by Adam Hartung | Mar 27, 2007 | Defend & Extend, General, In the Swamp, Leadership, Lifecycle, Lock-in
One of the greatest brands in all of marketing is Harley Davidson. One claim to fame is that Harley images are the #1 most tattooed logo in the world. Now, that takes a dedicated customer – or even a non-customer! But Harley is in some trouble, and in fact deeper trouble than many folks realize.
Harley’s latest rise came after being repurchased by family of the founders from the conglomerate AMF in the 1970s. These leaders refocused Harley on its roots as an "outlaw biker" brand, and Harley recaptured the position as the #1 manufacturer of large motorcycles. Today it’s not only the "outlaw" buying and riding a Harley, but in fact people from many walks of life who want the "motorcycle experience." Harley’s problem today is that it has positioned itself so strongly with its big "V-Twin" (referring to the type of engine used) bikes that its appeal is almost exclusively with buyers who are old enough to remember seeing the movie Easy Rider. Every year that’s a shrinking number. It shows in the average age of a new Harley buyer. From about 42 ten years ago, the average age is now 47. These are the people who both seek recapturing the image of "outlaw" and can afford $28,000 for a new motorcycle (about 3 times the price of similar motorcycles made by Honda, Suzuki and Kawasaki.)
Today’s younger motorcycle riders have been able to avoid Harley’s in droves. They are much more captured by what some people call "crotch rocket" motorcycles. Built off the racing style frames used in high speed racing, these motorcycles are far faster off the line than a Harley, often have higher top speeds, usually require less maintenance and start as low as $6,000 – with the top racers costing only $14,000. Ripping off an old Oldsmobile ad phrase (a brand now retired at GM), my sons look at a big V-Twin and say "Yep, that’s my dad’s motorcycle".
Harley tried to address this problem about 6 years ago by launching what it called the V-Rod. This was a totally new design, using an engine made by Porsche. It was intended to bring in the younger rider. But dealers took one look at the bike and said "It’s not a Harley." They didn’t like the style, and they didn’t like the lower price. They wanted to keep selling the big, old-style bikes with the big, fat profit margins. So they turned thumbs-down on the V-Rod, and Harley let them. And their chance to reverse the trend of a dying off customer base was lost (does this remind you at all of Apple walking away from the Newton – the first successful PDA – because it wasn’t a Mac back in the late 1990s?).
Now Harley’s suffering from a recent strike (see article here). But the word around Milwaukee (Chicago’s neighbor) is that Harley took the strike because it had more bikes in inventory than needed. And some analysts are predicting that tighter credit will hurt Harley sales (see Marketwatch Herb Grennberg blog here.) Harley’s market capitalization is down about 20% in 2007. As more folks realize that the brand is at risk of soon dying off (literally), the risk is that its value will fall further. Like I said, my sons (college and high school) want jackets that say Honda – not Harley.
Locking in on a Success Formula can produce spectacular results. Harley Davidson demonstrated just how long and how powerfully a good Success Formula can operate. Harley, its suppliers, its dealers and its customers have had a tremendous 30 year run, with equity value going up 60x just since 1987. But, like all markets, the market for motorcycles is changing. And Harley is at great risk of once again lapsing into declining sales. The company’s sales of bikes have stalled, and already dealerships achieve between 40% and 60% of revenue through paraphernalia (t-shirts, jackets, and other logo gear). Harley management forgot to Disrupt when they launched the V-Rod, and they let the organization push away their breakout product for the future. Since then, there has been no White Space producing innovation at Harley. The company is horribly Locked-in to its old market position, and the fuse is lit on what is going to eventually be a very unpleasant surprise when the brand starts retrenching.
by Adam Hartung | Mar 24, 2007 | Defend & Extend, General, In the Rapids, In the Swamp, Leadership, Lock-in, Openness
Readers of this blog know I’ve been a real fan of Motorola. I’ve waxed eloquently about the Disruptions implemented by the new CEO when he came to the company in 2004. And likewise I’ve been an endorser of the multiple White Space projects he implemented (see previous blogs on Motorola for details.) But this week, lots went the wrong direction at Motorola.
Motorola reported that it would have a loss for the first quarter of 2007 (see article here.) That means the clock is now ticking on what might be a growth stall. As previously written here, companies that hit growth stalls have only a 7% chance of really ever growing again. Motorola stalled badly in the late 1990s and early 2000s, and they were rebounding when this loss hit. The risks are great here – and there should be no doubt about it. If the company posts another down quarter next, the odds are getting slim on success.
What went wrong at MOT (see chart here)? Firstly, White Space must be managed toward success. While the company implemented a lot of White Space, and the impact showed in a dramatic turnaround from the situation in 1999, management did not hold White Space accountable for results. White Space is not an excuse to let results falter. Rather, management should have been aware of the precarious predicament in the large mobile phone business and PUSHING White Space to produce rapid results. As recently as this week, the very week that the bad results were reported, Motorola was expected to be announcing plans to buy PALM in yet another expansion of White Space to grow the company. But this looks much less likely now, because leadership opened White Space but did not manage it effectively.
Secondly, Ed Zander failed to Disrupt himself while Disrupting Motorola. When arriving at Motorola he moved fast to Disrupt. Of course, Disruption was "normal" at Sun Micrososystems where he used to work. Chronic Disruptions were part of the Success Formula at Sun, and became part of his Success Formula. But Sun got into big trouble when it became overly committed to a single market in network servers. Unfortunately, Motorola was allowed to be too committed to a dependence on mobile phones. What we now see is that while Mr. Zander was OK with Disrupting and opening White Space, he did not actually Disrupt his personal Success Formula and change the way he believed a business should be managed.
Once confronted with the threat posed by Mr. Icahn, Mr. Zander approved a quick $4.5billion stock buyback. And now he’s agreed to an even larger $7.5 billion buyback (see article here) – representing 75% of Motorola’s cash reserves. And he’s put in place a President and COO from inside the company – a sign of creating distance from the Disruptions and White Space he implemented (see article here) .
These are not good signs. I’ve had high hopes for the White Space at Motorola. If we recognize where the company was just 3 years ago, it has traveled a very successful road. The question now will be does leadership have the will to continue its road of Disruption and White Space to create a more successful Motorola? Will it follow through on the acquisition of PALM, given the current Challenges? If it does, and management holds the White Space leaders to business demands for results, Motorola can become again a great company. If it keeps following its recent trends – retrenching to Defending and Extending its mobile phone business and acting to protect management – then recent gains will be quickly unwound.
by Adam Hartung | Mar 19, 2007 | Defend & Extend, General, In the Swamp, Leadership, Lifecycle, Lock-in
In the early 1980’s Roger Smith took on the market Challenges facing General Motors. (see chart here) In bold strokes, he expanded GM beyond its old Success Formula including the acquisition of a high tech information company (EDS), a high tech electronics company (Hughes Electronics) and creating an entirely new auto company built on a clean sheet of paper (Saturn). These actions created the opportunity for GM to escape its past and become something entirely new.
But Roger Smith did not change the Lock-ins at GM. He did not Disrupt the organization and attack Lock-ins based on old biases related to what many employees thought GM should be. He did not change the company’s decision processes, its core metrics, its information architecture, its dependence upon a common prototypical GM manager, its relationship with labor nor its hoarding of knowledge in isolated silos. As a result, the White Space projectes survived only a few years after his retirement. EDS and Hughes are once again stand-alone companies, and Saturn has been "integrated" into GM causing it to lose its cache and much of its early loyal fan base.
As a result, GM today is much like it was in the 1970s – and much to our chagrin. (a look at the referenced chart will show that the company today is worth what it was in 1971). The company is a perennial low-player on the return-on-capital pole. It’s market share has steadily lost ground in the traditional auto market to imports. And P&L losses have mounted to the point that in 2005 and 2006 some questioned the very survivability of GM.
Similarly, a decade ago Jack Greenberg took on the market Challenges facing McDonald’s (see chart here). In the early 1990s he began acquiring Boston Market, Chipotle Mexican Grill, Donato’s Pizza as well as equity interests in Fazoli’s and Pret-a-Manger. Some of these were breakout performers, not only doing well in restaurant sales but even in the frozen food case at the grocer (particularly Boston Market). But Jack Greenberg did not Disrupt McDonald’s, nor did he attack its Lock-ins. Then he retired.
In January, 2007 executives at McDonald’s told the leadership of Boston Market they intend to sell the company (see full article here.) Once completed, this will completely reverse the White Space projects previously implemented. McDonald’s will once again be a "focused" franchisor and operator of hamburger establishments. The company is pinning its future hopes on yet another hamburger – the $3.99 Angus Third Pounder (see full article here). The old Success Formula – sell sandwiches -is once again dominating all activity at McDonald’s.
In the short-term, management is bragging about how its back-to-basics "Plan to Win" campaign has improved profits at McDonald’s. In reality, management has captured huge gains from the earlier diversification moves, in operating profits and in one-time gains from selling the businesses, which have all been booked to the bottom line in support of Defending & Extending the old McDonald’s Success Formaula.
But long-term, we know what to expect. This is the GM story, only with ketchup on it. Within a few years McDonald’s will be back again to fending off predators in its "core market." McDonald’s is in fact late with this latest burger, coming over 2 years after Burger King launched its Angus Steak Burger and after more than 8 variations of such products have been launched at Hardee’s and Carl’s Jr. since 2003. And the company is still vulnerable to the kinds of Challenges which sent them spiraling downward 6 years ago – potentially a renewed Mad Cow illness, or another attack on trans-fats or other health concerns, or franchisees complaining about no growth, or simply from the in-kind competitors it recently sold off grabbing a larger share of market.
We can’t predict the issue that will next stumble Big Mac. But we can be sure that the old Success Formula has already proven it has hit diminishing returns – and the future for McDonald’s looks a lot like GM’s. And that should scare a lot of people.
by Adam Hartung | Mar 15, 2007 | Defend & Extend, In the Swamp, Leadership, Lifecycle, Lock-in
No sooner had I posted the last blog on Ford than the company announced its sale of Aston-Martin. My goodness, the ravages of Lock-in are moving swiftly at Ford! (see chart here)
Ford is in deep trouble. The company has announced billions of dolars in losses, and it has had to arrange billions of dollars in financing to cover costs of its "turn-around plan." Ford expects to burn through $17billion during turnaround. What is the turn-around plan? It is to build multiple models worldwide on the same platform. Let’s see, how new is this idea? Oh yeah, that’s been the plan at Ford and GM for the last 2 decades! That’s not a turnaround plan – that’s a disastrously broken Success Formula that hasn’t made any money! (see full article here)
Aston Martin is a much smaller business than the Ford brand. It sells only 7,000 cars. But, let’s see, from total cars sold of 46 in 1992 that represents a growth of 152X (or 15,200% or almost 40%/year for 15 consecutive years). (see article here) While the Ford brand is losing billions, Aston Martin is profitable. What is Ford doing here? Selling a business that works – to support one that clearly doesn’t? As an analogy, isn’t this a bit like selling your child (or at least their labor) in order to purchase some medicine for terminally ill grandpa? We’d never do the latter, so why do the former?
The new Ford CEO said "The sale of Aston Martin supports the key objectives of the company, to restructure to operate profitably at lower volumes and changed model mix and to speed the development of new products." (see full article here) If he wants to accomplish the goals of profits at lower volumes, changing the model and creating new products he should be trying to emulate Aston Martin – learn from it – not sell it. Aston Martin is doing things much more right than Ford is.
Dave Healy, an analyst at Burnham Securities stated "Aston Martin was a prestige item that was a management distraction." (see article here) A distraction? The only way you can take that point of view is if you’re so locked into saving the old Ford Success Formula that you’re willing to do anything, even sell your only and most profitable business, to get 5% of the cash you’ll need in that vain turnaround endeavor.
Aston Martin has been a great success. Growth has been good, profits exist, and the brand has a positive reputation. The company has been a successful White Space intitiative. What Ford needs to do is get more of Ford (including money-losing Jaguar and other brands) to migrate toward the new Success Formula at Aston Martin. Management needs to migrate forward, but instead it is selling what works to try and regain the glory of the past. Ford management is not willing to admit that its Success Formula is seriously broken, and uncompetitive against much more formidable and successful competitors such as Toyota, Honda and Kia. Too bad. Without learning from White Space Ford has practically no hope of surviving this latest competitive onslaught.
by Adam Hartung | Mar 11, 2007 | Defend & Extend, General, In the Swamp, Innovation, Leadership, Lifecycle, Lock-in
When companies Lock-in they quit looking at the marketplace, instead focusing on running their Success Formula. In a very real way, if markets were highways and companies were autos we could say management starts driving the car looking in the rear view mirror rather than looking out the windshield.
A great example of this is at Ford (see chart here). Ford has been Challenged for several years. Like GM, Ford sales have struggled as the marketplace has shifted away from their great trucks and large SUVs (top sellers, and considered great products in their categories) toward less expensive to operate vehicles. Several years ago customers found higher mileage vehicles preferable, and began looking at hybrids and other innovations rather than more size and more towing capacity.
During this market shift Ford "retired" the Taurus. In the early 1980s Ford was swimming in red ink (much like today) when the company launched the revolutionary aerodynamic Taurus. The design changes, in body shape as well as transverse-mounted engine, front wheel drive and high-mileage overdrive transmission met customer desires and the Taurus became the #1 selling car in the world (right – not just hte U.S. but the world.) Ford had to open new plants to meet demand, and losses turned to substantial profits.
But as time passed Ford Locked-in on its #1 selling, and very profitable F-Series trucks and the SUVs spun off that platform. Few enhancements were made to the Taurus, and as the Toyoty Camry grew in sales eventually Ford stopped the Taurus. The car had a great 20 year run. But ,of great importance, Ford did not replace the Taurus with another revolutionary passenger car. Instead, they remained Locked-in to their trucks and SUVs.
Then the market shifted, and Ford was caught flat footed. Sales dropped, and the fortunes at Ford turned as bleak (possibly worse) than GM.
Now Ford has announced its solution. The company will rename an existing vehicle, the Five Hundred, the Taurus (see article here). The company hopes that better name recognition will sell more cars, and help turn around the struggling auto company.
Never has there been a better case of driving the vehicle by looking in the rear view mirror. Ford isn’t competing for the future, they are firmly trying to recapture the past! Management is hoping that somehow a name associated with past success will create future success. Managment isn’t even redesigning the Five Hundred. They are just renaming and re-launching it. Instead of looking at the direction the market is going, and driving the company toward future market needs, Ford is looking at what worked 20 years ago and hoping miracles will happen to produce that result again. Even though the market and competition has completely changed.
That’s what Lock-in to an old Success Formula can do for you. Make you so fixated on what previously worked that you quit looking forward and start spending your time dreaming about the past. Bill Ford, Jr. is a young guy. But he keeps looking at the past – the Mustang, the F-Series truck and now the Taurus – to try and save the company his family founded. Too bad. Instead of ripping off the Taurus name he would be better served to capture the spirit of the Taurus by developing and launching a new car that meets new market competitive demands.
by Adam Hartung | Feb 17, 2007 | Disruptions, General, In the Swamp, Leadership, Lifecycle, Lock-in
Dell Computer has had a rough go the last couple of years. They’ve had some batteries catch fire – not good for marketing. And they’ve had some SEC investigators looking through their books – not good for investors. But neither of these problems are really that unusual or monumental for a company the size of Dell. The big problem has been that the company isn’t making the money it once did, and it’s sure not growing like it once did. That has stripped the company of 40-50% of its value, or about $43 billion in market loss for investors (see chart here.)
So what’s the response? At the beginning of this month the Chairman and namesake, Michael Dell, announced he was removing the CEO and taking back the reigns (see full article here.) Should we now expect a turnaround?
Michael Dell pioneered the Success Formula that made Dell Computer famous. Simply put, Dell sold directly to customers, outsourced everything they could, used other people’s technology (no R&D), focused on the supply chain to shorten manufacturing and distribution cycles and kept prices low. And anything that wasn’t part of that Success Formula does not exist at Dell. This Success Formula produced great results, and Michael Dell locked it in with every conceivable software product, metric and decision process he could. There was/is no variation at Dell, just execution.
Unfortunately, this Success Formula was not impossible to copy. Competitors not only matched the supply chain expertise of Dell, but added onto it with product innovations, credit terms for corporate buyers, and enhanced peripheral products that expanded the total customer purchase. They matched Dell, and did the company one better. So customers migrated to these competitors. Dell didn’t suddenly lose its Midas touch. Execution hasn’t faltered. Competitors just kept getting better in this dynamic market, and execution wasn’t enough to maintain sales growth and margins.
Now the king of execution is returning. What can we expect? More of the same, of course. The implication, and stated objective, of Michael Dell’s return is to get Dell "back on track." That’s back on track to what they did a decade ago. Is that likely to turn around their fortunes, in a more competitive marketplace with yet more competitive variables?
Dell doesn’t need more Dell. They need more innovation. There are no Disruptions at Dell. And this change of leaders will not create an internal Disruption demanding change. There is no White Space at Dell. I blogged on this previously, and a PR employee responded (you can read the comment by going to that blog) that Dell is a great company. But even he could not identify any White Space in Dell. Despite my emails to him asking for any examples of White Space he could provide — any at all. Without White Space, how is Dell to develop a new Success Formula to produce results in 2009 like they had in 1999?
Michael Dell and his company was a fantastically successful pioneer. His vision helped create a Success Formula that greatly assisted putting a PC on nearly every working desk and in nearly every home, not to mention in the hands of most students, salespeople, and other mobile worker in America. But that Success Formula has already passed the point of diminishing returns. Unless Dell learns to Disrupt and implement White Space, look for the future to be more of the recent past. Results included.
by Adam Hartung | Feb 9, 2007 | Defend & Extend, In the Swamp, In the Whirlpool, Leadership, Lifecycle
Because most companies never build a capability to internally Disrupt, and they don’t regularly implement White Space, they develope a Re-Invention Gap between what they do and what the market wants. This leads businesses to milk a Success Formula too long, and not start developing a new Success Formula until too late.
Take for example Kodak. Founded in 1881, this venerable company was synonymous with photographic film. The company grew like mad as its founder made photography cheaper, better and available to everyone. But then the market "matured" (that famous euphemism for slow growth) in the 1970s. Kodak missed the digital photography wave, and in the 1990’s was kicked off the Dow Jones Industrial Average. Kodak has recently layed off nearly 30,000 employees – reaching a smallness not seen since the 1930s (see more on layoffs here.)
Like most companies, Kodak waited too late to Disrupt and implement White Space. The company was actually a pioneer in digital photography. It holds over 1,000 patents. R&D efforts in the field were strong going back nearly 30 years. But Kodak waited to Disrupt until the film market was already long-past its peak, and the digital market was well developed and full of competitors (it was 2001 when Kodak finally introduced a digital camera line). And because the Re-invention gap between their business (film) and the market direction (digital) had become huge, the company almost didn’t survive (note Palaroid, also once a leader now no longer exists). The jury is still out on Kodak’s survivability, which has had 8 consecutive quarters of losses as it has attempted to turn itself around.
The simple fact is that companies pay too little attention to the market, and too much attention to the existing Success Formula. By trying to Defend & Extend the Success Formula, they delay the necessary Disruptions and avoid White Space. Far too many companies are stuck in the Swamp, spending all their time battling aligators and swatting mosquitos while completely forgetting their main objective was to drain the darn thing. Before they know it, they are caught in the Whirlpool spinning down the drain when competitors open the plug in the swamp where they are stuck.
To avoid being too late in reacting to market Challenges, it is critical businesses implement a program of regular Disruption. You have to practice the ability to Disrupt yourself. And regular Disruptions create openings for multiple White Space projects which breed new Success Formulas. Just look at Jack Welch at GE. GE could easily have spent the 1980s and 1990s milking their businesses. But with the aid of Neutron Jack, GE constantly Disrupted itself (some might even say "unnecessarily"), and it kept putting in place White Space projects. (remember "Destroy Your Business.com" teams that every business was required to have?) That led to an incredible string of growth and above average returns that is almost unprecedented for a company of any size. Institutionalized at GE is the notion that Disruptions are good and White Space projects are normal – and that is why the company keeps itself constantly ahead of competitors and out of the Swamp.
Don’t wait. Start Disrupting your organization today. Set up some White Space. The more you practice, the better you become. And you’d sure prefer finding yourself in the position of GE than Kodak.
by Adam Hartung | Jan 9, 2007 | Defend & Extend, General, In the Swamp, Leadership, Lock-in
If you aren’t tuned-in to ad agencies, and if you don’t live in Chicago, you might well have missed a furor that erupted in early December regarding America’s largest retailer. Wal-Mart made a switch in ad agencies last fall, moving their $500million account to DraftFCB. But then, shortly after making the switch, Wal-Mart fired the company’s head of marketing and fired the agency. Wal-Mart then, and now, was unwilling to offer an explanation. They hid behind a veiled claim of "ethics violations," using besmirching language to imply wrong-doing while offering no facts.
Since then, Susan Chandler at The Chicago Tribune has unearthed a pretty good explanation of what went on (see article here.) [Like lots of news stories, it takes some time and research to start piecing together what really happened.] Seems more than a year ago Wal-Mart hired a new 35 year old marketer to help change the Wal-Mart image and promotion program. Given how Wal-Mart’s growth prospects, and stock price, had stagnated since 2000 this appeared like a very good idea.
The new marketer started moving Wal-Mart away from selling on Price, Price and Price. As my old marketing professor said "Price is nothing but a blunt club that has no meaning. Skilled marketers use other tools to create customer value and over time make a lot more money." So this new marketer’s actions looked like a good move to actually help Wal-Mart get back on the growth track.
She actually had Wal-Mart underwriting fashion shows. And launched advertising in Vogue magazine. And she moved much trendier merchandise into the stores. She also started Wal-Mart selling higher margin products, such as wine, gourmet coffee and sushi. She did this in selected stores, testing her ideas. In effect, she set up her own White Space and began working on a new Success Formula to replace the old, tired one at Wal-Mart.
But, she made a small mistake. She didn’t really have Permission to use Market Challenges to create a new Success Formula. Wal-Mart had not (and still has not) Disrupted itself. The company has not agreed that it’s Success Formula needs to change, and its leaders have not expressed any need for a new Success Formula. Operating in denial of the marketplace Challenges which have let Target, Kohl’s and JCPenney take away customers and sales, Wal-Mart really wanted the new marketing head to Defend & Extend the old Success Formula. She may have thought she had White Space, but she didn’t. While she had resources, she lacked Permission – Permission to attack old Lock-ins and Permission to develop new solutions.
So the top brass at Wal-Mart fired her. And they fired the ad agency. It’s easier to deny Challenges, and fire those who take on Lock-ins, than it is to Disrupt your thinking and commit to White Space. It’s easier to live in Lock-in than use White Space to find a new and better Success Formula.
Wal-Mart has had many "industry experts" support these actions. According to the Tribune, once the firings were done the Chairman of a retail consulting company (Howard Davidowitz) said "Wal-Mart’s lifestyle advertising is all wrong. It shows in the sales." Uh, with 99% of the company stuck in doing wat it’s always done, you don’t suppose the weak results are dure more to a failing Success Formula than some new White Space efforts? The consultant is as Locked-in as Wal-Mart’s maangement. Even this outsider was willing to give the new marketer permission to try new things. Supporting management may help him get future fees, but it isn’t doing the investors or vendors much good.
Or, take this quote from George Whalin, another "industry expert," – "They [Wal-Mart] don’t attract 25-year-old trendy women. Their customers are older women. They’re not skinny-jeans buyers…. They [Wal-Mart] lost their minds." Maybe the need for new customers is the problem, George. You think it’s a poor idea to attract younger customers? It’s bad to expand your customer base? To upgrade your product lines to higher margin items and to improve your competitiveness against your fastest growing and most successful competitors is "losing your mind"? Not only is Wal-Mart Locked-in, so are the "experts." If they won’t support White Space, with Permission to develop a new Success Formula, how do they suppose Wal-Mart is to turn-around its sales trends?
As this firing happened, Wal-Mart had its worst November sales in a decade. How does Wal-Mart talk about this performance? According to the company spokesperson, "We have found the thing that appeals to everyone is price… We will continue to emphasize price leadership."
Reinforcing the old Success Formula isn’t going to solve Wal-Mart’s competitive problems. If you keep doing what you just did, you’re going to get what you just got. Without Permission to Disrupt Lock-ins and create a new Success Formula, all the size and resources of even a Wal-Mart won’t create success. Too bad for Wal-Mart’s top marketer, too bad for the agency, too bad for shoppers looking for an improved Wal-Mart, too bad for vendors that want Wal-Mart to do more than beat them up for lower prices, and too bad for investors.
by Adam Hartung | Dec 31, 2006 | Defend & Extend, General, In the Swamp, Innovation, Leadership, Lock-in
I’m almost 50, and if you’re age is anywhere near mine, and you’ve lived in the U.S.A., you probably have a really bad attitude toward electricity created by nuclear power. Back in the 1970s electric utilities set about building nuclear power plants which cost up to 10 times (not 10% more, 1,000% more) than they forecast. As a result, electric rates were shooting up beyond everyone’s expectations in order to pay for these enormous cost overruns. Additionally, construction timelines were extended out 2x to 5x expectations, causing power shortages which further drove up rates. And then, on top of all of this, serious concerns about safety developed as we saw various problems in nuclear operations – not the least of which was the core exposure at Three Mile Island which put a scare in everyone across the U.S.A. as we all genuinely feared a Chernobyl-style meltdown and radiation leak.
The electic utility leaders of the 1970s made a series of mistakes when they went about implementing nuclear power. Not the least of these was a complete lack of standardization. As a famous study at the time reported, in the U.S.A. no two nuclear power plants were the same. Successful nuclear programs in France, Germany and Japan had demonstrated that by utilizing the same engineering, the same plans, and learning from each and every build then improving those plans, they had developed extremely cost effective nuclear powered electricity which was proving to be extremely safe. As a Harvard Professor (definitely not a hotbed of support for nuclear power) reported, the French program was producing electricity at rates so low that you could completely encase the spent fuel rods in platinum 3 foot thick and blast it into outer space, or bury it into a core hole 15 miles below the earth surface, and the added cost would still make their cost per kilowatt hour a fraction of the cost of fossil fuel generators in the U.S.
But, that was then. What about now? As recently reported (see Chicago Tribune article here), nuclear power is starting to make a U.S. comeback. Fossil fuels are more expensive than ever. And, this time the industry seems to be intent upon utilizing all the lessons from the past 50 years. Yes, that’s right, we’ve been making electricity from nuclear fuel for 50 years (the U.S. wasn’t first, but even here nuclear power is over 40 years old). But will this program move forward?
That all depends upon our Lock-in. As a country, we can choose to remain locked-in to our previous assumptions about nuclear power. Assumptions based upon a single history (the U.S. experience versus the global experience), and based upon a very poor implementation. Or, we can view recent world events as a Disruption to our thinking. We can view the 5 year old war in Iraq as at least partially connected to our need for secure fossil fuel reserves. We can view the breakdowns in domestic offshore supplies from storms in the Gulf of Mexico as indicative of the risks inherent in our fossil fuels based supply system. We can view the ongoing reports of global warming as having at least the potential of being accurate (and if so, potentially deadly). We can utilize these market challenges to our energy supply strategy as creating within us a need to disrupt our approach to energy production in the U.S.A.
If we do this, we then can see the validity in using White Space to restart a nuclear energy program domestically. We should not wholesale change strategy – we need to learn. We should set aside Permission for a handful of companies to utilize all the accumulated knowledge on nuclear power to begin implementing some new plants. We should observe these projects closely. Monitor their progress and results. Learn from them as much as possible. And ADAPT in these White Space projects to develop solutions which work. Then, we can begin to MIGRATE toward a nuclear power as an effective part of our national energy policy.
As a nation, we’ve been Locked-in to an "anti-nuclear" energy strategy. But, 30 years have passed since Three Mile Island, and a lot has been learned. Our approach, our strategy, is being Challenged by a range of forces. What we must do now is see these Challenges as reason to Disrupt ourselves – our approach – and realize we must move beyond our Lock-in. We can use White Space to give Permission for trying a new solution, and potentially develop a new Success Formula for American energy supply.
by Adam Hartung | Dec 22, 2006 | Defend & Extend, General, In the Swamp, Leadership, Lifecycle, Lock-in
I’ve talked a lot about the business lifecycle, but not recently. For newer BLOG readers, I describe the business lifecycle as being like a river. Companies start out in the Wellspring, looking for a working Success Formula. After it hits on a functioning business model, it enters the Rapids where it uses innovation in all parts of its business to fully develop the Success Formula and make maximum returns while growing. Then the company hits a growth stall, and enters the Flats – where paddling suddenly becomes critical. Hoping that they can now extend their life by doing more of the same, they hope to stay in the Flats. But, unfortunately, in today’s economy there is no energy in the Flats and companies find themselves rapidly in the Swamp, where they become so obsessed with killing mosqitos and fighting alligators that they forget entirely what the Rapids were like and their real objective is to find fast moving water again. Finally, they fall into the Whirlpool when competitors simply pull them into failure.
I’m often asked how to identify transitions in companies across these sectors, and I point to how Lock-in during the Rapids leads to the stall in the Flats. Look at Lock-ins, and adherence to Lock-in even after the market has shifted and the Success Formula results are deteriorating. As focus becomes all about Lock-in adherence, even as results have become mired, and you see companies in the Swamp. Very few recover from the Swamp – the use up their resources as competitors push them toward the Whirlpool.
WalMart has exhibited all the traits of a company deeply in the Swamp. Despite their poor results, chronicled in this blog, Walmart rigidly sticks to its doctrine and hopes the market will bring them fresh water so the paddling isn’t so tough. A great example showed up recently, in the form of WalMart’s business cards. In the midst of it’s worst monthly and quarterly performance in over a decade, WalMart chose to react by reducing the physical size of their business cards (see Forbes article here.) Yep, amidst a crisis in growth this management team has reacted by cutting costs – it’s core Success Formula Lock-in – in the trivial area of business cards. WalMart is schrinking the cards in order to lower the paper cost and ink cost in printing employee cards. Give me a break – this is going to make any difference in the competitive problems with Target, Kohl’s and JCPenneys?
This joins the pantheon of key indicators that investors, employees and suppliers can use to identify a company in deep strategic trouble. I used to call it "the paper clip memo phenomenon." Look for the CEO of a troubled company to send out an email telling employees to be sure to save and reuse paper clips before discarding materials. This memo has come in many forms – such as "please start printing on the back side of paper as well as the front side", or "from here forward printing documents in color is forbidden," to "we are reducing all email archive space by 75% in order to save on server costs in IT." All real world examples of business leaders who are effectively telling the world they have no idea how to deal with the strategy problems they face, and they hope to survive as long as possible by adhering to Lock-in.
WalMart is huge and it won’t fail tomorrow. Heck, if we get a recession next year (predicted by several economists) WalMart might even see an up-tick in business and a jump in it’s stock price as customers go on a cost-saving binge. But, longer term, WalMart has demonstrated that it is out of touch with its customers and competitors – and it’s low cost no matter the consequences strategy is not the path to growth. Sometimes, the smallest things can demonstrate the biggest strategy problems. Just look at their business cards.
