by Adam Hartung | Apr 24, 2007 | Defend & Extend, General, In the Swamp, Leadership, Lock-in
When you can predict behavior in business it is the first step to taking competitive advantage. When you can predict competitors, you know what to do to beat them. And you can take steps as an investor, employee, supplier or customer to decide how you’ll interact with them in your own best interest.
I blogged several days ago that the buyout of Tribune Company would force them to continue taking actions operate their Success Formula More, Better, Faster, Cheaper rather than addressing changing market factors. Even though it is certain this behavior will continue to hurt performance because that Success Formula is woefully out of date and not meeting market needs in world where news travels via the web. The debt load alone would create that Lock-in since it dramatically limits options. Further, the leaders last year were manipulating results (all very legal I’m sure) in order to maximize their bonuses and mask bad business performance.
What have we seen this week? On Friday the Chicago Tribune reported (see article here) that the company cash flow was off 12%. Of course! The leadership did everything possible to goose up cash flow at the end of the last year in order to maximize bonuses and attract a buyer for the company. It was easy to predict that cash flow would decline, and results would lag peers even in the struggling media industry. Then today Tribune Company announced it is cutting jobs across all its properties (see article here.) Of course, it has to cut costs to protect the old Success Formula. (When what the leadership needs to do is invest in internet projects to transform the company.)
Tribune once made a lot of money. Then the market changed as people moved from newspapers to the internet. But Tribune company did not adjust to that market change nearly rapidly or powerfullly enough. The company tried to tweak it’s Success Formula with cost cutting exercises while hoping the business would return to its prior state. Now, it’s More Of The Same while management keeps hoping that the past will return. But it won’t happen. And things will keep getting worse as cost cuts lead to further problems with the paper and fewer readers and fewer advertisers leading to more cost cuts – a vicious cycle. The business needs to change remarkably toward the internet – but now leadership and ownership is so Locked-in to the old Success Formula they can’t. They’ve refused to Disrupt and there is no White Space. And so Tribune Company is becoming very predictable. That’s bad for the employees, suppliers and new debt-holders. Good for competitors.
by Adam Hartung | Apr 19, 2007 | Defend & Extend, General, In the Swamp, Lock-in
In sports we talk about a player looking to go right and then going left and call that a "fake-out." We’re seeing the business equivalent today at Tribune company. In their own paper the company featured an article on a new "hyperlocal" web site being rolled out that is supposed to indicate a new approach for Tribune Company (see article here). This a a fake-out.
On the face of it, the new web sites may look like White Space and therefore a good thing. But the reality is that Tribune is incredibly Locked-in to its outdated Success Formula – and as I’ve blogged they are loading up on debt which will insure they remain Locked-in. This venture lacks 3 critical criteria for it to be considered White Space:
1 – the company has not Disrupted any of its old Lock-ins. They have not admitted that the Success Formula is outdated, and they have not attacked any of the Lock-ins keeping the company doing what it has always done. Without an attack on the Lock-in this kind of venture will soon run into all kinds of obstacles (from editorial to ad sales) and find itself without nurturing or any chance of success.
2 – the company has not committed any significant resources to this effort. They admitted it is only a small test. They have no promises to see it through to any kind of success, and have said they have concerns about how it will even work.
3 – this project is not something in the front of the Rapids which they can get behind big and hope to change the company. Cars.com or CareerBuilder.com are examples of things in the Rapids they could move into White Space and use to change Tribune company’s Success Formula. This project is so small and market-early that it is in the Wellspring and unable to make any real impact on results or the operations of Tribune.
It’s not just claiming you have a White Space project that makes it true. You first have to Disrupt your Lock-ins to give it a chance for success, you have to commit resources to see the project through, and you have to pick projects that are big enough to push your business back into the Rapids.
by Adam Hartung | Apr 18, 2007 | Defend & Extend, General, In the Swamp, Lock-in
Readers of this blog know I think WalMart (see chart here) is horribly Locked-in and thus well into the Swamp. As the chart shows, this has left them with maudlin performance (at best.) I recently posted on their fiasco firing the ad agency as part of firing their own advertising director in an effort to preserve that Lock-in and outdated Success Formula.
Today we learn (see article here) that WalMart’s fired agency, DraftFCB, is going to get the KMart account. This is a sharp move for Kmart. After WalMart and DraftFCB spend millions to study the discount retail marketplace, WalMart walks away from that research in order to preserve its own beliefs. So, KMart now gets all that research for free. And it is a very smart competitive move. KMart is using WalMart’s Lock-in to their advantage. And any time you do that, you improve your odds of succeeding.
Of course KMart is part of Sears Holdings (see chart here), and I’ve blogged often at how Locked-in Sears is. So I’m really not that optimistic for KMart. I think Eddie Lambert, Chairman at Sears Holdings probably took this move because he thinks he can save a few bucks. And, DraftFCB is famous in its industry for having some of the best cost justification work there is, which appeals to Mr. Lambert’s cost reduction Lock-ins. Nonetheless, it is a clever move that takes advantage of a competitor’s Lock-in, and any business that wants to succeed should look for such opportunities.
by Adam Hartung | Apr 17, 2007 | Defend & Extend, General, Lock-in, Openness
Will Rogers once said "All I know is what i read in the newspapers." While many have heard that phrase, few know that the back half was "and of course I’m the most ignorant man alive!" It was his joke that newspapers often obscured important bits of information.
Dow Jones (see chart here) just announced earnings. But, be careful what you read. The headline boasted "a 63% drop in quarterly profit due to a year-earlier gain." (Obtain full article here.) Pretty clear Defend & Extend language telling investors to ignore the decline because the past and current aren’t really comparable. Further on we real lots of D&E obfuscation as we learn revenue is up, but then again they bought half of Factiva not previously included in revenues. And tax benefits positively affected resuls – which is code for "real tax payments and GAAP reported payments don’t match so we manipulate a bit year-to-year in GAAP to suit our needs." These financial machinations are common in D&E management trying to sustain an old Success Formula nd make it look better than it is.
So you wold conclude that I think Dow Jones, like I’ve previously blogged on Tribune Company, is in dire straits. Not so!
Read on in the article and we learn that Dow Jones is not just The Wall Street Journal and Barron’s. It is also MarketWatch (a great website from which I get substantial business news), WSJ on-line and Barron’s on-line. WSJ on-line paid subscriptions rose 20% last quarter, and ad revenue at the on-line Journal and Marketwatch climbed 30%! And, in the on-line business units of the 8 daily and 15 weekly local newspapers owned by Dow Jones revenue jumped 66%! Meanwhile the Index business grew 5.2% even after honestly comparing the business pre-Factiva and post-Factiva acquisition.
Yes, ad revenues at the print WSJ dropped 1.8% on a 3.1% volume decline. And the local papers saw revenue fall 3.5% on a 4.6% volume decline. But Dow Jones management should quit apologizing for this, such as stating that a small decline "is not really bad in this environment." Dow Jones’ future is not about print products, it’s about the on-line world. The world Tribune and other media companies has not effectively addressed. Dow Jones is clearly in the market with their products and doing some good things growing readers and advertisers.
Get beyond the headlines. Look if there is White Space inside the company. No matter what management leads with, the winners will be those who play the game for the long-term market. Dow Jones is clearly one of the old-media companies that at least has its eye on the market and some effective White Spce producing positive results that the company appears to be migrating towards.
by Adam Hartung | Apr 11, 2007 | Defend & Extend, In the Swamp, Leadership, Lifecycle, Lock-in
Today Citigroup announced it intends to dramatically overhaul operations (see stock chart here). The company will cut 17,000 jobs as it strives to remove $1.2B in expenses. Citigroup says it is doing this in order to grow. Huh?
Setting the stage: Citigroup is the country’s largest financial institution. Until the last few years when oil prices drove up profit for oil companies, Citigroup was the most profitable company in the world. But the last few years it’s profit growth has not kept pace with competitors such as J.P. Morgan and Bank of America (see full article here). Several stock analysts have charged Citigroup with not keeping up its competitiveness, despite pioneering much of what is most successful in the industry today. Expenses have risen at a 9% clip, which has been faster than revenue at 6%. Quotes from Jim Huquet at money manager at Great Companies reflect the consensus view, "They are moving in the wrong direction, and probably going to end up trailing chief rivals…Our concern is that the company really doesn’t have a good sense of where it’s heading..they need someone in charge with a bigger vision…[asset management] is a very profitable.. it provides ocmplexities to management…key rivals have been able to work through those issues…They talk about cost-cutting and stratetgic planning as if they’re coming up with some huge revelations…well-managed businesses do that just like breathing…managing costs and growing revenue aren’t luxuries."
The key player is Chief Executive Charles Prince. Mr. Prince is a a lawyer, and when he was appointed many people thought his background appropriate for dealing with compliance issues that became very important after 9/11/01 and passage of both the Patriot Act and Sarbanes-Oxley. But now, Citigroup is facing a serious Market Challenge. Its competitors have begun copying several of its successful businesses and products, and applying their own innovations to operate those businesses more profitably. Citigroup needs to adjust to these changing industry forces that have impinged its profits. Citigroup needs to revitalize the innovation that has been a cornerstone of its long-term success.
What did Mr. Prince and Citigroup do? Like I said above, announced a 17,000 person layoff. That’s about 5% of the workforce (across the board, of course.) Citigroup will ship a lot of this work offshore – with Poland an apparent beneficiary (see article here.) They also intend to centralize purchasing supplies and services. Now remember, Citigroup isn’t making physical product where purchasing is central to manufacturing. We’re literally talking about buying paperclips, staplers and computer programmers. Nonetheless, centralization is a core plank of the plan as they hope to move global purchasing from 65% of spending to 80% by year-end and 100% by end of 2009. Let’s see, this is the CEO of a DJIA company taking on a significant market Challenge by focusing on how the company buys supplies!?! The COO said "That’s the kind of philosophical change we’re looking at enforcing throughout the company." (see full article here.)
Today, financial services is a digital business. The work is all bits and bytes for traders and lenders, and digital documents for borrowers and lenders. So, naturally, Citigroup is cutting $375million in technology this year and about $550million additionally each year through 2009. The company is closing 40 Smith Barney offices and, according to the COO "closing down facilities where we have excess space, closing down some small businesses that we have been in for a long time….Because of the way we were structured internationally, there was a lot of duplication between global product capabilities and capabilities at a sector level and then in a regio an dthen in a country..we were able to take out a lot of those duplicate capabilities." I’m reminded of Ralph Waldo Emerson’s famous line "needless consistency is the hobgoblin of small minds."
Citigroup has not hit a growth stall, but it has been impacted by rising competition. The company is at an important junction. It needs to deal with serious marketplace Challenges being wrought by well-funded, smart and large competitors. And, it is taking action to Lock-in its old Success Formula! Rather than dealing with the market Challenge the top brass is focusing on The Problem (the earnings). Instead of addressing the lack of performance in White Space projects, they are cutting costs and killing off these projects. Citigroup isn’t using innovation to deal with the market and get back on track – the leadership is slashing costs to short-term beef up profits and in the process Locking-in even further the Success Formula which has recently seen weaker results. They aren’t stepping up to maintain their position as global leader, but instead falling back into Defend & Extend management in hopes they can recapture old profit rates.
Of course, this plan completely ignores the competition. While Citigroup is busy with cost cuts, BofA and JPM will keep marching forward with their customer acquisition and new product programs. BofA and JPM will continue to push to lower their costs, greatly nullifying the supposed benefits of Citigroup’s efforts. In fact Joseph Dickerson of Atlantic Equities believes BofA is likely to hire many of the Citigroup ousted folks to staff its rapidly growing European expansion! While Citigroup is looking in the rear view mirror and trying to catch past results by whacking away at its old Success Formula, Jamie Dimon at JPM is whacking away at their customer base while matching their cost model – and then some.
Turning to Defend & Extend Management practices is absolutely the wrong thing for Citigroup to do. The company isn’t in dire straits. It’s not facing bankruptcy or being attacked like GM. But Citigroup did take its eye of the marketplace while focusing on the compliance matters (by the way, everyone in the industry had to step up to the same compliance issues Citigroup faced). This has allowed a re-invention gap to develop. Instead of turning back to the marketplace with White Space projects, many of which already exist, to rebuild the Success Formula for better results the CEO and COO are turning inward, and slashing costs to Defend & Extend the problematic business. After this enormous write-off we may see a few quarters of improved results (or maybe not), but long-term this is definitely not a good move for shareholders, bondholders and employees.
by Adam Hartung | Apr 8, 2007 | Defend & Extend, General, In the Swamp, Leadership, Lock-in
March auto results came out last week. (See article here)
Toyota sold 12% more than a year ago. Honda’s U.S. sales rose 11%. Nissan’s rose 8%. Hyundai and Kia also posted increases. GM sales fell 4%. Ford sales fell 9%. Chrysler sales fell 5%.
What’s interesting is the comments made by the U.S. manufacturers. GM said sales were off because of "planned reductions in sales to rental fleets." Ford said they also suffered from declining rental fleet sales, but they are dependent upon big-vehicle (SUV and truck) sales and the F-Series saw a 15 percent sales decline. And, of course, last year saw record sales for these vehicles so this month should be ignored. They also seemed to miss that sales of Toyota’s full-size truck sales quadrupled (that’s 4x) in the month.
Defend & Extend management reacts to problems by pretending the problems don’t exist, or saying that there’s an explanation indicating the problem isn’t real. Avoiding the problem is a common reaction to problems for D&E managers.
GM, Ford and Chrysler are loaded with D&E managers more intent upon prolonging the Success Fomulas than dealing with the market Challenges. Meanwhile, Toyota, Honda, Nissan, Hyundai and Kia are selling more cars. When a Success Formula no longer produces positive results it needs to change. But Defend & Extend managers are unwilling to admit it. And until they do, it makes competing much easier for the small market players.
by Adam Hartung | Apr 8, 2007 | Defend & Extend, General, In the Swamp, Leadership, Lock-in
There are lots of ways to Lock-in a Success Formula, and one of the best is compensation. If the Board of Directors, or management, wants to make sure that Defend & Extend management flourishes, all it has to do is compensate people to do what they’ve always done.
We’ve seen this tactic executed well at the Tribune Company (see chart here). As I’ve blogged recently, Tribune has done nothing for shareholders for years (check the chart if you have any doubt). And now it’s moving forward on a leveraged buy-out that’s sure to leave it no cash for any new initiatives, despite incredibly fierce market Challenges from new internet players. As was recently stated by the soon-to-be Chairman Sam Zell, he doesn’t even care of if cash flow goes up, he just doesn’t want it to go down (see full quote here.) Well, he can hope for that unlikely outcome – but it’s not the point of this blog.
Rather, this blog is about the compensation for the senior team at the Tribune. According to the Chicago Tribune newspaper (see article here), top management is being rewarded very healthily for this deal. The Chairman is getting not only his $1M salary, but a bonus almost 5x his previous. And, he’s getting big guarantees of future pay and bonus for 3 years. Most of the management team will, in fact, get huge severance payments no matter how the future turns out for the business.
Tribune Chairman FitzSimmons is a lawyer by training. So what did his personal Success Formula tell him to do when the market shifted and the internet started driving down revenues and profits? Instead of trying to fix the business, he opted to sell it! For a lawyer, a legal solution seems lots better than a business one. And, to make sure he got everyone on board to do a deal, he tied compensation to creating one. As the article points out, for the last year his bonus was largely tied to increasing cash flow – not to finding new revenue sources, or finding new advertisers, or developing a strategy to compete. No, it was tied to generating cash. So, he and his team kept up the pressure to CUT COSTS. And through that, he pumped up the cash flow in order to make an acquisition more palatable and find a buyer. The compensation wasn’t tied to dealing with market needs, but rather to Defending & Extending the broken Success Formula, and finding a buyer to take it over.
Now we can look to the future. The vey top management of Tribune will share in approximately $650million of bonuses if the company can pay off the $13billion of debt the company will hold post-transaction (see article here). Once again, compensation wll drive the Lock-in to doing nothing new, and instead continue the cost cutting to D&E the failing Success Formula.
Suppliers, shareholders, bondholders and the consumers of newspapers in Chicago, L.A. and elsewhere will all suffer as the Tribune continues to be raided for more cash to dig out of this new debt avalanche. But the people who made the decisions are getting hefty sums. And it just goes to show the power of compensation as Lock-in. No risk was taken of possibly saving the business – only cutting costs from a horribly broken Success Formula. Good luck Mr. Zell. And to all of us who have depended on the Tribune Company.
by Adam Hartung | Mar 27, 2007 | Defend & Extend, General, In the Swamp, Leadership, Lifecycle, Lock-in
One of the greatest brands in all of marketing is Harley Davidson. One claim to fame is that Harley images are the #1 most tattooed logo in the world. Now, that takes a dedicated customer – or even a non-customer! But Harley is in some trouble, and in fact deeper trouble than many folks realize.
Harley’s latest rise came after being repurchased by family of the founders from the conglomerate AMF in the 1970s. These leaders refocused Harley on its roots as an "outlaw biker" brand, and Harley recaptured the position as the #1 manufacturer of large motorcycles. Today it’s not only the "outlaw" buying and riding a Harley, but in fact people from many walks of life who want the "motorcycle experience." Harley’s problem today is that it has positioned itself so strongly with its big "V-Twin" (referring to the type of engine used) bikes that its appeal is almost exclusively with buyers who are old enough to remember seeing the movie Easy Rider. Every year that’s a shrinking number. It shows in the average age of a new Harley buyer. From about 42 ten years ago, the average age is now 47. These are the people who both seek recapturing the image of "outlaw" and can afford $28,000 for a new motorcycle (about 3 times the price of similar motorcycles made by Honda, Suzuki and Kawasaki.)
Today’s younger motorcycle riders have been able to avoid Harley’s in droves. They are much more captured by what some people call "crotch rocket" motorcycles. Built off the racing style frames used in high speed racing, these motorcycles are far faster off the line than a Harley, often have higher top speeds, usually require less maintenance and start as low as $6,000 – with the top racers costing only $14,000. Ripping off an old Oldsmobile ad phrase (a brand now retired at GM), my sons look at a big V-Twin and say "Yep, that’s my dad’s motorcycle".
Harley tried to address this problem about 6 years ago by launching what it called the V-Rod. This was a totally new design, using an engine made by Porsche. It was intended to bring in the younger rider. But dealers took one look at the bike and said "It’s not a Harley." They didn’t like the style, and they didn’t like the lower price. They wanted to keep selling the big, old-style bikes with the big, fat profit margins. So they turned thumbs-down on the V-Rod, and Harley let them. And their chance to reverse the trend of a dying off customer base was lost (does this remind you at all of Apple walking away from the Newton – the first successful PDA – because it wasn’t a Mac back in the late 1990s?).
Now Harley’s suffering from a recent strike (see article here). But the word around Milwaukee (Chicago’s neighbor) is that Harley took the strike because it had more bikes in inventory than needed. And some analysts are predicting that tighter credit will hurt Harley sales (see Marketwatch Herb Grennberg blog here.) Harley’s market capitalization is down about 20% in 2007. As more folks realize that the brand is at risk of soon dying off (literally), the risk is that its value will fall further. Like I said, my sons (college and high school) want jackets that say Honda – not Harley.
Locking in on a Success Formula can produce spectacular results. Harley Davidson demonstrated just how long and how powerfully a good Success Formula can operate. Harley, its suppliers, its dealers and its customers have had a tremendous 30 year run, with equity value going up 60x just since 1987. But, like all markets, the market for motorcycles is changing. And Harley is at great risk of once again lapsing into declining sales. The company’s sales of bikes have stalled, and already dealerships achieve between 40% and 60% of revenue through paraphernalia (t-shirts, jackets, and other logo gear). Harley management forgot to Disrupt when they launched the V-Rod, and they let the organization push away their breakout product for the future. Since then, there has been no White Space producing innovation at Harley. The company is horribly Locked-in to its old market position, and the fuse is lit on what is going to eventually be a very unpleasant surprise when the brand starts retrenching.
by Adam Hartung | Mar 24, 2007 | Defend & Extend, General, In the Rapids, In the Swamp, Leadership, Lock-in, Openness
Readers of this blog know I’ve been a real fan of Motorola. I’ve waxed eloquently about the Disruptions implemented by the new CEO when he came to the company in 2004. And likewise I’ve been an endorser of the multiple White Space projects he implemented (see previous blogs on Motorola for details.) But this week, lots went the wrong direction at Motorola.
Motorola reported that it would have a loss for the first quarter of 2007 (see article here.) That means the clock is now ticking on what might be a growth stall. As previously written here, companies that hit growth stalls have only a 7% chance of really ever growing again. Motorola stalled badly in the late 1990s and early 2000s, and they were rebounding when this loss hit. The risks are great here – and there should be no doubt about it. If the company posts another down quarter next, the odds are getting slim on success.
What went wrong at MOT (see chart here)? Firstly, White Space must be managed toward success. While the company implemented a lot of White Space, and the impact showed in a dramatic turnaround from the situation in 1999, management did not hold White Space accountable for results. White Space is not an excuse to let results falter. Rather, management should have been aware of the precarious predicament in the large mobile phone business and PUSHING White Space to produce rapid results. As recently as this week, the very week that the bad results were reported, Motorola was expected to be announcing plans to buy PALM in yet another expansion of White Space to grow the company. But this looks much less likely now, because leadership opened White Space but did not manage it effectively.
Secondly, Ed Zander failed to Disrupt himself while Disrupting Motorola. When arriving at Motorola he moved fast to Disrupt. Of course, Disruption was "normal" at Sun Micrososystems where he used to work. Chronic Disruptions were part of the Success Formula at Sun, and became part of his Success Formula. But Sun got into big trouble when it became overly committed to a single market in network servers. Unfortunately, Motorola was allowed to be too committed to a dependence on mobile phones. What we now see is that while Mr. Zander was OK with Disrupting and opening White Space, he did not actually Disrupt his personal Success Formula and change the way he believed a business should be managed.
Once confronted with the threat posed by Mr. Icahn, Mr. Zander approved a quick $4.5billion stock buyback. And now he’s agreed to an even larger $7.5 billion buyback (see article here) – representing 75% of Motorola’s cash reserves. And he’s put in place a President and COO from inside the company – a sign of creating distance from the Disruptions and White Space he implemented (see article here) .
These are not good signs. I’ve had high hopes for the White Space at Motorola. If we recognize where the company was just 3 years ago, it has traveled a very successful road. The question now will be does leadership have the will to continue its road of Disruption and White Space to create a more successful Motorola? Will it follow through on the acquisition of PALM, given the current Challenges? If it does, and management holds the White Space leaders to business demands for results, Motorola can become again a great company. If it keeps following its recent trends – retrenching to Defending and Extending its mobile phone business and acting to protect management – then recent gains will be quickly unwound.
by Adam Hartung | Mar 19, 2007 | Defend & Extend, General, In the Swamp, Leadership, Lifecycle, Lock-in
In the early 1980’s Roger Smith took on the market Challenges facing General Motors. (see chart here) In bold strokes, he expanded GM beyond its old Success Formula including the acquisition of a high tech information company (EDS), a high tech electronics company (Hughes Electronics) and creating an entirely new auto company built on a clean sheet of paper (Saturn). These actions created the opportunity for GM to escape its past and become something entirely new.
But Roger Smith did not change the Lock-ins at GM. He did not Disrupt the organization and attack Lock-ins based on old biases related to what many employees thought GM should be. He did not change the company’s decision processes, its core metrics, its information architecture, its dependence upon a common prototypical GM manager, its relationship with labor nor its hoarding of knowledge in isolated silos. As a result, the White Space projectes survived only a few years after his retirement. EDS and Hughes are once again stand-alone companies, and Saturn has been "integrated" into GM causing it to lose its cache and much of its early loyal fan base.
As a result, GM today is much like it was in the 1970s – and much to our chagrin. (a look at the referenced chart will show that the company today is worth what it was in 1971). The company is a perennial low-player on the return-on-capital pole. It’s market share has steadily lost ground in the traditional auto market to imports. And P&L losses have mounted to the point that in 2005 and 2006 some questioned the very survivability of GM.
Similarly, a decade ago Jack Greenberg took on the market Challenges facing McDonald’s (see chart here). In the early 1990s he began acquiring Boston Market, Chipotle Mexican Grill, Donato’s Pizza as well as equity interests in Fazoli’s and Pret-a-Manger. Some of these were breakout performers, not only doing well in restaurant sales but even in the frozen food case at the grocer (particularly Boston Market). But Jack Greenberg did not Disrupt McDonald’s, nor did he attack its Lock-ins. Then he retired.
In January, 2007 executives at McDonald’s told the leadership of Boston Market they intend to sell the company (see full article here.) Once completed, this will completely reverse the White Space projects previously implemented. McDonald’s will once again be a "focused" franchisor and operator of hamburger establishments. The company is pinning its future hopes on yet another hamburger – the $3.99 Angus Third Pounder (see full article here). The old Success Formula – sell sandwiches -is once again dominating all activity at McDonald’s.
In the short-term, management is bragging about how its back-to-basics "Plan to Win" campaign has improved profits at McDonald’s. In reality, management has captured huge gains from the earlier diversification moves, in operating profits and in one-time gains from selling the businesses, which have all been booked to the bottom line in support of Defending & Extending the old McDonald’s Success Formaula.
But long-term, we know what to expect. This is the GM story, only with ketchup on it. Within a few years McDonald’s will be back again to fending off predators in its "core market." McDonald’s is in fact late with this latest burger, coming over 2 years after Burger King launched its Angus Steak Burger and after more than 8 variations of such products have been launched at Hardee’s and Carl’s Jr. since 2003. And the company is still vulnerable to the kinds of Challenges which sent them spiraling downward 6 years ago – potentially a renewed Mad Cow illness, or another attack on trans-fats or other health concerns, or franchisees complaining about no growth, or simply from the in-kind competitors it recently sold off grabbing a larger share of market.
We can’t predict the issue that will next stumble Big Mac. But we can be sure that the old Success Formula has already proven it has hit diminishing returns – and the future for McDonald’s looks a lot like GM’s. And that should scare a lot of people.
