by Adam Hartung | Oct 28, 2006 | In the Rapids, Leadership, Lifecycle, Openness
A week ago Motorola missed analyst’s expectations for third quarter revenues and profits, and the stock fell (see story here). Given that the stock price has had a great run the last year, investors might well be tempted to sell the stock, fearing a stumble in the long run of growth.
While that was page one news on the business section, on the same day Motorola made an even more interesting announcement that made page 2. They hired a new Chief Marketing Officer (see full article here). And the person they selected, Casey Keller from Heinz, should put bullishness back into investors.
While at Heinz, 45 year old Keller was responsible for launching the EZ Squirt line of ketchup products, which came out in green, purple and even blue. Needless to say, a new bottle shape, and funny colors, does not drive me to buy more ketchup. But what these launches demonstrate is that Mr. Keller knows how to get permission and funding to try new things – even in a company as staunchly boring as Heinz. He has demonstrated he knows how to get White Space created, and he knows how to manage it for innovation. Innovation that drove brand protection, price support and incremental revenues in an extremely "mature" product line.
Motorola actually saw its 2006 revenues grow 17% versus 2005 in the third quarter, as cell phone market share has risen from 14% to 22% since 2004. That is not a growth stall. But it missed estimates. What does the company need to do now? Why continue the development and implementation of more White Space – leading to more innovation – just as Ed Zander has done since taking the helm of the company.
Looking around Motorola, there aren’t many people with the skills for creating and managing White Space. That was not the winning personal Success Formula before Mr. Zander. So to find a leader that understood how to identify Challenges, and then create and manage White Space Mr. Zander and the Board had to go outside. There they found someone with the right skills – White Space management skills – that should be able to produce even more robust results in the dynamic Motorola of today.
Investors should think twice before jumping out of Motorola. If he’s as good as his past, Mr. Keller just might help Motorola keep their double digit revenue growth going.
by Adam Hartung | Oct 25, 2006 | Defend & Extend, General, In the Swamp, Lifecycle, Lock-in
Wal-Mart has started selling prescriptions priced at $4 for a month’s supply (see article here.) Why? To get more people into the stores, silly. As I’ve blogged before, the world’s biggest retailer has the world’s biggest Lock-in, and they will do anything they can think of to keep their Success Formula unchanged. Now they are looking to drastically cut prescription prices.
This is good news for consumers. But what about Walgreens? After all, they have prescription sales as a central part of their Success Formula. What was their reaction? To say they aren’t worried, because Wal-Mart is a small player in prescriptions. In other words "we’re Locked into our Success Formula, and we don’t intend to change it no matter how large the Challenge." In the face of mounting pressure by insurance companies to force insureds to order medicine on-line, and corporate support for mail-based prescription delivery, and now a frontal assault by the world’s biggest retailer Lock-in allows Walgreens to blithely look the other way.
This is bad for investors in both companies. We now have two large companies planning to club each other to the bitter end in a battle to see who’s Success Formula can survive. Along the periphery of this fight are other retailers, like CVS, Target and KMart each ignoring the Challenge to their future (according to Associated Press [see here]some have said they don’t think this is an issue because customers with insurance only care about the co-pay and not the price) holding their own clubs and planning to defend themselves while putting in a few good licks as they seek to protect their individual Success Formulas.
This is simply bad management. There is nothing but hubris in undertaking such tactics. Smart management sees the Challenges, and reacts early. They avoid the club fight altogether, seeking out new markets where they can prosper. Only competitors who are Locked-in, and would rather take hits and possibly die would take on such a fight. The result of fighting is someone eventually falls into the Whirlpool and is swept away.
Again, for consumers such club fights can be a great cost saving opportunity. But for investors, it’s time to get out of the way! You don’t want to be an idle participant in the latest bloody version of business WWF Crackdown. You’ll most likely come out a bloody mess yourself.
by Adam Hartung | Oct 16, 2006 | Defend & Extend, In the Swamp, Leadership, Lock-in
I hear frequently about the conflict between management and investors. The argument typically goes along the lines that management could do many exciting and strategic things if it wasn’t for those pesky investors who want a consistent return on their equity. It sounds like somehow investors know too little, and they hamstring managment’s ability to succeed. In too many occasions, however, the opposite seems to be true.
Readers of this blog know I see McDonald’s as hurting its own future. The company has systematically been selling off its best growth prospects to protect itself from an outside investor who would like to make changes. Recently, a number of other investors voted that sentiment. As I blogged a few weeks ago, McDonald’s offered to investors that they could trade their McDonald’s stock for Chipotle shares – in an effort to finalize the sale of Chipotle and bring back in more McDonald’s stock to protect itself from a hostile investor. Last week Bloomberg reported that 262.7 million shares were tendered for the mere 18.6 million shares of Chipotle available. The offer was 14X oversubscribed. Indicating that a lot of investors knew a good deal when they saw it – swapping shares of a low-growth, Locked-in McDonald’s for the high growth innovative Chipotle – even though its profits were lower and its P/E much higher.
But now Wendy’s has decided to join the act. As reported on 10/13, Wendy’s is offering to sell its Baja chain in order to get cash to —– buy back more Wendy’s stock. Apparently influenced by the fast run-up in McDonald’s shares (which have had a very nice run this last year), Wendy’s is willing to sell off its new growth machine in order to protect its aging hamburger franchise. Rather than look to Baja as a replacement for the sagging Wendy’s, which has had declining same-store revenues for 6 of the last 8 quarters, they are going to sell it in order to buy back stock to prop up the equity value in a concept that has little growth opportunity left. In order to maximize its short-term value, Wendy’s is literally trading in its White Space future.
Too often, management behaves like Lemmings. One competitor follows another. Lock-in doesn’t exist just at the company level, but at the industry level as well. In several industries (steel, airlines, automobiles to name a trio) we’ve seen competitors simply walk off the cliff as they follow a Locked-in industry paradigm that does not produce returns. Management should listen to investors, and recognize that their chorus is not just for short-term profits. Rather, they seek growth and a market or higher rate of return on their equity. No private owner would expect less. But to meet this hurdle requires creating and maintaining White Space rather than letting Lock-in turn you into a Lemming.
by Adam Hartung | Oct 7, 2006 | Defend & Extend, General, In the Swamp, Leadership, Lock-in
If you don’t live in Chicago or Los Angeles you might have missed a recent set of stories about problems in the newspaper industry. The Tribune company (owner of Chicago Tribune and 9 other papers) also owns the LATimes. Like the New York Times company, Dow Jones and many other newspaper companies, the last 2 years has seen the equity value of Tribune plummet. Newspaper margins have been narrowing, caused by rising competition from new entrants, such as Google and other on-line sources as well as more nimble local competitors and brazen new business models from the likes of oil and railroad billionaire Philip Anschutz (articles here, here, and here). All traditional competitors have been cutting costs, including big layoffs.
Recently, this created an enormous bruhaha between the publisher and top editor at the LATimes and the owners in Chicago. This week things took another difficult step as the Tribune fired the LATimes publisher (article here) for outspokenly disagreeing with top management. The newspapers are reporting on themselves as they discuss the difficulties being encountered inside the executive suite – as well as by competitors (additional coverage here).
The problem is that these companies are following other large newspapers in trying to wring more blood out of the proverbial stone. Margins are down, and the answer they’re trying to implement is "more, better, faster" of what they always did. But, as the fired Times publisher recognized, when you try to get more out of a broken business model by working it faster and harder, all you get is worse results quicker. You can’t fix a failing Success Formula by trying to operate it better, or faster, or with fewer resources. Those actions just help you fail faster.
The problems in these newspapers, like all newspapers, relate to more competition for readership from the internet and other targeted news products. The old big-city newspaper "natural monopoly" has been erased by these new players. As a result, subscribers are declining – especially in coveted younger demographics (see article on shifting readershipfrom 2005! here). That leads to lower advertising rates and dollars, because who will pay for declining readership? Why pay $75 for a classiifed ad for your used cars when you get one, with pictures, from Vehix.com for $39? Why buy full page movie ads for one shot at viewership when you can get a week of repeated hits on Yahoo!? So ad dollars have been moving to on-line media, and other new competitors. All the fighting inside the newspaper companies about how many writers, or copy-editors or salespeople to lay off this quarter or next does not address the broken Success Formula. It only creates a huge opportunity for the new competitors to continue stealing customers and growing.
Lock-in can kill any business. Even the most venerable. When market Challenges emerge that create a need to redefine the Success Formula, only the companies that Disrupt themselves and move into White Space will re-create success. More, Better, Faster just creates more problems, and a vicious cycle that eventually leads to the Whirlpool of failure. The LATimes has had 12 publishers in 120 years – and now 3 of those have been put in place in the last 5 years by the Tribune company. Changing the captain will not change the destiny of a ship Locked-in on a course headed right for an iceberg.
by Adam Hartung | Oct 2, 2006 | Disruptions, In the Swamp, Leadership, Lifecycle, Openness
Two very unlikely companies demonstrated this week that anyone can Disrupt and create White Space to develop a new Success Formula. IBM and General Motors both showed signs of what any company can do.
Last spring the leaders of IBM Disrupted their product development process when they opened it up to all employees, suppliers and their family members (read article here). As a result, they involved 53,000 people and generated 37,000 ideas. How, by simply asking for their input. CEO Palmisano attacked hierarchy and sacred notions of product development in high-tech, and as a result he achieved a breakthrough in the potential to redefine IBM’s Success Formula. Now IBM is creating White Space to develop those ideas, committing (in advance!) $100million for operation InnovationJam to see what can work. When Louis Gerstner wrote "Who Says Elephants Can’t Dance" about IBM’s turnaround he demonstrated that size does not preclude innovation and growth. And now that legacy is living on in a tremendous example of just what any company can do.
Even more surprising is what is happening at GM – a company I have unabashadly beat up on the last year. Yet, within the confines of a horribly Locked-in organization we now can see the use of White Space in product design (see complete article here.) As recently as 2001 the hierarchy gave vehicle line executives the say on a car’s appearance – the kind of analytical, cost saving process that produced such great autos as the Pontiac Aztek (don’t remember it? – that’s the point!). "Design had been relegated to putting a wrapper on something that everyone else had decided what the dimensions, the proportions and the interior package were going to be", according to design head Bob Lutz.
What’s different now? "Tom Peters, a GM designer for 22 years called Lutz a ‘breath of fresh air’ because he lets designers start with a fresh sheet of paper." Lutz was brought in, at almost age 70 mind you, by CEO Waggoner as a Disruption to the old hierarchy. As head of design, he reports outside the old hierarchy and directly to the CEO. And his dedicated budget was carved out of the old product groupls. Thus permission and resources were both granted up front, and Lutz has made the most of it.
Many people accept the notion that older companies are unable to change. Like somehow organizations are destined to Lock-in and eventually fail. Unfortunately there is no data to support that notion. The ability to Lock-in and fail is just as apparent in start-ups as in behemoths. And, behemoths can Disrupt and use White Space just as well as a start-up. IBM has shown it’s ability to do so, and we can hope they will keep up their efforts to again be reborn – continuously, like a Phoenix. GM has a much longer and tougher road, but it can be done. If they can just get the rest of the company to behave like Bob Lutz and his design group!
by Adam Hartung | Sep 29, 2006 | General, In the Rapids, Innovation, Openness
As I talk with various groups many tell me that they simply can’t see any White Space opportunities in their area. I tell them the opportunity is always there, you just have to see it. Their problem is too many people try to "think outside the box." What they need to do is "Get outside the box, now think."
A great recent example comes to us from education. For all our uproar about education in America, and expressions of concern, little has changed in the last 50 years. Lock-in still dominates, and most of us see our children going through the same steps as we did. Meanwhile, we know that other countries, India in particular, are finding ways to educate more people to higher levels faster and cheaper than we are. But, when our education professionals get into meetings they mostly come up with minor improvements to the existing system.
Reuters reported today (see article here) that Americans can get tutoring now for as little as $2.50/hour. By going on-line, and using a combination of web tools and internet phone service, our children can receive quality 1-on-1 tutoring, by professionals with master’s degrees in the subject area, every single day for only $100/month. This is about what one hour of traditional face-to-face tutoring costs. And those students who are using the resource are findng huge value.
Of course, these tutors are in India.
Our education professionals are trying to solve problems by "thinking outside the box." Their obvious problem is that when you’re in the box it’s really impossible to think outside. At best, you can push on the sides a little and consider small improvements. But everything about the box keeps you Locked-in to the old Success Formula.
The founders of these offshore services used the approach of "Get outside the Box, now think!". By going offshore, by viewing the capabilities of new technologies without focusing on limitations, and by omitting the concerns created by traditional Lock-in, they identified a new Success Formula. And then, they didn’t try to launch this in the U.S, or with traditional education suppliers. Instead, they developed their own approaches for marketing, distribution and sales. Removed from the Lock-ins (removed from "the box") they were able to develop new solutions.
We all can benefit from getting outside the box. Existing industry conferences and trade shows are primarily focused on Defending & Extending the existing Success Formula. To see new ideas, to identify White Space opportunities, you need to move beyond those forums. You have to find some new terrain for the conversation. Take a trip to India, China or the Phillipines, and visit with companies that have a whole different approach to what you’ve done. And instead of looking for why it won’t work, see if you can create some White Space to try and make it work.
You won’t find White Space if you stay inside "the box." Get outside the box, go to nontraditional sources, and then start thinking about how to make it work. There’ll you find your opportunities for White Space.
by Adam Hartung | Sep 21, 2006 | Defend & Extend, General, In the Rapids, In the Swamp, Innovation, Lifecycle, Lock-in, Openness
On my web site I have a case study comparing Motorola and McDonald’s (download paper here.) As a reader of this BLOG, it won’t surprise you to guess that I think Motorola is a company for the future, and one into which you should consider investing, while McDonald’s is so horribly Locked-in to its past that I see precious little chance it will remain a great company.
Just look at today’s newspaper for further verification. Motorola has announced the launch of a new vending machine to sell mobile phones and accessories (see article here.) Now this might seem pretty bizarre. Who would buy a mobile phone from a vending machine? Honestly, I don’t know who and I know it won’t be me. But, I am impressed. It takes organizational flexibility, a willingness to see market challenges to conventional distribution, an openness to Disrupting old behaviors and the capability to experiment with changes to the Success Formula to try this. The idea had to be created, it had to move through the organization, receive permission for testing and get funding to make it to market. These are all traits of a company trying to stay in the Rapids, trying to maintain its growth, and organized to create and use White Space. While not all projects in such companies succeed, long term the companies do generate higher growth and long-term above average rates of returns.
Meanwhile, today McDonald’s announced their next big idea was to start selling Egg McMuffins all day (see article here.) Now there’s a big dash of creativity! The epitome of Defend & Extend Management, the company is so Locked-in to its old Success Formula it actually considers it exciting, newsworthy and innovative to simply consider expanding the hours it sells an existing, and decades old, product. I doubt Starbucks is quaking with worries about this change impacting their growth. Even by a consultant’s best estimate this will be considered a success if it adds a mere 3% to 5% to the bottom line. What tremendous ambition!
Motorola is Disruptive, willing to create White Space and test new ideas. Who knows what the value of alternative distribution for mobile phones is – such as a point of purchase vending machine. But they are willing to test the idea and see. Maybe it will turn out to be something that young people, or travelers, or some segment really wants. Meanwhile, McDonald’s is doing more of the same, and bragging about how hard it is to actually pull off this simple time-of-day extension for an existing product.
by Adam Hartung | Sep 20, 2006 | Disruptions, General, In the Rapids, Innovation, Leadership, Lifecycle, Openness
I recently blogged about the way Honda managed to be in so many markets, from lawn mowers to airplanes. Maybe not focused, just consistently growing revenues and profits. A very good thing for employees, suppliers, investors and customers.
In that vein, I was delighted yesterday to hear that Motorola is buying Symbol Technologies. Most analysts thought the acquisition "ho-hum" (see Chicago Tribune article here). But they should be excited, because in fact it demonstrates another clear move into White Space.
Most people would think of Motorola as a cell phone manufacturer. And there is no doubt that is their largest business. So, analysts get excited when Motorola talks about cell phones. But there is so much more to Motorola. Their last big acquisition was General Instrument in 2000 (before Ed Zander took over), growing their dominant business in set-top boxes and helping them grow their DVR business. Remember a fast-growing gadget called TiVo? That’s a DVR.
Now, Symbol gets Motorola into bar code readers, mobile computers and enterprise software for inventory management and retail. Included in this business is RFID systems, a new market that lots of people are trying to develop. You could challenge this kind of acquisition as being "off focus", but then you wouldn’t understand the importance of White Space. Here Motorola has just bought itself a nice business, at a good price, that it can use to explore expanding technologies and solutions for people on trucks, in warehouses, using all kinds of wireless technology. New markets, new technologies, new solutions – and even more important new customers.
This is not one of those "restructuring" acquisitions intended to drive up revenue through industry consolidation. This is bona fide expansion into new markets, and creation of more White Space. An effort that can create Disruption opportunities and help define a new Success Formula. All hallmarks of what has been turning Motorola around the last few months. Bravo to management for doing the right thing again!
by Adam Hartung | Sep 9, 2006 | Defend & Extend, In the Rapids, In the Swamp, Lifecycle, Lock-in
Now is the time to Supersize a stock that might be in your portfolio. McDonald’s has announced that it will allow every shareholder of McDonald’s to swap that stock for Chipotle’s – and in fact investors can received $1.11 of Chipotle’s stock for every $1.00 of McDonald’s stock you tender (see Chicago Tribune article here). So investors get a 10% discount on the Chipotle’s stock (see prospectus.)
Let’s see, we have a horribly Locked-in McDonald’s, with practically no growth, that is spinning off it’s best White Space project. And McDonald’s will allow investors to move from the traditional mired-in-the-Swamp business to the high-growth Rapids business and get a 10% discount in the process. Talk about Supersizing the opportunity!!
McDonald’s stock is currently propped up by a hedge fund operator who’s buying up shares in order to attempt forcing McDonald’s to spin off company owned stores and sell company owned real estate. He’s trying to force a 1980’s-style asset play, and in doing so he’s buying thousands of shares. So despite sluggish growth and limited prospects, McDonald’s shares have been rising. McDonald’s is so desparate to preserve it’s Lock-in, and beat back this guy, that they are making an incredible offer in order to bring back in more shares, hopefully raise the EPS, and beat back this fellow. Like the leaders of too many Locked-in businesses, McDonald’s is following the tactics of "If you can’t figure out how to run a good business, then you use financial machinations!"
So, here’s the "golden" opportunity to get out of McDonald’s while the value is high, and get into a high-growth company without any transaction costs – and at a 10% discount to boot. Now that is an Incredible offer!
by Adam Hartung | Sep 3, 2006 | General, In the Rapids, Innovation, Leadership, Lifecycle, Openness
When I was young the word Google meant a very large number in math class. Today, Google means "to search" – or even more importantly Google represents the latest meteoric growth company. The interesting question, is Google just lucky (right company in the right market at the right time), or is there something more systematic going on?
It shouldn’t surprise you to hear that I think it is systematic. Let’s just take a look at Google’s IT department, and you can compare it to the typical department. Or possibly your own. (For specifics, go to Information Week article here.) Look for the White Space to innovate growth, and compare to most IT departments.
Firstly, despite spending 50% of revenues on IT, the company has no CIO or CTO. Instead, IT responsibility is distributed amongst several Vice Presidents. The closest thing to a CIO they have is a 36 year old with an undergraduate degree in social and political organizations, then a Ph.D. in Psychology. So much for the "tech bent" requirement in the role – or in Google. The fact is, that having distributed responsibility is a Disruptive design element which keeps projects, and people, from getting Locked in.
When it comes to managing technology he says "What we put on each desktop is not as important as how we think about what to put on each desktop…choice is always better than control…control gets in the way of innovation….sees a distinction between tools that tell you something and tools that stop you from doing something….I try to control as little as possible."
Google manages engineers with a matrix system. Employees have mutliple managers, and projects typically last as little as 3 months. Rather than a "good old boy referral" system for placing people, the project assignment system is automated with AI. Every person and every project is reviewed, and input is put in a database, and the information is completely available to EVERYONE to see. That’s right, performance reviews are public knowledge. Another design element that creates Disruptions and avoids Lock-in.
To encourage collaboration, people stay on projects for only a short time. And, to keep people talking lunch is free in the cafeteria. Most people would say that free lunch is simply wasted money. But then again, most people have never come close to Google’s growth rate.
The fact is, Google is loaded with White Space. Its organizational structure is designed to constantly Disrupt the way people work and think, by moving them frequently and rapidly across projects. Feedback is public, so that everyone knows what is working and what isn’t. AI creates job assignments, rather than people, forcing new collaboration and new insights. And R&D is not budgeted separately from IT, engineering or product development, in order to keep work and people moving freely and focused upon results rather than myopic projects or budgets.
There is very little "Focus" at Google. Just dramatic growth, fantastic new product development and introduction, and superb rates of return.
