by Adam Hartung | Sep 2, 2009 | Current Affairs, Defend & Extend, General, In the Rapids, In the Whirlpool, Leadership, Openness
"Huffington Says Her Site Is Close To Making Money" is the video headline at Marketwatch.com. For years this blog has chastised traditional news publishers for trying to Defend & Extend their traditional business, when the market has shifted on-line —- both for readers and advertisers. Of course, the newspaper companies counter this argument by saying that they can't make any money on-line. They have to defend their traditional business – even from web competitors.
When shifts happen it's best to get started experimenting and migrating early. You may hate the political bent of HuffingtonPost.com, but that it's near making money shows that the model can work. Just differently than a newspaper or magazine. Unfortunately, most traditional media have been too busy trying to fend off the web to learn anything. For example, Tribune Corporation has long owned equity stakes in CareerBuilder.com and Cars.com as well as FoodChannel.com. But the company refused to learn from these ventures and migrate toward a different Success Formula.
Now it's too late for these traditional companies. You may think that if HuffingtonPost.com is still not quite profitable there's still time to compete. But reality is that Ms. Huffington's organization has been experimenting and learning and creating this Success Formula for 4 years. That kind of learning you can't pick up overnight. You have to participate in the marketplace, then make what you learn (good and bad) available for everyone to see. Then you have to discuss what you've learned openly so the organization can become knowledgable about what works and migrate toward a new Success Formula in which they have confidence. And that's why most companies react to market switches way too late. They think they can jump in at the last minute. But by then the HuffingtonPost.coms and Marketwatch.coms and MediaPost.coms have already learned how to succeed at this business, developed a subscriber base and created a viable ad sales program.
Take for example "Clunkers Program Boosts Ford, But Not GM, Chrysler" as headlined on Marketwatch.com. Now that the results are in from the government stimulated "clunkers" program, we know that the market has shifted away from GM and Chrysler. Year-over-year, Hyundai sales were up 47%, Honda up 9%, Toyota up 6.4%. Ford scored big with sales up 17%. But GM sales were down over 20%, and Chrysler sales fell 15%. We can see from this data that people were ready to buy cars, given a boost. While the overall market was up, we can see that it has shifted to a new batch of competitors. GM and Chrysler simply weren't prepared to compete – and it's doubtful they ever will be. They've missed the market shift, and now they don't have the R&D, products, distribution, marketing, etc. to remain competitive with companies that are seeing volumes and revenues rise.
Of course, every company has the opportunity to shift with markets – or be crushed by changes. The latest economic reports show that too many American businesses, like GM and Chrysler, are waiting to be crushed. "US productivity rises at fastest pace in nearly 6 years, while labor costs plunge in spring" is the ChicagoTribune.com headline. This is bad news for those thinking an economic upturn will save them.
When an economy grows productivity improvements are good. Imagine you sell 100 items. You have 100 employees. Productivity is 1. A growing economy allows you to sell 105, your employment remains the same, and productivity jumped 5%. Lots of winners – between the employees (more pay or bonus), the customers (possibly lower prices down the road based on rising volume), for investors (more profits) and for suppliers (more volume and less pressure on prices.) Let's say the economy slackens – like 2009. Volume drops to 90. But through cost saving measures employment drops to 86. Productivity just went up almost 5%! But nobody won. And that's what's happening today. Labor rates keep dropping because there's more labor supply than product demand – and if businesses keep cutting costs we'll improve our productivity right up while the economy keeps going down.
Business leaders need to be more like Huffington Post, and less like GM. To improve profits they need to recognize that markets have shifted, and move quickly to develop new Success Formulas which get them growing. Trying to Defend & Extend the old business, like newspaper publishers, simply drives you toward bankruptcy. Instead, it's time to Disrupt the status quo and create some White Space projects to learn what the market wants. It's time to experiment and get the whole company involved in applying the collective brainpower to develop new a new Success Formula which gets you growing, making more money, and improving productivity for real!
by Adam Hartung | Sep 1, 2009 | Current Affairs, Defend & Extend, Food and Drink, General, In the Swamp, Innovation
Innovation comes in many forms, and some are a lot more valuable than others. The most valuable bring in users formerly un-served or under-served thus expanding the market and offering new growth – like mobile phones did. The least valuable are variations of something that exists, which do little more than give variety to existing customers.
"Pizza Hut Intros Stuffed Crust Pan Pizza" from Mediapost.com is without a doubt the latter. The company takes a product introduced in 1980, then adds an enhancement developed in 1995, and in 2009 launches a product that is merely the combination of the two. At first blush you say "why not?" But this launch costs money – quite a bit of money. There's the cost in product formulation, the cost in training tens of thousands of store workers to make it, cost in new menus, cost for in-store marketing materials, and cost for media advertising of the new product. The same costs (only much higher now) as incurred to launch the totally new innovation pan pizza 30 years ago.
Only this won't generate new revenue. These kind of variation innovations largely provide an alternative for existing customers. Restaurants are famous for selling 70% of their product to repeat customers that return week after week. These people often look for new, sometimes strange, variations. Remember Hawaiian pizza with pineapple, or Bar-B-Que pizza with roasted pork and BBQ sauce? These are the kinds of things that don't bring in new customers, they aren't finding an under-served market and bringing those people to the restaurant. They merely offer variations, which might catch the interest of returning customers, but few others. They are very expensive defensive product launches meant to keep the loyal customer from considering the competition. But because these incur cost, with little new revenue, they are negative to the bottom line.
Part of the fallacy comes from the old logic of "ask customers what they want." Unfortunately, customers can only think of cheaper, faster and usually fractionally better. Their ideas about innovation are almost exclusively variations on existing themes. They already are your customer, thus not thinking hard about alternatives. To find new products that can really grow your market, use lost customers to lead you to the new ideas. And scan other industries and markets to see what's happening on the fringe of competition – things that can serve newly developing market needs.
Companies that make high rates of return do not merely try to maintain revenues and cater to existing customers. They use breakthroughs to tap into new markets and new customer segments. Think about the "personal pan pizza" a product innovation Pizza Hut pioneered 35 years ago. That made it possible for customers to buy a pizza for lunch – it was small enough, cheap enough, and could be served fast enough that it expanded the market for lunch pizza buyers in non-urban locations where "a slice" wasn't available. There are new needs emerging in the restaurant business today – but putting cheese in the crust of your old pan pizza isn't the kind of thing that's going to bring new customers into the restaurant any time soon.
by Adam Hartung | Aug 31, 2009 | Current Affairs, General, In the Swamp, Leadership, Openness
Did you know that last night the Japanese turned over their government? For 54 years one party has ruled Japan – a very pro-business, conservative party. Then last night the voters threw out the old guys and in a landslide replaced 3/4 of their elected government officials. The new politicians are considerably left of center by U.S. standards, a dramatic shift. "Calls for Fast Action after Historic Vote" is the Yahoo! News headline.
You may be so tired of American politics that your interest in a Japanese election may be – let's say muted? But this is really a very big deal. Japan is the second largest global economy. A change from the conservative, pro-business leadership to a more free-spending and liberal government is sure to have an impact on businesses everywhere – including the USA. Remember we are Japan's #1 trading partner, they buy (and hold) a substantial portion of U.S. Treasury securities, and Japanese industrialists are often credited with having killed the U.S. steel and auto industries. This is a market shift well worth paying attention to.
Ever since the great Japanese stock market melt-down in the early 1990s the U.S. has been pushing Japan to reflate the economy. But the conservative government was opposed. Thus, deflation kept Japanese from buying many goods. But it now appears that several new stimulus programs will begin in Japan, which would raise the prices of Japanese imports (look out U.S. consumers) while increasing demand for offshore goods.
Historically Japan bought loved U.S. goods, but shunned products from China, Taiwan and Korea – a leftover from their significant invasions and horrible treatment of people in those countries in the early 1900s until the end of WWII (Japanese Emporer Hirohito was about as popular in those countries as Hitler is in the USA.) But new liberalism is likely to lead to more apologies from Japan, and a thawing of relations. Which could lead to more trade with China and Korea – which would only exacerbate the U.S. economic problems. We could see prices go up on imports, but no significant increase in exports!
Think we have a growth problem? Since peaking earlier in this century at 126M people, the Japanese population has actually been shrinking. Most demographic experts believe the population will fall to below 100M by mid-century (that's just 40 years folks!) Activities to stimulate the economy, creating more domestic demand and more domestic production could pull money away from buying U.S. Treasury bonds to fund domestic programs, making the interest rates on Treasuries go up, further dampening the U.S. economy due to debt costs (we running a bit of a deficit – in case you missed the news lately.) Higher Treasury cost means higher corporate debt cost means harder to raise money – and dampers profits. Meanwhile, inflation gets worse as we struggle to refund our debt load.
Japan has no domestic petroleum. If you think our energy supply/demand is out of balance you ain't seen nothin' till you look at Japan. They have to buy almost all their energy. Reflate the economy, increase domestic demand for housing and cars (including dropping all road tolls – which can be $60 or $100 on a Japanese roadway) and you get increased energy demand, driving up prices, and putting more dampening on the U.S. economy as we pay more for oil, gas and electricity imports.
If you don't sell in Japan today, why not? The new government promises to reduce the power of heavy handed bureaucrats (like at MITI) who have blocked expansion for decades. For the first time in our lifetimes, we can anticipate a Japanese economy that will accept significantly more imports. Stimulus money, strong currency and pent-up demand all indicate a much more desirable place to make and sell things than, say, America?
Market shifts happen at lots of levels. And when they happen at the level of an economy, (read more about this in Create Marketplace Disruption) everything higher – like industries, companies, functional resources and work teams – have to shift with it. If you don't, you become like the manufacturers being wiped out by today's global industrial shift. The Japanese economy is on the precipice of a really big shift. Intentionally. If you don't prepare, you could see really bad things happen to your business. On the other hand, if you watch closely, learn from the shift, and take action this just might be one of the biggest opportunities ever to grow your business. So you'd better update your scenarios about the future, rethink Asian competition, Disrupt your patterns to consider new ideas and open some White Space to deal with this. Because it could make a huge difference in just a year or two.
by Adam Hartung | Aug 27, 2009 | Current Affairs, Disruptions, General, Leadership, Lifecycle, Openness, Quotes
Brilliant. A word we rarely use in the USA, the British will hear of a good idea and respond "brilliant." When I saw "Motel 6 Offers Free Rooms to 3 Rock Bands" in USAToday I simply thought "brilliant."
Do you remember the old Motel 6 ads? "We'll keep the Light on For You" was how Tom Bodett, a National Public Service radio announcer from Alaska enticed people. Using a very rural, almost corny approach to undersell the rooms, this tied to 1950ish thoughts about visiting distant relatives. It wasn't a bad ad. And it probably worked really well (I still remember the ads) for years after release in 1986. But that tone doesn't have much appeal to the younger generation. 29 years after being launched, the under 35 crowd doesn't remember this ad – nor did they grow up in a rural America – nor do they know the origins of looking for reliable, clean motels on a cross-country trip during the early days of interstate highways. And they simply don't care. That ad program ran its course, to be polite. Motel 6 might be a good product, but it was slipping away into the oblivion of brands you forget – like Howard Johnson's. Or Ovaltine.
Hand it to management of Motel 6 and parent Accor, they Disrupted the old approach by offering free rooms to rock bands. If you've read my previous posts on the music business you know that musicians end up covering their own cost for travel – and as the USAToday article points out, many band members spend most nights sleeping in the van or on the floor of someone's house. It's definitely not free booze and hooliganism in a 5-star property. So these band members are quite pleased to have someone offer them free rooms – clean, tidy and comfortable.
Now those band members can reach out to their followers via Twitter and Facebook with positive comments and thanks for these rooms. A medium where you can't buy ads, but where reputations can be created and expanded. Not only promoting Motel 6, but promoting to an audience the company wasn't even reaching before. And catching one of the most highly prized, and valued, demographics in the ad business – age 24 to 34. Who knows how long these young folks might remain customers, after they discover the wonders of clean, affordable lodging.
Anybody can do what Motel 6 just did to help re-invigorate your business. It would have been very easy for sleepy Motel 6 brand to have remained where it was, doing what it always did. And continue losing mind-share, as well as profitability. But this move, at an amazingly low cost (literally, advertising in exchange for product, is an incredible deal – and a lot cheaper than those old radio ads), will revive the brand among a new group of customers – and a group that is not well served by the hotel industry. It's hard to find anything in this move that doesn't come off like a big win for everybody!
by Adam Hartung | Aug 25, 2009 | Current Affairs, Defend & Extend, In the Swamp, Leadership, Lock-in
I think it's a lose – lose – lose. "Brett Favre Signs with Vikings" was the ESPN.com headline. I wasn't going to bring this up, but in 2 days I've had 8 requests, so I guess people are more interested in Mr. Favre at the start of this American NFL season than I imagined. The situation is simply dripping with Defend & Extend behavior, and an inability to focus on the future. And it's hard t see how anybody wins.
The first loss goes to the Minnesota Vikings. Every team is built by growing a powerful squad. By hiring "yesterday's hero" the Vikings have admitted they are not looking to the future. The coaches are trying to somehow capture yesterday. Were they concerned the team would repeat last year's Detroit fiasco and lose every game? Because if they weren't why sacrifice the team's future by hiring an on-field leader that everyone knows is unable to play much longer? This isn't a lot different than GM putting Mr. Bob Lutz, at age 77, in charge of marketing. What was a great past does not make for a great future.
The young people in Minneapolis want to see their home-town team be Super Bowl champs in 2010, 2011, 2012, 2013 and onward. With someone age 39 in the job, slower than ever, it is certain that the team is not "building" toward a potential legacy like teams have had in Green Bay and Dallas. Sixteen year old attendees weren't even alive when Mr. Favre started his football career. They want to see people in the jobs who can help their team become a dynasty – and that's not Mr. Favre. Minnesotans, especially young ones, have to question coaches and owners that would hire someone who, at best, is good (impossible to be great) for a year or two. It rings of defeatism, of desperation, to take this action.
Mr. Favre himself loses with this move by denying his own ability to grow. Americans have great respect for sports heroes that prove themselves after playing ball. Look at those who are revered for not only their play, but their after-play prowess
- Troy Aikmen won Super Bowls at Dallas, then never skipped a beat becoming a respected and popular sports announcer
- Roger Staubach won Super Bowls also at Dallas, but worked summers learning real estate then built his own multi-million dollar real estate development empire
- Jack Kemp played football for the Buffalo Bills, then went on to be a successful Congressman and even was a Vice Presidential candidate with Bob Dole
- Bill Bradley played basketball for championship winning New York Knicks, then became a 3 term senator from New Jersey
- Roger Penske was a world winning race car driver, but is even better known today for building the largest auto dealership company in North America, one of the largest truck leasing companies and recently bidding to purchase Saturn from GM.
By returning to football, Mr. Favre demonstrates he is so Locked-in to playing ball that he isn't looking forward for himself. He can't play football forever, so what will he do next? He has enough money to retire, but there's not much personal growth in retirement. Life is about growth, and at age 39 Mr. Favre has a lot of time to grow into new and even more powerful roles. But he can't if he keeps going back and playing football. It's not a good thing that Mr. Favre isn't growing into other roles where he can be a significant contributor.
The third loser is Wrangler jeans, a division of VF Corporation. "Favre Should Add Bang to Wrangler Effort" is the MediaPost.com headline. Mr. Favre recently agreed to be advertising spokesperson for Wrangler, and the initial view is that his return to football will sell more jeans. To whom? Forty-ish men who dream of a sports career? Cast as an outdoorsman, or new businessman, with a proud legacy Mr. Favre has appeal to a wide group of buyers. But as an aged football player he represents all the people who are questioned as "over the hill."
Mr. Favre could be a role model for younger people as a retired football player. But as an active one he has limited appeal to younger people who are more attuned to Phil Rivers or Tony Romo. Young people don't desire to be the oldest quarterback in the NFL. By Mr. Favre playing football, Wrangler de facto gets positioned as the "jeans for old guys." Mr. Favre could have been a powerful young sports hero starting a new career – a much more favorable position for Wrangler.
When we slip into Defend & Extend thinking nobody wins. Success comes from focusing on the future, and taking the actions that will beat your competitors. Reaching into the past does not bode well for anybody looking to beat the competition, because the competition knows all those old moves. Everyone involved would have been better off if Minnesota had Disrupted its plans by bringing in a quarterback with a sizzling chance to be THE NEXT Brett Favre, rather than Mr. Favre himself. And then building a program that would position them as the next dynasty, not one trying to protect its Defend its current season by Extending the career of somone who's already twice retired. And Wrangler should have thought about this in advance, with a clause in Mr. Favre's contract not allowing him to play football any more if he wants to continue representing their brand.
by Adam Hartung | Aug 24, 2009 | Current Affairs, General, In the Rapids, In the Whirlpool, Leadership, Lifecycle, Lock-in, Music, Openness
"Sears Axes Ad Budget As Sales Slide" is the latest Crain's article. Revenues have been falling at Sears ever since Mr. Ed Lampert took control of the venerable Chicago retailer. His initial actions were to cut costs in order to prop up profits. Which worked for about 8 quarters. But then the impact of cost cutting cracked back like a bullwhip, shredding profits. Mr. Lampert reacted by further cutting costs to "bring them in line with sales." And the whirlpool started. Cut costs, revenue falls, cut costs, revenue falls, cut costs…… And now he largely blames the recession for Sears poor performance. As if his Lock-in, and that of the management, to old approaches had nothing to do with the dismal results now at Sears.
There are those who think these actions are smart, to bring costs "in alignment with retail trends" as Morningstar put it. But reality is Sears is now in the Whirlpool of failure. Looking at the lifecycle, they've gone past the point of no return – out of the Swamp of slow growth – and into the last stage - failure. The stores would be closed and sold to other retailers, except there's a dearth of retail buyers out there these days. Thus shareholders are stuck with underperforming real estate, constantly declining revenues and falling cash flow.
Not all retailers are seeing declining revenues. Bloomberg.com reported today "Apple May Be Highest Grossing Fifth Avenue Retailer." While Sears and others are watching sales go down, Apple's retail store revenues rose 2.5% this year – and it's Fifth Avenue store has seen traffic increase 22% this last quarter. In a town where tourists often put an emphasis on shopping, they used to ask locals how to find Bloomingdales or Saks. Now they want to know where to find the Apple store.
Markets shift. When they do, you have to change your Success Formula or your results decline. When customers change their behavior, you have to change as well or your sales and profits go down. But most leaders react to market shifts by trying to do the same thing they've always done, only faster, better and cheaper. Oops. That only leaves you chasing your tail – just like Sears. You keep working harder and harder but results don't improve. Then eventually something happens that throws you into bankruptcy, or an acquisition for your assets, and it's "game over." Meanwhile, all the time you're watching returns shrink shareholders watch value decline, employees grow disgruntled as you whittle away bonuses, benefits, pay and jobs, and vendors grow tired of the impossible negotiations for lower costs while waiting to get paid on strung-out terms. Nobody is having a good time. Just go ask the folks at Sears.
But there are always businesses that catch the market shift and use it to propel their growth. Like Apple. Once a niche and low-profit computer manufacturer, they've turned into a producer of music players, music distributor and mobile phone supplier as well as computer manufacturer. And when everyone would have said that retail is a terrible investment, they've turned into a surprisingly successful retailer as well. Appple keeps throwing itself back into the Rapids of growth, rather than slipping into the Swamp of stagnation and Whirlpool of failure.
Apple keeps going toward the market shifts. Apple's CEO (and increasingly other executives) Disrupts the company's Success Formula, always challenging the company to do new things. And White Space is constantly created where permission is given to operate outside old Lock-ins and resources are provided for the opportunity to grow. Apple could have done a half-hearted job of retailing, trying to act like Best Buy or Nike with its stores and merchandise, or only funding stores in suburban malls instead of tier 1 retail space on the very best (and most expensive) retail avenues.
The next time you're asking yourself "when will this recession end?" think about Sears and Apple. If your business acts like Sears your recession won't be anytime soon. If you keep doing more of the same, cutting costs and hoping to hold on for a recovery, your doing nothing to end the recession and it's unlikely you'll find much improvement in your business. But if you develop scenarios about the future which allow you to attack competitors, using Disruptions to change your approach and the market, then using White Space to develop new solutions you can bring this recession to an end sooner than you think. People in your business will have chances to grow, and so will your revenues and profits.
For more about how we set ourselves up for failure, and how to avoid the traps download the free ebook The Fall of GM: What Went Wrong and How To Avoid Its Mistakes.
by Adam Hartung | Aug 20, 2009 | Current Affairs, General, In the Swamp, Innovation, Leadership, Lock-in, Openness
I was struck to learn that most people with a growth plan simply think they will sell more to customers in existing markets. About 2/3 of respondents to a Harvard study.
Chart from Harvard Business School Publishing
But we know that not only you, but your competitors are all hoping to sell more to the existing market! This is the fodder for price wars, and declining returns. When we think we can somehow eke more out of existing customers – even if we think we'll take them a new product – we are ignoring competitors. As a result, we rarely get the growth. The results are pre-ordained, when everyone is trying to do the same thing all you get is a war to Defend your existing business!
The encouraging sign is that about 40% of respondents are considering new markets. And that's a good thing. A GREAT Wall Street Journal article "The New, Faster Face of Innovation" tells us that everyone has the opportunity to apply more innovation today. At length this article explains how today's computer deep, networked world allows for testing of almost everything, almost anywhere, pretty nearly continuously, for very small cost. The biggest obstacle to testing more options, trying more innovation, is the self-imposed limits management puts on the tests!
Now, more than ever, businesses need to be oriented on growth. But that doesn't mean entering gladiator style battles to see who can win, usually coming out the bloodiest, battling in existing markets. Quite to the contrary, now is the perfect time for trying new things to connect with shifted markets. People are looking for new solutions to their problems, and willing to evaluate more options than ever. But management Lock-in to traditional notions about the market – set at an earlier time, under different conditions – will often keep a company from trying new things, entering new markets, testing new solutions. Too often management wants to remain "focused" on its "core offerings" and "core strengths" creating the gladiator-style environment!
Use innovation to test! Leaders need to let lower level managers test new options. The most important thing leaders can do today is give PERMISSION to the organization to create new options, and the RESOURCES (now smaller commitments than ever) for testing those options. These become White Space projects where we can forget the conditions which initially created the old Success Formula and find out what works NOW. Those companies that are willing to Disrupt Locked-in notions about how markets should behave will use these market tests to create the most desirable solutions in the future. And these companies will come out the winners.
Just think like these folks:
- Amazon retailer creating the Kindle e-reader
- Apple computer creating iTunes and the iPod
- Google search engine creating AdWords for on-line advertising placement
- Singer Sewing Machines becoming a defense contractor
- Royal Dutch Shell Petroleum building wind farms
[And, like I wrote in my latest Forbes article, this will work for health care as well
http://tinyurl.com/pkupxv]
by Adam Hartung | Aug 17, 2009 | Current Affairs, Defend & Extend, In the Rapids, In the Whirlpool, Leadership, Lock-in, Web/Tech
For almost 3 years this blog has discussed how newspapers, and most traditional media, have ignored the changes being created by shifting markets for news readers and advertisers. Unfortunately, not a lot has changed in how newspapers, magazines and traditional media companies operate. They still don't put enough energy into using the web, for distribution or revenue generation. They keep trying to Defend & Extend their old models – and these companies keep going bankrupt. So much the worse for investors, employees and suppliers.
Today the Chicago Sun Times reported "Everyblock acquired by MSNBC.com." The sort of short article you could easily miss. Because the Sun Times, and most traditional media, still don't like to talk about the web. But this is a pretty big deal.
Everyblock was started 2 years ago by a 28 year old in Naperville, Il. He acquired $1M on a Knight Foundation grant to see if he could build a reporting engine that would supply information at the local level to web sites. An ambitious undertaking. Something you would think every major newspaper would try to do. But they didn't. They were so Locked-in to their old business model that they kept crying about the decline in subscriptions and print ads – but didn't do anything beyond cost cutting. That's what Lock-in will do to you – leave you crying about the past but taking no affirmative action to deal with shifting markets. They left the market for on-line local reporting available for someone more ambitious. Someone age 28 who really wanted to see if he could make it work.
After Everyblock hired some folks and figured out this would work you'd think Tribune Corporation would be all over how to apply this in order to build its on-line business. Guess again. Mr. Zell is so Locked-in to his big debt deal that he's too busy trying to sell the Cubs and otherwise raise money. He doesn't have a dime to invest in building the future. Same at the Sun-Times where leadership is still realing from the old owner's plundering of traditional assets with no game plan for how to succeed long-term. Both companies are well into the Whirlpool. So close to failure they've lost track of any plan to grow. So they ignored the local talent, cutting costs to prolong the ride instead of investing smartly.
Now MSNBC.com is going where the newspapers wouldn't go. It's acquiring the Everyblock business, one that's desperate for cash to grow, in order to expand its footprint. MSNBC.com is ready to develop a new model for local news coverage. Good for them. We all know the day will come when we can get local news from the web, and it's good to see MSNBC set up the White Space to explore how to make it happen. MSNBC.com is in the Rapids of growth, building on growth of its cable TV partner. It's good news for GE shareholders, who could benefit from the next big thing since Google or Twitter. All for the mere investment of a few million dollars. Less than Mr. Zell spends on personal jets every year.
The world keeps changing. Too many businesses are simply trying to do the same thing, only cheaper or faster or somehow better. They aren't reacting to shifts by actually Disrupting their approach and setting up White Space to learn. At the media companies the impact is sevee as fewer and fewer magazines get printed, and newspapers get thinner, and more companies file for bankruptcy. But the smart ones do something – like MSNBC. And MSNBC could just end up being the one taking it to the bank!
by Adam Hartung | Aug 13, 2009 | Current Affairs, Defend & Extend, General, In the Whirlpool, Innovation, Leadership
"It's Hard to Like Sara Lee" was the Barrons headline this week. And how could you, after the company reported its third straight quarter with sales and earnings below expectation. Check out this quote "Failed expansion has become a hallmark of Sara Lee in recent years, as
the company entered and exited businesses more frequently than tourists
passing through Grand Central station."
Meanwhile, over at Businessweek the headline is "Sara Lee, Why Investors Won't Bite." The company keeps focusing on cost cutting. "Sara Lee Chairman and Chief Executive Brenda Barnes
said on Aug. 12 that she expects annual cost savings of $350 million to
$400 million by 2012." I wonder how far revenues will fall during that same period? Since Ms. Barnes took the helm 5 years ago, Sara Lee's value has shrunk 54% (chart here). Yet, her biggest plan remains more sales of existing businesses – now focused on selling the "houesehold and body care segments." Although after all the sales the last 4 years the takers keep getting thinner and thinner, and the prices lower and lower. Buyers recognize when a business has been stripped of its value and is nothing more than a shell of its previous self – no longer able to grow and produce cash flow.
Meanwhile at Sara Lee there are no real plans to sell any new products or services, so the P/E just keeps falling. Now at 11, it's one of the industry's lowest. But when you expect revenues and profits to keep getting smaller, you can't justify much of a P/E now can you? It takes growth to increase your P/E multiple.
Forbes tried putting lipstick on the pig with its headline "Sara Lee Sees Meaty Growth." The writer tried to focus on hopes the company has for selling more sausage and lunch meat. But there's no innovation. Just a hope that low commodity prices will improve the margins on these products – and the commodities will stay low so the margins don't dip. Sara Lee hasn't launched a new product since Ms. Barnes took the helm. Crain's summarized the situation more bluntly "Investors Find Little Tasty in Sara Lee."
Business is about creating shareholder value, not destroying it. And Ms. Barnes has been going the wrong way her entire tenure leading Sara Lee. As I pointed out in her first year of leadership in this blog, and have repeated often, Ms. Barnes has not developed any new products for the future, she has not identified competitive opportunities for growth, nor has she been willing to Disrupt old patterns and use White Space to develop and launch new revenue opportunities. Instead, she has slowly and painfully sold off one asset after another – and none of that money has come back to shareholders. Today all shareholders have as a result of her leadership is a smaller and less profitable declining company. And no cash to compensate for the shrinkage.
If we want to come out of this recession we have to replace leaders who are so wrong headed. There's no value in quarter after quarter of cost cutting. There's no value in selling off assets for one time gains to cover ongoing losses. There's no value in shrinking a company without distributing proceeds to the owners for investing elsewhere. Thus, there's no value to the leadership at Sara Lee. What's needed is someone at the helm willing to look to the marketplace for new product ideas and then use White Space to innovate those new solutions. Someone who will put energy and resources behind growth.
The employees, shareholders and vendors at Sara Lee have a lot of scars for waiting – and nothing good. Even the suburban Chicago town of Downer's Grove, IL is hurt by the loss of jobs. To get America going again we have to start growing – and there's no better place to start than Sara Lee. Before it disappears into oblivion – like the onetime Chicago retailer Montgomery Wards!
by Adam Hartung | Aug 12, 2009 | Current Affairs, Defend & Extend, General, In the Swamp, In the Whirlpool, Leadership, Lock-in, Weblogs
GM. Those two letters call up a lot of emotion these days. People ask,
"What went wrong?" "How could a company that large, that successful, go
bankrupt?" The less polite say: "General Motors' leadership is
corrupt." "They ignored customers." "The union killed them."
"Government interference." "Idiots."
This is the first paragraph of my new column on Forbes.com. You can read it, and future articles, in the Leadership section – Link Here.
I'm very excited to find new audiences for discussing what's caused the latest round of business problems – and failures. As well as spreading the message about how businesses can start growing again. Check out the column.
