by Adam Hartung | Jun 17, 2010 | Current Affairs, Defend & Extend, In the Swamp, In the Whirlpool, Leadership, Web/Tech
"Google Bans Use of Microsoft Company-Wide" is the headline on HuffingtonPost.com. The reason given is that Microsoft had too many security issues. This could be easily dismissed as a competitive trick. Except for a couple of facts:
- Microsoft does have a number of security issues. It's not just Google that's worried about the problems encountered when relying on Microsoft products. While Microsoft is the gorilla, it does have problems.
- Today their are very reasonable alternatives. Fifteen years ago Scott McNeely at Sun Microsystems tried to enforce the same discipline as Google. Only there ware no good alternatives to Windows and Office. That has now changed. Significantly.
As Microsoft has lost share in all its products, it is worth noting that a leading-edge tech company is able to enforce, successfully, a ban on their products. Aided by the fact that they can offer alternatives which are easy to use and better meet many user requirements today. This is not good news for investors, employees, suppliers and customers of Microsoft. A serious shift to alternative solutions has emerged, and Microsoft has given no indication it is participating in the shift.
The impact is amplified by SeekingAlpha.com's article "Apple's Growing Corporate Market Share." Like many businesses in a leading market share position, Microsoft has simply accepted that customers will keep buying their products. But their near-monopoly is increasingly threatened as organizations realize there are very real alternatives. Not just from Google, but from Apple as well as others. As companies recognize that PCs are failing faster, and as managers are displeased by Microsoft requirements that they upgrade software with new purchases, corporate customers are looking for alternatives. This can be easily dismissed as the behavior of a few "odd-balls." But increasingly such behavior is becoming mainstream. While Microsoft is busy forcing customers to upgrade, many companies are looking for greater stability and satisfaction with their information technology suppliers – including Microsoft replacements.
While Microsoft keeps struggling to maintain its customers, sales and share in its old business, Apple keeps moving forward. This week SeekingAlpha.com also reports "Apple Hits 10,000 iPad Apps, Doubling in the Past Six Weeks." Again, this might be easy to ignore for Microsoft (or status quo) fans. But as the app library keeps building Apple keeps building a bigger advantage over everyone – including Microsoft. What do we think the future holds – a world full of laptops (as we know it today) or a lot more tablets and similar smart devices? Increasingly, Microsoft is Defending its past position in the face of a tsunami of innovation for new solutions gaining adoption, and growing, very, very rapidly.
When you're the market leader it is easy to ignore competitors. To dismiss them as "fringe" with "small share" and "not important." But that is very risky. Markets can shift really fast. New competitors offer new solutions, and they allow customers to do new things. They give customers new choices, and often customers who are less than thrilled with current solutions will switch. As competitors make it easy to do new things, the customers switch even faster. Before long the unexpected can happen, and leadership can switch very quickly. Like Apple's market share in mobile devices exceeding that of Microsoft's – or Apple's cash hoard exceeding the market value of Dell (a supply chain partner of Microsoft).
Microsoft is offering a real-time lesson to business leaders. Planning your future based upon your past strengths is dangerous. Smart competitors can offer alternatives faster than you think – and create market shifts that leave you in the lurch quickly. It's a high-risk strategy to think you can succeed by Defending you past position when alternatives are on the horizon.
PS – ChannelInsider.com today published "Spotlight: 10 Things Tablet Computer Makers Must Do To Take On iPad." Item 5 is "Windows Won't Make Much Sense" Item 4 is "Chrome O/S Does Make Sense" Item 3 is "Give Android O/S Consideration". For Microsoft this is a set of recommendations that cannot sit well. The market for laptops is predicted to peak and begin declining as users shift to smaller, easier products like tablets. The market pundits, as they recommend new products, are moving away from Microsoft products. How long can Microsoft continue its focus on Defending Windows and Office?
by Adam Hartung | Jun 15, 2010 | Current Affairs, In the Swamp, Leadership, Web/Tech
There's always controversy around a politician. Some like the person, some hate the person. And that is true for Mayor Richard M. Daley in Chicago. Crain's Chicago Business decided to do an analysis of the mayor's last 20 years in office in "Mayor Daley Runs Up Big Debts Building His Global City; What About the Rest of Chicago?"
(As I write this, please keep in mind I live in Chicagoland and have done so for 20 consecutive years. This is my second time in Chicago, having first in 1982 – almost 30 years ago. It is my home, and I obviously like the area. But that doesn't mean (a) some criticisms and concerns aren't warranted and (b) that other cities and/or states aren't in equal, or worse, condition and should learn something from a look at Chicago.)
The article has a host of ways to look at. evaluate, the mayor and the city. Most of them compare one or the other to the Chicago suburbs, or to other big cities like New York, or to the situation in Chicago when he took office. In other words, relative measures. As a result, in many areas, it is possible to say Chicago is doing better than it was, or better than some comparable city. And that's the problem with relative measures – you can always say things are somewhat different. But, does it mean the city is in "good" shape, or that it is going to be prospering in 2020 – or 2050?
However, what's important isn't how a governmental leader performs in comparison to others, but absolutely. I don't care of I'm less starving than another person, I care that I'm not starving. Nor does it matter how well the leader performs on a host (15 or 20 or 30) of measures, but rather how they perform on the critical, absolute measures. I don't care how well I'm dressed, or coiffed, or energized if I'm starving.
It's also important we avoid popularity polls as a way of determining "success." The article points out that Mayor Daley is a favorite of business leaders. According to the article largely because he thinks a lot like them, talks a lot like them and enjoys associating with them. But just because he shares their personal Success Formulas, and he's a great "Happy Harry," to be around, and because he might be easier to talk to than his predecessors, or other city mayors, does not make Mayor Daley great, or the city great. It just makes him popular. Do you remember any popular students from your high school or college that simply didn't accomplish much? They were probably even very popular with the faculty in many cases. But did they make the school's reputation grow? Or help improve the test scores of students rise, or improve the success of the athletic department? Popularity is just that, but it doesn't create a long-term viable economic strategy.
That the mayor has brought a few corporate headquarters to Chicago, such as Boeing and Miller/Coors, is no doubt. And retained United Airlines. This shows the mayor is good at talking to CEOs. And it has some "celebrity" and "symbolic" benefit. Unfortunately, headquarters locations do not produce many jobs.
In the case of Chicago and mayor Daley, there are really 2 critical variables. And they aren't how well he removes snow, or how many flights go through O'Hare airport. Rather, it's debt and jobs.
Debt can be used to help growth, otherwise it's bad. If you can earn 7%, and borrow at 5%, then debt helps you grow. But if you borrow at 5% and invest in something that has no growth, well then you're just losing money faster.
Which gets us to jobs. Debt incurred by a municipality should have the impact of creating growth. It should create jobs. But, looking at Crain's "Chicago Economic Indicators" we see that between 1989, Daley's first year in the job, and 2009 jobs shrunk by 150,000 (from 1.33million to 1.18million,) or negative 11.25%. So the debt did not help Chicago grow – the only viable reason for incurring debt. In the 20 years debt (including long-term capital leases), adjusted for inflation, grew 263%. Fully 74% more than the property tax base. Or, when compared to jobs, the inflation adjusted debt per job grew by 85% (almost doubled!) in the last 20 years! What we can see is that those who are working now have one heck of a lot of debt to repay for the expenditures made by "city hall" the last 20 years! Adjusted for inflation, twice what they had to pay back when I came to Chicago!
And this is AFTER the mayor sold off the city's parking meters and other sources of income! He took one-time payments in order to keep the debt down, but gave up future income that used to be available to repay debt. Throwing even more of the debt repayment load onto each job than existed when he took office. And this hasn't factored in unfunded pension liabilities and anticipated escalating costs for infrastructure, education, public transit, etc. which will require some form of tax – or economic growth.
There is no doubt that even though he has detractors, Mayor Daley is a popular mayor. From what I've heard, he's a charismatic individual. He is obviously smart, and has great leadership skills. And masterful political skills. He also seems, from watching him on the news, to be a genuinely caring person who wants the best for all people in Chicago – and wants Chicago to be a great city for the next century. But much of what's happened during his tenure has garnered him votes, while leaving Chicago with more debt and fewer jobs to pay for that debt.
If you live in Chicago, or any other major city, it is worth spending time not getting lost in the beauty. Thirty years ago Detroit was full of glee about its investments in the Renaissance Center and other civic programs. Didn't do any good when they couldn't keep jobs in the city – or region. Pretty buildings surrounded by blight has been the result. Civic leaders need to be paying attention to the debt per job – and realize that without growth – more jobs – its tough for any city to remain "a great place to live and work."
So what should mayor Daley do? I'm offering up one idea, one article, from MedCityNews.com "I-Q Corridor is Stuff of Dreamers." This article discusses how some well placed funds, and not all that much given the overall budgets of the states and cities involved, could make a huge difference. The notion is to invest in creating a "health care corridor" from Minneapolis, MN through Madison, WI and Milwaukee, WI into Chicago, IL. This would bring together the resources of s
everal of the top engineering and health care schools in the USA, with several of the premier facilities (nearby Minneapolis area Mayo Clinic, Marshfield Clinic in WI, and Rehabilitation Institute of Chicago just to name 3 of many). This kind of investing is the kind of thing that could create a LOT of jobs in a growing industry. And probably for less than the cost of the proposed O'Hare expansion.
For 2 years I listened to the mayor trumpet the need for Chicago to seek being an Olympic venue. He roused up many corporate leaders to support him. And he spent millions of dollars. Even though it was never clear that the Olympics could even break even. And far less clear it would create even one job post-Olympics. So why not view the I-Q Corridor as a White Space project for Chicago? Why not use it to Disrupt old Lock-ins about the "rust belt" of manufacturing, and figure out how to generate high job growth? It is just one idea, but I can get a lot more excited about spending money on creating some sort of "corridor of job growth" than putting on the Olympics.
(PS – I recently met the City of Chicago CIO at the CIOMagazine Perspectives event in Chicago. He led a great panel with leading industry CIOs from the city. It was a great conference, well attended, with a number of thoughtful people. The event demonstrated what a great city Chicago is for business. You can read a flattering review I've my presentation written by Steven Stern at SternData.com "Innovate – Don't get Locked-In." I'll be updating that presentation which you can register to attend at the CIO 100 Conference August 22-24 near Los Angeles, CA.)
by Adam Hartung | Jun 13, 2010 | Defend & Extend, In the Swamp, In the Whirlpool, Leadership, Lock-in
If your boss told you that he enjoyed your hard work, but he wanted to cut your pay 50% I bet you would feel – well – violated. Your hard work is just that; hard work. If you received $100,000 (or $50,000 or $250,000) for that work last year it would be hard to accept receiving some fractionally lower amount for that same work next year. Especially given that every year you are able to work smarter, better and faster at what you do. Because your execution constantly improves you'd expect to receive more every year.
But in reality, it doesn't matter how hard we work. What matters is the value of that work. It's why nearly incoherent ball players and actors make millions while skillful engineers barely make 6 figures. In other words, pay inevitably ends up being the result of not only the output – it's volume and quality – but what it is worth. And that the compensation is a marketplace result – and not something we actually control – is hard for us to understand.
Every years many pundits decry "excessive" executive pay. There is ample discussion about how an executive received a boat load of money, meanwhile the company sales or profits or customer performance was less than average, or possibly even declined. Of course the executives don't think they are overpaid. They say "I worked hard, did my job, did what I thought was best and was agreed to by my Board of Directors. I did what most investors and my peers would have expected me to do. Therefore, I deserve this money – regardless of the results. I can't control markets or their many variables (like industry prices, costs of feedstock, international currency values, or the loss of a patent or other lawsuit, an industrial accident, or the development of a competitive breakthrough technology) so I can't control the results (like total revenues, or total profits or the stock prices). Therefore I deserve to be compensated for my hard work, even if things didn't work out quite like investors, customers, employees or suppliers might have liked."
This answer is hard for the detractors to accept. To them, if top management isn't responsible for results, who is? Yet, shockingly, each time this happens investment fund managers that own large stock positions will be interviewed, and they will agree the executives are doing their jobs so they should get paid based up on their title and industry – regardless the results.
An example of this behavior was reported by Crain's Chicago Business in "Tribune's $43M Bonus Plan Lambasted by Trustee." Even though Tribune Corporation's leadership, under Sam Zell, took the company from profitable to bankruptcy, and even though they've been unable to "fix" Tribune sufficiently to appease bondholders and develop a plan to remain a going concern thus exiting bankruptcy, the management team thinks it should be paid a bonus. Why? Because they are working diligently, and hard. So, even though there really are no acceptable results, they want to get paid a bonus.
We all have to realize that our company sales and profits are a result of the marketplace in which we compete, and the Success Formula we apply. The combination can produce very good results sometimes; even for a prolonged period. Newspapers had a good, long profitable run. But markets shift. When markets shift, we see that the old Success Formula must change because RESULTS deteriorate. Slow (or no, or negative) growth in revenues and/or profits and/or cash flow is a clear sign of a market shift creating a problem with the Success Formula. When this happens, rewarding EXECUTION (or hard work) is EXACTLY the WRONG thing to do! Doing more of the same will only exacerbate bad results – not fix them
What's bad for the business, in revenues/profits/cash flow, must (of necessity) be bad for the employees. Not because they are bad people. Or lazy, or incompetent, or arrogant, or any of many other bad connotations. But because the results are clearly saying that the value has eroded from the Success Formula . Usually because of a market shift (like readers and advertisers going from newspapers/print to the internet). What we MUST reward are the efforts to change the Success Formula, to get back to growing. Not hard work. As much as we'd like to say that hard work deserves money – we all know that money flows to the things we value regardless of how hard we work.
I've long been a detractor of many executives – Brenda Barnes at Sara Lee has been a frequent victim of this blog. Whitacre of GM another. Steve Ballmer at Microsoft. That the Boards of these companies compensate these leaders, and the teams they lead, is horrific. It reinforces the notion that what matters is hard work, willingness to toe the line of the old Success Formula, willingness to remain Locked-in to industry or company traditions – rather than results. Results which give independent feedback from the marketplace of the true value of the Success Formula.
Let's congratulate the Tribune Trustee. For once, more attention is being paid to results than to "hard work" or "execution." Tribune – like General Motors – needs a wholesale makeover. An entirely new team of leaders willing to Disrupt old Lock-ins and use White Space to define a new Success Formula. Willing to move the resources in these companies, including the employees, back into growth markets. If more Boards acted like the Tribune Trustee we'd be a lot better off because more companies would grow and maybe we'd move forward out of this recession.
by Adam Hartung | Jun 9, 2010 | Current Affairs, Defend & Extend, In the Swamp, Innovation, Leadership, Lock-in, Web/Tech
I so enjoyed the feedback from my article on Chicago and Illinois politicians I decided to take on another sacred cow – so let's talk about education.
According to Inside Higher Education's article "In Search of Innovators" there is a distinct lack of innovation in higher education. They cite a number of studies that show colleges are much better at enrolling students than graduating them. Especially private schools and junior colleges. And, imagine this, professors and administrators are more interested in continuing their positions and jobs than what students learn ("learning outcomes" in the industry vernacular.) Seems that keeping things from changing is the highest interest for educators, rather than actually teaching anything students need to learn to compete today.
But, we all know this. We've all seen colleges that have courses taught by only one or two professors, who only teach at odd hours, only allow a few students, refuse to keep office hours, or refuse to post previous exams. We're all familiar with schools that limit the hours administration offices are open, and are intractable about the requirements for graduation – even if they were set 20 years ago.
Quite simply, Lock-in drives most schools. Programs like tenure which make it impossible to fire anyone help maintain Lock-in. And professors would rather argue about what they don't want to do than try anything new and different. For all of us who went to college, and especially for those of us with students in college, it's clear that students are a route to their money (or their parent's money) – sort of little money pumps – intended to allow the college to not change. Many colleges even brag about how little they've changed over the last 20, 50 or even 100 years! In a world where change is every present, and dealing with change is now one of the most important skills a young person needs!
According to The Chronicle of Higher Education "For Innovation to Occur, Colleges Need a Big Push, Scholars Say." This journal cites program after program where a college tried to start up something new, only to have the program fail. But of course, because there is no White Space in colleges. White Space is where you give Permission to break all Lock-ins and do whatever it takes to be successful – and then provide the resources for success to occur. This does NOT exist in a college, where none of the Lock-ins can be violated. A professor can't even decide to change from teaching in class to using video instruction or on-line training because it's not allowed. So how can something new really be tried?
Where we have seen growth in higher education has been in for-profit schools like Devry and Phoenix that have rapidly challenged tradition and moved into new education models. Traditional schools decry these institutions, claiming the quality isn't acceptable. Of course, the "quality" argument is what printers used to claim Xerox machines would never succeed. It's what DEC said about AutoCad – before DEC went out of business. It's what Kodak executives said would make digital photography a tiny market compared to film. It's what executives at Sony said would keep music customers from buying MP3 devices/music before Apple launched the iPod. Quality is the #1 excuse used by Locked-in organizations to justify why they shouldn't change.
Forty years ago it was pretty clear that if you could afford college and grad school, it was worth it. But as costs/prices have skyrocketed, and the relevancy of education in many institutions has declined, that argument has lost a lot of credibility. Increasingly students are saying they want their education to be meaningful, practical and applicable. The market has shifted. They want to study on their schedules, without giving up their incomes or struggling with horrible commutes. And increasingly, these customers are moving to the suppliers that meet their needs – rather than trying to Defend & Extend old practices.
It's ironic that in the one place where we should most be open to new models we have almost no innovation. But it's impossible without a change in the structures and processes – and that requires a willingness to create a lot of White Space. For most colleges, I'm not optimistic.
by Adam Hartung | Jun 7, 2010 | Defend & Extend, In the Swamp, Innovation, Leadership, Music
I was born in 1957. That year, a 3 bedroom track home in Wichita, KS sold for the same price as that very same track home in Palo Alto, CA – about $10,000. Of course, things have changed hugely since then. Agriculture value had declined markedly, and automation has allowed for dramatic productivity improvements, robbing the heartland states of hundreds of thousands of agricultural jobs. Without people on the farms, the need for agricultural cities supporting the farms declined. No growth, and values decline. Today that home in Wichita is worth something like $50,000.
The land where the track home once sat in Palo Alto is worth $500,000. Because the explosion of technology jobs in Silicon Valley made demand for housing much greater, and as the value of technology soared those employed in the industry saw their incomes rise, allowing for higher home values.
It all comes down to growth. Geographic areas are like businesses in that growth leads to all kinds of good things – including higher home values. People go where the jobs are. Especially good paying jobs. And that comes from investing in innovation, and the companies that develop new solutions aligned with market needs.
According to Forbes magazine in "Houston: Model City" Illinois has lost 260,000 jobs in the last decade. No wonder home values in Chicago never soared like San Jose. But it's also no mystery why the 15-20% decline in Chicago real estate seems never to be improving. When a city stops growing – well – look at Detroit.
Today Crain's Chicago Business reported "Chicago Economy Sees Signs of Life, But Rocky Recovery is Forecast." Why? Little has been done to improve job growth. Once an agricultural center (the famous stockyards of The Jungle fame) Chicago became a powerhouse manufacturing center. But over the last 15 years the city and state have done almost nothing to drive more jobs related to information or the coming biological growth wave.
Few realize that the University of Illinois is ranked as the 4th best engineering school in the world. Yet, most graduates end up "going coastal" in order to find high paying jobs. Worse, innovators who want seed money or venture capital find none from the state, as it continues struggling to support the costs of jobs and pensions related to the now-gone manufacturing economy! Spending money trying to Defend & Extend the old manufacturing base. And there is almost no angel or venture private financing, which has grown considerably on both coasts, because that is targeted largely in non-manufacturing industries. And the large companies in Chicago – from Kraft to Sara Lee to Motorola to Lucent – to even Boeing – invest nearly nothing in spin-off companies and innovators in their own back yard. Many start-ups report they have to move either west or east in order to obtain financing for their ideas and rapid growth.
For cities and states, growth is the key. It is OK that once all the cowboys ended their cattle drives in Wichita. And that the world's largest grain elevator is just southeast of town. When agriculture was the center of the universe that was a good thing. But because the leaders did not transition toward new job growth as the economy shifted, Wichita is now a backwater. It is so hard to recruit talent to Wichita that Pepsi moved the headquarters of Pizza Hut to Dallas, and most of the decisions for Beech aircraft are made at Raytheon Headquarters in suburban Boston. Face it, do you want to live in Wichita?
How quickly will people say the same thing about Chicago? Already, nobody wants to live in Detroit. If Chicago city leaders, and Illinois state leaders, can't get out of old Lock-ins to manufacturing mind sets we all may be surprised how quickly Chicago follows its sister cities into unattractive outcomes. For politicians, and corporate leaders, a focus on growth is extremely important if they want to keep their city vibrant.
For residents of Chicago, there is ample reason to be worried about the future of their infrastructure and home values.
by Adam Hartung | Jun 3, 2010 | Current Affairs, In the Rapids, Leadership, Openness
How should you select a new CEO? Loyalty? Historical management of an existing business? Understanding of company or industry heritage? Most of those criteria are rear view focused, even if dominant. Wouldn't the most important criteria for a new CEO be understanding growth markets and ability to drive growth?
Are you familiar with the acronym BRIC? It stands for Brazil, Russia, India & China. Four rapidly growing markets. If you aren't familiar, you really need to be. Because your future may well be determined by your ability to compete there – rather than your ability to compete in the USA. Those markets are growing, and they are rapidly becoming dominant in not only production capability, but in their demand requirements for products as well. Soon they won't only be places you consider for low cost resources – but places you need to sell if you want to succeed. The emerging middle class, with money to spend, is rapidly shifting to BRIC countries from the USA and Europe.
According to Crain's Chicago Business, in "Baker & McKenzie Elects New Leader" this $2.1B law firm just selected as its new CEO the head of its Brazilian operations. Uncharacteristic for most American businesses, yet such an obviously smart move. Already only 675 of 3,850 company lawyers – less than 20% – are in the USA! It's a global economy, and Baker & McKenzie are moving where the growth is!
Compare this with McDonald's, which could have put the leader of Chipotle's in charge – but instead sold Chipotles, with its very high growth, and kept putting long-term McDonald's employees in the top job. Or imagine the difference if GM's Board of Directors had put the head of EDS or Hughes Aircraft, subsidiaries of GM in the 1980s, in the top GM job 25 years ago. By continuously putting an "auto" executive in the top job GM ended up selling off the high growth subsidiaries, gutted the value out of Saturn, and ended up in bankruptcy court!
There is no more important job for an organization's leader than growth. Growth can cover a multitude of sins. Missed sales, lost customers, pricing issues, faulty products — all can be forgotten if you keep driving growth. Just look at Google's Schmidt and Apple's Jobs. Hats off to the Management Board at Baker & McKenzie for moving forward and putting the growth market leader into the top job. More companies should be so unconventional.
Maybe this will be another Disruption that will help Baker & McKenzie grow even faster than its competitors! Disrupting the Status Quo is an important part of growth. Recently Tom Parrish created a podcast interview, published on his EnterpriseLeadershipo.org blog, of us discussing the need to Disrupt in order to grow. Give it a listen for ideas on using Disruptions to grow in your organization!
by Adam Hartung | May 26, 2010 | Defend & Extend, In the Swamp, Leadership, Lock-in, Web/Tech
In theory, Sustaining Innovations that help a company Defend & Extend its products are supposed to be cheap. The breakthrough is done, and the investments on variations, derivatives and enhancements are "engineering" as opposed to "science" so the development is supposedly more easily planned, the costs better understood and the returns more predictable. That's the theory, anyway, and as a result most managers constantly defend their decision to keep investing more in Defending & Extending past products rather than investing in new things which would develop new markets and new revenue streams.
But, like a lot of business myths, there's really no proof for this theory. It just sounds good. It seems "to make sense", and the big issue is that "it simply has to be less risky to spend on what you know rather than what you don't know." And "after all, this is investing in our own market and what could have a higher rate of return than defending our mother ship?" I'm sure everyone has heard these kind of comments when it comes time to allocate resources. Management supports doing more of what's been done, reinforcing Defend & Extend behavior. It just HAS to make sense to do more of what we know rather than invest in something new that we don't know as well – right?
But look at this chart from Business Insider:
Microsoft has spent billions of dollars in R&D Defending its desktop PC near-monopoly with enhancements to Office (Office 2007 and now Office 2010) and the operating System (Vista and System 7). It has spent heavily on other things as well, but in the end its entertainment division and mobile O/S products as well as others have not successfully grown revenues. As a result, Microsoft's value has not risen and Apple is about to eclipse Microsoft's value despite being a smaller company (see yesterday's blog for a more thorough review of valuation issues).
Now we can see that all this spending on R&D to Defend & Extend is in no way cheap. In dollars, Microsoft spent 3.5 times as much as Google and 8 times as much as Apple in 2009 – companies which as a result of their spending generated considerably more growth than Microsoft. Microsoft even spent more dollars, and more money as a percent of revenue, than IBM and Cisco (companies that rely heavily on hardware as well as software sales)! By any measure, Microsoft's efforts to Defend & Extend its "base," or its "core" has come at a very, very high price – in dollars or as a percent of revenue.
Consider that a good measure of R&D should be its ability to generate incremental revenue. Using that yardstick, Microsoft is a disaster, while Apple is a star.
Far too many companies Lock-in R&D and New Product Development to the existing business. The decision-making systems are geared to invest more in what is known. New investments are tagged with "risk adjustments" and "cannibalization charges" and a host of other costs to make them look less positive than doing more of what has historically been done. Lock-in to the Success Formula means that the financial review system, along with the technology assessments, are designed to give a major benefit to doing more of the same, while dramatically penalizing anything new!
In almost all companiess decision-making systems are designed to reinforce the Success Formula, not give an "independent" answer based upon markets. The processes are designed to do more, not do something new. And in the case of Microsoft, we can see how that has led to huge investments in simply defending the PC business while the technology marketplace is now rapidly shifting to new platforms – like mobile devices (smartphones and tablets), cloud-based applications and data access, and even gaming consoles. Competitors are developing a huge advantage by investing R&D and New Product Development dollars in new markets which provide greater growth opportunities – and higher rates of return over any time period other than the very short term.
Even if you're not in the computer/tech business, you don't want to end up like Microsoft. You don't want to over-invest in yesterday's solution trying to Defend it in the face of market shifts. That did not work out well for Polaroid, Kodak or Xerox which lost their luster as customers switched to new solutions and new competitors. Be sure to look not just at how much you spend, but that your spending is linked to markets and their growth, not simply doing more of what you already know!
by Adam Hartung | May 25, 2010 | Current Affairs, Defend & Extend, In the Swamp, Innovation, Leadership, Lock-in, Web/Tech
The leadership of Microsoft's entertainment division are leaving, as reported at TechFlash.com "Bach, Allard leaving Microsoft in Big Shift for Consumer Businesses." Whether by their own choice or by request, the issue is simply that Microsoft has not driven the XBox to a dominant position versus the Sony Playstation or the Ninendo Wii. It is competitive, but not a big winner. The entertainment division has only recently moved beyond break-even, after years of losing billions of dollars. In the high-growth gaming business, Microsoft has simply not performed, despite its vast resources. And mobile devices developed in this division have lost over half their market share in under 2 years to Apple and Google.
Some of the weakness may have been that the leaders were long-term Microsoft veterans, comfortable to Mr. Ballmer and other leaders, rather than executives committed to their markets. Messrs. Bach and Allard were not they type of leaders to challenge the Microsoft Success Formula, instead willing to accept mediocre results rather than violate Microsoft Lock-ins that would have jeopardized their careers. Microsoft was willing to lose money, and not be a big winner, as long as the division leadership didn't challenge Lock-ins or the company focus on desktop computing products.
I'm not optimistic now that the division is reporting directly to CEO Steve Ballmer. He had an enormous role in the company decision to commit vast resources to Defending the old Success Formula by massing hundreds of billions of dollars behind development and rollout of Office 2007, now office 2010, Vista and now System 7. Yet, these projects have done nothing to grow Microsoft; instead only helping the company hold onto old customers. Worse, Mr. Ballmer himself recently informed the world in his CEO Summit (as reported in Computerworld "Microsoft's Ballmer admits 'Window's Vista was just not executed well") that he's not a good leader of product development – costing the company thousands of man-years in wasted development when admittedly mismanaging Vista!
Chart source Business Insider
Now, largely due to the ongoing Defend & Extend management practices of Mr. Ballmer, Microsoft and Apple's valuations are in a dead heat. Growth at Microsoft is poor, while Apple with its multiple new products is growing much faster – causing Apple's value to catch up to what has historically been the world's largest software company.
As I commented on the recent interview for bnet.com (available as a podcast) Microsoft's Defend & Extend management practices are deeply rooted in the industrial economy. But they are insufficient for success in today's rapidly shifting marketplace. I discussed this in more depth for my keynote address at the Western Michigan Innovation & Energy Summit last week, and a second article was published in the local newspaper on Saturday "Customer is Always Right? Columnist says not for Innovative Businesses." Specifically, Microsoft's total commitment to maintaining old operating system and Office customers has created an inability to re-focus resources on high growth markets like gaming and mobile devices.
Although Microsoft has solutions – including tablet technology – it's management is Locked-in to Defending what it always did and not committing to new growth markets. Anyone who thinks Microsoft will be the major player in cloud computing, just because it has demonstrated some new products, must look closely at how poorly the company has developed these other growth markets. Technology and products are not enough when management is Locked in to protecting past markets. Microsoft is far behind Google, and has practically no catch of being a major player with so much resource dedicated to Office 2010 and System 7.
Thus investors as well as customers and employees are not doing so well at Microsoft. In the rapidly shifting technology and gaming markets, this inability to commit to new markets is deadly. For Microsoft, replacing the heads of the entertainment division is most likely analogous to rearranging the deck chairs on ocean liner Titanic. The pending outcome is rapidly becoming inevitable. Time to look for lifeboats!
by Adam Hartung | May 19, 2010 | Current Affairs, Defend & Extend, In the Swamp, In the Whirlpool, Leadership, Web/Tech, Weblogs
Do you lament "the way things used to be?" I remember my parents using that phrase. Now I often hear my peers. And it really worries me. Success requires constant growth, and when I hear business leaders talking about "the way things used to be" I fear they are unwilling to advance with market shifts.
For 5 years newspaper publishers have been lamenting the good old days, when advertisers had little choice but to pay high rates for display or classified ads. Newspaper publishers complain that on-line ads are too inexpensive, and thus unable to cover the costs of "legitimate" journalism. While they've watched revenues decline, almost none have done anything to effectively develop robust on-line businesses that can offer quality journalism for the future. Instead, most are cutting costs, reducing output and using bankruptcy protection to stay alive (such as Tribune Corporation.) Even as more and more readers shift toward the digital environment.
Source: Business Insider 5/18/10
While most of the "major" newspapers (including Tribune owned LA Times) have been trying to preserve their print business (Defend & Extend it) HuffingtonPost.com has gone out and built a following. There's little doubt that with the last 3 years trajectory, HuffingtonPost will soon be the largest site. And reports are that HuffingtonPost.com is profitable.
In 2006 the CFO at LATimes told me he couldn't divert more resources to his web department. He felt it would be jeopardize to the print business. "After all," he said "you don't think that the future of news will be bloggers do you?" Clearly, he was unprepared for the kind of model Arianna Huffington was building – and the kind of readership HuffingtonPost.com could create.
On Tuesday I presented the keynote address at the Innovation and Energy Summit in Grand Rapids, MI – and as reported in West Michigan Business "Energy & Innovation Summit Speakers Urge Business Leaders to Seek New Businesses, Not Protect Old Ones." Defend & Extend management always "feels" right. It seems like the smart thing to try and preserve the old Success Formula, usually by cutting costs and increasing focus on primary revenue sources. But in reality, this further blinds the organization to market shifts and makes it more vulnerable to disaster. While NewsCorp and others are busy trying to think like newspapers, emerging news market competitors are developing entirely different models that attract customers – and make a profit.
That's why it is so important to use future scenarios to drive planning (not old products and customers) while passionately studying competitors. Talking to advertisers gave these publishers no insight as to how to compete, however had they spent more time watching HuffingtonPost.com, and other on-line sites, they might well have used Disruptions to change their investment models – pushing more resources to the web business. And had they set up dedicated White Space teams not constrained by old Lock-ins to traditional revenue models and goals of "avoiding advertiser cannibalization" they might very well have evolved to a more effective Success Formula necessary for competing on the internet into 2020.
by Adam Hartung | May 17, 2010 | Defend & Extend, Disruptions, In the Rapids, Innovation, Leadership, Openness, Web/Tech
I get the most heat when I talk about spending less time listening customers. But I'm not joking. To grow revenues and profits you have to go far beyond asking your customers – who are more likely to hold you back from growth than accelerate it.
BusinessInsider.com makes this point loudly in an Henry Blodgett article "Ignore the Scream's — Facebook's Aggressive Approach is Why It Will Soon Become the Most Popular Site in the World." Given how many people use Facebook, it's hard to remember that the site is only 6 years old. What we've also mostly forgotten is that Facebook wasn't even first. It followed the popular, and well financed after acquisition by News Corp, MySpace.com. Lots of companies got into social networking. But now the marketplace is dominated by Facebook – which will soon be the web's most popular site (as it closes in on Google.)
Facebook did not win by asking users/customers what they wanted. To the contrary, Facebook's leaders took the approach of offering what they perceived would be steps forward – and then letting the market react. Frequently a VERY loud contingent would be VERY upset. Screaming loudly they hated the change. But with each advancement, Facebook grew users and the site's success. Facebook didn't ask users what they wanted, nor did they ask users for permission to do new things. Facebook went into the market, and using its scenarios about the future Facebook's leaders drove toward what they expected to be a more popular site. They did it, and learned from their experience.
Too many businesses spend way too much time trying to make small advances, and miss the big shifts. Microsoft is a great example. As it launches Office 2010, Microsoft isn't trying to bring in new users to grow its base – like Facebook is doing. Instead it is trying to preserve its installed base. Nonetheless, some "loss" is a given. You can't preserve forever. If you don't bring in new customers, you can't grow because you have to replace lost ones and find incremental new ones. But what do we see in Microsoft's offerings (such as Office 2010 and System 7) that is designed to bring in new users?
Meanwhile, Google is offering more powerful and cheaper Cloud-based solutions, as Apple and Google grow the demand for mobile devices (like iPhone and iPad) that don't use Microsoft products. The big shifts are all away from Microsoft, while Microsoft's efforts at preservation are leaving these alternatives with limited competition.
Today Bnet Australia posted a podcast interview I did with Phil Dobbie, sponsored by CBS, last week. In "Disrupt To Win" we discuss the big difference between Apple and Google as compared to Microsoft. The growing companies use scenarios to develop new solutions which will appeal to new users. They keep expanding the marketplace. As new users adopt new solutions, eventually it becomes mainstream – further accelerating growth. Growth doesn't come from trying to Defend the old platform or user base, but from launching new solutions which grow the market leading to conversion and even greater growth.
Facebook is now a phenomenon, growing in 6 years from obscurity to the second largest global user base. Because, like Apple and Google, the leadership did not ask customers what they wanted (which was what MySpace.com did). Rather, they studied competitors and emerging markets to create new solutions – without worrying about cannibalization or moving faster than customers would recommend. And the leadership has been willing to overlook vocal user minorities in order to appeal to new users, thus driving more growth. You can't expect customers to deliver great growth, that has to come from aggressive scenario planning, deep competitive analysis and a willingness to Disrupt your organization and the marketplace.
