by Adam Hartung | Dec 7, 2005 | In the Rapids, Innovation, Leadership, Openness
Marketwatch has named Ed Zander of Motorola as it’s CEO of the Year. What a well deserved compliment. Motorola’s revenues are up an eye-popping 59% since before Zander joined, and the stock price has doubled. The culture has changed from moribund and stifling to open and aggressive as they chase new opportunities in not only cell phones, but set top boxes and MP3 players.
We blogged Motorola’s success story in early September. The story has been a classic Phoenix Principle implementation as Zander first Disrupted the organization and then implemented several White Space projects. As early as mid-2004 we predicted the success of Motorola (and recommended buying the stock) due to the classic Phoenix Principle steps being taken (see case study here.)
Extremely few turnarounds ever actually regain any sustainable growth – and less than 7% achieve the success of Motorola. It is great that the company should be noted for what’s been accomplished.
by Adam Hartung | Oct 25, 2005 | Disruptions, General, In the Rapids, Innovation, Leadership, Lifecycle
What is ESPN? Many people would say "a TV channel about sports." What an understatement. ESPN has not one, but several channels (in multiple languages) and radio channels. Beyond that ESPN is a magazine, an internet portal (over 17million hits/month), a provider of on-demand video, book publisher, apparel maker and retailer, restauranteur, video game producer, and soon to be provider of cell phone services.
Is all this just so much brand extension? I don’t think so. All of these are different businesses that ESPN has entered, learned, and now makes money on. Cable TV content is a tough, low margin business with more failures than successes, yet ESPN has grown its viewership and revenues by more than double digits every year for a decade. Radio listenership has been declining for almost a decade. Periodical publishing has had negative growth in ad dollars and pages printed for over 5 years (just review the declining fortunes of New York Times and Gannett). Apparel makers and retailers are struggling with changing market tastes and offshore competitors, while restaurants is the #1 most likely to fail start-up business and video games are dominated by a handful of very large, trendy shops. And ESPN has entered all these extremely competitive businesses and turned a profit within only a few months.
ESPN has profitably grown by staying in the Rapids, rather than resting on it’s original Success Formula to provide sports news over cable TV. The company has overcome its Lock-In to the past by hunting out opportunities which aren’t obvious, and certainly aren’t core competencies, and then openings White Space for these opportunities to succeed. Instead of trying to optimize its old Success Formula, the company keeps trying to invent a new one. Every time you’d think the growth would flatten, they run right past the market Challenges to put more projects into the Rapids for ongoing growth.
At the top of ESPN is a mild-mannered 47 year old named George Bodenheimer who for the last 7 years has led the charge into all these initiatives. Like all leaders that keep their organizations growing, he constantly Disrupts his organization. He creates White Space, and he works to make the new projects a success. He’s atypical of many executives (especially media executives) in his emphasis on teamwork rather than ego, and success rather than promotion. Things simply get done – maybe not because he tries to "own" all the success and instead by unleashing his organization to succeed.
by Adam Hartung | Oct 6, 2005 | In the Rapids, Innovation, Leadership, Lifecycle, Lock-in
Fashion to Figure is a very small retailer that recently learned how to apply The Phoenix Principle the hard way (see full story).
When founded, the hard working Harvard MBA behind this start-up locked-in on what he thought he would need for success. Unfortunately, he was so locked into his business plan that even after he obtained seed funding he lost 9 months trying to open his first store. He kept trying to perfect his execution plan. And his investor walked.
But his investor finally got the founder to wake up, and now he realizes "the biggest thing I’ve learned is that it’s not getting everything right as much as fixing the things you get wrong." For this young fellow it took the Challenge of losing his seed money to Disrupt his approach (taught at B-School) and get himself into White Space.
Markets are dynamic. Entrepreneurs jump in because they see opportunities that existing competitors leave available. But capitalizing on an opportunity is not about hard execution of guesses made in the business plan. Execution focus leads to Lock-In and failure. Start-up companies live in White Space, where versatility and agility are requirements for creating a Success Formula which will lead them into the Rapids.
by Adam Hartung | Sep 20, 2005 | General, In the Rapids, In the Swamp, Innovation, Leadership, Lifecycle
It’s always risky to challenge a company as large and successful as Microsoft – but read these quotes from the recent BusinessWeek article:
"Employees… feeling trapped in an organization whose past successes seem to stifle current creativity."
"Microsoft faces serious long-term challenges: the rising popularity of the Linux open-source operating system, a plague of viruses attacking its software, and potent rivals such as Google in the consumer realm and IBM (IBM ) in corporate computing. It’s the company’s ability to respond to these challenges that current and former employees fear is being compromised by Microsoft’s internal troubles."
"When Ballmer took over, he was determined to overcome the looming challenge of corporate middle age. He pored over how-to management books such as Jim Collins’ Good to Great. But since Ballmer took the helm, Microsoft has slipped the other way. The stock price has dropped over 40% during his tenure, and the company, whose revenue grew at an average annual clip of 36% through the 1990s, rose just 8% in the fiscal year that ended on June 30. That’s good for a company of Microsoft’s size, but it is the first time the software giant has had single-digit growth."
"..monopolies are at the root of the company’s malaise. As Microsoft fought the federal government and litigious rivals, it developed an almost reflexive instinct to protect Windows and Office, sometimes at the expense of looking for groundbreaking innovations." "Every time Bill and Steve made a change to be more like other big companies, we lost a little bit of what made Microsoft special" "So much of what Microsoft is doing right now is maintenance" "Instead of coming up with the next great technology, Microsoft programmers have to cater to itsmonopolies"
"With revenue growth slowing, Ballmer has tried to squeeze more down to the bottom line to make the company more appealing to investors. In the past fiscal year he slashed $2.6 billion out of operating expenses."
by Adam Hartung | Sep 19, 2005 | Disruptions, In the Rapids, In the Swamp, Leadership, Lifecycle
Readers of this BLOG know I’m a big fan of companies avoiding lock-in. I’m always pushing organizations to open White Space projects. So you’d think that a company looking to sell a business would be someone I’d attack.
Not so quick there.
Motorola is putting out feelers to sell it’s auto parts business. Ostensibly to "focus." That’s a word reporters and investors understand. You might think I’d say "hey, why don’t you fix that business? Why not explore new options?"
In this case, I fully support management. For over a year now Motorola has been opening White Space right and left. The results have been fantastic (six consecutive higher profit quarters) as Motorola has grown revenues in several new markets while breaking down old lock-ins and expanding revenues in the hotly contested cell phone business. The company is doing practically everything right.
Now is the BEST time to walk away from the old legacy business. Nowhere is lock-in stronger, and less valuable, than in the original legacy business. In Motorola’s case, finding a new future has been augmented by cutting its ties to the past – past practices, past metrics, past cultures and now past markets.
Sometimes developing a new future is best augmented by knowing when to walk away from the old business. And if you’ve already established White Space that’s producing results, you can walk away smiling.
by Adam Hartung | Sep 2, 2005 | Defend & Extend, General, In the Rapids, In the Swamp, Leadership, Lifecycle
How do you read the trends in a business from the outside? Look at the articles on page 3. We all read the headlines. But headlines are dictated by what’s relatively interesting TODAY. This short-term phenomenon is not a good way to interpret what’s happening over time.
On Wednesday of this week (8/31/05) the Chicago Tribune business section led with articles about the business impact of Katrina. As they should. But when you turned the page, there were two very interesting, and short, adjacent articles on Motorola and McDonalds (courtesy of Bloomberg News).
The 4 inch by 4 inch text box on Motorola calmly reported that the company was retiring another $1B in bonds. This is on top of $2B in bond repurchases over the last year. Debt is down over 40% since January, 2004 and the company’s credit rating by Moody’s has been raised. By the way, sales and profits have risen over 10% for 6 straight quarters. The lower debt will allow Motorola to consider new investments in R&D and possibly acquisitions.
Meanwhile, the 2 inch by 8 inch text box on McDonald’s said the company was borrowing $3B to repatriate foreign earnings in order to take advantage of a short-term government tax break. By the way, this caused a recent 10% drop in reported earnings on top of the smallest sales gain in 2 years. The repatriated cash will be used to extend the company’s business model by opening new stores (anyone recall the store shuttering program in 2000-2001?), remodelings and paying salaries (no joke – paying salaries!).
I’ve written in this BLOG before about the great difference between Motorola and McDonald’s. One has disrupted itself and opened White Space to innovate – clearly moving rapidly from the Swamp back into the Rapids. The other is practicing Defend & Extend management as it continues struggling in the Swamp. To track performance, keep your eyes on page 3.
by Adam Hartung | Jul 21, 2005 | General, In the Rapids, Leadership
Since you’re reading this on-line, odds are very high you’re reading it via Internet Explorer from Microsoft – your web browser. Do you remember who invented the first web browser and took it to market? Spyglass – a Chicago company. They were rapidly followed by Netscape and only months later by Microsoft. Netscape was bought by AOL and disappeared from view. What happened to Spyglass? You probably think it went belly-up.
Wrong. When Microsoft launched IE they simultaneously brought everyone into the world of the web. They made surfing common. And they crushed their competition. But the leadership of Spyglass didn’t simply die. While most high-tech entrepreneurs get so wedded to their Success Formula that they let such market changes doom their enterprise, Spyglass didn’t (See article in Chicago Tribune).
Spyglass used the lost market share and financial losses to spur a Disruption, and then they redirected their energies into new markets. They moved from PCs to specializing in internet access for TVs, cell phones and other devices. The company was sold to OpenTV in 2000 for $2.4billion – right, billion. After their market position was destroyed by Microsoft.
All businesses have to be ready to disrupt and adapt. Not just big, mature companies. Even small companies have to watch their markets and remain flexible to develop new success formulas. And smart leaders that can sustain success across years are like the leaders at Spyglass – flexible, adaptable and ready to use White Space.
by Adam Hartung | Jul 15, 2005 | In the Rapids
Apple Computer has done something rather amazing. Fewer than 10% of companies that hit a growth stall ever regain growth. But Apple has done it spectacularly.
Just a few years ago Apple was described as one company caught in the grips of the Innovator’s Dilemma by Clayton Christensen. Sales of Macs became so large that the company abanded its efforts to develop what became the very large PDA market (remember the Newton?). Apple began focusing on Defending and Extending its Mac business, and innovative product markets were abandoned. Then Macs fell victim to a market shift toward Wintel PCs and Apple faultered horribly – with layoffs and a risk of failure.
Now, after a series of CEO changes, Apple has taken the lead in the on-line digital music business with its iPod. Third quarter sales were up 75% versus a year ago, leading to a five-fold increase in profits (see Chicago Tribune report.) And share prices are near 5 year highs. That’s great…. so long as Apple doesn’t succumb to the siren’s song of now trying to be just an iPod company. What turned around Apple was using white space to find a new product market overlooked by Sony and other traditional music industry players trying to defend and extend their outdated business model.
What Apple must do is continue disrupting itself, creating white space projects and developing new product markets. In the fast cycle-time world of personal electronics, the requirements for success are applying the Phoenix Principle and avoiding the lure of trying to defend and extend a hit product/market.
by Adam Hartung | Jun 8, 2005 | Disruptions, In the Rapids, Innovation, Leadership
It’s easy to beat up on old businesses. But lately, a very old business is making some very smart moves.
The venerable New York Stock Exchange came under some severe attacks last year. It Chairman was accused of improper compensation and the Exchange Board was accused of improper oversight. Things weren’t looking too good as prosecutors went after specialists and floor traders.
But hand it to the new CEO. He used the troubles to create an internal Disruption. The NYSE’s troubles were more a reflection of its inabilities to address its challenges from the NASDAQ than malfeasance (although the latter is still being argued.) So he used the attacks to rethink the future of the exchange.
Viola – in a master stroke the new Chairman of the 200 year old exchange has acted to revitalize the NYSE by buying Archipelago. Instead of taking actions in defense of the past, he is moving quickly to push the Exchange into the forefront of trading for the new millenium. This acquisition is a classic example of using a Disruption to create White Space – and develop a new Success Formula for an old business.
In the hectic pace of change in business, many have paid little attention to this action. But it’s a great example of a new leader identifying the real challenge to the business – rather than reacting to its problems. And then taking actions to create a pattern interrupt and new opportunities to learn. And possibly saving a venerable, and horribly locked-in, organization.
This is a great move for the NYSE – and a stellar example of The Phoenix Principle in action.
by Adam Hartung | Apr 18, 2005 | Books, Disruptions, General, In the Rapids, Innovation, Leadership, Lifecycle
I wrote recently that IBM looked like an elephant that could continue to dance (taking off on the title of Lou Gerstner’s book about his days at IBM.) Shortly after that, IBM announced quarterly earnings and its stock accelerated a 2005 decline. A fair question might be "would I like to retract my earlier BLOG?"
Definitely not! Yes, IBM missed its earnings projection by $05/share. Right; a nickel. That was about 6% lower than expected but a nickel higher than last year. The stock sold off like you’d think they’d announced a quarterly loss – falling about 10%. From its peak at the beginning of 2005, the stock is down about 25%.
Over the long term, the markets are efficient. But in the short-tem — well it’s anyone’s guess. Not even the famed Peter Lynch could make money timing a market. What makes money long-term is finding companies that can sustain success (read the latest great book on long-term investing by Jeremy Siegel for more info.)
IBM is taking actions to continue sustaining its success. The stock might be volatile, both up and down, along the way. But few make money trading stocks. The way to riches in a creatively destructive world is finding companies that can sustain success. Since its turnaround in the 1990s IBM has regained its ability to disrupt itself and demonstrate the characteistics of a long-tem sustained growth company.
If you want a portfolio of long-term winners I would say that IBM is a company worth considering. Even moreso today.
