by Adam Hartung | Mar 24, 2005 | Disruptions
Today John Dvorak claimed that Sony can no longer innovate. Looking at recent history, he looks right. But I’d say he’s kneeling over the gravestone a bit early. Yes, Sony somehow missed the whole MP3 phenomenon and let Apple steal what should have been their big show. But given the half life of gee-whiz technology and entertainment, this movie is far from over.
Sony is still full of innovators. Both in devices and content. But they are hamstrung by applying old school best business practices that cut off the ideas before they get to market. The change in Sony to "professional management" when Morita retired has caused too much internal focus and inhibited taking highly innovative insights to market.
Morita was a very un-Japanese businessperson. He enjoyed innovation, and bristled at the bureaucracy and conformance that typified Japan. He couldn’t help looking for entrepreneurial new products and markets. Now, the new CEO is an America-trained businessman. America is known worldwide for its entrepreneurism and openness to new ideas. Perhaps he will turn Sony toward this American style – and a return to the days of Morita.
What would we look for? Stringer needs to disrupt the organization a bit by pointing out how their existing processes inhibit innovations working their way through the company. And he needs to loosen up the organization. Fewer number reviews in meetings and more gadget reviews might be a good start. Stringer needs to put both content and gadget folks in the same teams and see what they develop. With so many innovative folks, he needs to create White Space teams with permission to ignore the Sony business systems and create new success formulas. Give these teams permission to be different, and resources to succeed.
Look for White Space in Sony. If you see it, buy the stock. Sony is loaded with ideas – heaven help competitors if they set those ideas free!
by Adam Hartung | Mar 21, 2005 | Defend & Extend, Disruptions, In the Swamp, Lock-in
GM is having a tough time. Last week, the stock (already beat up) dropped nearly 20% on news of weak sales and lower profit expectations. You have to go back more than 10 years (see chart) to find a time the company’s market value was this low. So, what should GM do? What action will turn this venerable company around?
GM has responded to its problems by continuing decades of Defending & Extending its failing business model. It continues to avoid addressing the real challenges to its business while it resorts to white collar layoffs and traditional cuts. These are sure to make the problems worse for GM, and further inhibit the company’s ability to reinvent itself.
GM once tried to re-invent itself. Saturn was created as a way for GM to learn what works in today’s market. Remember the "GME" when they bought EDS? Remember "GMH" when they bought Hughes electronics? Chairman Roger Smith was first lauded, then later pilloried for these forays. Over time, GM let it’s lock-in to the past move them toward getting rid of both EDS and Hughes. That’s too bad, because they offered the White Space for GM to create a company much better at sustaining itself.
Saturn offered GM the capability to turn its auto business around. You CAN succeed making and selling cars in America – look at Toyota. If GM could have given up its lock-in long enough to look at Saturn as White Space they could learn from, and migrate toward, GM could have succeeded. Instead, GM leaders hated the new division and the attack on their lock-in it represented. So they acted to starve it to death.
Whacking a few more jobs isn’t going to save GM. I doubt even GM believes it will. If they want to avoid "junk" status on their bonds, stay on the DJIA, and continue to represent American industry they better start using some White Space to undertake substantial change. Our research has shown that turnarounds such as GM needs happen less than 10% of the time. What works? Changing the company business model via attack on the old operating parameters and the use of White Space to develop a new Success Formula.
When you’re as deep in the Swamp as GM you can’t fine-tune or marginally improve your way back to success.
by Adam Hartung | Mar 8, 2005 | Books, Disruptions, Leadership, Lock-in
On February 11, 2005 BusinessWeek printed an article by the President of an ad agency specializing in small-budget clients. The article said that a survey of 400 companies indicated growth stalls were caused by external factors, but that overcoming these stalls was up to internal company dynamics.
Adam wrote to BusinessWeek in an effort to overcome this traditional, but wrong interpretation. The solution to growth stalls is not found in an internal analysis and improvement in operations. Rather, it requires understanding the use of White Space in order to develop new Success Formulas which can overcome the market challenges and simultaneously address existing Lock-In which got the enterprise in trouble in the first place.
Read the letter by clicking here
by Adam Hartung | Nov 27, 2004 | Defend & Extend, Disruptions, In the Whirlpool, Leadership, Lifecycle
Does anyone think KMart + Sears = a better company? It doesn’t look that way. Most experts say the company is worth nothing more than it’s inventory value plus the real estate. Too bad, for both companies started as tremendous innovators in American retailing.
Kmart pioneered the discount store concept. And Sears pioneered the retail catalog, store credit, private label tools and appliances, and lifetime warranties. Both companies saw tremendous growth during their cycles of innovation.
Was it inevitable that they would both be relegated to below average returns? Absolutely not. Both simply stopped innovating. They turned to defending and extending what they already knew, while other competitors attacked them with new innovations.
But why not change the game now? The bankruptcy of KMart opened the door to new options – including the acquisition of Sears. If the two chains view this latest action as a chance to simply defend and extend their outmoded businesses, they will both simply die off. But if they view this as a major disruption to their business, and realize success will not come from chasing the two entrenched leaders (Wal*Mart and Target), they have the chance to create substantial value for their investors, employees and customers.
The new company needs to open its organization to innovation. The new CEO, coming from restaurants, should eschew the conventional merchandisers and strike out for something new. With the stock worth no more than the real estate, he has nothing to lose and everything to gain.
We haven’t yet heard the new CEO make any claims about the future. If he heads down the road of putting Craftsman in KMart and Martha Stewart in Sears – with great goals of a turn-around – run for the hills! Investors should sell the stock and employees find new jobs. But if he creates a new company that innovates away from the old business and toward something brand new he has a chance of creating a new company that could produce great returns.
The fate of KMart and Sears is not cast in concrete. But the leadership must act quickly while the cement is still wet! They must use this disruption to create something new — not defend and extend "the best parts" of what’s already not working.
by Adam Hartung | Nov 1, 2004 | Disruptions
Kirsten Osolind, a delightfully witty and thought-provoking marketing whiz, pointed out in a recent blog that women were not nearly as likely to embrace the “built-to-flip” mentality as men. The Phoenix Principle is based on an assumption that the owners/managers of a business are in it for the long-term. Otherwise, why bother investing in creating a business that will renew itself?
According to Marsha Clark, an expert in issues related to women in business, women are dropping out of the big corporate buisness scene in record numbers. Many of these women are starting their own companies where they can, as Kirsten says: “groom them as we would our child’s hair.” I wonder what this trend portends about business in the next 20 years, and about the likelihood that increasing numbers of business entrepreneurs will be building businesses that they expect to last over the long-term?
I suspect that women’s influence on business, which is growing quietly in the background, will one day in the not too distant future burst into prominence and create an unexpected disruption across the economy. Why? Women will have irrevocably put their stamp on managment practice and organizational design… and it promises to be remarkably different from that of industrial management.
by Adam Hartung | Nov 1, 2004 | Disruptions
We all know our business goal is to create above-average results. Yet, much of what we’re trained to do in business is sure not to achieve these results.
In the August 24 issue of FORTUNE you’ll find the following analysis of modern marketing http://www.fortune.com/fortune/valuedriven/0,15704,686868,00.html :
“And here is one of the key insights of that science: In category after category, the market leaders are virtually identical. “Virtually” is important. They aren’t absolutely identical. They’re just very, very close. Whether it’s potato chips, toothpaste, disposable diapers, or any of hundreds of other products, the pattern holds. You can tell the difference between Coke and Pepsi if you care about soft drinks, but the difference is minuscule. That’s because endless research has established what consumers like most, and straying too far from those specs is asking for failure.”
What we’re missing from much management science today, including marketing, is the capability to create marketplace disruptions. It’s only by creating market disruptions that companies can achieve competitive advantage. Me-too strategies lead to me-too returns, until the inevitable price war breaks out when one competitor tries to buy share causing everyone to go from mediocre to below-market shareholder returns.
Leaders today need to unlock the breakthroughs inside their companies. They need to encourage breakthrough thinking among the employees. They must overcome the “me too” approaches taught too often in business school, and practiced too often in business. Lead your competition in breakthroughs and you’ll lead them in returns as well.
by Adam Hartung | Oct 8, 2004 | Disruptions, In the Swamp
Belo’s problems continue with a whole raft of shareholder lawsuits. So what do you do when you have a problem? You solve them.
So, when Belo admitted to the inflated circulation, it set out to solve the problem. They did that by finding guilty parties and firing them, and they made restitution to their advertisers. And in focusing on the problem they made a big (and excruciatingly common) mistake. They didn’t look for the external challenge that is the root cause behind all these problems.
What’s the challenge? The company’s Success Formula has become obsolete and they are struggling financially. So, is firing some guilty parties going to solve that? No. Maybe those people should have been fired. Fine. Now what? What will Belo do about the challenge?
Just as I wrote about Merck’s crisis, Belo has the opportunity to really take advantage of this situation. They could create a disruption by seeing this as an indictment of their strategic assumptions and decide to reinvent them. However, if they stick with the actions they’ve taken thus far, this whole unsavory event will amount to a mere disturbance—an annoyance that the company has to deal with so they can get on with business as usual. And if that happens, we may not have to wait long for the next negative headline…
by Adam Hartung | Oct 8, 2004 | Disruptions
It isn’t every day that a company loses $25 billion (yes BILLION) dollars of stock value in a single day… or a company has the courage to do the right thing even knowing they’re going to get hammered for doing so. But that’s what Merck did.
Merck & Co. on Thursday recalled its arthritis drug Vioxx after an ongoing trial confirmed the medication increases the risk of heart attack and strokes. The news sent stock down nearly 27 percent and erased $25 billion from its market value.
Merck’s pulling of their blockbuster drug Vioxx off the market was an act of courage and integrity that is almost unheard of in an age of Enrons and Tycos . But instead of focusing on that, everyone seems to be wondering who to blame. Well that’s the wrong question and the wrong line of thought.
I would be asking, “who’s going to be the hero at Merck that seizes on this challenge and uses it as an opportunity to create a breakthrough for the company?” This event has created a disruption at Merck—there’s white space in the shadow of this disaster that will allow them to make just about any changes they want to make—and this sort of opportunity is very hard to come by.
Normally, companies are so hide-bound by their locked-in behaviors and organizational structure that they can’t break out of the status quo to make the important strategic shifts that would position them for a brighter future. SO, as bad as this situation is for Merck, it is also a golden opportunity. The big question is what will Merck do with it?
What could they do? Well they could leverage the integrity of their action to create trust with a customer base that has grown wary and cynical about drug companies—what would that be worth? They could re-examine their assumptions about the viability of the drug company model that puts them in feast-or-famine mode depending on the next great blockbuster drug to emerge from the R&D labyrinth. What changes could they make that would diverge from the industry norms and give them a real advantage?
What ideas do you have?
by Adam Hartung | Aug 19, 2004 | Disruptions
Google’s IPO is the talk of the town today. The company’s decision to take an unconventional approach (called a “Dutch auction”) and offer shares for sale to small investors has drawn the ire and ridicule of all but a few (Fast Company magazine praises Google’s courage in their current issue, but they’re the exception).
Who knows if it will earn Google the extra hundred’s of millions of dollars that they hope for… that’s not the real story here anyway. The real issue is about Google breaking the rules for how big companies do IPO’s and the hue and cry it has raised among the entrenched investment banking community.
This is a classic example of an emerging trend that is signaling a sea change in how the established system works. The traditional way of doing IPO’s involved the investment banks determining the market price, offering the shares to their best customers, and raking in huge profits as a percent of the capital invested. A Dutch auction involves selling directly on the open market, thus avoiding much of the cost and generating significantly more capital for the company.
Google isn’t the first company to use this approach but it is the biggest. The institutional investment community is hoping and praying that it will fail… because, if it doesn’t, their way of doing business will change profoundly and they will end up big losers. Predictably, they’re doing Defend & Extend (D&E) actions to protect their Success Formula—ridiculing the approach in the press, vowing to boycott the IPO, etc.
Here’s the bad news for the entrenched institutions: the game is already over. It doesn’t matter how Google’s IPO goes, your Success Formula is doomed. Why? Because it is obsolete for today’s technology and today’s society. It has been propped up for years through oligopolistic practices, cronyism, fear-mongering and intimidation. But the evolution of Success Formulas is relentless and undeniable—yours will fail and be replaced, it is only a matter of time. However, due to your lock-in to the current system, it is unlikely you will participate in the new system that emerges.
That’s bad for the entrenched investment community, and good for just about everyone else, and that should have been their first clue that something was amiss…
