by Adam Hartung | Mar 15, 2007 | Defend & Extend, In the Swamp, Leadership, Lifecycle, Lock-in
No sooner had I posted the last blog on Ford than the company announced its sale of Aston-Martin. My goodness, the ravages of Lock-in are moving swiftly at Ford! (see chart here)
Ford is in deep trouble. The company has announced billions of dolars in losses, and it has had to arrange billions of dollars in financing to cover costs of its "turn-around plan." Ford expects to burn through $17billion during turnaround. What is the turn-around plan? It is to build multiple models worldwide on the same platform. Let’s see, how new is this idea? Oh yeah, that’s been the plan at Ford and GM for the last 2 decades! That’s not a turnaround plan – that’s a disastrously broken Success Formula that hasn’t made any money! (see full article here)
Aston Martin is a much smaller business than the Ford brand. It sells only 7,000 cars. But, let’s see, from total cars sold of 46 in 1992 that represents a growth of 152X (or 15,200% or almost 40%/year for 15 consecutive years). (see article here) While the Ford brand is losing billions, Aston Martin is profitable. What is Ford doing here? Selling a business that works – to support one that clearly doesn’t? As an analogy, isn’t this a bit like selling your child (or at least their labor) in order to purchase some medicine for terminally ill grandpa? We’d never do the latter, so why do the former?
The new Ford CEO said "The sale of Aston Martin supports the key objectives of the company, to restructure to operate profitably at lower volumes and changed model mix and to speed the development of new products." (see full article here) If he wants to accomplish the goals of profits at lower volumes, changing the model and creating new products he should be trying to emulate Aston Martin – learn from it – not sell it. Aston Martin is doing things much more right than Ford is.
Dave Healy, an analyst at Burnham Securities stated "Aston Martin was a prestige item that was a management distraction." (see article here) A distraction? The only way you can take that point of view is if you’re so locked into saving the old Ford Success Formula that you’re willing to do anything, even sell your only and most profitable business, to get 5% of the cash you’ll need in that vain turnaround endeavor.
Aston Martin has been a great success. Growth has been good, profits exist, and the brand has a positive reputation. The company has been a successful White Space intitiative. What Ford needs to do is get more of Ford (including money-losing Jaguar and other brands) to migrate toward the new Success Formula at Aston Martin. Management needs to migrate forward, but instead it is selling what works to try and regain the glory of the past. Ford management is not willing to admit that its Success Formula is seriously broken, and uncompetitive against much more formidable and successful competitors such as Toyota, Honda and Kia. Too bad. Without learning from White Space Ford has practically no hope of surviving this latest competitive onslaught.
by Adam Hartung | Mar 11, 2007 | Defend & Extend, General, In the Swamp, Innovation, Leadership, Lifecycle, Lock-in
When companies Lock-in they quit looking at the marketplace, instead focusing on running their Success Formula. In a very real way, if markets were highways and companies were autos we could say management starts driving the car looking in the rear view mirror rather than looking out the windshield.
A great example of this is at Ford (see chart here). Ford has been Challenged for several years. Like GM, Ford sales have struggled as the marketplace has shifted away from their great trucks and large SUVs (top sellers, and considered great products in their categories) toward less expensive to operate vehicles. Several years ago customers found higher mileage vehicles preferable, and began looking at hybrids and other innovations rather than more size and more towing capacity.
During this market shift Ford "retired" the Taurus. In the early 1980s Ford was swimming in red ink (much like today) when the company launched the revolutionary aerodynamic Taurus. The design changes, in body shape as well as transverse-mounted engine, front wheel drive and high-mileage overdrive transmission met customer desires and the Taurus became the #1 selling car in the world (right – not just hte U.S. but the world.) Ford had to open new plants to meet demand, and losses turned to substantial profits.
But as time passed Ford Locked-in on its #1 selling, and very profitable F-Series trucks and the SUVs spun off that platform. Few enhancements were made to the Taurus, and as the Toyoty Camry grew in sales eventually Ford stopped the Taurus. The car had a great 20 year run. But ,of great importance, Ford did not replace the Taurus with another revolutionary passenger car. Instead, they remained Locked-in to their trucks and SUVs.
Then the market shifted, and Ford was caught flat footed. Sales dropped, and the fortunes at Ford turned as bleak (possibly worse) than GM.
Now Ford has announced its solution. The company will rename an existing vehicle, the Five Hundred, the Taurus (see article here). The company hopes that better name recognition will sell more cars, and help turn around the struggling auto company.
Never has there been a better case of driving the vehicle by looking in the rear view mirror. Ford isn’t competing for the future, they are firmly trying to recapture the past! Management is hoping that somehow a name associated with past success will create future success. Managment isn’t even redesigning the Five Hundred. They are just renaming and re-launching it. Instead of looking at the direction the market is going, and driving the company toward future market needs, Ford is looking at what worked 20 years ago and hoping miracles will happen to produce that result again. Even though the market and competition has completely changed.
That’s what Lock-in to an old Success Formula can do for you. Make you so fixated on what previously worked that you quit looking forward and start spending your time dreaming about the past. Bill Ford, Jr. is a young guy. But he keeps looking at the past – the Mustang, the F-Series truck and now the Taurus – to try and save the company his family founded. Too bad. Instead of ripping off the Taurus name he would be better served to capture the spirit of the Taurus by developing and launching a new car that meets new market competitive demands.
by Adam Hartung | Mar 4, 2007 | In the Rapids, Innovation, Leadership, Lifecycle, Openness
About 6 months ago I blogged on White Space at Anheuser-Busch (see Surprising Juxtaposition here.) This last American-owned large brewer has had its stock go nowhere for the last few years (see chart here) as it has battled fierce competition in a consolidating and changing marketplace. Anheuser-Busch found it had slipped into a price war for volume. But more recently the compaqny has turned toward White Space to improve performance.
Anheuser-Busch has just taken another stepped up its White Space efforts by deciding to enter the beer market in India (see article here.) An important White Space project for several reasons:
- Moving offshore gives Anheuser-Busch more diversity of competition. The company will learn from new competitors about everything from product options to distribution and pricing alternatives.
- India, in particular is a great markt to learn. Competition is FIERCE. Prices are universally low, the currency is low (giving no break to mistakes), distribution is highly fragmented and much of the demand comes from poor people who have severe limits on what they can spend. Ninety percent of shampoo sales are made in single service sachetes which sell for less than $.01 each at thousands of small retailers. In consumer goods it’s been said "if you can sell at a profit in India you can make a profit anywhere." Now that’s a great place to learn.
- India is the fastest growign middle class in the world. While the American middle class is growing at 2-3%/year, rising economic prosperity in India is creating a growth rate exceeding 10%/year. And this is augmented by the fact that over half the population is under 30 years old, creating an expanding market for Anheuser-Busch products.
- In India beer = Kingfisher. Many of us who travel to India avoid all drinks with ice or from a fountain because of sanitary concerns and poor water quality. So the universal call for fluid refreshment, in a country that is constantly hot, is "give me a Kingfisher." Thus, India provides a great market in need of competition against a dominant product.
I’m sure the path to succes won’t be easy. In addition to the daunting distribution and competitive challenges mentioned earlier, Anheuser-Busch must learn to deal with terrible infrastructure (intermittent electric power, bad water treatment, terrible roadways, poor refrigeration), complex government bureaucracy overseeing business, hierarchical government entities that too often have corruption, strong Communist and Socialist government participants and districts, distrust of American interlopers, a vast array of advertising channels to a highly heterogenous media environment, 30+ languages in a single country, a propensity for unending negotiation as a culture and a completely dysfunctional legal system.
But the important thing is that none of this stopped Anheuser-Busch. And that’s what White Space is all about. Phoenix Principle companies identify a market opportunity and then jump in to learn. Not just for what can happen in that new market, but what it can teach the company overall. Possibly even how to develop a new and better returning Success Formula.
by Adam Hartung | Feb 17, 2007 | Disruptions, General, In the Swamp, Leadership, Lifecycle, Lock-in
Dell Computer has had a rough go the last couple of years. They’ve had some batteries catch fire – not good for marketing. And they’ve had some SEC investigators looking through their books – not good for investors. But neither of these problems are really that unusual or monumental for a company the size of Dell. The big problem has been that the company isn’t making the money it once did, and it’s sure not growing like it once did. That has stripped the company of 40-50% of its value, or about $43 billion in market loss for investors (see chart here.)
So what’s the response? At the beginning of this month the Chairman and namesake, Michael Dell, announced he was removing the CEO and taking back the reigns (see full article here.) Should we now expect a turnaround?
Michael Dell pioneered the Success Formula that made Dell Computer famous. Simply put, Dell sold directly to customers, outsourced everything they could, used other people’s technology (no R&D), focused on the supply chain to shorten manufacturing and distribution cycles and kept prices low. And anything that wasn’t part of that Success Formula does not exist at Dell. This Success Formula produced great results, and Michael Dell locked it in with every conceivable software product, metric and decision process he could. There was/is no variation at Dell, just execution.
Unfortunately, this Success Formula was not impossible to copy. Competitors not only matched the supply chain expertise of Dell, but added onto it with product innovations, credit terms for corporate buyers, and enhanced peripheral products that expanded the total customer purchase. They matched Dell, and did the company one better. So customers migrated to these competitors. Dell didn’t suddenly lose its Midas touch. Execution hasn’t faltered. Competitors just kept getting better in this dynamic market, and execution wasn’t enough to maintain sales growth and margins.
Now the king of execution is returning. What can we expect? More of the same, of course. The implication, and stated objective, of Michael Dell’s return is to get Dell "back on track." That’s back on track to what they did a decade ago. Is that likely to turn around their fortunes, in a more competitive marketplace with yet more competitive variables?
Dell doesn’t need more Dell. They need more innovation. There are no Disruptions at Dell. And this change of leaders will not create an internal Disruption demanding change. There is no White Space at Dell. I blogged on this previously, and a PR employee responded (you can read the comment by going to that blog) that Dell is a great company. But even he could not identify any White Space in Dell. Despite my emails to him asking for any examples of White Space he could provide — any at all. Without White Space, how is Dell to develop a new Success Formula to produce results in 2009 like they had in 1999?
Michael Dell and his company was a fantastically successful pioneer. His vision helped create a Success Formula that greatly assisted putting a PC on nearly every working desk and in nearly every home, not to mention in the hands of most students, salespeople, and other mobile worker in America. But that Success Formula has already passed the point of diminishing returns. Unless Dell learns to Disrupt and implement White Space, look for the future to be more of the recent past. Results included.
by Adam Hartung | Feb 9, 2007 | Defend & Extend, In the Swamp, In the Whirlpool, Leadership, Lifecycle
Because most companies never build a capability to internally Disrupt, and they don’t regularly implement White Space, they develope a Re-Invention Gap between what they do and what the market wants. This leads businesses to milk a Success Formula too long, and not start developing a new Success Formula until too late.
Take for example Kodak. Founded in 1881, this venerable company was synonymous with photographic film. The company grew like mad as its founder made photography cheaper, better and available to everyone. But then the market "matured" (that famous euphemism for slow growth) in the 1970s. Kodak missed the digital photography wave, and in the 1990’s was kicked off the Dow Jones Industrial Average. Kodak has recently layed off nearly 30,000 employees – reaching a smallness not seen since the 1930s (see more on layoffs here.)
Like most companies, Kodak waited too late to Disrupt and implement White Space. The company was actually a pioneer in digital photography. It holds over 1,000 patents. R&D efforts in the field were strong going back nearly 30 years. But Kodak waited to Disrupt until the film market was already long-past its peak, and the digital market was well developed and full of competitors (it was 2001 when Kodak finally introduced a digital camera line). And because the Re-invention gap between their business (film) and the market direction (digital) had become huge, the company almost didn’t survive (note Palaroid, also once a leader now no longer exists). The jury is still out on Kodak’s survivability, which has had 8 consecutive quarters of losses as it has attempted to turn itself around.
The simple fact is that companies pay too little attention to the market, and too much attention to the existing Success Formula. By trying to Defend & Extend the Success Formula, they delay the necessary Disruptions and avoid White Space. Far too many companies are stuck in the Swamp, spending all their time battling aligators and swatting mosquitos while completely forgetting their main objective was to drain the darn thing. Before they know it, they are caught in the Whirlpool spinning down the drain when competitors open the plug in the swamp where they are stuck.
To avoid being too late in reacting to market Challenges, it is critical businesses implement a program of regular Disruption. You have to practice the ability to Disrupt yourself. And regular Disruptions create openings for multiple White Space projects which breed new Success Formulas. Just look at Jack Welch at GE. GE could easily have spent the 1980s and 1990s milking their businesses. But with the aid of Neutron Jack, GE constantly Disrupted itself (some might even say "unnecessarily"), and it kept putting in place White Space projects. (remember "Destroy Your Business.com" teams that every business was required to have?) That led to an incredible string of growth and above average returns that is almost unprecedented for a company of any size. Institutionalized at GE is the notion that Disruptions are good and White Space projects are normal – and that is why the company keeps itself constantly ahead of competitors and out of the Swamp.
Don’t wait. Start Disrupting your organization today. Set up some White Space. The more you practice, the better you become. And you’d sure prefer finding yourself in the position of GE than Kodak.
by Adam Hartung | Feb 8, 2007 | Disruptions, General, Innovation, Leadership, Lifecycle, Lock-in, Openness
It’s easier to recognize a problem than it is to find a solution. I’m sure you’ve noticed this. In practically everything we do we can see the need for improvement, but we often find that nothing happens to make things better. Even when a crisis happens,we often see lots of people discussing the problem – and some talk about potential solutions – but not much progress is made.
Take for example the U.S. health care situation. We now have a country where 20% to 40% of the population has no health care coverage with between 30% and 50% are significantly under-insured (ranges are offered because it depends on what study you read.) Virtually everyone agrees that this is a big problem, because the U.S. health care system is not designed to deal with the uninsured. We hear stories of people waiting for hours in hospitals for basic care that is often poorly administered. We hear about total health care costs rising because the uninsured drive up costs that are then born by insured patients. And the medicare and medicaid system we are told is nearly bankrupt, unable to meet many basic needs and not providing necessary life-sustaining assistance. Increasingly, doctors, clinics and even some hospitals refuse to take uninsured patients.
The problem has been easy to see. In America, the system has been based upon employer-provided health care. But, as employees have changed jobs they have lost insurance due to "pre-existing condition" clauses that deny coverage. And people who lost jobs to downsizings lost all coverage completely. Employment has shifted dramatically from manufacturing to services in the U.S., yet a far higher percentage of service employers offer very limited insurance, or no insurance at all. And the vast army of those who work part-time (under 40 hours per week), have no access to insurance as employers limit their hours and limit access to coverage as a cost saving measure. Employer-provided health insurance worked in the far more stable employment practices of the 1940s to 1970s, but the program simply isn’t sufficient to meet the needs of nearly half of Americans today.
Yesterday, Wal-Mart agreed with the largest service union in the USA (their bitter enemy, the Service Employees International Union) that dramatic changes were needed in health care coverage (see article here.) Obviously, Wal-Mart does not believe it can provide universal coverage to its 1.3 million employees and compete. But interestingly, the unions which have fought hard to get employees health benefits agree that far too many employers cannot be expected to offer health care and compete in a global economy. Democrats have easily joined the ranks of those asking for a different system, but interestingly now noteworthy Republicans agree – including Howard Baker former Chief of Staff to Ronald Reagan.
So, what is to be done? There is no shortage of opinions about the solution (see article here). Many people want universal coverage from the federal government – but that has many detractors as well. Some states say a universal program should be implemented state-by-state, and Massachusetts has taken this direction. The President has offered to push for universal coverage with a series of changes to taxation of health care benefits. Lots of ideas – but most of these have existed for well over a decade. So it hasn’t been a lack of ideas that has stopped progress toward a different solution.
What we have with Wal-Mart’s announcement is a Disruption inside the business community. A Disruption saying "stop, we have to do something different here. The old way won’t work. We’re Locked-in to an outdated health care solution that must change." Having the country’s largest employer, in tandem with one of the largest unions, make this admission serves as a Disruption.
But this will make no difference if we don’t find White Space to actually create, test, pilot, learn, and define a new Success Formula for health care. Politicians often say "we need a debate on the options." Debates we’ve had. What we need is to try new solutions, and see if they work. We need to begin variations of the multiple scenarios so we can see what works, and what doesn’t. Massachusetts, for example, is a great experiment in a state-implemented program. But we also need to experiment with changes to the federal systems (Medicare and Medicaid) to see what they can actually do. And we need to experiment with subsidies and tax changes in the workplace to see what private programs can be developed. In the end, only in White Space do we actually test possible answers and thereby develop a new solution to which people migrate. The best solution is not the one debated to success, but instead the solution which is proven to work – and that is the solution to which people migrate. Anyone will change when they can see a better result, and that can only happen in White Space.
This is exactly what businesses have to do as well. The Phoenix Principle has demonstrated that whether a problem needs to be solved at the macro level (like national health care coverage) at an industry level (like national access to broadband telecommunications) or at a company, or function, work team or even an individual level Disruptions must be supplemented with White Space if a solution is actually to be developed and implemented. New solutions don’t come out of the universities or other "brain trusts". They come out of White Space where new Success Formulas that include strategies and tactics are actually tested and demonstrated to work. Then these new Success Formulas don’t have to be foisted upon people, because the better results attract people to them. Of course there are laggards, but we see that migration to a better result works far better than trying to debate, design, declare and then demand change – a model that almost never gets implemented nor works well.
So, we need White Space for experiments in health care coverage. And the state programs fit as one example. Let’s hope this Disruption will lead to more experiments. And we need more White Space in our companies, our departments and our lives so that we can experiment and find ways to produce better results. In the end, we can equate long-term success with White Space – and we’ve never needed more of it than we do today.
by Adam Hartung | Jan 28, 2007 | Disruptions, General, In the Rapids, Leadership, Openness
How can we recognize a Phoenix company? One that will sustain its success for a prolonged period? We can start by looking at the one and only company which has been on the Dow Jones Industrial Average ever since it was created. The one company that has overcome Schumpeter’s dire predictions of individual company failure, and demonstrated it is possible to earn above average rates of return for extended time and simultaneously grow. That company is General Electric.
A recent article on GE’s Medical Devices business (see article here) highlights key characteristics of how to overcome Lock-in to an existing Success Formula by internally Disrupting and using White Space. Mark Morita is the Manager for Disruptive Technologies within this GE business. Mark is not an engineer, nor is he in product development. GE recognizes that it must maintain a powerful group always focused on making incremental improvements in their products and markets. But, they simultaneously must have a Disruptive focus that can produce breakthrough results.
And that is where Mark comes in. Mark Disrupts the engineers by introducing technologies from entirely other fields. While they attend medical equipment conferences, Mark attends gaming and consumer electronics conferences. While they try to make sonogram machines that are 10% lighter or 10% cheaper, Mark looks for ways to make them the size of a GameBoy at less than half current cost. His role is not only tolerated in GE – it is mandated. All across the many GE businesses they maintain roles which are dedicated to attacking Lock-In and Disrupting the existing Success Formula. Mark and his counterparts constantly keep the GE businesses operating White Space to create new Success Formulas leading to growth.
Jack Welch, the famed former CEO of GE, had the nickname "Neutron Jack." This referred to his willingness to Disrupt GE in order to seek above average results and growth. No business was sacred in GE, and no market was beyond their reach. Welch constantly Disrupted GE from within, and kept Lock-in from leading to deteriorating performance. It wasn’t mere goal-setting that kept GE dynamic, it was an institutionalized practice of internal Disruption and extensive use of White Space. New CEO Jeffrey Immelt is now continuing that practice, with dramaticly large recent acquisitions of about 2/3 of Abbott Labs (medical diagnostic equipment) and Smiths Group (aerospace) while indicating he plans to sell the $10B plastics business (see article here).
Even a huge company, such as GE, can operate according to The Phoenix Principle and sustain success. The Phoenix Principle does not apply only to small companies, nor those in high-tech markets. Any company can achieve and sustain success if they are willing to identify their Success Formula and Lock-ins, attack those Lock-ins with programs designed to generate internal Disruptions, then fund White Space in which permission is given to develop new Success Formulas. These steps may seem mundane, but those who follow them can become the next GE – and that would not be a bad thing.
by Adam Hartung | Jan 21, 2007 | General, In the Rapids, Innovation, Leadership, Lifecycle, Openness
Walgreen’s is the kind of company that can make an investor very worried. It’s an "old fashioned" retailer, and the company has certainly seen dramatica changes in its markets. Over the last decade, we have changed how we purchase licensed pharmaceuticals, as well as how we think about "drug stores" as many competitors have begun offering to fill prescriptions. The "corner pharmacists" has practically disappeared. Is Walgreen’s a company on the brink of disaster?
As I’ve written before, look for a growth stall. Any time a company sees declining revenue or profits for 2 or more consecutive quarters, or two or more quarters of declining year-over-year sales or profits, the company enters a growth stall. When this happens, there is a less than 7% chance the company will ever again sustain growth of a meager 2% per year. Interestingly, Walgreen’s has not stalled. This despite all the changes in insurance rules about drug payments, the advent of on-line and mail-order pharmacies, corporate moves to drastically cut employee drug costs, the entry of new competitors such as discount retailers (WalMart and Target) and just about every grocer, and competitor moves to offer generic drugs at extremely low prices.
At its recent annual meeting (see article here), the new CEO very clearly identified many of these influences as Challenges the company must face. He followed this up by listing all the actions Walgreens had taken to set up White Space projects to maintain company growth, which include but are not limited to: digital photo processing, refilling printer ink cartridges, introducing exclusive department store type cosmetics, and now even opening in-store health care clinics for walk-in customers. As the CEO, Jeffrey Rein said, "We’re testing everything we possibly can to see what happens, to see what does work. We don’t know until we put it out there." After a very clear statement that the company faces many market shifting Challenges, similarly clear statements about using White Space to drive new growth.
This new CEO is not an outsider by the way. He’s a 25 year company veteran. So it’s clear that companies can internally develop leaders who can recognize Challenges, Disrupt and establish White Space. Whether Walgreens can maintain its 32 years of ongoing growth is no sure thing. The fact that the company has not stalled however is a great testament to identifying Challenges and reacting. As a company that is facing tremendous Challenges, Walgreen’s leadership is a model of how to keep up the growth by using White Space.
by Adam Hartung | Jan 12, 2007 | General, In the Rapids, Innovation, Leadership, Lifecycle, Openness
My last blog led to a reader comment "Can there be White Space without Innovation?" (click here to read full comment) Quite simply, I don’t see how. Of course, innovation is a term open to wide interpretation. Some think that innovation requires a huge breakthrough invention, a new product, or a never-before-seen business model. Maybe a patent or a copyright. In fact, innovation simply means introducing a new way of operating for yourself or your customers. Defined this way, we can innovate in all parts of our business model, and innovations can be "small" or "large". What’s important about White Space is that we use innovation processes to attack old Lock-ins and develop a new Success Formula.
Take for example Foulds, a 121 year old $25million revenue company that makes pasta in Libertyville, IL (see full article here.) Pasta is far from a "high-tech" business. And the distribution channels are extremely stable and well known. Suppliers are HUGE agribusinesss competitors like Cargill, and customers are HUGE supermarket chains like Jewel, Dominick’s, Safeway and Kroger. Many competitors are extremely well funded such as New World Pasta that spend millions of dollars on ad campaigns for Prince and Creamette brands. In this competitive situation, the world changed in the late 1990s when the Atkins diet craze swept across America and many people stopped eating pasta entirely. Suddently, Foulds was facing a stagnant market, surrounded by industry forces much, much better resourced than they were.
The easy answer for Foulds would have been to drop into a price war to drive volume. Or to have dumped money into advertising – largely to no avail. Or possibly closing shop, or looking for a buyer to "consolidate" the industry. Doing "more of the same" to Defend & Extend the 121 year old business model would have led to loss of share to the big players and possibly failure. So, company CEO Chris Bradley opened White Space in the company he ran. He allowed his employees to face the Market Challenge, and atack the Lock-ins so prevalent. In their effort, the team overcame commitment to a century-old recipe for pasta. They experimented with different ingredients and then different manufacturing processes (literally adjusting the time-proven work of generations). In the end they developed a pasta with 6 times the normal fiber of regular pasta and a taste and texture that is considered better than what dry pasta was like before.
This new pasta is not a patentable product. And it doesn’t open some new "food category." But it does allow people who seek a high-fiber, high-protein and healthy product for their diet to eat pasta – something not allowed on some diets at all and heavily restricted on others. And this innovation has helped the company to not only deal with the Market Challenge, but actually to thrive. Foulds recognized a Market Challenge, Disrupted its Lock-in to old recipes and hand-made manufacturing processes, and then gave permission to the team to innovate a new Success Formula which could appeal to a shifting market. The value of White Space is that it gives innovation a place to flourish, a place to succeed, by intentionally acquiring permission to break old Lock-ins and thereby develop a new Success Formula that incorporates innovation – of any type or scale that addresses Market Challenges.
by Adam Hartung | Jan 9, 2007 | Defend & Extend, General, In the Swamp, Leadership, Lock-in
If you aren’t tuned-in to ad agencies, and if you don’t live in Chicago, you might well have missed a furor that erupted in early December regarding America’s largest retailer. Wal-Mart made a switch in ad agencies last fall, moving their $500million account to DraftFCB. But then, shortly after making the switch, Wal-Mart fired the company’s head of marketing and fired the agency. Wal-Mart then, and now, was unwilling to offer an explanation. They hid behind a veiled claim of "ethics violations," using besmirching language to imply wrong-doing while offering no facts.
Since then, Susan Chandler at The Chicago Tribune has unearthed a pretty good explanation of what went on (see article here.) [Like lots of news stories, it takes some time and research to start piecing together what really happened.] Seems more than a year ago Wal-Mart hired a new 35 year old marketer to help change the Wal-Mart image and promotion program. Given how Wal-Mart’s growth prospects, and stock price, had stagnated since 2000 this appeared like a very good idea.
The new marketer started moving Wal-Mart away from selling on Price, Price and Price. As my old marketing professor said "Price is nothing but a blunt club that has no meaning. Skilled marketers use other tools to create customer value and over time make a lot more money." So this new marketer’s actions looked like a good move to actually help Wal-Mart get back on the growth track.
She actually had Wal-Mart underwriting fashion shows. And launched advertising in Vogue magazine. And she moved much trendier merchandise into the stores. She also started Wal-Mart selling higher margin products, such as wine, gourmet coffee and sushi. She did this in selected stores, testing her ideas. In effect, she set up her own White Space and began working on a new Success Formula to replace the old, tired one at Wal-Mart.
But, she made a small mistake. She didn’t really have Permission to use Market Challenges to create a new Success Formula. Wal-Mart had not (and still has not) Disrupted itself. The company has not agreed that it’s Success Formula needs to change, and its leaders have not expressed any need for a new Success Formula. Operating in denial of the marketplace Challenges which have let Target, Kohl’s and JCPenney take away customers and sales, Wal-Mart really wanted the new marketing head to Defend & Extend the old Success Formula. She may have thought she had White Space, but she didn’t. While she had resources, she lacked Permission – Permission to attack old Lock-ins and Permission to develop new solutions.
So the top brass at Wal-Mart fired her. And they fired the ad agency. It’s easier to deny Challenges, and fire those who take on Lock-ins, than it is to Disrupt your thinking and commit to White Space. It’s easier to live in Lock-in than use White Space to find a new and better Success Formula.
Wal-Mart has had many "industry experts" support these actions. According to the Tribune, once the firings were done the Chairman of a retail consulting company (Howard Davidowitz) said "Wal-Mart’s lifestyle advertising is all wrong. It shows in the sales." Uh, with 99% of the company stuck in doing wat it’s always done, you don’t suppose the weak results are dure more to a failing Success Formula than some new White Space efforts? The consultant is as Locked-in as Wal-Mart’s maangement. Even this outsider was willing to give the new marketer permission to try new things. Supporting management may help him get future fees, but it isn’t doing the investors or vendors much good.
Or, take this quote from George Whalin, another "industry expert," – "They [Wal-Mart] don’t attract 25-year-old trendy women. Their customers are older women. They’re not skinny-jeans buyers…. They [Wal-Mart] lost their minds." Maybe the need for new customers is the problem, George. You think it’s a poor idea to attract younger customers? It’s bad to expand your customer base? To upgrade your product lines to higher margin items and to improve your competitiveness against your fastest growing and most successful competitors is "losing your mind"? Not only is Wal-Mart Locked-in, so are the "experts." If they won’t support White Space, with Permission to develop a new Success Formula, how do they suppose Wal-Mart is to turn-around its sales trends?
As this firing happened, Wal-Mart had its worst November sales in a decade. How does Wal-Mart talk about this performance? According to the company spokesperson, "We have found the thing that appeals to everyone is price… We will continue to emphasize price leadership."
Reinforcing the old Success Formula isn’t going to solve Wal-Mart’s competitive problems. If you keep doing what you just did, you’re going to get what you just got. Without Permission to Disrupt Lock-ins and create a new Success Formula, all the size and resources of even a Wal-Mart won’t create success. Too bad for Wal-Mart’s top marketer, too bad for the agency, too bad for shoppers looking for an improved Wal-Mart, too bad for vendors that want Wal-Mart to do more than beat them up for lower prices, and too bad for investors.
