready to develop a new model for local news coverage. Good for them. We all know the day will come when we can get local news from the web, and it's good to see MSNBC set up the White Space to explore how to make it happen. MSNBC.com is in the Rapids of growth, building on growth of its cable TV partner. It's good news for GE shareholders, who could benefit from the next big thing since Google or Twitter. All for the mere investment of a few million dollars. Less than Mr. Zell spends on personal jets every year.
The world keeps changing. Too many businesses are simply trying to do the same thing, only cheaper or faster or somehow better. They aren't reacting to shifts by actually Disrupting their approach and setting up White Space to learn. At the media companies the impact is sevee as fewer and fewer magazines get printed, and newspapers get thinner, and more companies file for bankruptcy. But the smart ones do something – like MSNBC. And MSNBC could just end up being the one taking it to the bank!
