by Adam Hartung | Aug 19, 2008 | Defend & Extend, General, In the Rapids, In the Swamp, Innovation, Leadership, Lifecycle, Lock-in
Last week BusinessWeek reported on how Dell was making a strong play to catch Apple’s iTunes in the digital music marketplace (read article here). On the surface, it sounds like a good set of tactics that might work. But it probably won’t.
Apple (see chart here) is a company filled with Disruption. In fact, Disruption is the lead in the Businessweek story. The reporter, Peter Burrows, discusses how a very disruptive Steve Jobs made it impossible for one of Apple’s engineering execuutives to remain at Apple – subsequently causing a lawsuit and payout by Apple. Typical for Mr. Jobs, he was ready to Disrupt rather than continue on a path he had lost faith in. So he made a hard turn to drop Tim Bucher. It is through this process of Disruption (painful as it is) and using White Space that Apple’s market value has increased by some 13x the last 5 years.
As a disruptive leader, heading a Disruptive organization, Mr. Jobs has Apple constantly creating White Space and doing new things. Apple has gone from the Swamp – practically the Whirlpool – back into the Rapids. It is sustaining its big hit products like iPod and iTunes with new innovations, while using White Space to jump into new markets like mobile telephony and wireless hand held computing. These Disruptions and White Space projects keep Apple working on the process of innovation to grow existing markets and enter new ones.
Dell (see chart here) is a very different company. Dell is still working hard to "leverage" its "core competency" in direct-to-customer sales. This approach has led Dell to attempt augmenting its "core" product lines of PCs and laptops with high definition televisions, and even its own mobile MP3 device. Both are long gone. Dell is still Locked-in to the culture, processes, IT systems, HR practices, decision-support approaches, vertical silos and knowledge sets that are focused on personal computing. Dell keeps trying to find ways to Defend & Extend its "core" in the hopes that late entry into new markets will allow the company to regain past rates of return. And it’s market value is down about 1/3 in the same timeframe.
Dell has added an acquisition (Zing) to its market approach, along with the engineering exec formerly fired by Mr. Jobs. But what Dell has not done is Disrupted itself. It has not admitted it must change its Success Formula to really be successful. And, it has not created White Space with permission to do whatever is neccessary to succeed – rather than operating within the confines of the old Success Formula and old Lock-ins. Without Disruption and Lock-in this project will be hamstrung by old assumptions, culture and structural restrictions which will stand in the way of creating a new Success Formula and market success. So even though the new Dell project sounds pretty good, it is probably won’t work because the project is still in an organization that first and foremost wants to sell more PCs – it wants to sell boxes in very, very high volume to businesses that can buy thousands.
You may ask if this isn’t possibly a replay of Apple versus Microsoft (see chart here)? And the answer is no. In both markets Apple took early leadership. But in the case of the Mac versus the PC Apple Locked-in on its hardware and software platform as a system sale and was unwilling to consider any other option. At that time Apple fixated on Defending & Extending the Mac. Meanwhile, Microsoft focused solely on software – and not only the operating system but the most critical and common applications (word processing, spreadsheet, presentation and database). By changing the competition to a "Windows + Intel" platform Microsoft was able to focus on software innovations which it could then take to market faster than Apple could react.
In the early 1980s, Microsoft was not saddled with a two decade Locked-in legacy like Dell, and Microsoft was not trying to Defend & Extend its DOS operating system when it launched Windows followed fairly quickly with Word, Excel, Powerpoint and Access. Meanwhile in 2008 Dell is a 25 year old company that has historically eschewed R&D and new product development, relying on vendors to do such work as it put all energies into supply chain management and direct-to-customer selling. Now in its effort to compete with Apple, Dell is trying to build its new solution inside this old fortress – which is designed to do something entirely different. Because Dell won’t Disrupt itself, admitting it needs to evolve, and won’t create White Space, it’s Lock-ins will be the hurdles that will stop progress. It’s this legacy – a very successful one producing above-average results for most of the 1980s and 1990s – that will hinder Dell’s success. One it can overcome – but shows no signs of taking the necessary actions.
by Adam Hartung | Aug 11, 2008 | General, In the Rapids, Leadership, Lifecycle
Some businesses get in the Rapids by picking a fast growing market and then trying to keep up with exploding demand. Such as PC manufacturers in the 1980s and laptop manufacturers in the 1990s. Or internet companies in the late 1990s. The market explosion means these companies keep selling more and more primarily due to robust demand. And revenue growth covers a world of sins, as they can raise external money to fund growth even if not profitable. But in these instances, when the explosion stops many of these competitors rapidly disappear – unable to maintain growth as the market shifts. The Rapids is a temporary phenomenon which disappears, and these businesses are not able to keep growing.
But Phoenix Principle companies create above-average growth and maintain profits in shifting markets often considered low growth. Take Aldi in grocery retailing. That market grows along with the population – about 1 to 3% per year. The vast majority of "good" competitors grow no faster than that. And those who do sport better growth usually obtain it merely by making acquisitions – so there’s no "real" growth just mashed up bigger numbers under one name. Worse, as Wal-Mart and other discounters have started selling groceries it’s caused many traditional grocers to see declining revenues as customers started buying more groceries at the new alternative. So, you’d think yourself hard pressed to get into, and stay in, the Rapids as a grocer. But Aldi, one of the world’s largest grocers, has done just that.
Aldi may seem small to Americans, with only 900 stores in the USA. But the company is $45B in revenues. And their success, growing at 5-10% per year, can be traced to following The Phoenix Principle:
- Aldi is always looking for places to expand. They don’t just try to sell in one geography, like most U.S. grocers, nor in just one country. They cover most of the developed world, with plans to expand into growing markets as well. They don’t focus on what they’ve done, but rather on where they can go and what they must do to keep growing.
- Aldi doesn’t follow the competition. They do what competitors are too locked in to even consider, much less do. While large grocers carry upwards of 45,000-80,000 items, Aldi stores carry 1,300. While most grocers rely on branded goods, Aldi is almost exclusively private label. While large grocers advertise weekly with specials, Aldi advertises very little and instead provides dramatically lower prices. Major grocers constantly rotate "deals" pitching suppliers to offer money to cover the deal cost, but Aldi just has the same price low price all the time. Where major grocers have lots of staff to help people, the typical Aldi has only 7 or 8 employees thus maintaining revenue/employee almost triple the national average. Aldi doesn’t ask customers what they want. Instead, Aldi competes by attacking competitor Lock-ins and beating them for customer sales.
- Whenever opportunities come along, Aldi remains open to Disruptions. In every country Aldi allows local management teams to build the concept tailored to customer needs. Aldi doesn’t force every country, or even every store, to be similar. Instead, they Disrupt their pattern and open stores where they can be most profitable – not necessarily where they will create "market density" – and each store is built to take advantage of its location.
- They don’t shy away from White Space. Recognizing the upscale shopper is not inclined toward an Aldi because of the merchandise available and sparse layout the company bought Trader Joe’s Market in 1979 which sells considerably more upscale merchandise, and has aggressively expanded. And instead of the typical grocery circular, Trader Joe’s mails out something that looks and reads more like a newspaper with recipes and discussions about featured merchandise, rather than just focusing on price (even when prices are very competitive.) And Aldi even allows Trader Joe’s stores and Aldi stores to exist in the same market – not worrying about cannibalization, but instead trying to maximize revenues.
Aldi is probably the most profitable grocer in the world (it’s hard to say definitively because the company is private.) It certainly is the most successful – opening a new store somewhere almost every week for the last 20+ years! With a growth rate more than double the industry average, and the highest net margin in the industry, Aldi has long been a quiet game changer that simply goes out there and makes money in one of the toughest businesses on earth. Selling groceries. And that’s what staying in the Rapids is all about.
(Read more about Aldi’s business in Chicago area here [Aldi North America is headquartered in suburban Chicago]. Read about the company history here.)
by Adam Hartung | Jul 24, 2008 | Defend & Extend, In the Rapids, In the Swamp, Leadership, Lock-in, Openness
Another big loss was announced at Ford (chart here) today (read article here). After announcing a $9billion loss, the CEO said he was looking to convert some truck plants to make hybrid cars. And the company is considering bringing some of its high-mileage European cars to the U.S. Let’s see, after announcing a quarterly loss that was 85% of the company’s entire market value, the CEO thinks maybe it’s time to change the product line-up and manufacturing capacity configuration.
How hard would hit have been over the last 8 years to expect the need for higher mileage autos to increase? Instead of looking at what historically made the most money (which were trucks and SUVs), and trying to milk those products for profit forever, can you think of any future scenario which would not have predicted the need to switch customers to different products? Only by focusing on the past – what used to make money – could a leadership team walk so far out on the gangplank.
Compare this with today’s announcement at Google (chart here) to launch a competitive on-line encyclopedia to Wikipedia (read article here). This would appear to be creating a "me to" product in a market already well served. Why should Google bother? Such a viewpoint would be looking backward, rather than at future scenarios.
How many new users will come to the internet over the next 10 years? How many people may want a different approach than used at Wikipedia? What are the odds that it is possible to have a product that is possibly better than Wikipedia? If you look at the future, and you recognize that (a) internet use is unlikely to slow for many, many years (b) products with lots of acceptance, and no competition, are easy targets because some people have to be underserved, and (c) competition always improves products — doesn’t it suddenly seem logical to offer this new product?
Scenarios should point out not only future risks, but future opportunities. Yes, Google is #1 in search and #1 in on-line ad placement. And growth in both those markets looks very good. But your future scenarios should be looking for additional markets as well. In this case, Google sees potential to use its capabilities in both search and ad placement to better the on-line encyclopedia product market. Thus, its a market opportunity which is very likely to do well given this future view.
We can’t wait on market confirmation to make plans. We have to develop scenarios, and take management action based upon them. If we do, we can identify and test markets early enough to be prepared when customers start to shift. If we don’t, we’ll be caught "flat footed" when they shift – and as Ford is demonstrating this can be an expensive, possibly deadly, position to be in.
by Adam Hartung | Jul 22, 2008 | General, In the Rapids, Innovation, Leadership, Lifecycle, Openness
Apple Computer company (see chart here) has been rather remarkable. After eschewing the Newton and other products it Locked-in on the Macintosh – and almost failed. After years of declining PC market share and no new products Steve Jobs returned – and with a lot of Disruption and White Space he turned the company around. For the last 4 years Apple has been a model Phoenix Principle company.
Today Apple announced earnings (read article here), and again they were up. But analysts were concerned because the company indicated margins could decline in the next quarter to account for costs of launching new products. This is exactly the kind of feedback that ended up driving Motorola (see chart here) into its bad situation. After Ed Zander Disrupted Motorola, installed White Space and had the company acting like a high-tech power again he fell victim to the lure of margin maintenance. Instead of following up the Razr with a new product every quarter – some hitting well and some maybe not – he let disappointing sales of Rokr and other new products push him toward D&E behavior. He started focusing on Razr sales for market domination – and in the end he pushed the Motorola cellular handset division over the brink when competitors eclipsed him. Short-term margins looked great, longer-term Motorola is fighting to survive in cellular handsets (it’s biggest business).
Apple is showing all indications of continuing to do the right things. After entering new markets, it shows the ability to bring out a series of sustaining product technologies to grow revenues. Each Disruptive product opens the door for these new products which help grow revenues with new customers. Now the CFO is telling investors that new products are planned, and since sales are never assured he has to be conservative about the margin estimate! Good!! No one introducing new products can be sure of their early sales and margin. But to be like a Phoenix, and continually keep rejuvenating, you must continue to launch new products in search of new opportunities. And that is exactly what Apple indicates it is going to keep doing. For investors, employees, customers and suppliers this is good!
The worry is Apple’s reliance on the CEO. Marketwatch quotes an analyst who said investors are worried about Steve Jobs’ health after a recent pulbic appearance "Question’s about Steve’s health will weigh on the stock until he, at some point, looks better in a public forum" (read quote here.)
There’s no doubt Jobs is a good manager. His willingness to Disrupt and instill White Space has allowed him to do well for all the constituencies benefitting from Apple’s turnaround and ongoing success. But for Apple to be a truly great, evergreen, Phoenix company it must build into its architecture the ability to renew itself. Rather than rely on its leader, it needs the systems to seek out the low-return businesses to exit, and to create Disruptions that self-develop White Space which can be monitored and guide growth. Otherwise, the company will stumble when Jobs inevitably leaves. And that would be unfortunate. Businesses can become evergreen, but not if their longevity relies on the leader – the hero CEO.
At Cisco Systems (see chart here) the company mission includes obsoleting its own products. This credo promotes Disruption as it keeps managers from becoming too Locked-in and staying with a product too long in an effort to avoid "cannibalization." As a result, Cisco is not too dependent upon its CEO to keep moving it into new markets, using new technologies and launching all new products. Until Apple develops a system for Disrupting itself its reliance on Jobs will be too high – just as was true at Microsoft – and investors have reason to be wary of the long-term results.
by Adam Hartung | Jul 18, 2008 | Disruptions, In the Rapids, Leadership, Lifecycle, Openness
Yesterday IBM (chart here) announced it’s most recent quarterly results (read here). The good news was revenue climbed 13% and income from continuing operations rose 22%. This ability to stay in the Rapids is pretty amazing, given that a 10% growth at IBM means adding more than $10B per year. And despite being in myriad markets, the company produces about $260,000 revenue per employee.
A colleague said to me that he wasn’t surprised IBM had this nice growth. After all, they’re in high-tech. I had to tell him I was surprised at his naivete. IBM’s growth was not automatic, nor in any way assured, because of the general industry in which they compete.
Quite to the contrary, many high-tech companies struggle and fail. Remember Wang? DEC? Silicon Graphics? Compaq? Coopers&Lybrand consulting? "High Tech" is full of cutthroat competitors willing to drive you out of business in a heartbeat with suicide pricing and over-exuberant product claims. Don’t forget that IBM itself was on the brink of failure in 1993.
IBM, which walked away from the PC business after inventing it, became committed to mainframes – and to a lesser extent mini-computers – in the 1980s. This worked great until data centers started downsizing due to new techologies – and the floor fell out of revenues. With a change in it’s leader, and a lot of Disruptions inside IBM, the company lessened its dependence on hardware sales as it grew services sales in the latter 1990s. Since then, IBM has deployed an aggressive innovation program that promotes the development of new products and services across the panoply of high-tech. Now, in the face of terrible economic conditions IBM is demonstrating it can maintain growth, even though it is huge, by reaping the benefits from maintaining Disruptions and White Space in many technology, geographic and product markets.
Keeping your organization in the Rapids is not the result of where you’re located (like India or China), or your size (small versus big) or your age (young versus old) or the markets you sell to, or the technology you use, or how much you spend on R&D, or how much you outsource, or "general market conditions", etc., etc. Staying in the Rapids is the result of ongoing management attention to scenario planning, keeping your eyes on competitors, maintaining a willingness to Disrupt and keeping White Space alive and viable. And any organization can do those things – allowing you to grow even when competitors and customers feel the pinch of recession.
by Adam Hartung | Jul 17, 2008 | General, In the Rapids, Leadership, Lock-in
I regularly beat the stuffing out of organizations for Defending & Extending their Lock-in. Low growth and poor results have demonstrated for these companies that market shifts are pushing their Success Formula toward obsolescence. They need to Disrupt and use White Space if they are to survive and grow again.
There is another side to this. Some companies are in the Rapids, and they have a different set of requirements. Take for example IT services provider Infosys. Their quarter ended 30 June, 2008 saw revenues increase by 24.5% versus a year ago! The company also added over 7,000 employees during the quarter. Tata Consultancy Services (TCS – also an the IT services provider) for the same period saw revenues grow 21% as they added nearly 9,000 new employees. These companies are clearly in the Rapids, seeing revenues grow in double digits and they are profitable. They have a very different Lock-in problem.
When businesses are in the Rapids, their objective is to define the Lock-in which will guide improving results from the Success Formula. Without Lock-in, they cannot keep growing revenues and, even more importantly, improve on the Success Formula to grow profits and maintain above-average returns as new competitors enter. These businesses need to make sure they have a clear hierarchy that can guide the recruiting, hiring and new employee indoctrination process. They need clear processes for adding new large clients – Infosys added 49 clients in the latest quarter and TCS added 35. Without Locked-in processes to rapidly sell, onboard and deliver services to new clients they cannot maintain this rapid growth. Without clear IT structures, they cannot measure employee performance against client goals, and effectively implement billing and cash receipts. They need Locked-in decision-making processes that allow leaders to quickly review business issues and make quick decisions so the company can keep growing. And they need to develop experts inside the company who can oversee operations and be sure each silo maintains its performance.
When a business enters the Rapids Lock-in is GOOD! We forget about that because so often we are talking about problematic businesses. But when GM was growing fast, it needed to create Lock-in that helped it become the #1 auto company offering more styles and features than previous leader Ford. When Microsoft was growing fast it needed Lock-in to help it dominate the desktop market amongst fierce competitors threatening to fragment the PC software market. It was Wal-Mart’s Lock-in to supply chain leadership that allowed it to go from a small group of stores in backwater rural towns to the world’s largest retailer in just 2 decades. (Of course, all of them are now Challenged looking forward because eventually the let Lock-in overcome their need to change due to market shifts – but that’s a different story.)
When businesses don’t create Lock-in they can’t grow. They can’t compete effectively in a way that meets market expectations. They are chronically short capacity. They cannot onboard clients effectively, so potential buyers grow weary of the wait. They lose track of their record keeping and miss customer expectations – as well as struggle with cash management. They make erratic decisions that confuse customers, investors and employees, slowing the ability to maintain growth.
Today, Infosys and TCS are very profitable at the gross margin line – but not so on the bottom line. Their revenue per employee is a mere $51,000. Accenture produces revenue of $240,000 per employee! In the Rapids, these high growth companies that are Disrupting the marketplace need to manage their Lock-ins so they not only grow, but earn above average rates of return as well. Eventually, all Success Formulas hit the wall of diminishing returns. Market shifts allow competitors to strip out value from old Success Formulas. But first, before they stall, successful companies have to implement Lock-in to make their Success Formula valuable! Those that don’t just churn through lots of investor cash, employee turnover, beaten up suppliers and in the end fail.
In the Rapids, Lock-in is good! If you’re evaluating a growing company, you want to see that it has a clear Success Formula and knows how to Lock it in. Only after that has happened, and proof of above average returns are demonstrated, does it become critical to manage Lock-in for evergreen, long-lived results.
by Adam Hartung | Jul 15, 2008 | Defend & Extend, In the Rapids, In the Swamp, In the Whirlpool, Leadership, Lifecycle, Lock-in
Readers of this blog know my lifecycle references. We start out in the Wellspring of ideas. To be successful we have to find the Rapids of high growth. In the Rapids life is beautiful as we make money and everyone wants to give us more. When growth slows we hit the Flats – where we keep paddling like crazy trying to figure out what happened to the Rapids. But because we’ve slipped from the Rapids to the Flats, pretty quickly we drift into the Swamp where growth is really hard to come by. We end up spending all our energy fighting the ferociously competitive alligators and mosquitos, often forgetting our real objective. In the end something happens the business isn’t planning for, and like pulling the drain on a sink the Swamp becomes a final Whirlpool sucking the organization away.
The most important time for management to make the right decisions is in the Flats. It’s the Flats where leaders have to steer the company back into the Rapids, or else drift into the Swamp. So let’s compare General Motors and Honda.
GM saw it’s growth start slipping almost 30 years ago. Roger Smith tried to steer the company back into the Rapids by creating a stand-alone company called Saturn that would learn to act like a "Japanese" car company. He also bought Hughes Electronics and EDS to diversify GM into very high growth markets (electronics, avionics, aircraft and IT). But Smith was often maligned by analysts and fellow executives who wanted GM to remain a "car company." Eventually GM sold Hughes and EDS to raise money to shore up its declining auto business where it was mired in the Swamp. GM leadership even abandoned the idea of an independent Saturn, and eventually forced the White Space project to start using common components with other GM autos, common functions like procurement, common systems and even common dealers. Now Saturn is just anther GM nameplate.
Today, GM is starting to hear the sucking sound of the Whirlpool. The company is constantly trying to stave off rumors of an impending bankruptcy. Meanwhile, the company equity value today is less than it was 50 years ago – meaning an investor would have nothing to show for a lifetime of ownership except dividends. And today those were halted – a key indicator that GM is heading into the Whirlpool. Cost cuts now are center stage as the company closes capacity and is even whacking salaried employment 20%. Management keeps saying it has enough liquidity to survive 2008 – whoopee! – which is only another 6 months. So it is looking to shut down nameplates (like Hummer), more plants and sell as many remaining assets as possible. It’s hard to see how anything good will happen for GM’s investors, employees, suppliers or customers as the business keeps churning faster toward the Whirlpool of failure. (Read more about current actions being taken at GM here.) GM is claiming it could not predict the auto market changes being created by higher priced oil – even though this "crisis" has been emerging for 3 years and is unerringly similar to the market shift which happened during the oil price shock of the 1970s.
Meanwhile, Honda sales have grown 4.5% this year. Right, while we keep hearing about the total market declining, Honda sales are growing (read article here). Management at GM, and many analysts, like to portray this as luck. Hardly. Honda and GM compete in the same markets. They just took very different management actions.
Honda never tried to develop a plan to do one thing and dominate the market. Market domination was never its goal. Instead, growth in sales and value has remained #1. In it’s quest to grow, Honda did not merely remain an automobile company. Rather than eschewing other businesses as diversions, Honda successfully developed profitable growing businesses in everything from lawn mowers to lawn tractors to electic generators to boat motors to motorcycles to quadrunners to snowmobiles to snowblowers to robots and jet airplanes – and cars. Of course, in cars they make small cars, luxury cars, all-purpose vehicles and even a full size pick-up. They sell products directly from Honda to end users in some markets, they sell through dealers in other markets to distributors who wholesale products to retailers in other markets and even to large mega-retailers like Home Depot in other markets. No single distribution system. And they sell products in almost every country on earth – including being the #1 motorcycle supplier in India with it’s Hero-Honda joint venture. (Unlike GM which has long maintained an overt focus on North America blinding its opportunities elsewhere.)
As markets shift, Honda is preparing for those shifts. It doesn’t let "focus" make it overly dependent on any one market – or any one sub-market within a single market. In motorcycles, for example, it offers everything from a small scooter for the urbanite to dirt bikes for leisure use to cross-over bikes that can be used on trails and roads to small motorcycles for short-riding to large motorcycles for long riding to crotch rockets for testosterone driven young men to huge, oversized Gold Wing bikes for 50 year old highway touring riders. It does the same in autos, where it offers everything from a hybrid to the high-mileage traditional Civic small car to multi-person mini-vans to full size pickups and even luxury cars under the Acura brand. While GM is trying to be big, Honda has mastered the art of growing and making money by constantly bringing out new products in new markets and learning from those experiences so it can migrate its Success Formula.
Far too many management teams think their job is to "focus" and be #1 in some defined market. Of course, all those definitions are arbitrary, and being #1 doesn’t mean anything if you can’t make money. GM has been huge, but it has been unable to generate enough profit to replace its capital for decades. Now Honda, who is #1 in some markets, but not in most, is showing that by being agile and nimble, by avoiding Lock-in to old-fashioned notions of market share, it can be more competitive. As individual markets struggle, from product markets to geographic markets, Honda keeps using its White Space to bring new technologies and products to customers. It evolves its older businesses toward what works, selling big trucks when people want them where they want them and small motorcycles where demand for them is growing. It’s this ability to look to the future rather than the past, keep a sharp eye on competitors and always be at the front of new products, maintain Disruption to get into new markets and keep White Space alive so new Success Formulas develop which allows Honda’s leaders to keep the company steering toward the Rapids rather than finding itself being driven right into the Whirlpool of disaster like GM
by Adam Hartung | Jul 10, 2008 | In the Rapids, Leadership, Lifecycle, Openness
I’m a land-bound midwesterner, and know next to nothing about sailing. But someone once explained to me that sailors tie ribbons to their sails and ropes. They call these "telltales". And then good sailors pay attention to the behavior of these ribbons so they can interpret the wind and achieve their destination more quickly. Good sailors learn to read these whisps of cloth to be more successful. As customers, employees, suppliers and investors we need to do the same. It is important we pay attention to small bits of information for the early signs they give of shifts in the business weather so we can be more successful.
Yesterday, buried deeply in my local newspaper was a small article about Google (see chart here) launching a new virtual reality site called Lively (read article here.) It was very small article (only 155 words), barely explaining what the site was, and offering no clue as to its potential impact. An article easily ignored. Ahhh, but this is a telltale.
Google is in the Rapids of growth. It is in a market growing at over 100%/quarter! Even bad operations in the markets of search and online ad placement are growing at over 30%/year and making money (see Yahoo! and MSN search for examples.) Because it’s in the Rapids, Google can make a lot of money and grow very fast while doing nothing more than establishing its Success Formula and continuing historical Lock-ins. There is no reason to expect Google to do poorly any time soon. But the interesting question is — when the growth slows will Google keep growing (like Cisco) or be another Sun Microsystems, Dell, or Microsoft? Will it be Locked in to its old business, and start to shrink, or will it have new businesses to keep it growing as market shifts develop?
We know Google acquired YouTube months back, and has left it independent. That looks like White Space – but we don’t yet know if it will be able to affect the Google Success Formula or if it will just be a content site for Google ad placement. So that’s maybe White Space, and we need to keep watching. We can’t yet determine if it’s White Space that will develop a new Success Formulas to keep Google evergreen.
This article on Lively therefore deserves more investigation. What’s the first step? Why a Google search on Google Lively of course! There we can find an India Times article on Lively (see here). Where better than in the land of information technology domination could you find an article that clearly explains the site and how it works. We also can go view the site (here). A bit more investigation into the IT world (see here) and we learn that these 3D virtual people and rooms are things you can add to a blog or web site (think software to juice up your home page, etc.) and it is a rich medium for gaming technology! On-line gaming is one of the few markets growing even faster than on-line advertising – and this opens new doors for growth beyond search and ads!
Additionally, one attack on Google has been its sparse search pages. Lively starts bringing forward much more robust interactivity with many different elements which could potentially expand how we would interact/use search (think less linearly and more dynamically about how an avatar could search in 3D kinds of ways) and social websites (like Facebook or MySpace). Potentially, we could use these Google Avatars or rooms to even manage our social networks across multiple sites – creating a sort of "layered" set of interactions between multiple "partners" with which we want to talk, play games, or share information in multiple environments simultaneously. Think about a wiki on steroids which can duplicate real-life meeting-style interactions. We could conduct various business sessions with these avatars, such as on-line training applications, simulations (for business negotiations, or planning [think real-time interactive SimCity]), or real negotiations for office leasing or acquiring office supplies or even parts for a factory (read more here about applications). Avatars could behave like interactive bots searching the web for new sources and deals. These environments could be sponsored by a vendor, with ads, or created as user environments (like TypePad on which this blog is created) for businesspeople to use.
What we can determine is Google is definitely setting up White Space here. It may not look like much right now – but then again how excited were you by most web sites when they first popped up? It’s important to note that these White Space projects appear to have permission to do things otherwise not done in traditional Google, and are quite well funded. Both hugely important factors. They also operate with independence to see what sorts of Success Formulas they can develop – and thus be the next generation toward which Google may head. All told, these Telltales indicate very good things for Google to maintain its rapid growth.
Of course, the hard part that lies ahead will be seeing if Google actually uses these projects to change its Success Formula (today built on Search and ad placement). Google’s growth has allowed it to eschew Disrupting itself. Why bother to Disrupt with growth exceeding everyone’s expectations? But for these White Spaces to make a difference, it will be necessary for Google to eventually demonstrate it can Disrupt it’s Lock-ins and transition its Success Formula into new businesses that maintain growth and profits.
For now, all looks good for Google. They are managing the Rapids well, and we can see the signs of White Space being implemented. We’ll have to keep watching to see if leadership can Disrupt to take advantage of these projects when the weather shifts to less rapid sailing – but for now it’s a very good thing to see this White Space being implemented. Something far too few high growth companies do enough of.
by Adam Hartung | May 19, 2008 | Defend & Extend, In the Rapids, Innovation, Leadership, Lifecycle
I attack Defend & Extend Management a lot. Too often, managers try to succeed by just doing more of the same – often faster or cheaper. But when markets have shifted, that can produce ever declining performance instead of improvement. Then why is D&E management so popular, and so frequently taught in business school?
When a business is in the Rapids, because it is participating in a growing market, then D&E Management can produce very good results. GM in the heyday of auto sales made huge money being the largest manufacturer – and Dupont was the same during the zenith of chemicals (remember when Dustin Hoffman was given one word of advice post-college – "Plastics" – that was a good time for DuPont). More recently, first Wang then DEC did tremendously well during the growth of mini-computers. And Dell was an enormous benefactor of the growth in PC sales.
Today, Google (see chart here) is riding high practicing D&E Management. The market for searches is continuing to grow. And we’re still in the early days for internet ad placement. Google is doing well merely by doing more (read AP article about Google here.) When the market is growing at 20%/quarter, management is incredibly busy just trying to hire people, get them on staff, get them directed and keep up with customer demands. Market growth keeps Google growing and making money – and management is encouraged by analysts, and investors, to keep doing more of what it has always done. D&E Management is working – producing results.
And this will continue until the market shifts. Companies that catch these growth waves can do well for many years – sometimes decades. Recall the examples above. Dell rode high for 20 years before growth stalled – along with PC sales and tremendous increase in competitiveness of competitors. And the best leadership teams realize they can’t predict when this stall will happen. They just know it will. The cause will always be something unexpected, and thus a shock to the existing Success Formula results. So the best leadership teams in high growth markets practice D&E, and at the same time create and invest in White Space.
The best time to prepare for a market to slow its growth, or become victim of a Clayton Christensen style disruptive technology shift, is when things are going great. When growth is creating plenty of cash, and investors are throwing money at you. During this time, it’s really smart to Disrupt yourself from time to time and set up White Space projects that can focus on alternative Success Formulas. This prepares the foundation for long-term growth, rather than the boom-and-bust scenario of, say, DEC.
Cisco Systems (see chart here) is a case in point. When most internet companies were getting destroyed at the end of the 1990s Cisco relied upon the foundation for continued growth developed by investing in plenty of projects that weren’t the current fast growers during previous years. Rather than just trying to D&E what had worked (and it was working really well to sell network devices to telecom companies) Cisco had already started looking for other competitive products in other markets. As a result, the cliff fall off that lambasted Sun Microsystems, and 3Com, had a far less impact on Cisco. Cisco’s ongoing Disruptions, by constantly trying to obsolete its own products, with a never-stopping focus on looking at future scenarios, helped the company prepare for the dot.com crash. Now Cisco is as strong as ever and continuing to make tremendous returns in a very different competitive marketplace.
Google is doing great. It’s Success Formula has been Locked-in and its is creating tremendous results. And this scenario is likely to continue for years. In the Rapids, life is fun at Google. D&E Management is making money. But keep your eyes open for a market shift. Without White Space, Google could quickly be the next DEC.
by Adam Hartung | May 15, 2008 | Disruptions, In the Rapids, Innovation, Leadership, Lifecycle, Openness
General Electric (see chart here) announced today it is looking at ways to sell its appliance business (see article here). Great move! Too many companies hold onto a business for all the wrong reasons, and refuse to take action to keep themselves in the Rapids.
GE needs to Disrupt. The old CEO, Jack Welch, was famous for taking Disruptions. That’s how he got the nickname Neutron Jack. Keeping his eyes on the future, he kept GE focused on new opportunities and he used White Space to develop new Success Formulas. And while he had the top job GE performed admirably, growing multi-fold. If a business didn’t meet goals, Mr. Welch sold the business and invested his management talent and money in better opportunities.
Now GE finds itself nearing the Flats. Last quarter saw a profit decline. Two in a row, and the company falls into Growth Stall from which it has only a 7% chance of returning to consistent growth exceeding 2%. So that blip in a century-old record was a very big deal. And the good news is that the current CEO seems not to be ignoring it. He looked around, and found one of the long-legacy businesses of GE with little innovation and limited growth. While competitors were re-introducing front-loading washers, low energy and low water washers, and scads of various innovations in large appliances his team was #1 in share but far from #1 in market leadership. Management was happy to blame poor performance on the bad U.S. economy, and the stagnation in U.S. new home sales, planning on a recovery some time in the future. So sell it! That’s what Mr. Welch would have done, and that’s what Mr. Immelt is now doing. There are always opportunities for innovators in all markets, and keeping around Locked-in management teams that think they are doing OK because their markets turn south only breeds ongoing poor results.
Yes, GE was in appliances for 100 years. But so what? Today appliances are only 4% of this $178billion revenue behemoth. And GE needs to maintain its growth goal of 10%. The CEO can’t accept excuses. Millions of houses are being built in India and China and South America – and with enough innovation current homeowners will replace old appliances. Insufficient growth is a management issue – not a market issue. Markets are how you define them, and if your defined market isn’t growing go into another one! GE needs to stay in the growth Rapids, and having been around a long time is no reason to coddle a management team that doesn’t know how to maintain growth. GE is in a lot of businesses, and it has gotten out of a lot of businesses, and it can get into a lot of new businesses. Congratulations to the top executives for not letting history put the company at risk of going into the Flats and then the Swamp of low returns.
Too many leaders are unwilling to Disrupt. They let ties to Lock-ins keep them trying to "fix" a business. Doing more of the same, trying to be faster or cheaper, when what’s needed is a new Success Formula. GE is showing us that if you keep your eyes on the future, and hold tight to meeting your growth goals, you can’t afford to let Status Quo Police keep you focused on Lock-ins. You can’t try to succeed by merely Defending & Extending what you always did. You have to be willing to Disrupt and do entirely new things. You have to Take Action before it’s too late. Good job GE.
