by Adam Hartung | Dec 11, 2009 | Current Affairs, Defend & Extend, Food and Drink, In the Rapids, In the Swamp, Leadership, Television
If you can't sell products, I guess you sell the business to generate revenue. That seems to be the approach employed by Sara Lee's CEO – who has been destroying shareholder value, jobs, vendor profits and customer expectations for several years. Crain's Chicago Business reports "Sara Lee to sell air care business for $469M" to Proctor & Gamble. This is after accepting a binding offer from Unilever to purchase Sara Lee's European body care and detergent businesses. These sales continue Ms. Barnes long string of asset sales, making Sara Lee smaller and smaller. Stuck in the Swamp, Ms. Barnes is trying to avoid the Whirlpool by selling assets – but what will she do when the assets are gone? For how long will investors, and the Board, accept her claim that "these sales make Sara Lee more focused on its core business" when the business keeps shrinking? The corporate share price has declined from $30/share to about $12 (chart here) And shareholders have received none of the money from these sales. Eventually there will be no more Sara Lee.
Look at Motorola, a darling in the early part of this decade – the company CEO, Ed Zander, was named CEO of the year by Marketwatch as he launched RAZR and slashed prices to drive unit volume:
Chart supplied by Silicon Alley Insider
Motorola lost it's growth in mobile handsets, and now is practically irrelevant. Motorola has less than 5% share, about like Apple, but the company is going south – not north. When growth escapes your business it doesn't take long before the value is gone. Since losing it's growth Motorola share values have dropped from over $30 to around $8 (chart here).
And so now we need to worry about GE, while being excited about Comcast. GE got into trouble under new Chairman & CEO Jeffrey Immelt because he kept investing in the finance unit as it went further out the risk curve extending its business. Now that business has crashed, and to raise cash he is divesting assets (not unlike Brenda Barnes at Sara Lee). Mr. Immelt is selling a high growth business, with rising margins, in order to save a terrible business – his finance unit. This is bad for GE's growth prospects and future value (a company I've longed supported – but turning decidedly more negative given this recent action):
Chart supplied by Silicon Alley Insider
Meanwhile, as the acquirer Comcast is making one heck of a deal. It is buying NBC/Universal which is growing at 16.5% compounded rate with rising margins. That is something which suppliers of programming, employees, customers and investors should really enjoy.
Revenue growth is a really big deal. You can't have profit growth without revenue growth. When a CEO starts selling businesses to raise cash, be very concerned. Instead they should use scenario planning, competitive analysis, disruptions and White Space to grow the business. And those same activities prepare an organization to make an acquisition when a good opportunity comes along.
(Note: The President of Comcast, Steven Burke, endorsed Create Marketplace Disruption and that endorsement appears on the jacket cover.)
by Adam Hartung | Dec 6, 2009 | Defend & Extend, In the Swamp, Innovation, Leadership, Web/Tech
My last blog highlighted a new book describing the need for White Space if a business is to implement innovation and grow. But lots of people still have questions about what White Space is, and how to get it working.
Here's the chart from Create Marketplace Disruption (FT Press, available on Amazon.com) that shows how White Space is positioned to move beyond Defend & Extend Management.:
Most companies spend the vast bulk of their energy trying to Defend sales of current products to current customers. After expending 80% of the planning time, and company resource, in that cell, they then will try to see "can we sell other products to our current customers?" Or, "can we sell current products to new customers, such as by moving into a new geography?" As a result, they do almost nothing in White Space.
"Adjacent market" analysis is Extend effort. "Dartboard" approaches which look to grow by moving in concentric circles away from "core" are Extend efforts. These approaches are based on efficiency notions, that the company will get the biggest "bang" by doing very little differently and hoping to grab a big "win" with a small effort added to the Defend behavior. They hope to grow a lot by largely defending their "base" and adding a few, low resource commitment products or customers to the mix.
When you adjust for resources, the planning effort looks like this:
If you want to really grow your business, you have to change the planning effort first. Instead of putting all the resources into multiple rounds of effort about the business you know best, you need to simply do less in this area of planning. Moving from 90% accuracy on the first round to 95% after months of effort is pretty low yield. Instead, business should dramatically reduce the effort on known customers and products – and invest considerably more time developing scenarios about future markets leading them to White Space.
Extend markets almost always are disappointing. While the effort looks simple, that's only a view of "the grass looks greener across the fence." Reality is that competitors exist in those markets, and when the company tries to extend into them with limited resources they run headlong into very stiff competition. The company retreats to Defend the "core" and the Extend opportunities produce very low sales and miss profit projections dramatically. Usually, the leaders start complaining about having taken the venture, feel burned by trying to innovate, and reinforce their desire to focus on maintaining the "base" business.
To get over this, businesses have to start by realizing that entering new businesses takes more planning than the base business – not less. You have to identify the critical Permission needed to allow the White Space team to operate outside the Lock-ins. Be clear about the new approach, and the goals. And identify the resources needed – as well as the source of those resources (people and money.) This doesn't happen automatically, because it isn't part of the existing planning process. It takes a lot of effort to develop market scenarios and plans – then follow-up on the experiences to understand what works and keep evolving toward achieving goals. And that is where the planning effort really needs to focus.
White Space is critical to success. All businesses MUST evolve to new products and new customers. The idea that this can happen with little effort is misguided. Instead of planning the "base" business, success starts by putting more resources into market scenario development, developing insight to know what permissions are needed to succeed and then establishing funding so the White Space project can succeed.
Think about Apple. As long as Apple focused planning on the Macintosh the company moved further toward a small provider to niche PC markets. Only by using market scenarios to understand that growth opportunities were much better in entirely new markets were they able to change resource allocation and move aggressively into the business of iTouch, iPod, iTunes and eventually iPhones. Apple is outperforming almost everyone in this recession – and a lot of that success is due to using scenario planning to identify new market opportunities, rather than spending all the planning resources understanding previously served, traditional markets.
by Adam Hartung | Dec 3, 2009 | Books, Current Affairs, In the Swamp, Innovation, Leadership, Lock-in
Seizing the White Space is a new book being launched by HBS Press (and being pre-sold on Amazon.com.) I'm very glad to read about others who are taking up the message of Create Marketplace Disruption – which first published the critical role of White Space in successfully managing any business (published in 2008 by Financial Times Press and also available on Amazon.com).
The author, Mark Johnson, is Chairman of Innosight, a consulting firm he co-founded with Clayton Christenson who's on the Harvard Business School faculty (and author of The Innovator's Dilemma also on Amazon.com). Innosight primarily focuses on consulting businesses to identify Disruptive innovations. Now the Chairman is starting to realize that implementation is as important as identifying the implementation – and he's linked it to WHITE SPACE. Great!!!
You can read his insights to how IBM and some of his other large clients have used White Space in an Harvard Business Publishinng Blog "Is Your Company Brave Enough For Business Model Innovation?" You'll quickly see that he applies The Disruptive Opportunity Matrix from chapter 10 of Create Marketplace Disruption – which is how companies have been shown to reach new businesses using White Space. It's so gratifying to read somebody else who's applied your research and come to the same conclusions!
I'm looking forward to the book. Readers please let me know what you think of the author's blog post – and the book when it comes out.
Post-script to yesterday's blog about the CEO of GM:
"Cat's Owens, Deere's Lane on short list of CEO candidates" is the AP article appearing on Crain's Chicago Business about the search for a new leader at GM. As I predicted yesterday, recruiters seem to think the ideal candidate for the job needs to be from another big industrial company. And preferably, an auto company "to understand the industry complexities." Not only is there no incentive for these highly paid executives to take a similar job, at a lot less pay, in a government funded organization — but investors shouldn't want it! GM needs change. And more change than trying to make GM into John Deere, or CAT.
John Deere has had weak results for decades. The company has been wedged between other equipment manufacturers so badly that most of its profits now come from yard tractors homeowner's buy from Home Depot. Just because the company is big, and one of the few left making equipment for which there is declining demand, is no reason to want the CEO at a turnaround like GM. Likewise, CAT is under intense competition from Komatsu, Volvo and other manufacturers who are squeezing it from all sides – jeapardizing revenues and profits. Only acquistions have kept CAT growing the last 10 years, and margins have plummeted. That leadership is not what's needed at GM either.
When will somebody speak up for the investors and start a search in the right direction? GM needs leadership that thinks entirely differently. Unwilling to accept old-fashioned industrial notions about how to lead a company. Like I recommended, go somewhere entirely different. Maybe recruit somebody from Dell or HP or Cisco that understands rapid design cycles. Or someone from Wal-Mart or Target that understands how to sell things – cheaply. Or someone from Oracle or Mozilla or Google that understands the value of software – and that the product is a lot more than the iron – so you can capture the right value. It's so disappointing to read how the "recruiting industry" is just as Locked-in as GM.
If one of you readers knows somebody on the GM Board, maybe you should send them this blog (and yesterday's) to see if they can consider searching in the right place for new leadership!
Don't miss the recent ebook, "The Fall of GM" for a
quick read on how easily any company (even the nation's largest employer) can be
easily upset by market shifts. And learn what GM could have done to avoid
bankruptcy – lessons that can help your business grow! http://tinyurl.com/mp5lrm
by Adam Hartung | Dec 2, 2009 | Current Affairs, Defend & Extend, In the Swamp, In the Whirlpool, Leadership
"Henderson Never Fit In At GM Helm" is the Detroit Free Press headline. Imagine that – the CEO of GM has been asked to leave. Industry sales are down about 24%, and GM is down 32%. Meanwhile, Mr. Henderson had proposed selling 4 divisions (Saab, Opel, Hummer and Saturn) – which were the most interesting divisions in the company – and none of those deals have closed. In fact, 3 have fallen apart completely. Only the Hummer sale to a Chinese firm is potentially going to happen. In fact, it's hard to find anything good that's happened at GM since Mr. Henderson took over. Including closing Pontiac.
When the government invested in GM this year the existing Chairman/CEO, Rick Waggoner, was forced to resign. Imagine that, after puting several bilion in a company the investor's transition team replaced the CEO who got the company into bankruptcy, almost out of cash, with no plan for recovery. Also, the Board, which had allowed GM to get into such a mess without even raising tough questions, was replaced. All seems remarkably sensible given the sorry state of the company.
The goverment led transition team, which rocketed GM through bankruptcy, cleaned the ceiling, but then selected Mr. Waggoner's hand-picked successor (Mr. Henderson) to replace him. The claim was they'd need 6 months to search for somebody new and didn't want to take the time. And they put in a lifetime monopolist, Mr. Whiteacre of AT&T, as Chairman. And a 40+ year industry veteran was made head of marketing (Mr. Lutz.) And a 40+ year company employee was kept as CFO. And we're supposed to be surprised that things aren't going well?
The Chairman and replacement CEO says of the company says "Whiteacre: GM On the Right Path," also in the Detroit Free Press. But do you believe him? What does he know about competing successfully against intense foreign led competitors who move fast? The AT&T that trained him early in his career failed horribly, never succeeding in any market outside the U.S. and getting cleaned by offshore competitors in hardware and mobile telephony. And as head of Southwestern Bell, all he did was rebuild the old "Bell system" of land-line companies – without effectively taking a leading position in any new telephony business. Or any other business. Broadband, mobile phones, digital television – can you think of any market where today's AT&T is a technology, product development, innovation or other market leader? He may have bought up a bunch of the old spun out businesses, but those are on their last legs as people give up land lines and transition to a different sort of connected future.
What's surprising is that GM isn't doing worse. But it's unlikely Mr. Whiteacre, or Mr. Henderson's replacement, will do much better. Several candidates are from inside GM – all with the same Lock-ins that allowed Messrs. Waggoner, Henderson and Lutz to perform so abysmally – despite incredible pay packages for many years. In "Selling GM's CEO Job to be Tough Task" (Detroit Free Press) headhunters claim that the industry is so complex they'll have a hard time finding someone talented who will work for the pay. Balderdash. That's only true because they are so Locked-in to traditional thinking about who should lead GM that they keep trying to recycle already overpaid CEOs who have done little for shareholders. That's not what's needed at GM.
Give us a break. Who would want an industry veteran in the job at all? And why would a recruiter hunt for somebody with a lot of industrial-era Lock-ins. GM's investors (that's the citizens of the USA and Canada,) employees and vendors need somebody who's ready to move beyond the old industry and company Success Formulas and do something very different. Willing to develop entirely new scenarios of the future which alter the competitive playing field and then Disrupt the organization in order to start doing new things. Before Tata Motors and China's Chery auto join the other companies ready to put GM into the grave.
It's amazing how "inside the box" the people who are leading GM, and advising the company, remain. Why not try to recruit somebody from Tesla to take over? The long-delayed electric Chevy Volt might well get to market faster – and in a more desirable form – if that were to happen. Or how about an heir apparent at fast growing Cisco Systems? Those people know how to pay attention to the market and move quickly to give customers what they need – profitably.
Turning around GM requires leadership that will change the Success Formula. Not try to Defend it, or Extend it with slowly evolving variations and minimal change. The whole house needs to be cleaned. The investor representatives who led the transition pulled up short of finishing their job. Only by bringing in new managers who are willing to see a very different future, unbounded by the GM legacy, can GM's competitive position be changed – and if GM tries to keep competing the way it has Toyota, Honda, Hyundai, Kia, Tata Motors, et. all will eat GM's dinner. And only by Disrupting the old Lock-ins, using White Space teams to develop new solutions, can GM regain viability.
by Adam Hartung | Nov 29, 2009 | Current Affairs, Disruptions, In the Rapids, Leadership, Openness, Web/Tech
Cisco is an admirable company. In the high tech world, few survive half as long as Cisco. Even fewer maintain growth and profitability. Cisco's willingness to obsolete its own products has been a stated objective which has helped the company keep on top of new technologies and products, growing to $36B. It's Disruptive when you are compelled to obsolete your own products. Most companies make the mistake of trying to sell products too long, trying to extend profitability by selling the product while winding down development. They fear launching new products which might "cannibalize" an existing product. As a result, competitors leapfrog their products and by the company admits things are obsolete it's too late – and the business is in deep trouble.
Now Cisco is working to keep growing by utilizing a Disruptive organization model. Headlined "Cisco's Extreme Ambition" has BusinessWeek overviewing the distribution of decision-making power to 48 different councils. Instead of a traditional hierarchy, the councils can make decisions about products themselves, thus shortening the decision process and the time to get new products to market or make acquisitions.
Cisco competes in at least 30 markets. Staying on the leading edge in that many businesses requires rethinking how to organize. Especially when you know it is critical to keep Disrupting your organization to bring forward new products which can keep you competitive. By distributing decision-making this organizational model overcomes traditional Lock-ins that could slow down Cisco
- Now strategy can be developed for the markets, built on multiple scenarios (perhaps even competing scenarios), overcoming monolithic strategy processes that are too confining and do too much option narrowing
- Hiring, including executives, won't require everybody look alike. Different kinds of people allows for alternative thinking and different sorts of decision processes – as well as different decisions
- The structure can form to the market needs – rather than being dictated from an insider perspective. By organizing to the market need each council is more likely to keep close to emerging needs
- Investments are made at a lower level, reducing the "big bang" investments that Lock-in organizations to monolithic technologies or products
- Internal experts don't gain too much power, which often limits the technologies and markets pursued.
Maintaining its willingness to remain Disruptive is critical to the ongoing success of Cisco. This new organization model is allowing Cisco to enter the lower margin server business, for example, which would be (and has been) escewed by a more centralized decision making. By focusing the organization on markets, Cisco can keep finding new ways to compete — and set new metrics for measuring itself market-by-market. And Cisco can more quickly and easily set up White Space projects to continue pursuing new market opportunities. All it has to do is add another council!
by Adam Hartung | Nov 20, 2009 | Current Affairs, General, Leadership, Lifecycle, Lock-in, Weblogs
"The Illusion of Brand Control" is a great article at Harvard Business Publishing. Andrew McAfee, who is a research scientist at the MIT Sloan school Center for Digital Business, offers the insight that in today's market it's not possible for a business to "control" its brand. "New media" like the internet and Facebook are bi-directional. People no longer just absorb a crafted message, they are able to push back. Bloggers and internet commenters can have more influence on a brand than traditional advertising and PR. As a result, a business's brand becomes the result of what others say about it – not just what the owner says.
And this mirrors what is happening across business today. As we've moved from the industrial to the information economy, success is no longer about amassing and controlling assets. Scale advantages have disappeared, with scale accessible to anyone who has a browser and a credit card. Where the business leader of 1965 likely felt success required controlling everything from employees and facilities to the brand message, in 2015 success is about adapting to rapidly shifting market requirements.
If you want your brand, and your business, to grow and be profitable, you have to realize the dramatic limits of "command and control." That approach works in very static, clearly defined environments. Like the military. Businesses today no longer operate in slow moving static environments with high levels of regulation and rigid business limits and significant entry barriers. Businesses today operate in complex, highly adaptive systems. Competitors can move fluidly, quickly, globally to offer new solutions and react to changes.
Today's leaders have to recognize that many of the most important impacts on their business (or brand) come from outside their organization. Completely out of management's control. Being Locked-in on what you know how to do has less and less value when you might well have to react very quickly to an external event in an entirely new way in order to maintain product position and growth. Just ask the leaders at Circuity City, who could not adapt quickly enough and saw their company fail. Adaptability to shifting market requirements becomes key to sustaining growth. Competitive advantage is not created by seeking entry barriers. Rather, competitive advantage now comes from understanding market shifts, and moving rapidly to position yourself in the right place – over and over and over.
Executives who feel like they have "control" of their business are under an illusion in 2009. And that has been demonstrated time and time again as this recession has driven home a plethora of market shifts. There are many things managers can control. But many of the most important things to success are completely out of management's hands. Thus, the ones who succeed aren't trying to control their brand, or business. Instead they are building organizations that have great market sensing and are quick to react. Just compare GM to Google and you'll see the gap between what worked in 1965, and what works 45 years later.
by Adam Hartung | Nov 19, 2009 | Current Affairs, General, Innovation, Leadership, Lifecycle, Lock-in
According to Marketing Daily "Electric Cars Set to Tiptoe Into Showrooms." Nissan is supposed to introduce the Leaf. Chevrolet, Toyota and Ford are all supposed to begin offering a plug-in hybrid. None have announced prices, but all indicate they intend to price them at the high end – more costly than a like-sized traditional gasoline powered automobile. One reason for the higher price is that dealers normally expect to make 20% of a traditional vehicle's price in high-margin maintenance and repairs, and because these electrics won't provide that revenue and margin the manufacturers believe the dealer has to make more on the initial auto sale – or they won't sell them.
The manufacturers themselves are not optimistic about sales. They are targeting wealthy early adopter consumers for whom climate change and environment are critical issues. Citing a lack of infrastructure for recharging, and battery technology that takes too long to recharge, the manufacturers are non-committal on how many cars they will make – preferring to wait and see if demand develops.
Sort of sounds like a self-fulfilling prophecy, doesn't it? This approach is very unlikely to succeed, because they manufacturers are trying to sell electric cars to people who are already well served by existing petroleum powered traditional and hybrid cars. These people have little or no reason to pay extra for new technology, so will be a hard sell. And with built-in excuses for the technological limits, the manufacturers aren't being promotional. Simultaneously, the manufacturers are more worried about the impact on dealers than the success of the vehicles.
It's not the product that's wrong, its the approach. These manufacturers are trying to launch a very different product, that really needs to appeal to very different customers. But they are trying to do it in the totally traditional way. Same brand names, same distribution, same sales people, same marketing, same financing – same everything. They are trying to have the existing organization, with all its Lock-ins, do something very different. And that never works.
Electric cars are ideal for White Space team introduction. White Space projects are given permission to do what it takes to make a project succeed. They are given permission to operate outside the Lock-ins. It's that permission to find the right answer, to find the market-based solution, which allows the innovation to develop a new Success Formula that meets market needs.
Electric cars are not a solution for the way automobiles have been used in the past. To succeed requires appealing to different scenarios about the future. Electric cars need to appeal to people for whom a traditional auto has limitations they don't like, and instead the electric auto is something they want. People who are underserved by the current products. The electric car will succeed with buyers who have reasons to want one. For whom the electric car is the solution to their problem – not a second-rate, overpriced solution to an old need.
Cell phones didn't succeed because they were purchased by people who already had wired phones with long distance. Early cell phones, for all their expense and weakness, were bought by people who had a real need for mobile telephony. For years, mobile phones were used only by a small group of people. It took years for cell phones to become commonplace. We all now know younger generation people who have no land line phone – for whom the mobile phone has displaced a traditional phone. But the cell phone didn't succeed by trying to be a high-priced alternative to the existing solution, it was a product that was desired by people for the advantages it offered – even when it was expensive, big and had limited range. Only over time did the cell phone evolve to a new Success Formula that is making traditional phones obsolete – and leaving traditional phone companies with a very hard transition.
Electric cars need an entirely "greenfield" start. Those responsible need to be chartered to "make this work" in an environment where failure is not an option for them. They need to believe their careers depend on finding the right solution, and developing it. And they need permission to do what the market requires. They need to be able to have a stand-alone brand, and its own distribution system, and unique marketing. They need the White Space with permission to do what it takes, and the resources to accomplish the task. Free from worrying about dealer reaction, marketing impact on traditional autos in the brand, or requirements to solve "infrastructure issues."
Imagine urbanites who want cars just for short hauls. Think about the ZipCar business in most major U.S. cities as the target buyer, rather than selling cars to individuals. Or think about other markets – outside the USA. How about places like Taiwan or Malaysia where distances are short and traffic is bad and much fuel is wasted just sitting. Towns like Tel Aviv. Maybe as delivery vehicles in urban areas where traveling is rarely more than 200 miles in a day because most time is spent sitting at lights – or making the delivery. There are places for which an electric car could be an ideal solution – just as they are today. Where a head-to-head match-up favors the electric vehicle.
Secondly, who says a traditional dealer is the right way to sell this vehicle to these people? Maybe it should be sold on-line, with somebody delivering the vehicle to the buyer and offering personalized instruction? Maybe it should be sold out of a Home Depot, or Staples, or Best Buy like an expensive appliance or computer? It's not clear to me that people, or companies, have much value for auto dealers – so perhaps this is the time to change the distribution system entirely — and perhaps take a lot of cost out of auto distribution.
There is a market for electric cars. Today. Just as the technology exists. And if White Space teams were allowed to find and develop that market, we could have a robust electric car industry in just a few years. But it won't happen via traditional approaches, from companies Locked-in to their traditional ways. Those companies only see obstacles, not opportunity. Without White Space, this will be just another example of a technology delayed.
But it does leave the door wide open for a company like Tesla. Tesla is a stand-alone company pioneering the electric car market. They are operating in White Space. Easy as Tesla is now to ignore, they may prove to be the upstart like Southwest Airlines that succeeds and makes money while the traditional industry players keep struggling.
by Adam Hartung | Nov 13, 2009 | Current Affairs, In the Swamp, Leadership, Lock-in
"Rupert Murdoch to remove News Corp's content from Google in months" is the London Telegraph headline. Claiming that Google gets a "free ride" on the newspaper content, the News Corp. Chairman claims he can block Google from referring his content – and that the conclusion will be bad for Google because it will hurt the search engine's ability to add value. He also expects that his newspaper and its website will do fine without Google, including doing fine without any Google-placed ads on the newspapers' web sites.
Really.
Ever heard the phrase "cutting off your nose to spite your face?" It means that you get so mad at something, or someone, that you take a stupid action just trying to get even. Given the gruffness of Mr. Murdoch, I mashed that phrase up into my own explanation of his threat – that he's trying to bite off his own nose.
There is no changing the shift to on-line news readership. People will never again return to reading print-format newspapers. Print demand will continue to decline. Simultaneously, nobody will revert to searching for news on their own – such as by browsing around any particular web site. Users now know they can find news with the aid of powerful search engines, like Google, that deliver them directly to the page that tells them what they want to know. And advertisers now know that they must use services like Google to deliver ads to the pages that present their most likely targets. Advertisers are not willing to accept "views" alone, now knowing that ads can be targeted to specific readers associated with specific page content. Those shifts have happened, and are now trends moving forward. No hoping for "the good old days" will change these shifts.
Google doesn't need the News Corp. newspaper output to succeed as a search engine nor News Corp's pages for its ad placement business. There is so much access to news, from press releases (source news) to bloggers to other newspapers that any individual news source is relatively irrelevant. And Google can place all of its advertisers' ads – whether News Corp. makes its pages available to Google or not.
Simply, News Corp. needs Google. Without Google page referrals, visitors will drop. Lower visitors means fewer ad views means lower revenue. No news organization can stand lower revenues. Simultaneously, News Corp. needs as many advertisers competing for its ad space as possible. To turn down any ad placement service will only hurt revenues further.
Mr. Murdoch said in the article "I don’t believe the media industry can continue to exist in this way." He's right. Media companies are going through a major market shift. But trying to walk away from the #1 search engine and #1 ad placement company is —– foolish. And Mr. Murdoch knows this – because News Corp. owns MySpace and other internet properties. Google may not need News Corp., but News Corp. definitely needs Google
by Adam Hartung | Nov 12, 2009 | Current Affairs, Defend & Extend, In the Rapids, In the Swamp, Innovation, Leadership, Openness, Television, Web/Tech
The Myth of Market Share by Richard Minitar is one of those little books, published in 2002 by Crown Business, that you probably never read – or even heard of (available on Amazon though). And that's too bad, because without spending too many words the author does a great job of describing the non-correlation between market share and returns. There are as many, or possibly more, companies with high profitability that don't lead in market share as ones that do. Even though the famous BCG Growth/Share matrix led many leaders to believe share was the key to business success. Another something that worked once (maybe) – but now doesn't.
"Moto Looks to Sell Set-Top Box Unit" is the Crain's Chicago Business headline. Motorola's television connection box business is #1 in market share. But even though Motorola paid $11B for it in 1999, they are hoping to get $4.5B today. That's a $6.5B loss (or 60%) in a decade. For a business that is the market share leader. Only, it's profitability + growth doesn't justify a higher price. Regardless of market share.
Kind of like Motorola's effort to be #1 in mobile handset market share by cutting RAZR prices. That didn't work out too well either. It almost bankrupted the company, and is causing Motorola to sell the set top box business to raise cash in its effort to spin out the unprofitable handset business.
On the other hand, there's Apple. Apple isn't #1 in PCs – by a long shot. It has about a 14% share I think. Nor is it #1 in mobile handhelds, where it has about a 2.5% market share. But Apple is more profitable than the market leaders in both markets. Today, Apple's value is almost as high as Microsoft – historically considered the undisputed king of technology companies.
Chart source Silicon Alley Insider 11/12/09
While Microsoft has been trying to Defend & Extend it's Windows franchise, its value has declined this decade. Quite the contrary for Apple.
Additionally, Apple has piled up a remarkable cash hoard with it's meager market shares in 2 of 3 businesses (Apple is #1 in digital music downloads – although not #1 in portable MP3 players).
Chart Source Silicon Alley Insider 11/11/09
"While Rivals Jockey for Market Share Apple Bathes in Profits" is the SeekingAlpha.com headline. Nokia has 35% share of the mobil handheld market. It earned $1.1B in the third quarter. With its 2.5% share Apple made $1.6B profit on the iPhone. While everyone in the PC business is busy cutting costs, Apple has innovated the Mac and its other products – proving that if you make products that customers want they will buy them and allow you to make money. While competitors behave like they can cost cut themselves to success, Apple proves the opposite is true. Innovation linked to meeting customer needs is worth a lot more money.
Bob Sutton, Stanford management professor, blogs on Work Matters "Leading Innovation: 21 Things that Great Bosses Say and Do." All are about looking to the future, listening to the market, using disruptions to keep your organization open, and giving people permission and resources to open and manage White Space projects.
If your solution to this recession is to cut costs and wait for the market to return – good luck. If you are trying to figure out how you can Defend & Extend your core – good luck. If you think size and/or market share is going to protect you – check out how well that worked for GM, Chrysler, Lehman Brothers and Circuit City. If you want to improve your business follow Apple's lead by developing thorough scenario plans you can use to understand competitors inside out, then Disrupt your old notions and use White Space to launch new products and services that meet emerging needs.
by Adam Hartung | Nov 9, 2009 | Current Affairs, Defend & Extend, General, In the Swamp, Innovation, Leadership, Lock-in
Leadership
Why The Pursuit Of Innovation Usually Fails
Adam Hartung,
11.09.09, 04:11 PM EST
It's not what we're trained for as leaders or how our businesses are set up to work.
Forbes published today "Why the Pursuit of Innovation Usually Fails." "Most companies everywhere are struggling to grow right now. With their
revenues flat to down, they're cutting costs to raise profits. But
cutting costs faster than revenues decline is no prescription for
long-term success….."
The article goes on to discuss how from Gary Hamel to Jim Collins to Michael Tracy and Fred Wiersema to Malcolm Gladwell to Tom Peters — managers have been taught to identify their "core" and "focus" upon it. Whatever that core may happen to be, the gurus have said that all you need to do is focus on it and practice and in the end – you'll win.
But unfortunately we all know a lot of very hard working business leaders that focused on their core, working the midnight hours, sacrificed pay and bonuses, and kept trying to make that core successful — only to end up with a smaller, less profitable, possibly acquired (at a low price) or failed business. While the best practices make sense when looking at past winners, reality is that they were followed by a lot of people that didn't succeed. Their best practices give no great insight to being successful. They are of no more value than saying "treat people well, be honest, don't lie to customers, don't break the law, don't get caught if you do, show up at work." Nice things to do, but they don't really tell you anything about how to succeed.
The mantra today is for innovation, but thirty years of these "best practices" now stand as a roadblocks to doing anything more than defend & extend the current business. Only by understanding the objective to defend & extend what already exists can you explain how can one of the world's largest consumer product companies can call Tide Basic an innovation.
Enjoy the read, and please comment!
