by Adam Hartung | Aug 20, 2005 | In the Swamp, Leadership, Lock-in
This story hurts almost too much to tell.
This last spring a friend of mine for 25 years called asking for help with his small 2-year old business. He was competing in a fiercely competitive wireless data marketplace, where the rewards were potentially huge but no sure thing. His ambition was high, but his performance was struggling.
I met with him, and all too quickly realized that he was locked into management practices he had learned 15 years earlier as a successful executive in a very, very large wireless company. He was trying to run his new company, his much smaller company, the same way he ran the very large division of the much larger corporation. He wasn’t nimble, he wasn’t agile. He wasn’t holding the door open for extensive innovation amongst his 80 person staff, but instead he was trying hold to "hold everyone’s feet to the fire on performance" (against standards he was setting.) He wasn’t experimenting with new options, new ways of competing and disruptive market practices – instead he was trying to compete head on with much larger and better healed (although unprofitable) competitors.
I worked with him for two weeks trying to increase his agility. I offered him lots of options. He wasn’t willing to try new approaches, but rather he wanted someone to help make his business model more productive (and successful). At one point I pointed out that he wasn’t being as flexible as he might consider, to which he responded "I’m not inflexible, it’s just that there’s only one way to do this kind of business."
He stayed locked in to his business model, to his behavioral model and to his single-minded approach. I learned within the last two weeks that he’s now out of his company (his investors pushed him out) and the company is floundering – likely to be shut down shortly.
Lock-in can afflict any company of any size or age. Lock-in doesn’t only apply to large and mature organizations. And no matter where lock-in takes hold, it is both painful and deadly.
by Adam Hartung | Jul 21, 2005 | Defend & Extend, General, In the Swamp, Innovation, Leadership, Lifecycle
Motorola announced a great profit leap this week. Sales keep going up in all markets, and most notably sales of Motorola handsets have been gaining share. It was just 2 years ago that most analysts had given up on Motorola. They tagged the company as unresponsive to customers and a bad investment. But now, analysts all over are trumpeting the success at this aged, but recovering, company and recommending investors buy the stock (as well as the products).
Unfortunately, the same can’t be said for Kodak. Since dropping off the DJIA Kodak has been struggling to re-orient the company toward markets and renewed growth. Kodak announced a loss last quarter, and longer delays before returning to profitability. Although Kodak has been working on its "turnaround" for over 5 years (from film to digital photography) they still are saying that reaching their goals is at least 18 months away. Eighteen months ….. that’s longer in the future than Motorola has been executing its turnaround. And analysts are far from optimistic about the Kodak’s future.
Motorola is opening two new R&D centers, while Kodak is planning to lay-off 20,000+ employees.
Last January (2004) Motorola undertook a pattern interrupt and launched a host of new white space initiatives. The new leader (Ed Zander) escshewed massive layoffs in favor of reigniting his employees and seeking new growth markets. In fairly short order, Motorola has unleashed creative energy trapped in the organization and taken new products to market which are growing the company again. Motorola, in about a year, moved from the Swamp back into the Rapids by effectively disrupting itself then creating and managing White Space projects.
On the other hand, Kodak keeps trying to Defend and Extend its old business while "transitioning" to a new future. The leaders at Kodak won’t let go of the past and unleash their own organization to seek the future. Kodak has plenty of talented people, a great brand, and good distribution. But it keeps trying to defend its past instead of taking the actions to reignite growth in new markets. Its a shame, since Kodak was one of the early pioneers in digital imaging (they held many of the first patents) and its employees have had a clear view of "the future" for 20 years. But management has let lock-in to an old success formula keep them from unleashing their own resources.
Two big and "mature" companies found themselves stuck in the Swamp. Growth had stopped and financial results tanked. One followed the Phoenix Principle, and the other followed traditional management practices. One is now regaining share and growing again, the other remains seriously troubled.
by Adam Hartung | Jun 24, 2005 | Defend & Extend, In the Swamp, Lock-in
McDonald’s is spending $20M this week to feel better about itself. Unfortunately, it won’t help shareholders. McDonald’s hit a growth stall 4 years ago, and ever since has been trying to use Defend & Extend management to regain growth. That’s included selling off assets and shutting stores.
Now it includes McDonald’s bringing 5,000 store managers (most at franchisee expense) to Vegas in an effort to pump them up and thereby improve store execution. The goal? To regain a future by focusing on better execution in the store. But, even the North American President admits "the U.S. would continue with ‘solid’ sales next year but probably not the double-digit growth..seen at times during the recent past."
So, a big chunk of one of America’s largest training budgets is going into a straightforward Defend & Extend program. Why? According to the Chicago Tribune, "The store managers’ performance will largely determine just how successful McDonald’s is going forward." Amazingly, we’re to believe the future of this DJIA multi-billion dollar corporation’s growth relies on the execution of 5,000 front line store managers in making and delivering Big Macs? "Results are [expected to be] evident through better execution of procedures in the restaurants." Where’s the leadership in that?
McDonald’s cannot rely on execution to regain its growth rate. The company heritage – consistency – is all focused on execution. So it’s comfortable for leadership to lean on execution as ‘the fix.’ But McDonald’s needs more than new chicken sandwiches – it needs to find a way to compete with the likes of Starbucks. And that won’t come from doing magic shows for 5,000 store managers in Vegas.
by Adam Hartung | Jun 23, 2005 | Defend & Extend, Disruptions, In the Swamp, Leadership, Lifecycle
Readers of my BLOGs might think I am always opposed to layoffs. It is true that the majority of layoffs are efforts to Defend & Extend outdated Success Formulas with short-term cost reductins that do not effectively address Challenges. Those layoffs (such as across the board reductions) do nothing to improve a business and are difficult to support. They simply push the business closer to the Whirlpool. But, layoffs can also be important Disruptions tied to turning a troubled company around.
Troubled Success Formulas are turned around by White Space projects. And White Space requires both permission and resources. But where is a troubled company supposed to get the resources? In many cases, it requires making tough decisions to STOP doing some things in order to refocus the business on developing a new Success Formula. Layoffs targeted at redirection and resource generation for new projects are very effective Disruptions that can unleash new innovation and move toward renewed success.
HP and Time Warner have both stalled. They must undertake serious redirection. And both are taking Disruptive actions intended to generate Pattern Interrupts plus unleash resources to be invested in White Space.
According to BusinessWeek, HP is going to redirect what it sells and how it sells it. An action intended to get much closer to customer needs – something HP desperately needs to do. And in order to finance this action it will likely layoff 15,000+ workers.
TimeWarner is selling its cable business in order to invest in AOL. A risky move – but one to applaud. Cable franchises are not high growth businesses. Capitalizing the future value of cable into current cash creates a treasure chest for developing new growth opportunities — which likely lie in AOL as it moves aggressively to reposition and compete with Yahoo!
Both companies are far from out of the Swamp and back into the Rapids. But both are doing exactly what they need to do to prepare themselves for the transition. Investors may applaud these moves simply because these changes raise cash that will improve the balance sheets of both firms. What investors should cheer is raising cash to invest in transitional White Space projects that could return both companies to higher growth.
by Adam Hartung | May 21, 2005 | Defend & Extend, In the Swamp, Lock-in
WalMart is an amazing company. From a small rural store a behomoth of retailing emerged in just a few years. No one seems able to compete with WalMart in discounting.
Despite its success, WalMart is now struggling to grow. Poor revenue growth has stalled the share price. Now, more than at any previous time, WalMart needs to find new ways to grow. Its Success Formula has worked so well that no one can outperform WalMart at being WalMart. But, it’s unclear that there’s a need for more WalMarts. And foreign markets aren’t nearly as excited about WalMart as Americans. So, how is WalMart to grow?
WalMart needs White Space projects that can launch new revenues. Just as Sam’s was once a new project that became large. But WalMart has become so focused on its retail store strategy that it’s lost the ability to do new things. Last week WalMart gave up on its effort to rent videos on-line, handing that business to NetFlix.
Amid the announcement WalMart pointed out that its stores sell more in one day than NetFlix does in a year. But the real story is that WalMart can’t figure out how to compete on-line. At WalMart, it’s all about the stores. How to drive more revenue to the stores. And that’s getting increasingly difficult.
There was another retailer that never rose to this challenge. Once the biggest innovator in retail, they were the first to capture the rural customer (with mail order) and they became a powerhouse across the country. But, when they couldn’t adapt to changing times and learn to do new things they fell to an acquirer’s axe. That company was, of course, Sears.
So, it may seem silly to think that WalMart’s failure to sell videos, or anything else, on-line is a serious concern. But people thought Sears’ on-line failures were no big deal 6 years ago. It’s actually a very, very big concern when any company becomes so locked in that it can’t undertake new projects. It portends very bad things ahead.
by Adam Hartung | May 18, 2005 | Defend & Extend, In the Swamp, Leadership, Lifecycle
HP’s stock is destined to jump in the next few weeks. What will benefit short-term investors is bound to cost long-term employees, suppliers and investors.
HP’s new leader is indicating HP will benefit from deep layoffs and cost restructuring. The CFO is publicly stating that there will be no change in strategy nor business direction. Investment analysts and traders are cheering. Deep cuts are sure to provide short-term P&L improvement.
But at what cost to long-term growth and viability? HP’s businesses are highly competitive in all areas. They are fighting battles on all fronts, with little in the way of new fighting materials. Reducing the army size will lower the demands, but how will they win? Where’s the White Space for new growth initiatives when the focus is on draconian cost reductions?
Traders are buying, but these actions look about as sustainable as floating a cardboard balloon.
by Adam Hartung | May 12, 2005 | Disruptions, General, In the Swamp, Innovation, Leadership, Lifecycle
Poor GM. When you’re a big target, lots of people find it easy to take their shots at you. No doubt GM is in trouble. But there are few pundits offering solutions for GM’s woes. And no one knows what Mr. Kerkorian is likely to do.
The most prevalent thinking across the press is that GM needs to retrench. Kill products, and whole brands. Never mind that killing Oldsmobile cost GM more than keeping it alive, and that killing Oldsmobile simply made GM smaller as those customers switched to competitors rather than other GM cars. The overwhelming view is GM needs to cut, cut, cut. Remember, GM is not short of cash. It has enough cash to last years and years. So why does it need to do all this cutting and/or selling? Is GM supposed to save its way to prosperity?
GM needs to grow if it wants to remain a vital company. In the short term, this probably means selling more cars. Longer term, it probably means doing lots more than cars (look at GE, no longer just an electric production company.)
Amidst all these calls for belt tightening, busines jettisoning and head lopping we need to remember that GM needs to grow. Last Sunday’s Chicago Tribune interviewed the head of marketing for GM, and for the first time I heard a glimmer of what might turn around GM. He’s out to sell more cars. To compete with those stealing GM’s share. He hears this crisis as a call for GM to change the way it does business and become more customer focused.
That’s a plan that might work. It’s not without risk. But the plans to simply shrink GM have no future. GM needs to turn loose the folks in the divisions to find better ways to compete for customers. Less corporate purchasing and corporate consolidations and more white space for those divisions to do something new. You never know, there might be another John Z. DeLorean somewhere in the giant GM with the next GTO on her mind just waiting for someone to give her the permission and resources to make something new happen.
by Adam Hartung | Apr 8, 2005 | Books, Defend & Extend, Disruptions, In the Swamp, Leadership, Lock-in
Hewlett Packard has been having a tough time the last 5 years. As reported in Business Week, most analysts realized in 2004 that HP had stalled. The HP printer business was the only unit making money, and growth was weak as resources were being poured into the faltering PC/server business — which was not helped by the Compaq acquisition.
Jim Collins did a great job of describing the decades of early success at HP in Built to Last. The HP Way gave work teams permission to create new solutions and pushed the decision making, as well as resources, as low as possible. Great innovation was the result, and years of prosperity.
But with the acquisition of Compaq HP definitely lost its Way. Decision making moved up, often to the CEO. As HP adopted the Compaq Success Formula in its effort to grow PC sales management found itself focused on Defend & Extend management practices like budget slashing, R&D reductions, new product cuts and layoffs (over 17,000 since 2002). This was not the HP Way, and business results went from bad to worse.
Now some are calling for the new CEO to even more aggressively pursue cost cutting and layoffs. To "execute – then strategize." That surely won’t turn around HP. What’s needed is unleashing the innovation amongst those thousands of silicon valley employees. What’s needed isn’t price slashing, but new products, new markets and new competitive models to deal with Dell. HP needs to go back to creating and managing those high performance White Space teams that made it great.
Changing leaders at HP certainly provides a pattern interrupt to the business. If he takes the popular route with analysts, and executes more disturbances like his predecessor, he can expect to continue the string of results below expectations. Instead, HP’s new CEO needs to follow through with effective disruptions that create White Space and returns HP to the HP Way.
by Adam Hartung | Mar 21, 2005 | Defend & Extend, Disruptions, In the Swamp, Lock-in
GM is having a tough time. Last week, the stock (already beat up) dropped nearly 20% on news of weak sales and lower profit expectations. You have to go back more than 10 years (see chart) to find a time the company’s market value was this low. So, what should GM do? What action will turn this venerable company around?
GM has responded to its problems by continuing decades of Defending & Extending its failing business model. It continues to avoid addressing the real challenges to its business while it resorts to white collar layoffs and traditional cuts. These are sure to make the problems worse for GM, and further inhibit the company’s ability to reinvent itself.
GM once tried to re-invent itself. Saturn was created as a way for GM to learn what works in today’s market. Remember the "GME" when they bought EDS? Remember "GMH" when they bought Hughes electronics? Chairman Roger Smith was first lauded, then later pilloried for these forays. Over time, GM let it’s lock-in to the past move them toward getting rid of both EDS and Hughes. That’s too bad, because they offered the White Space for GM to create a company much better at sustaining itself.
Saturn offered GM the capability to turn its auto business around. You CAN succeed making and selling cars in America – look at Toyota. If GM could have given up its lock-in long enough to look at Saturn as White Space they could learn from, and migrate toward, GM could have succeeded. Instead, GM leaders hated the new division and the attack on their lock-in it represented. So they acted to starve it to death.
Whacking a few more jobs isn’t going to save GM. I doubt even GM believes it will. If they want to avoid "junk" status on their bonds, stay on the DJIA, and continue to represent American industry they better start using some White Space to undertake substantial change. Our research has shown that turnarounds such as GM needs happen less than 10% of the time. What works? Changing the company business model via attack on the old operating parameters and the use of White Space to develop a new Success Formula.
When you’re as deep in the Swamp as GM you can’t fine-tune or marginally improve your way back to success.
by Adam Hartung | Oct 8, 2004 | Disruptions, In the Swamp
Belo’s problems continue with a whole raft of shareholder lawsuits. So what do you do when you have a problem? You solve them.
So, when Belo admitted to the inflated circulation, it set out to solve the problem. They did that by finding guilty parties and firing them, and they made restitution to their advertisers. And in focusing on the problem they made a big (and excruciatingly common) mistake. They didn’t look for the external challenge that is the root cause behind all these problems.
What’s the challenge? The company’s Success Formula has become obsolete and they are struggling financially. So, is firing some guilty parties going to solve that? No. Maybe those people should have been fired. Fine. Now what? What will Belo do about the challenge?
Just as I wrote about Merck’s crisis, Belo has the opportunity to really take advantage of this situation. They could create a disruption by seeing this as an indictment of their strategic assumptions and decide to reinvent them. However, if they stick with the actions they’ve taken thus far, this whole unsavory event will amount to a mere disturbance—an annoyance that the company has to deal with so they can get on with business as usual. And if that happens, we may not have to wait long for the next negative headline…
