by Adam Hartung | Jun 8, 2005 | In the Whirlpool
GM is cutting another quarter of its workforce. That’s really not too surprising an announcement, given what’s been made public about the company this year. What is amazing is how so few people saw it coming.
There are lots of pundits screaming about the high cost of health care in each GM care. Or talking about how the pension plan is too expensive. And of course some simply say GM designs me-too product, or doesn’t produce to enough quality. But in fact, none of that is the real issue.
In 1980 Chairman Roger Smith of GM saw that GM’s future was in jeapardy. He undertook a series of actions to help GM move from a large, cash rich car company into new growth markets of IT, electronics and avionics – while creating a new division that would compete with Japanese producers like a Japanese producer. He saw that GM needed to expand its markets and be more than a "car company." GM needed to learn how to do new things.
No one expects GM to regain its glory. The amazing thing is that this bullet has been flying at GM for the entire period. Like a 5 mph bullet.
GM couldn’t get out of the way. It’s desire to remain locked into its old business model, at the risk of complete failure and the destruction of thousands of jobs and billions in shareholder wealth, was greater than its willingness to explore new opportunities. GM had visions – but it never learned how to address its lock-in.
Now GM is moving faster than ever toward the Whirlpool. Slashing jobs and creativity as fast as it can. All in a last ditch effort to dodge that 5 mph bullet. Ever heard the phrase "too little, too late"? It’s obvious that after this long, the executives simply don’t know what else to do. Creativity and innovation have atrophied and disappeared from what was once an innovative and growing company.
But, executive after executive since Smith has retrenched GM to its old business. And pundit after industry expert has pushed GM to be a "better" car company. And year after year, GM has struggled. Now, 20+ years later GM is finally tilting into the Whirlpool
by Adam Hartung | May 21, 2005 | Defend & Extend, In the Swamp, Lock-in
WalMart is an amazing company. From a small rural store a behomoth of retailing emerged in just a few years. No one seems able to compete with WalMart in discounting.
Despite its success, WalMart is now struggling to grow. Poor revenue growth has stalled the share price. Now, more than at any previous time, WalMart needs to find new ways to grow. Its Success Formula has worked so well that no one can outperform WalMart at being WalMart. But, it’s unclear that there’s a need for more WalMarts. And foreign markets aren’t nearly as excited about WalMart as Americans. So, how is WalMart to grow?
WalMart needs White Space projects that can launch new revenues. Just as Sam’s was once a new project that became large. But WalMart has become so focused on its retail store strategy that it’s lost the ability to do new things. Last week WalMart gave up on its effort to rent videos on-line, handing that business to NetFlix.
Amid the announcement WalMart pointed out that its stores sell more in one day than NetFlix does in a year. But the real story is that WalMart can’t figure out how to compete on-line. At WalMart, it’s all about the stores. How to drive more revenue to the stores. And that’s getting increasingly difficult.
There was another retailer that never rose to this challenge. Once the biggest innovator in retail, they were the first to capture the rural customer (with mail order) and they became a powerhouse across the country. But, when they couldn’t adapt to changing times and learn to do new things they fell to an acquirer’s axe. That company was, of course, Sears.
So, it may seem silly to think that WalMart’s failure to sell videos, or anything else, on-line is a serious concern. But people thought Sears’ on-line failures were no big deal 6 years ago. It’s actually a very, very big concern when any company becomes so locked in that it can’t undertake new projects. It portends very bad things ahead.
by Adam Hartung | May 18, 2005 | Defend & Extend, In the Swamp, Leadership, Lifecycle
HP’s stock is destined to jump in the next few weeks. What will benefit short-term investors is bound to cost long-term employees, suppliers and investors.
HP’s new leader is indicating HP will benefit from deep layoffs and cost restructuring. The CFO is publicly stating that there will be no change in strategy nor business direction. Investment analysts and traders are cheering. Deep cuts are sure to provide short-term P&L improvement.
But at what cost to long-term growth and viability? HP’s businesses are highly competitive in all areas. They are fighting battles on all fronts, with little in the way of new fighting materials. Reducing the army size will lower the demands, but how will they win? Where’s the White Space for new growth initiatives when the focus is on draconian cost reductions?
Traders are buying, but these actions look about as sustainable as floating a cardboard balloon.
by Adam Hartung | May 12, 2005 | Disruptions, General, In the Swamp, Innovation, Leadership, Lifecycle
Poor GM. When you’re a big target, lots of people find it easy to take their shots at you. No doubt GM is in trouble. But there are few pundits offering solutions for GM’s woes. And no one knows what Mr. Kerkorian is likely to do.
The most prevalent thinking across the press is that GM needs to retrench. Kill products, and whole brands. Never mind that killing Oldsmobile cost GM more than keeping it alive, and that killing Oldsmobile simply made GM smaller as those customers switched to competitors rather than other GM cars. The overwhelming view is GM needs to cut, cut, cut. Remember, GM is not short of cash. It has enough cash to last years and years. So why does it need to do all this cutting and/or selling? Is GM supposed to save its way to prosperity?
GM needs to grow if it wants to remain a vital company. In the short term, this probably means selling more cars. Longer term, it probably means doing lots more than cars (look at GE, no longer just an electric production company.)
Amidst all these calls for belt tightening, busines jettisoning and head lopping we need to remember that GM needs to grow. Last Sunday’s Chicago Tribune interviewed the head of marketing for GM, and for the first time I heard a glimmer of what might turn around GM. He’s out to sell more cars. To compete with those stealing GM’s share. He hears this crisis as a call for GM to change the way it does business and become more customer focused.
That’s a plan that might work. It’s not without risk. But the plans to simply shrink GM have no future. GM needs to turn loose the folks in the divisions to find better ways to compete for customers. Less corporate purchasing and corporate consolidations and more white space for those divisions to do something new. You never know, there might be another John Z. DeLorean somewhere in the giant GM with the next GTO on her mind just waiting for someone to give her the permission and resources to make something new happen.
by Adam Hartung | Apr 18, 2005 | Books, Disruptions, General, In the Rapids, Innovation, Leadership, Lifecycle
I wrote recently that IBM looked like an elephant that could continue to dance (taking off on the title of Lou Gerstner’s book about his days at IBM.) Shortly after that, IBM announced quarterly earnings and its stock accelerated a 2005 decline. A fair question might be "would I like to retract my earlier BLOG?"
Definitely not! Yes, IBM missed its earnings projection by $05/share. Right; a nickel. That was about 6% lower than expected but a nickel higher than last year. The stock sold off like you’d think they’d announced a quarterly loss – falling about 10%. From its peak at the beginning of 2005, the stock is down about 25%.
Over the long term, the markets are efficient. But in the short-tem — well it’s anyone’s guess. Not even the famed Peter Lynch could make money timing a market. What makes money long-term is finding companies that can sustain success (read the latest great book on long-term investing by Jeremy Siegel for more info.)
IBM is taking actions to continue sustaining its success. The stock might be volatile, both up and down, along the way. But few make money trading stocks. The way to riches in a creatively destructive world is finding companies that can sustain success. Since its turnaround in the 1990s IBM has regained its ability to disrupt itself and demonstrate the characteistics of a long-tem sustained growth company.
If you want a portfolio of long-term winners I would say that IBM is a company worth considering. Even moreso today.
by Adam Hartung | Apr 18, 2005 | Disruptions, General, In the Rapids, Innovation, Leadership, Lifecycle, Openness
Far too often we see companies merge in an effort to save an old Success Formula. The goal of the acquistion is to Defend & Extend an outdated business model by bringing together two less than stellar competitors. Because this is so common, it’s easy for analysts and pundits to become very jaded regarding acquisitions and mergers.
Today, however, just the opposite happened. Two good, high growth companies decided to merge in order to create new growth opportunities. Rather than merging to find cost synergies, they are merging in order to find new markets, develop new products and further grow.
The two companies are Adobe and Macromedia. According to MarketWatch "Both companies said the long-rumored acquisition was not to consolidate and cut costs but to help Adobe expand into new markets, particularly in the area of providing content to mobile phones and other handheld devices….This is not a consolidation play. This is all about growth," said Bruce Chizen, Adobe’s chief executive."
Because most acquisitions are about D&E, the stock market punished Adobe upon the announcement – sending it’s stock down about 10%. However, acquisitions and mergers can be very effective tools for creating white space and developing new growth opportunities. We should keep our eyes on Adobe, and consider it for a long term investment, since this could be the move that spurs its growth for another decade.
by Adam Hartung | Apr 12, 2005 | General, In the Rapids, Innovation, Leadership, Lifecycle, Openness
Louis Gerstner’s best selling book on IBM was "Who says elephant’s can’t dance." Now his successor looks to be a pretty good elephant trainer himself.
IBM has loaded itself up with more White Space projects. This behemoth is fast moving out of hardware (selling its PC business, for example) and moving into value-added process management. It’s using both divestitures and acquisitions to disrupt itself, and then using White Space to develop new opportunities.
Read the latests article in BusinessWeek for details. Let’s just say here that if IBM keeps spawning these White Space projects it can keep itself in the Rapids for quite a long time. You don’t have to be small to succeed – just willing to be disruptive and use White Space
by Adam Hartung | Apr 8, 2005 | Books, Defend & Extend, Disruptions, In the Swamp, Leadership, Lock-in
Hewlett Packard has been having a tough time the last 5 years. As reported in Business Week, most analysts realized in 2004 that HP had stalled. The HP printer business was the only unit making money, and growth was weak as resources were being poured into the faltering PC/server business — which was not helped by the Compaq acquisition.
Jim Collins did a great job of describing the decades of early success at HP in Built to Last. The HP Way gave work teams permission to create new solutions and pushed the decision making, as well as resources, as low as possible. Great innovation was the result, and years of prosperity.
But with the acquisition of Compaq HP definitely lost its Way. Decision making moved up, often to the CEO. As HP adopted the Compaq Success Formula in its effort to grow PC sales management found itself focused on Defend & Extend management practices like budget slashing, R&D reductions, new product cuts and layoffs (over 17,000 since 2002). This was not the HP Way, and business results went from bad to worse.
Now some are calling for the new CEO to even more aggressively pursue cost cutting and layoffs. To "execute – then strategize." That surely won’t turn around HP. What’s needed is unleashing the innovation amongst those thousands of silicon valley employees. What’s needed isn’t price slashing, but new products, new markets and new competitive models to deal with Dell. HP needs to go back to creating and managing those high performance White Space teams that made it great.
Changing leaders at HP certainly provides a pattern interrupt to the business. If he takes the popular route with analysts, and executes more disturbances like his predecessor, he can expect to continue the string of results below expectations. Instead, HP’s new CEO needs to follow through with effective disruptions that create White Space and returns HP to the HP Way.
by Adam Hartung | Apr 4, 2005 | Defend & Extend, Disruptions, Ethics, General, Leadership, Lifecycle, Lock-in
Those of you familiar with The Phoenix Principle are familiar with our statistical review demonstrating the high failure rates of companies. Company longevity is far shorter than most of us realize. One significant impact of this phenomenon affects all of our company retirement accounts.
America largely depends upon private retirement. Social Security is considered substistence funding, and we are expected to make up the difference with either private funds or a retirement plan. For our parents, who expected near lifetime employment, these private retirement plans were their safety net. They depended on "the company" to fund their retirement and health care.
But let’s consider someone today who wants to retire at 65. They need to work, and pay into, a corporate retirement plan for at least 10 years, so they have to start at age 55. And they would expect to live until 80 (the current average). So, they want that company retirement plan to be around for at least 25 years. Yet, when we look at performance of the S&P 500 we know that only about 1 in 3 companies (yes, only 1/3) of the S&P 500 can expect to survive for 25 years. So where does that leave your retirement plan?
It’s even worse if you start your retirement planning at 45. Now you need your employer to stick around for you for 35 years. The odds of that are no better than about 1 in 4 (25%). So, where comes the funding for the retirement plan?
Now look at the problem from a large employer’s viewpoint. US Steel and GM are just 2 recent examples (out of several dozen) where the company has said they can’t afford to maintain the retirement program. Not surprising. Their lock in to their old Success Formula has pushed them way out into the swamp. So what happens to those retirees? Or those near retiring that had planned on that pension? They have gone along for 10, 20, 30 or more years believing in the Myth of the Flats, thinking that their employer would always be there for their retirement. But that myth is about to implode on them with painful consequences.
In an age of Creative Destruction, corporate retirement programs are little more than a wish. If the companies don’t succeed long enough to support the programs they are of little use to retirees.
Perhaps this should be part of the current debate regarding the future role, and funding, of Social Security. For sure it should be part of your plans for retirement.
by Adam Hartung | Mar 21, 2005 | Defend & Extend, Disruptions, In the Swamp, Lock-in
GM is having a tough time. Last week, the stock (already beat up) dropped nearly 20% on news of weak sales and lower profit expectations. You have to go back more than 10 years (see chart) to find a time the company’s market value was this low. So, what should GM do? What action will turn this venerable company around?
GM has responded to its problems by continuing decades of Defending & Extending its failing business model. It continues to avoid addressing the real challenges to its business while it resorts to white collar layoffs and traditional cuts. These are sure to make the problems worse for GM, and further inhibit the company’s ability to reinvent itself.
GM once tried to re-invent itself. Saturn was created as a way for GM to learn what works in today’s market. Remember the "GME" when they bought EDS? Remember "GMH" when they bought Hughes electronics? Chairman Roger Smith was first lauded, then later pilloried for these forays. Over time, GM let it’s lock-in to the past move them toward getting rid of both EDS and Hughes. That’s too bad, because they offered the White Space for GM to create a company much better at sustaining itself.
Saturn offered GM the capability to turn its auto business around. You CAN succeed making and selling cars in America – look at Toyota. If GM could have given up its lock-in long enough to look at Saturn as White Space they could learn from, and migrate toward, GM could have succeeded. Instead, GM leaders hated the new division and the attack on their lock-in it represented. So they acted to starve it to death.
Whacking a few more jobs isn’t going to save GM. I doubt even GM believes it will. If they want to avoid "junk" status on their bonds, stay on the DJIA, and continue to represent American industry they better start using some White Space to undertake substantial change. Our research has shown that turnarounds such as GM needs happen less than 10% of the time. What works? Changing the company business model via attack on the old operating parameters and the use of White Space to develop a new Success Formula.
When you’re as deep in the Swamp as GM you can’t fine-tune or marginally improve your way back to success.
