by Adam Hartung | Apr 30, 2008 | General, In the Rapids, Leadership, Lifecycle
A lot has been recently about Rupert Murdoch’s News Corpation’s (see chart here) bid to buy Newsday newspaper in New York (read overview article here.) The officianados in media are worried about concentration of media ownership – as well as the politics of Mr. Murdoch and the implications on journalism.
These are two very different issues. Mr. Murdoch is a far-right conservative, and he makes no bones about his political leanings. Since the days of William Randolph Hearst the politics of newspaper owners has been a hot topic among media elite. But is that the determinant of who should own newspapers? Their politics? If we allow free speach, then no. Whether you like Mr. Murdoch, or not.
What’s brilliant about Mr. Murdoch is his ability to modify News Corp. to meet changing environmental requirements (see News Corp web site here). While Tribune Company is struggling to admit that newspaper circulation and advertising is never going to recover to 1999 levels, News Corp. long ago moved on. News Corp doesn’t rely on newspapers, the founding business, nor television – the media of the 1960s. News Corp is a major player in internet communications owning, among other properties, MySpace.com. This is in addition to book publishing, newspapers, direct broadcast satellite, film, cable TV, and magazines. News Corp actually HAS a strategy that addresses all of media – and its fast paced change – something almost none of its competitors has. This includes AOL Time Warner – the company that hoped to dominate the web by merging traditional news with the high growth AOL that bought Netscape – but failed miserably as the traditionalists took over.
Competitors are right to be fearful of News Corp. Mr. Murdoch is a consummate Disruptor. He’s observing Challenges in the environment and forcing his company to launch White Space allowing News Corp to adapt its Success Formula and remain at the industry’s forefront. Given how people now receive news – all the many channels – his ability to consolidate New York daily print news (including his recent Dow Jones purchase which provides him The Wall Street Journal) is really irrelevant. Dominating New York print is irrelevant in the TV, Cable TV, Satellite TV, internet world. But reaching customers through all of these channels sets News Corp. apart from its competition. While real estate developer Sam Zell is trying to figure out how to maximize sales of the Cubs and Wrigley Field (Tribune properties – as is Newsday), and simultaneously stop floundering performance from his remaining declining print properties, Mr. Murdoch is a decade ahead implementing cross-media platforms to maximize value for readers and advertisers.
Most of the media elite simply are too Locked-in. Their frameworks are based in the 1980s – not 2008. You have to hand it to the competitor that uses Disruption and White Space to define a new future for the industry – and everyone else should be paranoid. Long after we’ve forgotten the newspaper failures, mergers and buyouts News Corp. is quite likely to be providing info to people globally from any media format users desire.
by Adam Hartung | Apr 9, 2008 | General, In the Rapids, Innovation, Leadership, Openness
Great companies don’t only get into new businesses, they know when to get out. Look at GE – a company that sells almost as many businesses as it buys every year. Another company following this practice is Philips (see chart here). In the U.S. few people know much about Philips – although it is a global company with many successful products in multiple businesses.
Philips sells consumer products, like radios, telephones, monitors, DVD players, cameras, webcams, Sonicare toothbrushes, Norelco razors, MP3 players and televisions. It also sells medical systems – like CT scanners, ultrasound machines and heart defibrilators. It sells lighting systems which includes everything from home light bulbs to interior designs to products for lighting the exterior of office skyscrapers or religious temples. Philips was a pioneer in developing compact disc technology and optical storage devices and is a leader in high tech plastics and printed circuit board technology. (Read about Philips at its company web site here.)
Philips generated 2007 revenues of $39billion. Founded and run out of the Netherlands, this is pretty remarkable. The Netherlands has only 16.5million people! The whole country’s population is about 2x the five buroughs of New York City – or the same as the New York metropolitan area. Yet this company is bigger than DuPont, Intel, 3M and Merck – all members of the Dow Jones Industrial Average. Founded in 1891, Philips has met the test of time, entering new markets, and growing both revenues and profits, for several decades. Well resourced, Philips has created and implemented White Space to grow for longer than almost any company in the U.S.A.
Yet, today Philips announced it was going to quit making televisions for North America (read article here). A pioneer, and leader, in flat panel televisions – a high growth product line in the consumer-centric U.S. market – Philips is abandoning manufacturing this $1.7Billion product line, shutting its Althanta headquarters. Manufacturing for the Philips and Magnavox brands will transfer to Tokyo based Funai (which makes Emerson brand as well.)
Phoenix Principle companies not only are quick to Disrupt and implement White Space, they are quick to get out as well. And here we see a large company, with big resources, walk away from manufacturing a product line that is huge WHILE GROWTH IS GOOD. Long before the business slips into the Swamp Philips is looking ahead and changing course. Rather than get trapped in a low-profit business as growth slows, they are getting out on the way up to maximize the value – while focusing precious resources on other opportunities.
All companies of all sizes can be fleet of foot. Even large and aged ones. It requires the discipline to be forward-focused on markets and opportunities rather than history focused. It requires not getting blinded to think big businesses need Defend & Extend behavior – but rather the flexibility to move fast as markets move. It requires a willingness to not rely on your own internal focus – and your own resource pool – when making decisions about future investments. It requires the skill to realize that not all White Space is worth additional investment, and there are times to get out.
Long term success requires overcoming Lock-in. Not only by consistently setting up new White Space, but knowing when to get out of White Space rather than Lock-in on its efforts. Constantly getting into new opportunities means, by definition, that not all are worth pursuing. Some get out early, and others later. It takes discipline to overcome Lock-in – and Philips has shown the knack for 10 decades.
by Adam Hartung | Apr 4, 2008 | General, In the Rapids, Innovation, Leadership, Lifecycle
Today the press announced that the U.S.’s #1 music retailer is iTunes (read article here.) This is actually pretty amazing, given that Apple’s (see chart here) iTunes is only 5 years old. To reach this position Apple climbed over Target, Best Buy and finally Wal-Mart. Companies generally considered pretty good retail competitors. And iTunes did it with a handicap. Those who track the stats count songs – so iTunes had to sell 12 tunes to get the credit the traditional retailers get for selling 1 album – so as for number of music transactions iTunes clearly dominates.
You have to ask, why did Wal-Mart (see chart here) and Best Buy (see chart here) let this happen? They arent without resources, and music is profitable. Why didn’t they get out there 4 years ago with web sites that attacked iTunes offering product at great prices? If Wal-Mart is "Always low prices" why didn’t they put out digital music at a discount to Apple? With best guesses now that Apple has 19% market share, to Wal-Mart’s 15%, why didn’t Wal-Mart react to declining CD sales and invest in its own digital music site to slow Apple and get it’s fair share?
Wal-Mart and Best Buy are too busy trying to get people into the store. Those big old buildings are what management thinks about. These buildings are a testament to the company. Management is fixated on keeping people going to the stores. As retail goes on-line, and music has been an early leader, Wal-Mart isn’t about retail. Wal-Mart is about it’s stores. Rather than figuring out how to be a great retailer, thus giving customers what they want, when they want it, at a price they will pay, Wal-Mart is all about trying to get people into those stores by selling things cheap. The decor is allowed to remain lousy, the advertising looks cheap, the products in many cases aren’t stylish or alluring – and in the case of music the product isn’t even what’s growing (digital) but rather they rapidly dying CD.
Wal-Mart doesn’t care any longer about retailing. Wal-Mart is fixated on Defending & Extending its Success Formula, which it has closely tied to those incredibly ugly stores. Wal-Mart is about doing more Wal-Mart. And, unfortunately, Best Buy isn’t a whole lot better. Their approach to on-line sales is to get you to place an order, and then pick it up in the store. Again, all about the physical store – not about retailing. The goal has long been forgotten as the organization fixates on it’s stores as sacred cows they have to justify.
So Apple, which is a well run company, didn’t really have much competition the last 5 years. Apple has been allowed to grab the lions share of the market, while prime, well-funded competitors have ignored it. Not only retailers, but look at Sony – which has all the pieces (a recording company and a leading position in consumer electronics) to mount a considerable competitive attack. But Sony can’t get beyond Defending & Extending its old businesses, completely missing the opportunity to be a leader in the fast growing digital music sales arena. And Apple just keeps growing, and practically minting profits, with ease.
Southwest Airlines did the same thing 30 years ago. There was no reason Southwest should have been allowed to grow so fast, and make so much money. There were lots of airlines. But many went broke (Pan Am, Eastern, Braniff, Continental) and the others lost billions of dollars trying to Defend & Extend their business rather than simply get in and really compete with Southwest. So, like Apple, Southwest grew fast and profitably – and did it with seeming ease.
So who is threatening Apple? MySpace is jumping in, and we all know MySpace is very savvy about internet users. But note that MySpace is a division of News Corporation (see chart here). NewsCorp was once a newspaper company. But today it has interests in not only newspapers but radio, TV, cable TV and the web. Chairman Rupert Murdoch is a leader, like Steve Jobs, who is not afraid to Disrupt – nor is he afraid to invest in White Space. As a result News Corporation has flourished while other companies started as newspapers (Tribune Company, New York Times Company, McClatchey, etc.) have struggled and are floundering.
Businesses that focus on Defend & Extending their past investments become obsolete. Like SS Kresge, Montgomery Wards and Woolworths’s – Wal-Mart’s stores are not a protection against competition. D&E management likes to think big assets (like The Chicago Tribune or New York Times) make them indestructible. Instead, they can easily become albatrosses.
New competitors need not fear large, entrenched competitors. They are most often unlikely to do anything about a successful new competitor. Early entrants not only get in the Rapids, but are often allowed to stay there an amazingly long time (and they longer they continue Disrupting and using White Space the longer they can stay).
by Adam Hartung | Mar 19, 2008 | General, In the Rapids, Innovation, Openness
We all are surrounded by so much Lock-in and Defend & Extend Management that sometimes it can be hard to find White Space.
On 3/19 the Chicago Tribune reported the creation of some White Space that could be very valuable (read article here.) Microsoft and Intel each invested $10million to open research centers at the University of Illinois in Champaign, and a like amount at the University of California in Berkeley. These centers have the openness to pursue new approaches to parallel computing which could improve everything from solving complex problems to identifying your most important text messages.
The key attributes of this White Space include: (1) permission to pursue any solution likely to succeed. Located at universitites, these projects are not hide-bound to previous company technology investments. University based research gives the profs and grad students the lattitude to seek out solutions which could well be overlooked in a traditional R&D organization. (2) Resources to actually make a difference. Regularly I hear about small companies trying to raise $200,000 or $500,000 for research. Today, that money goes only a short distance. $10million provides enough funds to really seek out a solution. And, (3) not all the eggs are in one basket. Investors selected 2 different locations to pursue the objectives, allowing failure while not completely jeapardizing results. Investing in 2 universities demonstrates recognition that no one can predict where success will occur, so it’s smart to have multiple approaches.
You could challenge these investments as perhaps lacking sufficient Return on Investment justification. But, recall that Internet Explorer was a product developed as a direct result of Mosaic, developed at the University of Illinois, and eventually licensed to Microsoft through a company called Spyglass. And IE had an extremely favorable ROI for Microsoft. White Space should not be a "throw away your money" pursuit. But it is OK to invest in areas where you cannot fully predict the result – and rather just the direction. If the outcome from this $20million (which was matched by $16million of state funding) is even 1/20th as successful as IE the value will be HUGE.
by Adam Hartung | Dec 9, 2007 | Defend & Extend, General, In the Rapids, Innovation, Leadership, Lifecycle, Lock-in
I’ve had a lot of discussion this week about Motorola. Readers of this blog know I’ve been a big fan of Motorola, yet here we are today with the company’s value barely higher than it was 4 years ago (see chart here) – and the savior CEO is being replaced.
A Chicago analyst put Motorola’s situation well when he headlined "Big Expectations, Harsh Realities Plague Motorola" (see article here.) The Phoenix Priniciple is all about growth. When growth breaks out, you can’t stockpile it to use some future date. You have to keep growing. Motorola Disrupted 4 years ago, and a slew of White Space projects led to rapid growth. One of those projects was a breakout phone called RAZR – but that was just one. Motorola bought Good, Symbol and brought out several new products in DVRs and 2-way mobile radios. But this wasn’t enough (read full article here.)
Never forget Motorola once was the #1 microprocessor manufacturer – as the brains behind the early Macintosh. Motorola also launched Iridium. Not only was Motorola a huge leader in cell phones, but the company designed and deployed a satellite-based system intended to potentially augment or replace cell phones. Motorola uses White Space. But, unfortunately, when things start working the company also has a penchant to start Defending & Extending that success. Motorola’s Lock-in to infrastructure products meant the company didn’t give up on Iridium early enough. And Motorola Locked-in on analog phones, which they led, moving to digital phones way too late.
Trying to Defend & Extend what works has once again gotten Motorola into trouble. RAZR was a great product. But by focusing on growing share through RAZR, innovation declined. Instead of keeping Disruptions happening, and new White Space projects flourishing, Motorola overly focused (once again, unfortunately) on extending what worked (notice past tense) rather than maintaining innovation and keeping its eyes on the long-term future. Now other mobile handsets are more innovative, and the other markets where Motorola invested are growing – but not fast enough to keep over-all company growth rates out of the Stall Zone.
Motorola’s new CEO needs to do exactly what the company did 4 years ago (see article on new CEO here). Disrupt and open White Space. Motorola is full of innovations – across all its businesses. It needs leadership to Disrupt Lock-ins to hierarchy and sacred cows so that innovation can rapidly come to market. If Motorola instills Disruptions and Lock-in it can repeat past breakout success and return to above average growth. If it returns to The Phoenix Principle, and eschews D&E Management, its future looks very rosy indeed. But the threat of failure looms large if management avoids Disruptions and doesn’t invest in White Space – needed now more than ever at Motorola.
by Adam Hartung | Nov 30, 2007 | Defend & Extend, General, In the Rapids, In the Swamp, Leadership, Lifecycle, Lock-in
Motorola’s on the bubble. Today we learned the CEO is being replaced (read article here).
It’s easy to forget how bad things were at Motorola (see chart here) when Ed Zander took the helm. The company had been laying off thousands, and most analysts were calling for more reductions. Many people wondered if Motorola would survive. But Ed Zander didn’t cut a lot of jobs, instead he opened up a lot of White Space. He altered where Motorola invested, and made many acquisitions in businesses keeping Motorola at the cutting edge of digital television, wireless data and wireless communications. Ed Zander made a lot of Disruptions at Motorola, and he encouraged thinking to move the company forward – rather than trying to find past glory. Some people forget that he was CEO of the Year in the business press 2005.
But he didn’t do enough, fast enough, to leverage fast wins in mobile phones. His White Space project with Apple, for example, didn’t move fast enough or hard enough to be a leader, and ROKR is barely known while iPhone is gadget-of-the-year. Enterprise data applications from Symbol still aren’t even identified with Motorola, despite being a Lotus Notes sort of application. Even though all the Comcast Digital Video Recorders come from Motorola, too many people only know the name TiVo. Lots of great White Space – but not enough results fast enough, as profits from RAZR evaporated.
No rest for the weary is never more true than in growth companies. It’s not important what you did last year, only what you’re doing now. Despite Disruptions and White Space, there weren’t enough results.
Now the press is talking about how the new CEO is from the telephone business – as if going back to previous markets will save Motorola. Do analysts want to go back to thousands of lay-offs and cost reductions? Or should the company go forward, continuing its path into new markets, new applications, new growth opportunities?
When RAZR profits fell, Carl Icahn came calling. This grim reaper investor doesn’t care about Motorola’s long-term health. He wants to suck cash out for himself. If pulling the cash kills the company’s long-term prospects he doesn’t care. He just wants a short-term payoff. And he got Mr. Zander to blink (or maybe Motorola’s Board). New programs slowed, new rollouts slowed, market share efforts stopped as the organization turned to old approaches. Faith in Disruptions and White Space evaporated as Defend & Extend practices returned. And Mr. Zander’s demise became predictable.
Mr. Zander turned around Motorola, lest we not forget. But what will happen next? If the company forgets how it unleashed innovation and returned to growth, things could get a lot worse before getting better. Our biggest regret has to be that Mr. Zander didn’t do a better job of keeping his Board and investors aligned with his programs – and of not pushing his White Space teams to produce more results more quickly. We can hope the new CEO will return to Disruptions and White Space rather than Defend & Extend practices which will push Motorola back to where it was before Ed Zander arrived. Going back to the past may sound comforting, but success is all about the future.
by Adam Hartung | Nov 30, 2007 | In the Rapids, Leadership, Lifecycle, Openness
There is no doubt that it’s more fun running a business in the Rapids than one stuck in the Swamp. But it’s surely no walk in the park! Even in high growth markets, competition is fierce and the demands for growth are merciless. Recently Starbucks (see chart here) admitted to a 1% decline in store traffic (see article here). The stock was punished, dropping to it’s lowest price of the year.
Businesses in the Rapids have to grow, grow, grow. There’s no time to relax and count the money. Even a very small hiccup scares the devil out of investors. As it should, because a growth stall could mean a very quick trip from the Rapids to the Swamp. Starbucks has felt this fear palpably.
It is inevitable that Starbucks store growth will slow. Honestly, no matter how good the product or store ambiance, there is a limit to how many Starbucks we need. If we view Starbucks as a one-trick pony, just out to replicate its Success Formula by opening store after store, then investors should be very wary of this company. If Starbucks is Locked-in on selling coffee in its stores, that Success Formula has a half-life and there’s plenty of reason for concern.
But, is that true about Starbucks? Let’s see, they’ve started adding sandwiches and other food to their stores – which could well lead to an increase in the average check size and continue growth even if number of stores and number of customers per store doesn’t grow. They don’t sell coffee just in their stores, but also in grocery and other outlets. They are still moving Starbucks liquor into more liquor retailers. They still produce music, and are the Starbuck’s agency just this year added Paul McCartney to the list of musicians represented. And the movie production company that put out Akeelah and the Bee is still alive and kicking. When we look at all these other businesses, we can see that Starbucks doesn’t rely just on store foot traffic for individual coffee purchases to create growth. They have a number of other businesses, many not just Defending & Extending Starbucks but actually White Space, as growth vehicles.
Starbucks does not do a good job of educating investors about all it does. And its White Space does not get much attention. That’s too bad, because investment analysts like simple stories – and they oversimplify Starbucks when discussing the company’s future. Yes, a drop in foot traffic – even a mere 1% – is something to be concerned about. But the important question is whether any of the other Starbucks initiatives are powerful enough to keep the company in the Rapids. We need to know more about those programs before writing an epitaph for a company showing lots of Disruptions and White Space.
by Adam Hartung | Nov 16, 2007 | General, In the Rapids, Innovation, Leadership, Lifecycle
Five newspaper giants are banding together to sell internet ads (see article here). Now that’s creating some White Space to help their businesses grow. Good luck to Tribune, Gannett, Hearst, Media News Group and Cox.
Readers of this blog know I’ve been brutal on Tribune,, in particular for staying Locked-in on newspapers and focusing management on short-term metrics while implementing a leveraged buyout by a real estate developer. That effort looks like a Defend & Extend action trying to salvage a troubled ship called "the newspaper", and shows little hope of success. After all, journalism is about "news", not "paper", and efforts to salvage the oversized document thrown on my doorstep daily can’t be viewed optimistically. When readership is declining as people go elsewhere for news and entertainment, and advertiser spending is dropping at more than 10%/year, it’s not hard to predict the future.
But this new venture is White Space for these companies. Their individual web sites focused on displaying news. Interesting for readers, but what’s the business proposition? These companies have been so Locked-in to old paper-based business practices they didn’t know how to make money from their web sites. But this venture is focusing on the business side of journalism – the ads. And marrying advertisers with the content created and distributed by the journalists. Focusing on the business aspects, and in the extremely high growth internet ad market (just look at Google and Yahoo! to recognize the growth in internet ad sales), this venture has the opportunity to create a new Success Formula these companies can use to turn around their companies – and save their journalistic heritage.
My only disappointment is I see no Disruption to existing Lock-ins. It appears this venture is totally outside the traditional organizations. The risk is that this venture learns how to sell ads, but the 5 investors don’t Disrupt themselves in order to migrate away from old ways and toward the new market. If they don’t migrate, this venture may succeed but the traditional companies most likely won’t. So the White Space is good, but these companies need to go further to Disrupt their existing Lock-ins and create opportunities for rapid adaptation to the marketplace this joint venture develops.
Nonetheless, we have to be encouraged by this venture. Instead of just giving up the market to upstart Google they are finally starting to compete. Let’s hope the venture is given permission to ignore its investors’ old Lock-ins and do whatever the market requires for success — and let’s hope the investors fund this sufficiently so it can grow and succeed. This offers real hope for some very tired Success Formulas in traditional newspapers.
by Adam Hartung | Oct 28, 2007 | In the Rapids, Leadership, Openness
I talk frequently with small businesses. Many with revenues under $1million. And for many of these owner/operators they wonder how it can make sense to maintain White Space. After all, they say, as a small business isn’t even more important to focus on the primary business? The allure of doing one thing is high, but in the end the best businesses always utilize White Space.
The era of drive-in theatres is almost gone. But many of us remember when every town had one. Did you ever wonder how Drive-ins started? I bet you thought someone in the movie business invented the concept. Or perhaps someone with a traditional theatre. But that would be wrong. In 1933 it was a parts store/gas station owner who wanted to increase his night business that opened the first drive-in theatre. He started by experimenting with a projector and a sheet between trees. He launched what became an entirely new theatre concept, and it became a lot bigger than his gas station. (For more on the history go here.)
Businesses of all ages and sizes need White Space. It’s in this part of the business where anything goes, not encumbered by Lock-in, that we are the most creative and capable of trying new ideas. None of us know what will lead to the Rapids, and fast, profitable growth. Even though lots of small businesses think they know what they should do, until they hit the Rapids and grow at double digits they are still in the Wellspring. And the Wellspring breeds the highest number of business failures – usually because enterpreneurs Lock-in before they hit the Rapids and they don’t know what will grow. Maybe you think you’re in the gas station business, only to learn your night movies are worth more than parts selling. Only the marketplace will determine if you’re in the Rapids.
Domino’s thought it was in the pizza business. For 20 years Domino’s did not grow, nor did it make any money. But when the founder realized he was in the prepared food delivery business, rather than the pizza business, he hit the Rapids and became a billionaire in just a decade. No business is too small to benefit from White Space – and avoid the traps Lock-in lays to thwart growth.
by Adam Hartung | Jun 24, 2007 | Defend & Extend, In the Rapids, In the Swamp, Leadership, Lock-in
You know I’m no fan of McDonald’s (see chart here.) As detailed in previous blogs, the leadership is horribly Locked-in to its old Success Formula, and is expending lots of company resources to protect that Success Formula in the face of unhappy investors and competitors. Yet, when talking about competitors what do you hear McDonald’s discuss? Wendy’s, Burger King, Carl’s Jr. – other businesses focues upon hamburgers -with an occasional mention of Kentucky Fried Chicken or another traditional fast food outlet.
We all know where the big threat is though. And that’s Starbucks (see chart here). Far from a mere coffee shop, Starbucks has used White Space to unleash itself in several markets. And last week Starbucks showed its willingness to use White Space to expand into the marketplace McDonald’s has owned for decades – fast lunch – by announcing it will be launching premier salads.
McDonald’s started selling salads totally as a defensive move. McDonald’s new customers were staying away because mom or dad simply couldn’t eat a burger and fries, or preferred not to. So McDonald’s offered a second-rate salad product at a hefty price to try and keep the parents from saying "no" when the kids asked if they could have a burger. Salads weren’t intended to bring in new customers to eat salads, they were intended to Defend & Extend the old hamburger-based Success Formula by stopping client exodus.
Starbucks is taking a positive move into salads (see article here). It is an expansion of their Success Formula definition to include a full lunch entree. It is a shot across the bow of McDonald’s, which has conveniently ignored this emerging competitor for several years. And McDonald’s didn’t see it coming, and would now most likely say they don’t think of Starbucks as a competitor. After all, Starbucks doesn’t sell a burger, or fries.
The national airlines (United and American) never dreamed that Southwest would one day be national, have much higher customer satisfaction and be more profitable. Sears never imagined that a low-cost discount chain like Wal-Mart could eclipse its powerhouse status. DEC never imagined that AutoCad could drive it out of business. Lanier and Wang never perceived that Microsoft with a simple application like Word could kill the word processing marketplace. Once businesses devote their energies to Defending and Extending their Success Formula they completely miss the new competitors, and they don’t react until they are so far down the river that they can hear the Whirlpool sucking them under.
