by Adam Hartung | Nov 9, 2009 | Current Affairs, Defend & Extend, General, In the Swamp, Innovation, Leadership, Lock-in
Leadership
Why The Pursuit Of Innovation Usually Fails
Adam Hartung,
11.09.09, 04:11 PM EST
It's not what we're trained for as leaders or how our businesses are set up to work.
Forbes published today "Why the Pursuit of Innovation Usually Fails." "Most companies everywhere are struggling to grow right now. With their
revenues flat to down, they're cutting costs to raise profits. But
cutting costs faster than revenues decline is no prescription for
long-term success….."
The article goes on to discuss how from Gary Hamel to Jim Collins to Michael Tracy and Fred Wiersema to Malcolm Gladwell to Tom Peters — managers have been taught to identify their "core" and "focus" upon it. Whatever that core may happen to be, the gurus have said that all you need to do is focus on it and practice and in the end – you'll win.
But unfortunately we all know a lot of very hard working business leaders that focused on their core, working the midnight hours, sacrificed pay and bonuses, and kept trying to make that core successful — only to end up with a smaller, less profitable, possibly acquired (at a low price) or failed business. While the best practices make sense when looking at past winners, reality is that they were followed by a lot of people that didn't succeed. Their best practices give no great insight to being successful. They are of no more value than saying "treat people well, be honest, don't lie to customers, don't break the law, don't get caught if you do, show up at work." Nice things to do, but they don't really tell you anything about how to succeed.
The mantra today is for innovation, but thirty years of these "best practices" now stand as a roadblocks to doing anything more than defend & extend the current business. Only by understanding the objective to defend & extend what already exists can you explain how can one of the world's largest consumer product companies can call Tide Basic an innovation.
Enjoy the read, and please comment!
by Adam Hartung | Nov 4, 2009 | Current Affairs, Defend & Extend, Disruptions, Food and Drink, General, In the Swamp, Leadership
Walgreens is apparently going through a dramatic change in leadership. Drug Store News reported that the top 2 folks, including the top merchandiser, have left Walgreens in "." The article discusses the "old guard" departure and arrival of younger, new leaders. The magazine clearly paints this as a Disruption.
But I have my doubts. There's no discussion of future scenarios in which Walgreens is going to be a different company – not even a different retailer. There's no discussion about competitors, and how more prescription medications are being purchased on-line from new competiors, or even how Walgreens intends to be very different from historical brick-and-mortar competitors like CVS or Rite-Aid. No discussion about how the company might need to change its real estate strategy (being everywhere.)
There's really no discussion about changing the Walgreens' Success Formula. It's Identity has long been tied to being first and foremost a "drug store" (or pharmacy). A market which has been attacked on multiple fronts, from grocers and discounters like WalMart entering the business to the insurance mandates of buying drugs on-line. To be the biggest, Walgreens' strategy for several years has been tied to opening new stories practically every day. It was shear real estate domination – ala Starbucks. Although it's unclear how profitable many of those stores have been. Tactically Walgreens has moved heavily into cosmetics as a high turn and margin business, then items it an bring in and churn out very quickly – such as holiday material (Halloween, Thanksgiving, Christmas, Valentines Day, St. Patrick's Day, etc.), shirts, sweatshirts, on and on – stuff brought in then sold fast, even if it had to be discounted quickly to get it out the door. Churn the product because the goal is to sell the customer something else when they come in for that prescription.
There is no discussion of these executive changes creating in White Space to develop a new Walgreens. Without powerful scenarios drawing people to a new, different future Walgreens – and without a strong sense of how Walgreens intends to trap competitors in Lock-in while leveraging new fringe ideas to grow – and without White Space being installed to develop a new Success Formula to make Walgreens into something different —– this isn't a Disruption. It's a disturbance. Yes, it's a big deal, but it's unlikely to change the results.
Reinforcing that this is likely a disturbance the article talks about how the company is starting to obsess about store performance – down to targeting every 3 foot section for better turns and profits. The new leaders plan to work harder on supply chain issues, and store plannograms, to increase turns. They intend to put more energy into prioritization and reworking promotions. In other words, they want to execute better – more, better, faster, cheaper. And that's not a Disruption. It's just a disturbance. This may make folks feel better, and sound alluring, but experience has shown that this is not a route to higher growth or higher sustained profitability.
I don't expect these management changes to remake Walgreens. Walgreens has been a pretty good retailer. The Success Formula worked well until competitors changed the face of demand, and market shifts wiped out access to very low cost capital for building new stores. The Success Formula's results have fallen because the market shifted. Refocusing energy on being a better merchandiser won't have a big impact on growth at Walgreens. The company needs to rethink the future, so it can figure out what it needs to become in order to keep growing!
Real Disruptions attack the status quo. They don't focus on better execution. They attack things like "we're a pharmacy" by perhaps licensing out the pharmacy in every store to the pharmacist and changing the store managers. Or by selling a bunch of stores to eliminate the focus on real estate. Or by promoting the Walgreens on-line drug service in every store, while cutting back the on-hand pharmacy products. Those sorts of things are Disruptions, because they signal a change in the Success Formula. Coupled with competitive insight and White Space that has permission to define a new future and resources to develop one, Disruptions can help a stalled company get back to growing again.
But that hasn't happened yet at Walgreens. So expect a small improvement in operating results, and some financial engineering to quickly make new management look better. But little real performance improvement, and sustainable growth, will not occur. Nor will a sustained higher equity value.
by Adam Hartung | Nov 3, 2009 | Current Affairs, Defend & Extend, General, Leadership, Lifecycle
"TribCo Papers Will Try Ditching AP to Cut Costs" is the Crain's Chicago Business headline. Tribune is in bankruptcy because it is losing so much money trying to sell newspaper ads. Subscribers are disappearing as more people get more news from the internet, so advertisers are following them. So what should Tribune Corporation do? You might think the company would focus on other businesses in order to go where customers are headed.
But instead Tribune has decided to stop buying AP content for it's newspapers in a one week test. Not sure what they are testing, as one week rarely changes a subscriber base. What they know is that AP content has a cost, and Tribune is so broke it can't afford that cost. Seems Tribune is redefining its business – to selling papers rather than newspapers. They've dropped much of their content the last 2 years, so now they are going to drop the news as well. This is an example of trying as hard as they can to keep the old business alive, even after it's clear that Success Formula simply won't make money. In this case, we're seeing management ready to throw the baby out with the bathwater trying to keep a hold on the tub.
Interestingly "Vivek Shah Leaving Time Inc. to Go 100% Digital" is the MediaPost.com headline. Mr. Shah headed the digital part of Time, and he's decided to throw in the towel personally, promising that he is going to a 100% digital operation. He's tired of guys who think ink trying to manage bits – and doing it poorly. So another option for dealing with market shifts is to Disrupt your personal Success Formula by going to an employer positioned in growing markets. Not a bad idea if you can arrange it – even though there are lots of risks to changing employers. While the risk of change may seem great, the probability of ending up unemployed because your company fails is a very likely risk if you work for a traditional publisher these days. We often are afraid to go to the next thing because we hope that things will get better where we are. Even when we're standing on a the edge of an active volcano.
"P&G Considers Booting Some Brands" as headlined in the Wall Street Journal is yet another alternative. This one is more like GE used in the past where it sold underperforming businesses in order to invest in new ones. This has a lot of merit, and really makes a lot of sense for P&G. P&G is desperately short of any real innovation, and has been going downmarket to poorer products at lower prices in its effort to maintain revenues. A strategy that cannot withstand the onslaught of time and competitors with new products and better solutions.
I don't know if the new CEO is really serious about changing the P&G Success Formula or not. He hasn't demonstrated that he has any future scenarios for a different sort of P&G. Nor has he talked a lot about competitors and how he hopes to remain in front of companies with new solutions. Nor has he offered to Disrupt P&G's very staid organization or its very old Success Formula – which is suffering from lower returns as ad spending has less impact and younger people show less interest in old brands. So there's a lot of reason to think his buy and sell approach to shifting with markets may not really happen.
What's most important to watch are P&G's business sales. Any big company can make acquisitions to create artificial growth. That's easy. But it doesn't signal any sort of change in the company. What does signal are the kinds of businesses sold. McDonald's sold Chipotle's to invest in more McDonald's stores – that's defend & extend. Kraft sold Altoids and other growth businesses to invest in advertising for Velveeta and "core brands" – that's defend & extend. If P&G sells growth businesses – theres' little to like about P&G. But if the company sells old brands that have big revenues and little growth – like GE has done many times – then you have something to pay attention to. Selling off the "underperformers" that some hedge fund wants (like the guys that bought Chrysler from Daimler) so you get the money to invest in growth businesses can be very exciting.
When markets shift you have to go where the customers are headed. If your employer won't go there, you should consider changing employers. It's not about loyalty, it's about surviving by being where customers are. But what's best is if you can convert your business to one that is oriented on growth. Shake up the old Success Formula by attacking Lock-ins and setting up White Space and you'll remain a company where people want to work – and customers want to buy.
by Adam Hartung | Nov 1, 2009 | Current Affairs, Defend & Extend, Leadership
Jim Collins has decided to start telling people how to manage innovation. In "How Might We Emphasize Cost Effective Evaluation Tools" at the Good.is Blog Collins lays out his prescription for managing innovation. And it's pure Collins, because he's a lot more interested in focus than results. In fact, he is more concerned that before attempting innovation companies put in place a review process to rapidly cut off funds for innovations that go awry than figuring out how to behave differently.
Jim Collins has decided to tell people how to innovate. Only his first recommendations don't sound anything like the road to innovation. His five rules are timely, efficient, focused, sharable and actionable. There's no mention of getting market input, or figuring out how to behave differently. In Collins' world if you are efficient, mindful of the clock, focused and committed to extending your past Success Formula he's sure profits will evolve.
His passion for evaluation is paramount. He loves to talk about being efficient in innovation, prototyping toward some goal that is pre-set. Being "efficient" about the exercise drives his discussion – as if markets are efficient, or understanding how to make money in a shifted future marketplace is an efficient process. And he is obsessed with being vigilant. Collins is fearful that people will waste money on their innovation exercises. Efficiency, ala Taylor and scientific management, is a dogma Collins cannot escape. He wants his followers to be efficient, pre-planned, and obsessed about making sure money is not wasted from this escapade into innovation.
Jim Collins' prescription for success is one of the biggest snake oil
sales in business history. His book sales, and speaker fees,
demonstrate what a big PR budget from an aggressive publisher can
accomplish with content that sounds like "common sense." Jim Collins'
"great" companies are anything but. Just run the list and you'll find
he loved companies like Circuit City, Fannie Mae, Wells Fargo and
Phillip Morris. Companies that failed at innovation and ended up
smaller and less profitable (or gone completely.)
Today's economy has shifted. While Collins and Hamel spent years looking backward to see what worked in the 1970s, 80s and 90s those analyses are of no value today. We aren't in an industrial economy any longer where building economies of scale or entry barriers works. Being good at something is the mantra Collins lives upon, but when the market can shift in months, weeks or days to something entirely different being good at something that's obsolete does not create high rates of return.
Collins is so afraid that companies will over-invest in something new he would rather kill an innovation than possibly spend too much. His obsession with efficiency indicates an approach that is bankrupt intellectually, and has demonstrated it cannot produce better returns. It sounds so good to be very focused, to be fearful of pouring good money after bad. But reality is that businesses regularly accomplish just that – making bad investments – by trying to defend & extend a business that is no longer competitive.
Only participating in changing markets creates high returns. No business, not even huge companies like GM, Chrysler or Sun Microsystems, can "direct" a market. There are no entry barriers in a globally connected digital economy. If companies aren't willing to abandon their BHAGs (Big Hairy Audacious Goals) in favor of creating new solutions they simply are made obsolete. Nobody's "hedgehog concept" will save them when the market shifts and previous sources of value are simply no longer valuable (just ask newspaper publishers, who never imagined that customers would move so fast to the web instead of waiting for their daily paper.)
Almost 100 years ago a little known economist named Schumpeter said that value was created by introducing new solutions. His work demonstrated that pursuing optimization led to lower rates of return, not higher. As a result, he concluded that those who are flexible to market shifts – bringing new solutions to market rapidly – end up the big winners. As we look at companies today, comparing Google, Apple, Cisco and Nike to GM, Kraft, Sara Lee and AT&T we can see that Schumpeter had it right.
The gurus of business management helped us all realize how you could make improvements via optimization. Peters told us to seek out excellence, Hamel and Prahalad encouraged us to understand our core capabilities and leverage them. Collins drummed into us that we should focus. And most recently, a New Yorker editor with no business training or experience at all, Malcolm Gladwell, has admonished us to practice, practice, practice. Yet, when we really look at performance we see that these practices make organizations more brittle, and subject to competitive attacks from those who would change the markets.
We know today that innovation leads to higher rates of return than optimization of old strategies. But few recognize that innovation must be tied to market inputs. We build organizations that are designed to execute what we did last year – not move toward what is needed next year. This can be changed. But first, we have to eliminate the innovation killers — and that includes Jim Collins.
by Adam Hartung | Oct 27, 2009 | Current Affairs, Defend & Extend, General, In the Swamp, Innovation, Leadership, Lock-in, Web/Tech
"IBM authorizes another $5Billion for share buybacks" is the Marketwatch.com headline. This brings the amount available for buying the stock to $9.2billion – or enough to buy about 73.6million shares. But it begs the question, what value will this bring anyone?
"The U.S. Workplace: A Horror Story" is the CIOZone.com headline. A survey by Monster.com and The Human Capital Institute of more than 700 companies (over 5,000 workers) discovered that by and large, employees are mad at their employers. They don't trust business leaders, and think those leaders are exploiting the recession for their own purposes (and gains). 79% of workers would like to find a better employer – to switch – but only 20% of employers have a clue how many workers have become disillusioned.
Simultaneously, "Many vanished jobs might be gone for good" is the Courier-Journal.com headline. Historically, increases in manufacturing (usually led by autos) and construction (primarily housing) caused recessions to diminish. But nobody expects either of those sectors to do well any time soon. Manufacturing is showing no signs of improving, in any sector, as we realize that all the outsourcing and offshoring has permanently reduced demand for American labor. And quite simply, very few investments are being made by business leaders that will create any new jobs.
"ALL BUSINESS: Innovation Needed Even in a Recession" is the Washington Post headline. The article points out that almost all recent improvement in profitability – boosting the stock market – has been through cost cutting. But that has done nothing to help companies improve revenues, or improve competitiveness. It's done nothing to bring new solutions to market that will increase demand. Quoting the former Intel CEO Gordon Moore – "you can't save your way out of a recession" – the article cites several consultants who point out that companies which earn superior rates of return use recessions to invest in new technologies and innovations that create new demand. And eventually new jobs. But today's CEOs aren't making those investments. Instead, they are taking short-term actions that dress up the bottom line while doing nothing about the top line.
Which brings me back to IBM. Who benefits from $9.2billion being spent by IBM on its own stock? Only the top managers who have bonuses and options linked to the stock price. The shareholders will benefit more if IBM invests in new products and services that will increase revenues and drive up long-term equity. Employees and vendors will benefit from creating new solutions that generate demand for workers and components. Almost nobody benefits from a stock buyback – except a small percentage of leaders that have most of their compensation tied to short-term stock price.
What new innovations and revenues could be developed if IBM put that $9.2billion to work (a) at its own R&D, product development labs or innovation centers, or (b) at some young companies with new ideas that desperately need capital in this market where no bank will make a loan, or (c) with vendors that have new product ideas that could meet shifting markets?
That's the beauty of an open market system, it supposedly funnels resources to the highest rate of return opportunities. But this doesn't work if managers only cut costs, then use the money to prop up stock prices short term. It's a management admission of failure when it buys its own stock. An admission that there is nothing management can find worth investing in, so it will use the money to artificially manipulate the short-term stock price. For capitalism to work resources need to go to those new business opportunities that generate new sales. Money needs to flow toward new health care products and new technologies – not toward keeping open money-losing auto companies and failed banks that won't make loans.
If we want to get out of this recession, we have to invest in new solutions that will increase demand. We have to seek out innovations and fund them. We cannot simply try to Defend & Extend Success Formulas that are demonstrating their inability to create more revenues and profits. Laid off workers do not buy more stuff. We must put the money to work in White Space projects where we can learn what customers need, and fulfill that need. That in turn will generate jobs. And only by investing in new opportunity development will workers begin to trust employers again. IBM, and most of the other corporate leaders, need to "get it."
by Adam Hartung | Oct 23, 2009 | Current Affairs, Defend & Extend, eBooks, In the Swamp, Leadership, Lock-in, Music
If you try standing in the way of a market shift you are going to get treated like the poor cowboy who stands in front of a cattle stampede. The outcome isn't pretty. Yet, we still have lots of leaders trying to Defend & Extend their business with techniques that are detrimental to customers. And likely to have the same impact on customers as the cowpoke shooting a pistol over the head of the herd.
Book publishers have a lot to worry about. Honestly, when did you last read a book? Every year the demand for books declines as people switch reading habits to shorter formats. And book readership becomes more concentrated in the small percentage of folks that read a LOT of books. And those folks are moving faster and faster to Kindle type digital e-book devices. So the market shift is pretty clear.
Yet according to the Wall Street Journal Scribner (division of Simon & Schuster) is delaying the release of Stephen King's latest book in e-format ("Publisher Delays Stephen King eBook"). They want to sell more printed books, so they hope to force the market to buy more paper copies by delaying the ebook for 6 weeks. They think that people will want to give this book as a gift, so they'll buy the paper copy because the ebook won't be out until 12/24.
So what will happen? Kindle readers I know don't want a paper book. They wait. Giving them a paper copy would create a reaction like "Oh, you shouldn't have. I mean, really, you shouldn't have." So the idea that this gets more printed books to e-reader owners is faulty. That also means that the several thousand copies which would get sold for e-readers don't. So you end up with lots of paper inventory, and unsatisfactory sales of both formats. That's called "lose-lose." And that's the kind of outcome you can expect when trying to Defend & Extend an outdated Success Formula.
Simultaneously, as book sales become fewer and more concentrated a higher percent of volume falls onto fewer titles. And that is exactly where WalMart, Target and Amazon compete. High volume, and for 2 of the 3 companies, limited selection. This gives the reseller more negotiating clout against the publisher. So as the big retailers look for ways to get people in the store, they are willing to sell books at below cost – loss leaders.
So now publishers are joining with the American Booksellers Association to seek an anti-trust case against the big retailers according to the Wall Street Journal again in "Are Amazon, WalMart and Target acting like Predators?" . Publishers want to try Defending their old pricing models, and as that crumbles in the face of market shifts they try using lawyers to stop the shift. That will probably work just as well as the lawsuits music publishers tried using to stop the distribution of MP3 tunes. Those lawsuits ended up making no difference at all in the shift to digital music consumption and distribution.
"Movie Fans Might Have to Wait To Rent New DVD Releases" is the Los Angeles Times headline. The studios like 20th Century Fox, Universal and Warner Brothers want individuals to buy more DVDs. So their plan is to refuse to sell DVDs to rental outfits like Netflix, Redbox and Blockbuster. Just like Scribner with its Stephen King book, they are hoping that people won't wait for the rental opportunity and will feel forced to go buy a copy. Like that's the direction the market is heading – right?
If they wanted to make a lot of money, the studios would be working hard to find a way to deliver digital format movies as fast as possible to people's PCs – the equivalent of iTunes for movies – not trying to limit distribution! That the market is shifting away from DVD sales is just like the shift away from music CD sales, and will not be fixed by making it harder to rent movies. Although it might increase the amount of piracy – just like similar actions backfired on the music studios 8 years ago.
Defending & Extending a business only works when it is in the Rapids of market growth. When growth slows, the market is moving on. Trying to somehow stop that shift never works. Only an arrogant internally-focused manager would think that the company can keep markets from shifting in a globally connected digital world. Consumers will move fast to what they want, and if they see a block they just run right over it – or go where you least want them to go (like to pirates out of China or Korea.)
They only way to deal with market shifts is to get on board. "Skate to where the puck will be" is the over-used Wayne Gretzsky quote. Be first to get there, and you can create a new Success Formula that captures value of new growth markets. And that's a lot more fun than getting trampled under a herd of shifting customers that you simply cannot control.
by Adam Hartung | Oct 21, 2009 | Defend & Extend, In the Swamp, Lifecycle, Lock-in
Boeing is the world's largest aircraft manufacturer. But the Crain's headline "Boeing Loses $1.6B, slashes 2009 profit estimate" should get your attention. Revenues in 2008 dropped some 10% – which the company blamed on a strike. Of course, management always has some bogeyman to blame for poor performance. But revenues have not yet recovered to 2007 levels. Much, much worse is the fact that its newest product launch, the 787 Dreamliner, is some 2 years behind schedule, leaving industry experts skeptical of when it will get out the door.
The reason to really be wary of Boeing isn't just this one plane. Instead, look at the market shift happening in all transportation – including aircraft. It's unclear that the marketplace has much interest in the Dreamliner. Boeing's Success Formula has long been to develop really big projects, billions in investment, and make bigger and bigger aircraft. And the Dreamliner is the latest in Defending & Extending this Success Formula. Even though the product is way over budget, really late and will be a big aircraft when it's unclear that's what people want.
From cars to buses to planes, we're seeing people change to smaller and more efficient products. The last time you flew, were you on a big aircraft? Or did you find yourself on a small plane from Bombardier (of Canada) or Embraer (of Brazil)? Airlines need to keep planes fairly full if they have any hope of making a profit. Couple that with customer desires for convenience – meaning several flights to a city daily, and you can quickly see why smaller airplanes make sense. As a result, the leader (Embraer) in small commercial planes is growing at over 20%/year!
Meanwhile, people are getting less and less excited about flying commercial airlines every year. TSA hassles, flight delays, extra charges for bags, there's a long list of reasons business people are looking for alternatives. And that's where the Jet Taxi business comes in. Whether you buy a fractional interest in an aircraft, or simply rent a plane for a single trip, businesses are figuring out that small aircraft from Beechcraft, Cessna, Lear Jets and even the new Honda jet are providing a very affordable option to commercial flying when even a few people are traveling – and with a lot more convenience. The largest manager of this option is NetJets owned by Berkshire Hathaway – who's lead investor is Warren Buffet.
Add on top of this webinars and video conferencing. Increasingly, people are using digital technologies to communicate without flying at all. Again, with hassles up – and terrorism threats more real than 10 years ago – people are turning to really low cost, and ultra convenient, alternatives to traveling at all.
So are you really optimistic about the future demand for big jet aircraft that take more than a decade to develop and get approved? And built by a company that competes with a government subsidized player supported as a matter of national defense in Europe (Airbus)? It's really hard to be optimistic about the future for Boeing – and the Dreamliner delays seem to just be the early warning signs of a Success Formula very long in the tooth. Boeing is definitely stuck in the Swamp, and it's unclear the company has any effort underway to develop new options.
by Adam Hartung | Oct 19, 2009 | Defend & Extend, Disruptions, General, Innovation, Leadership, Web/Tech
The McKinsey Quarterly just published a new report "Where Innovation Creates Value." I think the consultant got paid by the word for this really long article, which boils down to a simple argument. It doesn't matter what kind of innovations are developed, or where innovations are created. What does matter is who implements them. The implementers gain the vast majority of the value from innovation. More than the patent holders or the countries where inventors live.
Historically America has been a hotbed for trying new things. America was advantaged over Europe because it didn't have the regulations and other innovation testing roadblocks. America was advantaged over Africa and much of South America because it didn't have a legacy of dictator governments and corruption that kept things from moving forward – blocking innovation. America was advantaged over China and India because it's per capita GDP has been very high, meaning there were ample resources to invest in trying new innovations. Thus, America has historically been an innovation testing grounds that has paid enormous dividends by keeping its companies on the leading edge of competitiveness.
But there is cause to worry. Recently I blogged about how companies were blocking employee access to social networking sites ("Letting the Bogeyman Hurt Your Business"). Concerned about employee efficiency, managers were blocking these sites so employees kept their fingers on the keyboards performing designated, approved tasks. Sort of Taylor-ish sounding, don't you think? In today's economy the value of smart employees is pretty high, but how do you know if they are smart if you block their access to tools. Is success more about how fast they do the tasks, or if they can figure out a better way that is inherently cheaper? Do you want employees doing the same thing better, faster, cheaper – or do you want them developing new solutions that are more competitive?
Consider the smart phone market, led today by the iPhone. And the new publishing media like Kindle and Sony's eReader. Soon we'll have plenty more of these products available that will increase knowledge access and speed of information flow making those who are connected even more competitive. According to SeekingAlpha.com, "Verizon's Droid is the Real Deal." New phones from Motorola with Google's Android operating system (get that, an operating system for your phone. Does that phrase not surprise at least a few people – some of whom might remember when phones had no intelligence – not even a dial tone?) will have an explosion of new applications and uses raising productivity and results.
Yet, how many companies are providing these devices and data access for employees? Most of the early adopters I see are paying for this out of their own pocket. The obvious concern is that American companies will remain focused on efficiency in this downturn. They will block access to parts of the web, and avoid technology investments for employees and customers. Meanwhile competitors in countries growing at 6-8%/year like China, India and Brazil will make these investments. If so, they become the early innovation implementers. And if that happens….. well that could be a very serious game changer. We can't assume the American economy will recharge if we don't apply innovations, and we can't assume competitiveness if companies from other places increase their adoption rates to exceed America's.
I don't see a lot of Disruption or White Space in America right now. Even top economists are bemoaning how businesses keep cutting employees and costs while the overall GDP does better. Business leaders seem stuck trying to Defend & Extend past business practices which aren't producing better results – and won't. They remain focused on cutting costs rather than innovating new solutions. But what we know is that the greatest return comes from a willingness to Disrupt and open up White Space to implement new solutions – in the process of making your own business a market disruptor that can grow and achieve superior rates of return.
by Adam Hartung | Oct 16, 2009 | Current Affairs, Defend & Extend, General, Innovation, Leadership, Openness
"Everyone talks about the need for innovation these days, but they especially talk about why businesses are so bad at it." That's the opening line from my newest column "The Myth of Efficiency" at Forbes.com. Today businesses seem to be struggling with innovation – preferring instead to cut costs and pursue efficiency. But we now know that the foundation for cost cutting as a route to better returns is based on faulty – in fact mythical – claims by Frederick Taylor and his devotees of "scientific management." Read this article if you ever wondered about the value of cost cutting compared to innovation – and learn why so many people "default" to actions that never make things better.
My column cites a great New Yorker article entitled "Not So Fast" on the faulty foundations upon which scientific management – and subsequently much of business education – is based. For an even deeper read into the mythical bases of Taylor and his crew pick up a copy of The Management Myth: Why the Experts Keep Getting it Wrong by Matthew Stewart (2009 W.W. Norton) available via the link at Amazon.com.
This is timely, because "Defining talent needs, managing costs central to workforce planning in 2010" is the headline from Mercer's own website about it's recent survey showing that the #1 factor in planning for human capital next year is managing cost!! How are we to grow out of this recession when people are cost obsessed? Especially now that we know cost cutting has no foundation as a basis for improving or sustaining returns? Certainly we now have good reason to challenge conventional wisdom as espoused in books like Cut Costs + Grow Stronger recently published by HBS Press.
If you are confronted with picking between cost cutting or innovating read this article, because your "gut" just might have been developed on faulty assumptions – leading you to make the wrong decision.
by Adam Hartung | Oct 5, 2009 | Current Affairs, Defend & Extend, Disruptions, In the Whirlpool, Leadership, Lifecycle, Lock-in
"Saturn Done in Four Months" is the Autoweek.com headline. The next time somebody brings up the short life cycle of tech products, remember Saturn. GM started the company, grew it, and now is shutting it down on a timeline that roughly corresponds with the life of Sun Microsystems. Clearly manufacturing companies can do just as poorly as techs.
When Penske lost itsmanufacturing deal, the purchase of Saturn fell through. And GM leadership can't wait to clear out inventory. Production has already stopped. Soon, the products and dealers will disappear. Along with the brand name. Another experiment that failed. So it is very important our post-mortem teaches us the right lessons from Saturn.
I was appalled when Harvard Business School Publishing posted "Why Saturn Was Destined to Fail." According to the author, Saturn was an anchor that drug down a hurt GM!!!! Reporting that the successful Saturn launch came at the loss of $3,000 per car sold (a new factoid I've never before heard), he claims that GM should have been more focused on fixing its old business. The implication is that GM wasn't trying to fix its old business, instead being diverted by the very successful operations at Saturn! Pretty illogical. GM was doing everything it could to compete, but improving its old Success Formula simply wasn't enough given the market shifts already in place. To meet changing market requirements GM needed to develop a new Success Formula, and that was the purpose of Saturn!
Saturn was the best chance GM had to succeed! The Success Formula at Chevrolet and the other GM divisions had been created in the 1950s when GM dominated the industry. But by 1980 the market had shifted dramatically. Design cycles had dropped, customer tastes had changed, production methods had moved from long assembly lines to just-in-time, quality requirements were redefined and rising, and impressions of auto dealers had tanked. Saturn was established to teach GM how to compete differently.
The reason Saturn lost money had everything to do with accounting. GM forced all kinds of costs onto GM – which were not representative of a normal start-up. Without those costs, Saturn would have been much leaner and profitable. Further, after Saturn proved it could move faster and outsell expectations, GM quickly moved to force Saturn to act like other GM divisions. Forced sharing of components severely hampered the design cycle and flexibility. Union contract consistency pushed Saturn into old employee agreements which the union had previously agreed to wave. And forcing Saturn to allow traditional GM dealers to sell the Saturn brand tarnished the changed customer relationship Saturn worked hard to create.
When Roger Smith created GM he set it up seperately. His scenario of the future demanded GM figure out a new way to compete. Saturn, was a White Space project with permission and resources to figure out that new way. But Chairman Smith did not Disrupt the old GM auto management. He did not replace the Division presidents with leaders from EDS or Hughes (businesses he had acquired) who were willing to move in a new direction. He did not change the resource allocation system to give Saturn more clout over its own decisions and those at other divisions. Thus, when he left the larger divisions moved fast to change Saturn into their mold – rather than vice-versa. Instead of Chevrolet learning from Saturn, Saturn managers were forced to adopt Chevrolet practices.
Saturn proved that even a stodgy, Locked-in company can use White Space to develop new solutions. And it also proved that if you aren't willing to Disrupt the old Success Formula – if you aren't willing to attack old Lock-ins – White Space (regardless of its success) is unlikely to convert the company into a better competitor. The lesson of Saturn is NOT that it diverted GM's attention, but rather that GM was unwilling to Disrupt its Success Formula to learn from Saturn.
As investors, the question is pretty easy. Would you rather own Saturn, Pontiac and Hummer – the divisions of GM that had loyal customers and some reputation for innovation, quality and customer satisfaction – or Cadillac, Buick and Chevrolet? Would you rather have businesses that are looking forward with early plans for hybrids, and exciting cars like the G8, or a high volume business in cars that most people find ho-hum, at best? Do you want designers that take chances and bring out cars quickly, or that move slowly seeking the "lowest common denominator" in design? If you were an entrepreneur, would you rather be given pemission to lead Saturn, or Chevrolet?
Learning the right lessons from Saturn is important, or else our business leaders are doomed to repeat the GM mistakes. If you don't challenge your Success Formula, White Space project will be met with great resistance by the organization. They will be saddled with unnecessary costs and requirements that strip them of permission to do what the market demands. And they will not achieve the goals which they established to accomplish, including acting as a beacon for migrating a business forward.
For a deeper treatment of this topic please download the free ebook "The Fall of GM: What Went Wrong and How To Avoid Its Mistakes."
