by Adam Hartung | Aug 25, 2009 | Current Affairs, Defend & Extend, In the Swamp, Leadership, Lock-in
I think it's a lose – lose – lose. "Brett Favre Signs with Vikings" was the ESPN.com headline. I wasn't going to bring this up, but in 2 days I've had 8 requests, so I guess people are more interested in Mr. Favre at the start of this American NFL season than I imagined. The situation is simply dripping with Defend & Extend behavior, and an inability to focus on the future. And it's hard t see how anybody wins.
The first loss goes to the Minnesota Vikings. Every team is built by growing a powerful squad. By hiring "yesterday's hero" the Vikings have admitted they are not looking to the future. The coaches are trying to somehow capture yesterday. Were they concerned the team would repeat last year's Detroit fiasco and lose every game? Because if they weren't why sacrifice the team's future by hiring an on-field leader that everyone knows is unable to play much longer? This isn't a lot different than GM putting Mr. Bob Lutz, at age 77, in charge of marketing. What was a great past does not make for a great future.
The young people in Minneapolis want to see their home-town team be Super Bowl champs in 2010, 2011, 2012, 2013 and onward. With someone age 39 in the job, slower than ever, it is certain that the team is not "building" toward a potential legacy like teams have had in Green Bay and Dallas. Sixteen year old attendees weren't even alive when Mr. Favre started his football career. They want to see people in the jobs who can help their team become a dynasty – and that's not Mr. Favre. Minnesotans, especially young ones, have to question coaches and owners that would hire someone who, at best, is good (impossible to be great) for a year or two. It rings of defeatism, of desperation, to take this action.
Mr. Favre himself loses with this move by denying his own ability to grow. Americans have great respect for sports heroes that prove themselves after playing ball. Look at those who are revered for not only their play, but their after-play prowess
- Troy Aikmen won Super Bowls at Dallas, then never skipped a beat becoming a respected and popular sports announcer
- Roger Staubach won Super Bowls also at Dallas, but worked summers learning real estate then built his own multi-million dollar real estate development empire
- Jack Kemp played football for the Buffalo Bills, then went on to be a successful Congressman and even was a Vice Presidential candidate with Bob Dole
- Bill Bradley played basketball for championship winning New York Knicks, then became a 3 term senator from New Jersey
- Roger Penske was a world winning race car driver, but is even better known today for building the largest auto dealership company in North America, one of the largest truck leasing companies and recently bidding to purchase Saturn from GM.
By returning to football, Mr. Favre demonstrates he is so Locked-in to playing ball that he isn't looking forward for himself. He can't play football forever, so what will he do next? He has enough money to retire, but there's not much personal growth in retirement. Life is about growth, and at age 39 Mr. Favre has a lot of time to grow into new and even more powerful roles. But he can't if he keeps going back and playing football. It's not a good thing that Mr. Favre isn't growing into other roles where he can be a significant contributor.
The third loser is Wrangler jeans, a division of VF Corporation. "Favre Should Add Bang to Wrangler Effort" is the MediaPost.com headline. Mr. Favre recently agreed to be advertising spokesperson for Wrangler, and the initial view is that his return to football will sell more jeans. To whom? Forty-ish men who dream of a sports career? Cast as an outdoorsman, or new businessman, with a proud legacy Mr. Favre has appeal to a wide group of buyers. But as an aged football player he represents all the people who are questioned as "over the hill."
Mr. Favre could be a role model for younger people as a retired football player. But as an active one he has limited appeal to younger people who are more attuned to Phil Rivers or Tony Romo. Young people don't desire to be the oldest quarterback in the NFL. By Mr. Favre playing football, Wrangler de facto gets positioned as the "jeans for old guys." Mr. Favre could have been a powerful young sports hero starting a new career – a much more favorable position for Wrangler.
When we slip into Defend & Extend thinking nobody wins. Success comes from focusing on the future, and taking the actions that will beat your competitors. Reaching into the past does not bode well for anybody looking to beat the competition, because the competition knows all those old moves. Everyone involved would have been better off if Minnesota had Disrupted its plans by bringing in a quarterback with a sizzling chance to be THE NEXT Brett Favre, rather than Mr. Favre himself. And then building a program that would position them as the next dynasty, not one trying to protect its Defend its current season by Extending the career of somone who's already twice retired. And Wrangler should have thought about this in advance, with a clause in Mr. Favre's contract not allowing him to play football any more if he wants to continue representing their brand.
by Adam Hartung | Aug 17, 2009 | Current Affairs, Defend & Extend, In the Rapids, In the Whirlpool, Leadership, Lock-in, Web/Tech
For almost 3 years this blog has discussed how newspapers, and most traditional media, have ignored the changes being created by shifting markets for news readers and advertisers. Unfortunately, not a lot has changed in how newspapers, magazines and traditional media companies operate. They still don't put enough energy into using the web, for distribution or revenue generation. They keep trying to Defend & Extend their old models – and these companies keep going bankrupt. So much the worse for investors, employees and suppliers.
Today the Chicago Sun Times reported "Everyblock acquired by MSNBC.com." The sort of short article you could easily miss. Because the Sun Times, and most traditional media, still don't like to talk about the web. But this is a pretty big deal.
Everyblock was started 2 years ago by a 28 year old in Naperville, Il. He acquired $1M on a Knight Foundation grant to see if he could build a reporting engine that would supply information at the local level to web sites. An ambitious undertaking. Something you would think every major newspaper would try to do. But they didn't. They were so Locked-in to their old business model that they kept crying about the decline in subscriptions and print ads – but didn't do anything beyond cost cutting. That's what Lock-in will do to you – leave you crying about the past but taking no affirmative action to deal with shifting markets. They left the market for on-line local reporting available for someone more ambitious. Someone age 28 who really wanted to see if he could make it work.
After Everyblock hired some folks and figured out this would work you'd think Tribune Corporation would be all over how to apply this in order to build its on-line business. Guess again. Mr. Zell is so Locked-in to his big debt deal that he's too busy trying to sell the Cubs and otherwise raise money. He doesn't have a dime to invest in building the future. Same at the Sun-Times where leadership is still realing from the old owner's plundering of traditional assets with no game plan for how to succeed long-term. Both companies are well into the Whirlpool. So close to failure they've lost track of any plan to grow. So they ignored the local talent, cutting costs to prolong the ride instead of investing smartly.
Now MSNBC.com is going where the newspapers wouldn't go. It's acquiring the Everyblock business, one that's desperate for cash to grow, in order to expand its footprint. MSNBC.com is ready to develop a new model for local news coverage. Good for them. We all know the day will come when we can get local news from the web, and it's good to see MSNBC set up the White Space to explore how to make it happen. MSNBC.com is in the Rapids of growth, building on growth of its cable TV partner. It's good news for GE shareholders, who could benefit from the next big thing since Google or Twitter. All for the mere investment of a few million dollars. Less than Mr. Zell spends on personal jets every year.
The world keeps changing. Too many businesses are simply trying to do the same thing, only cheaper or faster or somehow better. They aren't reacting to shifts by actually Disrupting their approach and setting up White Space to learn. At the media companies the impact is sevee as fewer and fewer magazines get printed, and newspapers get thinner, and more companies file for bankruptcy. But the smart ones do something – like MSNBC. And MSNBC could just end up being the one taking it to the bank!
by Adam Hartung | Aug 13, 2009 | Current Affairs, Defend & Extend, General, In the Whirlpool, Innovation, Leadership
"It's Hard to Like Sara Lee" was the Barrons headline this week. And how could you, after the company reported its third straight quarter with sales and earnings below expectation. Check out this quote "Failed expansion has become a hallmark of Sara Lee in recent years, as
the company entered and exited businesses more frequently than tourists
passing through Grand Central station."
Meanwhile, over at Businessweek the headline is "Sara Lee, Why Investors Won't Bite." The company keeps focusing on cost cutting. "Sara Lee Chairman and Chief Executive Brenda Barnes
said on Aug. 12 that she expects annual cost savings of $350 million to
$400 million by 2012." I wonder how far revenues will fall during that same period? Since Ms. Barnes took the helm 5 years ago, Sara Lee's value has shrunk 54% (chart here). Yet, her biggest plan remains more sales of existing businesses – now focused on selling the "houesehold and body care segments." Although after all the sales the last 4 years the takers keep getting thinner and thinner, and the prices lower and lower. Buyers recognize when a business has been stripped of its value and is nothing more than a shell of its previous self – no longer able to grow and produce cash flow.
Meanwhile at Sara Lee there are no real plans to sell any new products or services, so the P/E just keeps falling. Now at 11, it's one of the industry's lowest. But when you expect revenues and profits to keep getting smaller, you can't justify much of a P/E now can you? It takes growth to increase your P/E multiple.
Forbes tried putting lipstick on the pig with its headline "Sara Lee Sees Meaty Growth." The writer tried to focus on hopes the company has for selling more sausage and lunch meat. But there's no innovation. Just a hope that low commodity prices will improve the margins on these products – and the commodities will stay low so the margins don't dip. Sara Lee hasn't launched a new product since Ms. Barnes took the helm. Crain's summarized the situation more bluntly "Investors Find Little Tasty in Sara Lee."
Business is about creating shareholder value, not destroying it. And Ms. Barnes has been going the wrong way her entire tenure leading Sara Lee. As I pointed out in her first year of leadership in this blog, and have repeated often, Ms. Barnes has not developed any new products for the future, she has not identified competitive opportunities for growth, nor has she been willing to Disrupt old patterns and use White Space to develop and launch new revenue opportunities. Instead, she has slowly and painfully sold off one asset after another – and none of that money has come back to shareholders. Today all shareholders have as a result of her leadership is a smaller and less profitable declining company. And no cash to compensate for the shrinkage.
If we want to come out of this recession we have to replace leaders who are so wrong headed. There's no value in quarter after quarter of cost cutting. There's no value in selling off assets for one time gains to cover ongoing losses. There's no value in shrinking a company without distributing proceeds to the owners for investing elsewhere. Thus, there's no value to the leadership at Sara Lee. What's needed is someone at the helm willing to look to the marketplace for new product ideas and then use White Space to innovate those new solutions. Someone who will put energy and resources behind growth.
The employees, shareholders and vendors at Sara Lee have a lot of scars for waiting – and nothing good. Even the suburban Chicago town of Downer's Grove, IL is hurt by the loss of jobs. To get America going again we have to start growing – and there's no better place to start than Sara Lee. Before it disappears into oblivion – like the onetime Chicago retailer Montgomery Wards!
by Adam Hartung | Aug 12, 2009 | Current Affairs, Defend & Extend, General, In the Swamp, In the Whirlpool, Leadership, Lock-in, Weblogs
GM. Those two letters call up a lot of emotion these days. People ask,
"What went wrong?" "How could a company that large, that successful, go
bankrupt?" The less polite say: "General Motors' leadership is
corrupt." "They ignored customers." "The union killed them."
"Government interference." "Idiots."
This is the first paragraph of my new column on Forbes.com. You can read it, and future articles, in the Leadership section – Link Here.
I'm very excited to find new audiences for discussing what's caused the latest round of business problems – and failures. As well as spreading the message about how businesses can start growing again. Check out the column.
by Adam Hartung | Aug 10, 2009 | Current Affairs, Defend & Extend, In the Swamp, Leadership
I've long been a fan of GE. The only company to be on the Dow Jones Industrial Average for more than 100 years. A company that has transitioned through countless businesses, willing to get into and out of many opportunities in order to find ways to keep growing. Buried deep in the heart of this company's operating principles are tools which keep it from becoming too Locked-in. The constant 360 degree evaluations, the demand for results, the willingness to disagree, the acceptance of Disruptions, the investments in White Space. These have done GE well for years, allowing the company to evolve its Identity, Strategy and Tactics.
But recently, GE has been more disappointing. The stock crashed to $6/share earlier in 2009. And now Forbes reports "Accounting Tricks Catch Up With GE". One of the misguided tools of Defend & Extend Managers is using financial machinations – in effect generating profits out of thin air by playing with the accounting rules rather than making and selling something. I talk this through at length in "Create Marketplace Disruption" (FT Press, 2008) because for the CEO of a publicly traded company, it's an easy route to take. By playing with the accounting a business looks better, allowing the CEO to do more of the same instead of more deeply investigating market shifts that jeopardize the future.
I was deeply disappointed to read where GE allowed this to happen. They counted as revenue, and profit, sales of locomotives to financial institutions – rather than end users. And the use of derivatives at GE was an outright D&E practice to try making money on financial investments that weren't so good. I've decried the use of derivatives loudly – even by Warren Buffett – in previous blogs because they are a tool designed to make weak financial practices look better. This isn't what made GE great, but apparently these were the tools of "modern management" current executives used to prop up sales and profits – instead of focusing on the business. And now the SEC has forced GE to pay a fine for its actions.
Investors, employees and vendors need to be very wary of this. It could mark a sea-change in GE. For years, top executives made their mark by developing new businesses that were attuned to shifting markets. Jet engines and NBC are just a couple of huge businesses GE entered as a result of recognizing shifting markets and the huge opportunity being created. And GE has always been quick to pull the trigger on selling a business when a market shift meant the growth was starting to slow.
But now we can see that GE has used financial machinations to make some businesses look better. These kind of D&E actions are telltales of a company slipping from Phoenix Principle actions – which help you grow – into a company that could stall. And growth stalls are deadly. Only 7% of stalled companies every consistently grow at a mere 2% ever again.
So far, we know that these actions have hurt GE pretty badly. Firstly, there's the $50million fine. You may think this is chump change to GE – but it's money that didn't go into developing a new water filtration system, for example, which could make money down the road. Or invested into a new business plan that could turn into something big. Secondly, its use of financial instruments, including derivatives, and the SEC mark has dramatically eroded investor confidence. Like I said, over $150billion in market cap eroded (about 50%) in the last year alone – and that's after a recovery from $6 to nearly $15 per share (chart here).
High performing companies do NOT resort to D&E Management. It's a Siren's song, straight from Homer's travels, to lure the company ship onto the rocky shores. It seems so simple, and it is, to protect the existing business with financial adjustments that make it look better. But reality is that these poor returns indicate the market is shifting, and that action is needed to reconnect with the shifted marketplace. Whenever executives use D&E practices, including financial machinations (even legal ones) to make the business look better they are ignoring market shifts – which undermines the organization's ability to develop new scenarios, understand the impact of emerging competitors, disrupt old practices and develop White Space projects that can help the company move forward and meet market needs.
It was the willingness to resort to D&E Management that started GM on its long path to bankruptcy. Read "The Fall of GM: What Went Wrong and How To Avoid Its Mistakes" for more info on how easy it is to slip into a rut wiping out future returns.
by Adam Hartung | Aug 7, 2009 | Defend & Extend, Disruptions, Food and Drink, General, Leadership, Lock-in, Music, Openness, Television
"Pepsi Launches Own Music Label in China" is the BusinessWeek headline. Clearly, the Pepsi staff has some new ideas. Recently Pepsi's Chairperson, Ms. Nooyi, made a trip to China for 10 days. Apparently frustrated, she commented to the Wall Street Journal in July that she didn't see enough Disruptive thinking on the part of her folks in China. She indicated the market was robust, but it was different and would take a different approach. It now sounds like her China leadership got the message.
In addition to launching a music label, Pepsi is producing a "Battle of the Bands" show in China. It's almost like a reformatted page from the aggressive growth years of Starbucks. Instead of just expanding into a new geography (China) with the same old playbook (like the floundering WalMart), Pepsi is figuring out how to be a big success. And that may mean producing television, producing music and making people into stars. China's culture is unlike anything in the U.S. or Europe. So doing new and different things will be critical to success. When you see a business developing its own scenarios about the future, taking actions its competitors (Coke) are too hide-bound to try, acting Disruptively to compete and using White Space projects to test new ideas you simply have to be excited!
On the other hand, "Tide Turns 'Basic" for P&G in Slump" is the Wall Street Journal headline about the latest "new" product at P&G. Please remember, the departing P&G CEO was lauded for creating an innovative culture at P&G. But it appears the legacy is a culture of sustaining innovations intended to do nothing more than Defend & Extend the old P&G brands. Now slumping, P&G needs to identify market shifts more than ever, and create new solutions that help it move with market trends. Instead, the company is rushing into reverse! Management not only seem to be driving the bus looking in the rear-view mirror, but actually driving it that way as well!
Tide has been around a long time. Ostensibly a very good product. For reasons explained in the article, managers at P&G felt the best way to sell more product was to make it less good. Really. They removed some of the chemicals that help you get clothes clean, renamed it "Basic" and launched the product at a lower price. It's not "new and improved." It's not even "better." It's literally less good – but cheaper. Sort of like store brands, or private label – only maybe not as good? Doesn't that sort of obviate the whole notion of branding?
People don't ever like to go backward. We like to grow. To learn and get more out of life. When we find a product that works, why would we want a product that works less well? And the folks at P&G missed this. Only by being insanely internally focused, terribly Locked-in, can you think this is a good idea. Looking inside a person could say "well, we want to jam the shelves with more of our branded product. We want to have the word 'Tide' smeared everywhere we can. We think people so identify with 'Tide' that they'll take a worse product just to get the name brand. We're willing to create a less good product thinking that we will get sales simply because it's cheaper than the stuff people really want to buy." Seem a little mixed up to you?
When you want to grow you figure out new ways to Disrupt the marketplace. You develop new solutions, new entry points, new connections with shifting market trends. You figure out how to be the best at the right price. You don't try to give people less, and tell them they are cheap. And Pepsi clearly gets it. They are willing to expand into music recording and TV production. Stuff P&G did when it was really creative and innovative – after all, that's why we call daytime TV "soaps", because P&G produced them just to sell soap. Now we see Pepsi applying that kind of scenario planning and competitive obsession, along with White Space, to develop new market approaches. Unfortunately we can't say the same for P&G — clearly stuck on trying to cram more stuff with the word "Tide" on it through distribution.
by Adam Hartung | Jul 31, 2009 | Current Affairs, Defend & Extend, General, In the Swamp, Innovation, Lock-in
"Deeper Recession Than We Thought" is the Marketwatch headline. As government data reporters often do, today they revised the economic numbers for 2008. We now know the start to this recession was twice as bad as reported. The 3.9% decline was the worst economic performance since the Great Depression of the 1930s. The consumer spending decline was the worst since 1951 (58 years – a very low percentage of those employed today were even born then.) Business investment dropped a full 20%. Residential investment dropped 27%. Stark numbers.
How did business people react? Exactly as they were trained to react. They cut costs. Layed people off. Dropped new products. Stopped R&D and product development. They quit doing things. What's the impact? The decline slows, but it continues. Just like growth begets growth, cutting begets more decline.
Then really interesting bad things happen.
"ComEd loses customers for first time in 56 years" is the Crain's headline. There are 17,000 fewer locations buying electricity in the greater Chicago area than there were a year ago. That is amazing. When you see new homes being built, and new commercial buildings, the very notion that the number of electricity customers contracted is hard to fathom. People aren't even keeping the lights on any more. They've gone away.
In the old days we said "go west." But that hasn't been the case. Everyone remembers the dot.com bust ending the 1990s. "Silicon Valley Unemployment Skyrockets" is the Silican Alley Insider lead. Today unemployment in silicon valley is the highest on record – even higher than the dot bust days. When even tech jobs are at a nadir, it's clear something is very different this time.
The old approaches to dealing with a recession aren't working. While optimism is always high, what we can see is that things have shifted. The world isn't like it was before. And applying the same approaches won't yield improved results. "For Illinois, recession looking milder – but recovery weaker" is another Crain's headline. Nowhere are there signs of a robust economy.
We can't expect an economic recovery on "Cars for Cash" or "Clunker" programs. By overpaying for outdated and obsolete cars we can bring forward some purchases. But this does not build a healthy market for ongoing purchases. These programs aren't innovation that promotes purchase. They are a subsidy to a lucky few so they pay significantly less for an existing product. To recover we must have real growth. Growth from new products that meet new customer needs in new ways. Growth built on providing solutions that advantage the buyer. Only by introducing innovation, and creating value, will customers (businesses or consumer) open their wallets.
Advertising hasn't disappeared. But it has gone on-line. Today you don't have to spend as much to reach your target. Instead of mass advertising to 1,000 in order to reach the 100 (or 15) you really want, today you can target that buyer through the web and deliver them an advertisement far cheaper. I didn't learn about Cash for Clunkers from a TV ad, I learned about it on the web. As did thousands of people that rushed out to take advantage of the program at its introduction – exceeding expectations. It no longer takes inefficient mass advertising through newspapers or broadcast TV to reach customers – so that market shrinks. But the market for on-line ads will grow. So Google grows – double digit growth – while the old advertising media keeps shrinking. To get the economy growing businesses (like Tribune Corporation) have to shift into these new markets, and provide new products and services that help them grow.
I live in Chicago. Years ago, in the days of The Jungle Chicago grew as an agricultural center. There was a time the West Side of Chicago was known for its smelly stockyards and slaughter houses. But Chicago watched its agricultural companies move away. They moved closer to the farms. They were replaced by steel mills in places like Gary, IN and Chicago's south side. But those too shut down, moved to lower cost locations offshore. These businesses were replaced with assembly plants, like the famous AT&T Hawthorne facility, and manufacturers such as machine tool makers. Now, for the last decade, these too have been moving away. With each wave, the less valuable work, the more menial work, shifted to another location where it could be done as good but cheaper and often faster.
Historically growth continued by replacing those jobs with work tied to the shifting market – jobs that provided more value. So now, for Chicago to grow it MUST create information jobs. The market has moved. Kraft won't regain its glory if it keeps trying to sell more Velveeta. Kraft has not launched a major new product in over 9 years. Sara Lee has been shedding businesses and cutting costs for 6 years – getting smaller and losing value. McDonalds sold its high growth business Chipotles to raise money for defending its hamburger stores by adding new coffee machines. Motorola has let mobile telephony move to competitors as it remained too Locked-in to old technologies and old products while new companies – like Apple and RIM – brought out innovations that attracted new customes and growth.
Growth doesn't come from waiting for the economy to improve. Growth comes from implementing innovation that gives us new solutions. Every market, whether geographic or product based, requires new solutions to maintain growth. If we want our economy to improve, we must change our approach. We can't save our way to prosperity. Instead we must create solutions that fit future scenarios, introduce new solutions that Disrupt old patterns and use White Space to help customers shift to these products.
If we change our approach we can regain growth. Otherwise, we can expect to keep getting what we got in 2008.
by Adam Hartung | Jul 22, 2009 | Current Affairs, Defend & Extend, In the Swamp, Leadership, Lock-in
"Pfizer reports lower profit, revenue" is the Marketwatch headline. Unhappy news has become the norm for Pfizer shareholders. Since peaking in 2000 at just under $50/share, the stock has gone nowhere but down for the entire decade – going below $13.00 in 2009 (see Yahoo Finance chart here). You have to go back to 1997 to find the last time Pfizer was valued this lowly. Despite its ownership of several well known, branded drugs – like Viagra and Lipitor – Viagra cannot regain revenue growth or investor interest.
Leadership has done a lot of things the last 10 years to try and improve the business. In 2000, at the valuation peak, the company bought Warner Lambert. In 2002 Pfizer bought Pharmacia (the merged Upjohn/Searle company). In 2005 they spent massively on legal work to protect the remaining patent life on Lipitor. In 2006 they sold the consumer products business to Johnson & Johnson. Across the last 4 years the company has dramatically cut R&D costs for both human and animal products. And earlier this year they agreed to pay a premium to buy Wyeth. But none of this has increased valuation for the last 8 years. To the contrary, value has continued to step down again, and again, and again – losing about 70%.
The problem at Pfizer is management built a Success Formula many years ago, and keeps trying to defend it. They believe in the model of finding, or buying, blockbuster drugs – meaning a product with wide appeal. And selling this only if it has patent protection in order to generate a huge price premium. This made Pfizer huge and profitable long ago. And the company keeps trying to find a way to replay that tune, hoping to achieve the old results.
But the world has shifted. The science of pharmacology has been mined for nearly 100 years. Today, most new drugs have as many problems as benefits. Increasingly, improvement happens only in narrow population niches where genetics align with the chemical additive. Pharmacology is running out of gas. Medical science has shifted to biologics. Instead of looking for a chemical solution, the focus is on nano-tech to isolate product delivery directly to diseased cells. Or engineering to alter genes through cell modification for superior healing performance. These bio-engineering solutions are now offering far better results at far lower cost – while the costs of pharmacology skyrocket amidst diminishing returns.
Pfizer has not shifted. Pfizer management keeps trying to Defend & Extend its old business. Locked-in to the old Success Formula, leadership looks for new drugs, new therapy programs, new solutions that "fit" its approach to the market. But it simply isn't paying off. And everyone from investors to employees to suppliers is at risk. Desperately, leadership is willing to overpay for Wyeth to avoid falling into oblivion when existing drugs come off patent protection in the next few years. But everyone knows this game is nearly over. This may extend the senior leader's jobs, and their pay, it doesn't provide a return to shareholders. Unless leadrship changes the Success Formula Pfizer will never again be as profitable as it once was, or grow as it once did.
Even though it is located in New Jersey, not Michigan, and is full of phramacology Ph.Ds and medical doctors rather than mechanical engineers, Pfizer is more like GM than it would ever admit. It developed a Success Formula, and it is doing everything possible to keep it alive – rather than shift with the market. As GM has shown, no matter how big you are if you don't shift with the market eventually you go bankrupt. Size is no protection from market shifts. Too bad for investors and employees that size is the only thing leadership is trying to use to protect itself.
Don't forget to download the free ebook "The Fall of GM: What Went Wrong and How To Avoid Its Mistakes."
by Adam Hartung | Jul 20, 2009 | Current Affairs, Defend & Extend, eBooks, General, In the Whirlpool, Leadership, Lock-in
Years ago there was a TV ad featuring the actor Pauly Shore. Sitting in front of a haystack there was a sign over his frowning head reading "Find the needle." The voice over said "hard." Then another shot of Mr. Shore sitting in front of the same haystack grinning quite broadly, and the sign said "Find the hay." the voice over said "easy." Have you ever noticed that in business we too often try to do what's hard, rather than what's easy?
Take for example The New York Times Company, profiled today on Marketwatch.com in "The Gray Lady's Dilemma." The dilemma is apparently what the company will do next. Only, it really doesn't seem like much of a dilemma. The company is rapidly on its way to bankruptcy, with cash flow insufficient to cover operations. The leaders are negotiating with unions to lower costs, but it's unclear these cuts will be sufficient. And they definitely won't be within a year or two. Meanwhile the company is trying to sell The Boston Globe, which is highly unprofitable, and will most likely sell the Red Sox and the landmark Times Building in Manhattan, raising cash to keep the paper alive.
Only there isn't much of a dilemma here. Newspapers as they have historically been a business are no longer feasible. The costs outweigh the advertising and subscription dollars. The market is telling newspaper owners (Tribune Corporation, Gannett, McClatchey, News Corp. and all the others as well as The Times) that it has shifted. Cash flow and profits are a RESULT of the business model. People now are saying that they simply won't pay for newspapers – nor even read them. Thus advertisers have no reason to advertise. The results are terrible because the market has shifted. The easy thing to do is listen to the market. It's saying "stop." This should be easy. Quit, before you run out of money.
Of course, company leadership is Locked-in to doing what it always has done. So it doesn't want to stop. And many employees are Locked-in to their old job descriptions and pay – so they don't want to stop. They want to do what's hard – which is trying to Defend & Extend a money-losing enterprise after its useful life has been exhausted. But if customers have moved on, isn't this featherbedding? How is it different than trying to maintain coal shovelers on electric locomotives? This approach is hard. Very hard. And it won't succeed.
For a full half-decade, maybe longer, it has been crystal clear that print news, radio news and TV news (especially local) is worth a lot less than it used to be. They all suffer from one-way communication limits, poor reach and frequently poor latency. All problems that didn't exist before the internet. This technology and market shift has driven down revenues. People won't pay for what they can get globally, faster and in an interactive environment. As these customers shift, advertisers want to go where they are. After all, advertising is only valuable when it actually reaches someone.
Meanwhile, reporting and commentary increasingly is supplied by bloggers that work for free – or nearly so. Not unlike the "stringers" used by news services back in the "wire" days of Reuters, UPI and AP. Only now the stringers can take their news directly to the public without needing the wire service or publishers. They can blog their information and use Google to sell ads on their sites, thus directly making a market for their product. They even can push the product to consolidators like HuffingtonPost.com in order to maximize reach and revenue. Thus, the costs of acquiring and accumulating news has dropped dramatically. Increasingly, this pits the expensive journalist against the low cost journalist. And the market is shifting to the lower cost resource — regardless of how much people argue about the lack of quality (of course, some [such as politicians] would question the quality in today's "legitimate" media.)
Trying to keep The New York Times and Boston Globe alive as they have historically been is hard. I would contend a suicide effort. Continuing is explained only by recognizing the leaders are more interested in extending Lock-in than results. Because if they want results they would be full-bore putting all their energy into creating mixed-format content with maximum distribution that leads with the internet (including e-distribution like Kindle), and connects to TV, radio and print. Pricing for newspapers and magazines would jump dramatically in order to cover the much higher cost of printing. And the salespeople would be trained to sell cross-format ads which run in all formats. Audience numbers would cross all formats, and revenue would be tied to maximum reach, not the marginal value of each format. That is what advertisers want. Creating that sale, building that company, would be relatively much easier than trying to defend the Lock-in. And it would produce much better results.
The only dilemma at The New York Times Company is between dying as a newspaper company, or surviving as something else. The path it's on now says the management would rather die a newspaper company than do the smart thing and change to meet the market shift. For investors, this poses no dilemma. Investors would be foolhardy to be long the equity or bonds of The New York Times. There will be no GM-style bailout, and the current direction is into the Whirlpool. Employees had better be socking away cash for the inevitable pay cuts and layoffs. Suppliers better tighten up terms and watch the receivables. Because the company is in for a hard ending. And faster than anyone wants to admit.
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http://tinyurl.com/mp5lrm
by Adam Hartung | Jul 13, 2009 | Current Affairs, Defend & Extend, General, In the Whirlpool, Leadership, Lock-in
"Is Bob Lutz the right guy to run GM Marketing?" is the question headlined on Advertising Age. I'm sure you know I think the answer is a resounding "NO."
I'll never forget a few months when Mr. Lutz, being interviewed for a national magazine, said the Tesla sports car and the company that developed it was a joke. He said it wasn't a real car, nor was Tesla a real car company. He said the leadership at Tesla didn't know what it meant to be a professional auto company, and to be professional auto executives. He was condescending and rude as to the future of Tesla.
Let's see, Tesla has made a 100% electric car, sold 100% of its output, has investors that aren't the federal government, has never been bankrupt and has never asked for a bailout to stay in business. Meanwhile, the former vice-chairman of GM was a stanch critic of the electric car, saying it would never meet the driving needs of the American public, and fully supported GM killing its electric car program. While he was a leader at GM, the company couldn't even keep 100% of its capacity in operation, much less sell 100% of the output, the company begged the federal government for money to keep it in operation when private investors would no longer invest, and then wiped out the equity holders entirely – and over 80% of the value of bondholders, by leading the company into bankruptcy.
Mr. Lutz was an executive at GM. But that doesn't make him a good executive. In fact, given the performance of GM since 1975 (nearly 35 years) it might be more of a disqualifier than a qualifier. Why would anyone want to hire an executive who stayed in one industry for over 40 years, during which the companies he worked for lost share, saw their margins decline, led in no new technology categories, was perennially late introducing new products, saw their costs spiral out of control, had the lowest job satisfaction in the industry by its employees, had some of the lower quality scores among consumers in the industry and and eventually had to declare bankruptcy?
America loves to glorify, make heroes even, of business executives. Usually of large companies. But few of these executives actually made a significant positive impact on their companies, employees, investors or suppliers. Executives rise because they are very good at supporting the Success Formula, not because they produce significantly better results. As long as the manager turned director turned V.P. keeps reinforcing the Success Formula, in fact many mistakes can be overlooked. Especially if the executive's style is similar to the top brass at the company (same school, same degrees, same geographic origin, same religion, same politics, same views.) What gets an executive promoted at GM (and most large companies) is simply not results. It is consistent reinforcement of a Success Formula, burnishing and amplifying it, even in the face of deterioriating results. Like Mr. Lutz.
There is no popular election of executives. In this case, perhaps there should be. Given how disgusted most people are with GM, I doubt many people would vote to keep the original management in place. And I doubt fewer still would vote to place a 77 year old executive who was part of the long term industry decline and recent failure in a top position. And even fewer would say that a 77 year old is prepared to take on marketing leadership in a world where traditional advertising has declining value, and the best companies are creatively using all kinds of internet marketing programs. Not just because of his age – but because he's never developed the remotest skill to do the work. Many 30 year olds could explain in deep detail how to get viral campaigns working – while all Mr. Lutz could say is he's seen a YouTube! video and read a blog or two. And he gets to manage the 4th largest ad budget in the USA? Isn't that how GM got into this mess – having people in top jobs who were out of step with current market realities?
Businesses exist to put resources to effective use. We measure that effectiveness with cash flow and profits. We ask that the leaders who borrow money from investors (equity and debt) return that principle with a positive rate of return. And we ask that the executives honor their commitments to the employees and vendors. In the case of GM, the executives eliminated the investments made by investors, reneged on the employee commitments and left vendors holding the bag on long-term contracts the company will no longer honor. Even old customers can no longer hold the company accountable for its defective products. By all measures, these leaders failed. And yet someone thinks it's a good idea to keep the same people running this company?
GM needs new leadership. Leadership willing to Disrupt old Lock-ins and use White Space to develop a new Success Formula. Asking Mr. Lutz to be the head of marketing is not a Disruption. It is an action specifically intended to remain Locked-in to the old Success Formula and maintain the re-invention gap between GM and the marketplace. With this kind of decision making, GM will find itself back in bankruptcy court a lot faster than any of the experts even think.
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