by Adam Hartung | Dec 4, 2006 | Defend & Extend, General, In the Swamp, Leadership, Lifecycle, Lock-in
So what business is Sears in? I don’t think anyone knows any more. But it is certain that without a direction, Sears will burn through its cash and leave shareholders with nothing soon enough.
After months of whipping Sears management in this blog for extending its Lock-in to failing retailing practices, in my last Sears post I recognized that I finally could see the management team was milking Sears and KMart of cash. They weren’t trying to actually compete with Target, JC Penneys, Kohl’s and WalMart. They are interested in pulling as much cash out of Sears and KMart as possible. Recently the Chicago Tribune reported (see article here) that Sears was in fact using its "excess cash" to invest in derivatives. Buying into the equities of other companies in a fashion so that no one, not even Sears’ investors, would know what Mr. Lampert and his team is buying.
What’s wrong with this picture? Well, to start with, businesses no longer have some extended lifetime where they can sit back and "clip the coupons" as they rake in the cash. Sure that was possible in the less dynamic era from the 1940’s through the 1970s when competition was dominated by huge players (like Sears) who grabbed market share and then simply held onto it by erecting barriers to competition. But today the flow of products, money and information is so fast that no barrier actually holds back the tide of competition. Sears and KMart have to contend with all the old competitors, all the emerging new traditional retailers, and all the on-line retailers. And they are doing so without the benefit of a powerful supply chain like WalMart. When you go to "milk" the business, the poor cow finds itself malnourished and no longer producing a lot faster than most people predict. WalMart is too busy cutting prices to feed its machine, while Target and Kohls are out finding the latest new products and fashion goods. There isn’t much of a storehouse of value in a brand when everyone can see the number of stores declining, the costs and prices rising, and the employees less satisfied than at competitors. "Milking" the business was a strategy for the 1980’s and before – not really applicable today.
And is Mr. Lampert’s team using this cash flow to invest in something where they can achieve competitive advantage? Well, we simply don’t know. All we know is he’s investing in lots of derivatives – and hiding his investments from anyone to see. What’s wrong with this picture? Well, firstly, do investors have a right to know how their money is invested? I seem to recall investor information being a bedrock of importance to publicly traded companies.
"But what about Warren Buffett and Berkshire Hathaway?" you may ask. Alas, we know that the go-go era of Berkshire Hathaway was at a time when Mr. Buffett and his cash stockpiles could be used to rescue situations where management was somewhat desperate. He offered a White Knight approach to helping those with cash needs to rebuild their business. But today, with the flourishing of Private Equity and Hedge Funds the marketplace is awash in dealmakers with lower capital costs hunting for the kinds of opportunities that were delivered to Mr. Buffett for most of the 1980s and 1990s. The value of such opportunities has shrunk so low that even Mr. Buffett himself, in the Berkshire annual reports, has stated that there are insufficient opportunities for him to keep Berkshire’s capital effectively employed for investors.
Beyond deals, Berkshire Hathaway has made almost all its money in insurance. Berkshire is a primary player in the sophisticated, and highly analytical, world of insurance underwriting and re-insurance (that’s insuring the insurers). Several times Mr. Buffett has explained that the primary profit generator for Berkshire comes from understanding risk and insurance products and knowing how to be the low-cost player in the insurance business. Something Berkshire has mastered and maintained for over 20 years. His investments in other companies, such as Pier One, have done no better than the overall marketplace – and at times far worse. In the end, his whole acquisitions of companies such as Dairy Queen have produced cash for investing into insurance – a target business where Berkshire Hathaway is not only low cost but also the most innovative company in the industry.
So where does that leave Sears? Their plans to "milk" the Kmart and Sears stores for cash I don’t buy into at all. As every quarter has demonstrated, revenues are falling and costs are rising faster than management can predict. Opportunities to sell the real estate into a REIT or other cash producer have not developed, and the real estate market has long ago peaked. Its plan to be a public "hedge fund" holds little promise of long-term above average returns or growth in an ever increasingly competitive world for "deals" where they are no better than any other sharp team of MBAs with a lot of cash from a pension fund or elsewhere. And there is no business, like Buffett’s insurance, where Sears management team claims to have any leadership or innovation.
Otherwise, Sears is a great company. The fact is, management has not really stepped up to any of the Challenges which faces the company in retailing, or in hedge fund investing or in identifying a new business which can grow and return above average profits for years into the future. There is no White Space at Sears, no effort to find a new business with advantage. Right now, Sears is just a vainglorious story of a CEO who wants to spend other people’s money. As Cramer says on Mad Money "You buy Sears to buy into my friend Eddie Lampert." With a below market average Return on Equity of 10.7%, a low Return on Assets of 3.9% and an above average Price/Earnings multiple of 22 – that’s a very risky buy.
by Adam Hartung | Nov 30, 2006 | General, In the Swamp, Innovation, Leadership, Lock-in
WalMart prides itself on great execution. For years management has bragged about the company’s ability to get things done quickly and cheaply. But now the company has run into problems. Revenue growth has slowed, and the future is very unclear. A five year stock chart shows declining equity value of about $80billion. WalMart is finding out that when innovating, it’s execution skills are greatly lacking.
This week it was reported (see Tribune article here) that WalMart is going to report that it’s November sales actually FELL for the first time in a decade. This is just the latest in a string of bad news. Included is the fact that WalMart is planning to cut back its expansion plans in response to its declining year-over-year same store sales. The company’s foray into more trendy fashion goods has flopped, with those products being pulled. It’s taking on the drug retailers with flat price generic pharmaceuticals – largely to a market yawn. Net – WalMart monthly sales are up only half of Target‘s (who’s 5 year chart shows they found the $80B Walmart lost).
Readers of this blog know I’ve long stated that WalMart‘s future is dicey for investors and employees. Totally Locked In to its strategy of low cost, management has pruned any skills at innovation. Long gone are the people who in the 1960s helped Sam Walton pioneer the innovations to drive the low cost strategy. So now, when it needs to innovate, WalMart doesn’t have the right people to do the job. To paraphrase an old southern expression "even if the mind is willing, the flesh is weak."
WalMart desperately needs to change. But to do that the company needs to implement White Space. It needs to first own up to its Challenges. It needs to tell employees, vendors, investors and customers that they see a need to change and fully intend to. Then management needs to put in place a team that has the permission to develop a new Success Formula, reporting directly to the CEO (outside the existing management system), and fund that team with enough resources to really try something different. All these piecemeal ideas are getting lost in failed implementations by an organization too massive and tightly directed to do anything more than run the old Success Formula. The White Space group needs permission to develop a new store concept. To test things their own way and prove out the new Success Formula – not just a new tactic here or there. And then, instead of trying to push the tactic into the massive WalMart the company must migrate the traditional stores toward what works in the new Success Formula.
WalMart has done this right before. Sam’s Club is a huge success – a pioneer in the club store concept. There WalMart followed all the rules of White Space and created a Success Formula that worked.
If they will hire some new managers, and give them the kind of White Space they gave the Sam’s Club team, WalMart could migrate toward a more successful future in a matter of months. But if management keeps doing all these tactical actions they’ll only succeed in confusing everyone. Much to all of our dismay.
by Adam Hartung | Nov 3, 2006 | Defend & Extend, In the Swamp, Leadership, Lock-in
OK, I guess I’m dense. For months I’ve been asked what I thought of the management at Sears. And I have been pretty brutal, saying that Sears was not a viable long-term competitor against Wal-Mart, Target, Kohl’s and other major retail players. Especially as that competition intensifies. Why Sears can’t even get it’s own partners in Canada to go along with an acquisition of that unit (see article here).
But in October, I finally "got it" regarding Sears. Many newspapers reported that Sears equity value was jumping on the notion it would buy Home Depot, or another big company (see Chicago Tribune article here.) And I realized that Mr. Lampert wasn’t trying to develop a strategy to have Sears compete Sears long-term. Nor was he converting Sears into a Real Estate Investment Trust for long-term value. Instead, he’s "draining the Swamp" to get all the cash out of it he can before it rots.
Sears and KMart are at the end of their lives. Years of bad management has locked them into weak operations. But in American business, we never know how to deal with a business once it’s trapped in the Swamp – too busy killing mosquitos and fighting alligators to remember the primary mission. What we need to do is get the cash out. And that is clearly what Mr. Lampert is doing. He’s getting the cash out of Sears and its many holdings.
So, does that mean I’ve changed my mind on investing in Sears? Not really. It’s certainly OK to decide to exit a business in a fashion that actually creates a positive return (rather than keep running the business badly until Chapter 13 wipes out the investors and creditors). But Sears Holdings’ value has to be based upon what Mr. Lampert will do with this cash he plans to get out of Sears. That we don’t know. What will Lampert’s team do to create growth? He can’t create a positive future merely as the grim reaper. There has to be growth for investors to create long term value. Today, you would pay a heady 23x earnings for a company who’s future we know nothing about. That’s quite a premium to place on an unknown horse.
Will he invest wisely like Warren Buffet – the person he loves to be compared with? Will he invest in growth oriented enterprises like Buffet did in insurance, and later in public investments such as Coca-Cola? We don’t know. All we know is that like Berkshire Hathaway – which is named for the textile mill Mr. Buffet bought decades ago – Sears will soon enough stop being a brand name retailer and instead become something else.
In being smart about draining the Swamp – getting out of KMart and Sears with maximum cash – the Sears management team is doing something few business people in America do. For that, they are to be applauded.
If you’re a supplier to Sears, you’d better start looking for new customers to grow. For customers, they would be wise to realize that Sears and KMart will never again be what they once were – and we don’t know what they will be. For investors, the story is yet to be told. Will Sears pay out massive dividends giving investors a great return? Or will they invest in businesses at very low valuations that show great growth opportunities? Or will they invest the money poorly? Only time will tell. But we can be certain that Sears is no longer a retailer – it is now a diversified investment vehicle for Mr. Lampert and his management team. And only one of those kinds of companies has done well – a tough act to follow.
by Adam Hartung | Oct 25, 2006 | Defend & Extend, General, In the Swamp, Lifecycle, Lock-in
Wal-Mart has started selling prescriptions priced at $4 for a month’s supply (see article here.) Why? To get more people into the stores, silly. As I’ve blogged before, the world’s biggest retailer has the world’s biggest Lock-in, and they will do anything they can think of to keep their Success Formula unchanged. Now they are looking to drastically cut prescription prices.
This is good news for consumers. But what about Walgreens? After all, they have prescription sales as a central part of their Success Formula. What was their reaction? To say they aren’t worried, because Wal-Mart is a small player in prescriptions. In other words "we’re Locked into our Success Formula, and we don’t intend to change it no matter how large the Challenge." In the face of mounting pressure by insurance companies to force insureds to order medicine on-line, and corporate support for mail-based prescription delivery, and now a frontal assault by the world’s biggest retailer Lock-in allows Walgreens to blithely look the other way.
This is bad for investors in both companies. We now have two large companies planning to club each other to the bitter end in a battle to see who’s Success Formula can survive. Along the periphery of this fight are other retailers, like CVS, Target and KMart each ignoring the Challenge to their future (according to Associated Press [see here]some have said they don’t think this is an issue because customers with insurance only care about the co-pay and not the price) holding their own clubs and planning to defend themselves while putting in a few good licks as they seek to protect their individual Success Formulas.
This is simply bad management. There is nothing but hubris in undertaking such tactics. Smart management sees the Challenges, and reacts early. They avoid the club fight altogether, seeking out new markets where they can prosper. Only competitors who are Locked-in, and would rather take hits and possibly die would take on such a fight. The result of fighting is someone eventually falls into the Whirlpool and is swept away.
Again, for consumers such club fights can be a great cost saving opportunity. But for investors, it’s time to get out of the way! You don’t want to be an idle participant in the latest bloody version of business WWF Crackdown. You’ll most likely come out a bloody mess yourself.
by Adam Hartung | Oct 16, 2006 | Defend & Extend, In the Swamp, Leadership, Lock-in
I hear frequently about the conflict between management and investors. The argument typically goes along the lines that management could do many exciting and strategic things if it wasn’t for those pesky investors who want a consistent return on their equity. It sounds like somehow investors know too little, and they hamstring managment’s ability to succeed. In too many occasions, however, the opposite seems to be true.
Readers of this blog know I see McDonald’s as hurting its own future. The company has systematically been selling off its best growth prospects to protect itself from an outside investor who would like to make changes. Recently, a number of other investors voted that sentiment. As I blogged a few weeks ago, McDonald’s offered to investors that they could trade their McDonald’s stock for Chipotle shares – in an effort to finalize the sale of Chipotle and bring back in more McDonald’s stock to protect itself from a hostile investor. Last week Bloomberg reported that 262.7 million shares were tendered for the mere 18.6 million shares of Chipotle available. The offer was 14X oversubscribed. Indicating that a lot of investors knew a good deal when they saw it – swapping shares of a low-growth, Locked-in McDonald’s for the high growth innovative Chipotle – even though its profits were lower and its P/E much higher.
But now Wendy’s has decided to join the act. As reported on 10/13, Wendy’s is offering to sell its Baja chain in order to get cash to —– buy back more Wendy’s stock. Apparently influenced by the fast run-up in McDonald’s shares (which have had a very nice run this last year), Wendy’s is willing to sell off its new growth machine in order to protect its aging hamburger franchise. Rather than look to Baja as a replacement for the sagging Wendy’s, which has had declining same-store revenues for 6 of the last 8 quarters, they are going to sell it in order to buy back stock to prop up the equity value in a concept that has little growth opportunity left. In order to maximize its short-term value, Wendy’s is literally trading in its White Space future.
Too often, management behaves like Lemmings. One competitor follows another. Lock-in doesn’t exist just at the company level, but at the industry level as well. In several industries (steel, airlines, automobiles to name a trio) we’ve seen competitors simply walk off the cliff as they follow a Locked-in industry paradigm that does not produce returns. Management should listen to investors, and recognize that their chorus is not just for short-term profits. Rather, they seek growth and a market or higher rate of return on their equity. No private owner would expect less. But to meet this hurdle requires creating and maintaining White Space rather than letting Lock-in turn you into a Lemming.
by Adam Hartung | Oct 7, 2006 | Defend & Extend, General, In the Swamp, Leadership, Lock-in
If you don’t live in Chicago or Los Angeles you might have missed a recent set of stories about problems in the newspaper industry. The Tribune company (owner of Chicago Tribune and 9 other papers) also owns the LATimes. Like the New York Times company, Dow Jones and many other newspaper companies, the last 2 years has seen the equity value of Tribune plummet. Newspaper margins have been narrowing, caused by rising competition from new entrants, such as Google and other on-line sources as well as more nimble local competitors and brazen new business models from the likes of oil and railroad billionaire Philip Anschutz (articles here, here, and here). All traditional competitors have been cutting costs, including big layoffs.
Recently, this created an enormous bruhaha between the publisher and top editor at the LATimes and the owners in Chicago. This week things took another difficult step as the Tribune fired the LATimes publisher (article here) for outspokenly disagreeing with top management. The newspapers are reporting on themselves as they discuss the difficulties being encountered inside the executive suite – as well as by competitors (additional coverage here).
The problem is that these companies are following other large newspapers in trying to wring more blood out of the proverbial stone. Margins are down, and the answer they’re trying to implement is "more, better, faster" of what they always did. But, as the fired Times publisher recognized, when you try to get more out of a broken business model by working it faster and harder, all you get is worse results quicker. You can’t fix a failing Success Formula by trying to operate it better, or faster, or with fewer resources. Those actions just help you fail faster.
The problems in these newspapers, like all newspapers, relate to more competition for readership from the internet and other targeted news products. The old big-city newspaper "natural monopoly" has been erased by these new players. As a result, subscribers are declining – especially in coveted younger demographics (see article on shifting readershipfrom 2005! here). That leads to lower advertising rates and dollars, because who will pay for declining readership? Why pay $75 for a classiifed ad for your used cars when you get one, with pictures, from Vehix.com for $39? Why buy full page movie ads for one shot at viewership when you can get a week of repeated hits on Yahoo!? So ad dollars have been moving to on-line media, and other new competitors. All the fighting inside the newspaper companies about how many writers, or copy-editors or salespeople to lay off this quarter or next does not address the broken Success Formula. It only creates a huge opportunity for the new competitors to continue stealing customers and growing.
Lock-in can kill any business. Even the most venerable. When market Challenges emerge that create a need to redefine the Success Formula, only the companies that Disrupt themselves and move into White Space will re-create success. More, Better, Faster just creates more problems, and a vicious cycle that eventually leads to the Whirlpool of failure. The LATimes has had 12 publishers in 120 years – and now 3 of those have been put in place in the last 5 years by the Tribune company. Changing the captain will not change the destiny of a ship Locked-in on a course headed right for an iceberg.
by Adam Hartung | Oct 2, 2006 | Disruptions, In the Swamp, Leadership, Lifecycle, Openness
Two very unlikely companies demonstrated this week that anyone can Disrupt and create White Space to develop a new Success Formula. IBM and General Motors both showed signs of what any company can do.
Last spring the leaders of IBM Disrupted their product development process when they opened it up to all employees, suppliers and their family members (read article here). As a result, they involved 53,000 people and generated 37,000 ideas. How, by simply asking for their input. CEO Palmisano attacked hierarchy and sacred notions of product development in high-tech, and as a result he achieved a breakthrough in the potential to redefine IBM’s Success Formula. Now IBM is creating White Space to develop those ideas, committing (in advance!) $100million for operation InnovationJam to see what can work. When Louis Gerstner wrote "Who Says Elephants Can’t Dance" about IBM’s turnaround he demonstrated that size does not preclude innovation and growth. And now that legacy is living on in a tremendous example of just what any company can do.
Even more surprising is what is happening at GM – a company I have unabashadly beat up on the last year. Yet, within the confines of a horribly Locked-in organization we now can see the use of White Space in product design (see complete article here.) As recently as 2001 the hierarchy gave vehicle line executives the say on a car’s appearance – the kind of analytical, cost saving process that produced such great autos as the Pontiac Aztek (don’t remember it? – that’s the point!). "Design had been relegated to putting a wrapper on something that everyone else had decided what the dimensions, the proportions and the interior package were going to be", according to design head Bob Lutz.
What’s different now? "Tom Peters, a GM designer for 22 years called Lutz a ‘breath of fresh air’ because he lets designers start with a fresh sheet of paper." Lutz was brought in, at almost age 70 mind you, by CEO Waggoner as a Disruption to the old hierarchy. As head of design, he reports outside the old hierarchy and directly to the CEO. And his dedicated budget was carved out of the old product groupls. Thus permission and resources were both granted up front, and Lutz has made the most of it.
Many people accept the notion that older companies are unable to change. Like somehow organizations are destined to Lock-in and eventually fail. Unfortunately there is no data to support that notion. The ability to Lock-in and fail is just as apparent in start-ups as in behemoths. And, behemoths can Disrupt and use White Space just as well as a start-up. IBM has shown it’s ability to do so, and we can hope they will keep up their efforts to again be reborn – continuously, like a Phoenix. GM has a much longer and tougher road, but it can be done. If they can just get the rest of the company to behave like Bob Lutz and his design group!
by Adam Hartung | Sep 21, 2006 | Defend & Extend, General, In the Rapids, In the Swamp, Innovation, Lifecycle, Lock-in, Openness
On my web site I have a case study comparing Motorola and McDonald’s (download paper here.) As a reader of this BLOG, it won’t surprise you to guess that I think Motorola is a company for the future, and one into which you should consider investing, while McDonald’s is so horribly Locked-in to its past that I see precious little chance it will remain a great company.
Just look at today’s newspaper for further verification. Motorola has announced the launch of a new vending machine to sell mobile phones and accessories (see article here.) Now this might seem pretty bizarre. Who would buy a mobile phone from a vending machine? Honestly, I don’t know who and I know it won’t be me. But, I am impressed. It takes organizational flexibility, a willingness to see market challenges to conventional distribution, an openness to Disrupting old behaviors and the capability to experiment with changes to the Success Formula to try this. The idea had to be created, it had to move through the organization, receive permission for testing and get funding to make it to market. These are all traits of a company trying to stay in the Rapids, trying to maintain its growth, and organized to create and use White Space. While not all projects in such companies succeed, long term the companies do generate higher growth and long-term above average rates of returns.
Meanwhile, today McDonald’s announced their next big idea was to start selling Egg McMuffins all day (see article here.) Now there’s a big dash of creativity! The epitome of Defend & Extend Management, the company is so Locked-in to its old Success Formula it actually considers it exciting, newsworthy and innovative to simply consider expanding the hours it sells an existing, and decades old, product. I doubt Starbucks is quaking with worries about this change impacting their growth. Even by a consultant’s best estimate this will be considered a success if it adds a mere 3% to 5% to the bottom line. What tremendous ambition!
Motorola is Disruptive, willing to create White Space and test new ideas. Who knows what the value of alternative distribution for mobile phones is – such as a point of purchase vending machine. But they are willing to test the idea and see. Maybe it will turn out to be something that young people, or travelers, or some segment really wants. Meanwhile, McDonald’s is doing more of the same, and bragging about how hard it is to actually pull off this simple time-of-day extension for an existing product.
by Adam Hartung | Sep 9, 2006 | Defend & Extend, In the Rapids, In the Swamp, Lifecycle, Lock-in
Now is the time to Supersize a stock that might be in your portfolio. McDonald’s has announced that it will allow every shareholder of McDonald’s to swap that stock for Chipotle’s – and in fact investors can received $1.11 of Chipotle’s stock for every $1.00 of McDonald’s stock you tender (see Chicago Tribune article here). So investors get a 10% discount on the Chipotle’s stock (see prospectus.)
Let’s see, we have a horribly Locked-in McDonald’s, with practically no growth, that is spinning off it’s best White Space project. And McDonald’s will allow investors to move from the traditional mired-in-the-Swamp business to the high-growth Rapids business and get a 10% discount in the process. Talk about Supersizing the opportunity!!
McDonald’s stock is currently propped up by a hedge fund operator who’s buying up shares in order to attempt forcing McDonald’s to spin off company owned stores and sell company owned real estate. He’s trying to force a 1980’s-style asset play, and in doing so he’s buying thousands of shares. So despite sluggish growth and limited prospects, McDonald’s shares have been rising. McDonald’s is so desparate to preserve it’s Lock-in, and beat back this guy, that they are making an incredible offer in order to bring back in more shares, hopefully raise the EPS, and beat back this fellow. Like the leaders of too many Locked-in businesses, McDonald’s is following the tactics of "If you can’t figure out how to run a good business, then you use financial machinations!"
So, here’s the "golden" opportunity to get out of McDonald’s while the value is high, and get into a high-growth company without any transaction costs – and at a 10% discount to boot. Now that is an Incredible offer!
by Adam Hartung | Aug 28, 2006 | Defend & Extend, General, In the Swamp, Leadership, Lifecycle, Lock-in, Quotes
I need to thank one of my readers for bringing to my attention a recent BusinessWeek article on Dell (see article here.) As he pointed out, this article comes almost exactly 3 months after I talked about how Dell’s Lock-in was disastrous. There are some great quotes worthy of sharing:
Regarding Lock-in:
- "Dell remained slavishly loyal to its core idea of ultra-efficient supply-chain management and direct sales to consumers, even as rivals have stepped up their game and markets have shifted to take away some of Dell’s key advantages. Instead of adapting, critics say, Dell cut costs in ways that compromised customer service and, possibly, product quality."
Some readers may recall on April 16, 2006 when I pointed out Wal-Mart’s problems and discussed the risk of being a 1-Trick Pony:
- "They’re a one-trick pony. It was a great trick for over 10 years, but the rest of us have figured it out and Dell hasn’t plowed any of its profits into creating a new trick."
Regarding identifying Telltales of big problems that indicate a company is moving into the Swamp – or Whirlpool:
- "Dell’s culture is not inspirational or aspirational," says Geoffrey Moore, a tech consultant and author of Dealing with Darwin: How Great Companies Innovate at Every Phase of Their Evolution. "This is when they need to be imaginative, but [Dell’s] culture only wants to talk about execution."
Of course, in an execution focused company there is no room for White Space, and you don’t get innovation:
- "They don’t feel they’re part of something at Dell, and they generally leave because they feel frustrated," says Snyder. "Dell is not a fun place to work, and it’s less fun now than it used to be."
- "Even the CEO admitted so in 2003 – "There are some organizations where people think they’re a hero if they invent a new thing," he said. "Being a hero at Dell means saving money."
- "Inside Dell, ideas that break from the model are discouraged, say former Dell managers. Notes one: "You had to be very confident and thick-skinned to stay on an issue that wasn’t popular. A lot of red flags got waved—but only once."
Lock-in makes you an easy target for competitors:
- "But it was clear some time ago that Dell’s model was not keeping pace and was not going to be such a big advantage in the future… And while experts believe Dell got the best prices on components when it was outgrowing all of its rivals, these days newly ascendant HP and Asian rivals Lenovo Group (LNVYG) and Acer are offering plenty of growth themselves."
Once a company commits to a Defend & Extend strategy, it becomes so structurally Locked-in it becomes almost powerless to change:
- "So why hasn’t Michael Dell—clearly a brilliant guy—changed tactics? For starters, say rivals and Dell alums, shifting gears would upset investors who expect hyper-profitability from Dell’s hyper-efficiency. And having stuck to his guns in the past, he can’t risk letting customers think that "Direct from Dell" is no longer the cheapest, smartest way to go."
By following the Siren’s song of "operational excellence" Dell adopted a Defend & Extend strategy that has placed it at great risk. Now it lacks the tools for innovation that could help the company to have a longer, more successful future. Without a serious Disruption, and new leadership that can implement and manage White Space Dell’s future is easy to predict.
