by Adam Hartung | Jan 4, 2009 | Defend & Extend, General, In the Swamp, Leadership, Lock-in
2009 starts in earnest for businesses this week. And for many leaders and managers, the focus will be about "what should I do now?" Things were tough in 2008, and many are wondering if 2009 will be even worse. So the tendency is to look at how things have been done, talk to existing customers, and see if there's a way to keep doing things but possibly with fewer resources. Many businesses are looking for some new way to Defend & Extend the old business – even as leaders realize the returns are declining.
And that just might make you a target for competitors – thus worsening your situation.
Think about what's gone on in Detroit. GM, Ford and Chrysler have kept focusing on what they should do. In the process, they've paid precious little attention to competitors. As a result, they've kept slipping share year after year, while profits have disintegrated. Now, each American company keeps focusing on its own problems, and trying to find a way to deal with them. Meanwhile, as the Wall Street Journal is reporting (link to article here), competitors such as VW and BMW – at the least – are targeting the U.S. Big 3 automakers.
Recognizing how weak these U.S. companies have begun, the German manufacturers are taking aim. The other German manufacturers, as well as Japanese, Korean and Indian are doing the same, we can be sure. And why not? In business, the best time to attack your competitor is when they are ignoring you and focusing on themselves. All the layoffs, reorganizations, pay cuts, plant shut-downs and other internal actions give the company a false sense of "doing something" to solve their problems, when in fact it makes them a target for more market-aware competitors. By focusing internally, even if talking to existing customers, these companies make themselves targets for those who understand their Success Formulas and have developed ways to attack it.
Woolworth's was a leader in American retailing for decades – until they were displaced by more aggressive retailers they chose to ignore. But after going bankrupt in the U.S., the chain lived on in the U.K. until this week – where after 99 years the chain will close on Tuesday (see video about Woolworth's failure here). Woolworth's spent its energy trying to figure out what it should do in a weak market environment, and it missed more aggressive competitors who moved faster to liquidate inventory at lower prices and keep customers coming in the store as sales declined. Yet, Sears and its KMart subsidiary keep trying to find ways to "resurrect" their out-of-date business – oblivious to more aggressive competitors such as Kohl's that are rapidly making Sears obsolete. How long will Sears survive ignoring the aggressive actions of competitors that would like to drive it out of business?
It's tempting, especially in a tough economy, to look inward. Phrases like "cut the fat" and "get lean" sound very appealing. It makes managers think solving problems is all about improving execution of the old Success Formula. But it's the Success Formula itself that needs addressing – not execution! When markets shift, it's competitors that make the Success Formula value decline. It's competitors that create the market evolution obsoleting your business. Competitors generate the "Creative Destruction" which pushes down results.
Competitors are what makes for tough business conditions. Instead of talking to ourselves, and customers that know us only for what we've been in the past, we should be a lot more focused on competitors and what they are doing. The competitors that act quickly to introduce new products, new technologies, new services and new customer programs are the ones that will steal share in these tough times. It's competitors that deserve a lot more of our attention – because they are the ones who are causing our market share to decline, our prices to stagnate and our profits to drop.
Phoenix Principle companies obsess about competitors. They eschew spending lots of planning time on what they used to do, and what the old plans were. Instead, they spend time talking about actions taken by competitors – and then figuring out how those competitors accomplish those actions. Competitors show us new technologies to introduce, new features and variations desired by customers, and new ways to improve sales and profits. As the chairman of Intel, Andrew Grove, once said about competitors "only the paranoid survive."
No one wants to get chewed up in this recession. But focusing internally makes you a target – like GM, Ford, Chrysler, Woolworth's U.K. and Sears have become. While they obsess internally, competitors are taking innovation to market. Those who want to not only survive, but thrive, in 2009 will be the ones who look at competitors to understand the actions they take, and to move competitively to thwart those actions. As they understand competitors, they will launch actions intended to make competitors' lives miserable – thus stealing share from them. Winning in 2009 is about being a tough competitor, not waiting for someone to bail you out.
Success rarely comes from doing more of the same – even if better, faster or a touch cheaper. Success comes from developing and launching new offerings that steal sales from competitors. To hold onto your share, you have to fight off competitors. To grow, you have to outdo competitors. And in 2009, with things as tough as they are, those companies who will avoid having a target on their backs will be the ones who focus on competitors, rather than themselves.
by Adam Hartung | Dec 28, 2008 | Current Affairs, General, Leadership, Lock-in, Openness
It's that time of year when people take to making forecasts. From Marketwatch.com (see how you can enter as a forecaster at Barron's here) to networking groups, organizations are asking for forecasts. Many executives will turn to their favorite journalist, economist, internal strategy leader, or perhaps marketing leader and ask for a forecast for 2009.
But seriously, why bother? Did you read any forecasts in December of 2007 that came close to predicting the events and outcomes of 2008? From current events (such as the U.S. election), to the markets (such as the DJIA or S&P 500) to business conditions (such as GDP performance, manufacturing indeces, unemployment), to commodities (such as the price of oil, corn and gold) no one guessed hardly any of these correctly.
Actually, it's surprising anyone tries to forecast. All forecasts are based upon taking some historical time series and predicting it into the future. The forecasting process itself is flawed because it tries to project some sort of similarity to the past – with variations explained by some predicted event. Things really aren't much different than they were when Benjamin Franklin made his forecasts in Poor Richard's Almanac. The odds of things going along the same are not very good, and the odds of predicting the unusual events is almost impossible. So forecasting doesn't help managers much at all – unless we can expect things in the future to be mostly like the past. And after 2008 – who would think that's very likely?
Instead of forecasting, we should spend some time now developing scenarios. These vary considerably from forecasts because they don't project the past. Instead, scenario planning starts by looking into the future, and describing a scenario. Then, working backward to see how we should prepare in case that scenario happens. Rather than planning from the past, the process begins with a view of the future. Because we all can recognize major trends, like uncertain energy supplies, ongoing religious conflicts, increased globalization of trade, declining value of labor, etc. it's actually a lot easier to imagine what the future will look like. Building an impression of how people are likely to live, based upon how we see major trends emerging, is more accurate than trying to forecast based upon history. After all, we all knew the U.S. was in a recession months ago – but it took the experts almost a year to identify a recession had begun! The closer people are to the "data", especially historical data, the harder it is to identify shifts.
No one should plan their future based upon a single scenario. Because none of us know which trends will dominate, or be offset by another trend. So it's best to develop several scenarios. By working through multiple views it is possible to best understand the strategy most likely to succeed given multiple possible outcomes. Most importantly, this helps us understand how we're likely to perform, given our current Success Formula and the various scenarios.
Scenarios can help us understand likely market shifts. Maybe not today, but likely. And then to evaluate our Success Formula not on how we've done in the past, but how we're likely to do in the future. When gaps emerge, we can then assess how to Disrupt outselves – and determine what White Space projects to pursue in order to evolve our Success Formula to remain competitive.
Forecasting can be fun sport. But as a business exercise – it's not worth the bother. No one trusts the forecast, so no one uses it. And worse, it will most likely further Lock-in the old Success Formula by projecting a future not dissimilar to the recent past. What will help us succeed in 2009, 2010, 2011 and onward is to have scenarios which help us plan for the future and pull us toward better competitive position as things change.
by Adam Hartung | Dec 18, 2008 | Current Affairs, Defend & Extend, Leadership, Lock-in
I was talking to a restaurant waiter this week. He was bemoaning his fate. He had a large van, complete with overstuffed chairs, movie player – the works – for his family to drive in comfort and his children to enjoy. But when gasoline hit $4.00 a gallon he thought it unaffordable. So, as he told me, when he paid $150 to fill it one day he quickly sold it for almost nothing. He took out a loan and bought a car that used less gasoline. Now gas is under $2.00, and his family is tired of his smaller car. But he's locked-in to the payments, so now he can't afford to switch back. (Read about low oil prices here.)
He didn't plan for oil to go over $100/barrel, and he was caught with too costly transportation. But he didn't do a careful analysis of the fixed versus variable cost of trading for a higher gas mileage car – and now he's unhappy with oil at less than $40/barrel. Because he didn't think about the future possibilities he was unprepared for BOTH scenarios – and he's "one unhappy camper" these days.
But like my waiter, most businesses don't do enough scenario planning either. Instead, they simply plan for the future to be mostly like the past. When things shift, they simply try to Defend & Extend old business practices without thinking about what is most sensible. Most were unprepared for higher energy prices when they came along – even though analysts had been saying for years that America was primed for supply chain shocks from natural events or refinery problems. So too many made investments on the short-term price run-up, investments that are likely to take a lot longer to pay off with lower energy prices.
Likewise, most businesses aren't planning for unexpectedly low energy prices. Instead of investing these savings on new innovations that could make them big winners when the recession subsides, most are using what's likely to be a fairly short-term windfall to subsidize old business practices that are rapidly becoming obsolete. Instead of using the gains to create a new future, they are using them to subsidize out-of-date business models at a time when investing is likely to have enormous future payoffs. They are acting like cheap oil will be here forever – a situation we know isn't likely to occur from all we've heard the last 2 years!!!
Planning isn't about doing more of the same – and trying to figure out how to preserve past practices. Planning is about looking into the future and asking "what if something unexpected happens? Am I prepared?" We don't have crystal balls, and for that reason it is incredibly important to plan for situations which aren't like the past – because those are the ones which create competitive opportunities for us, and against us.
Scenario planning isn't done by many organizations. Instead, planning is designed to whittle down the number of potential options. As a result, the forecast is for something most like what is occuring today. Six months ago, everyone was planning for $150 oil. Now they are planning for $35 oil. And the answer is to plan for both! By understanding the impact of both options it allows us to be far better competitors, and to guide our businesses toward opportunities. And never had that been more true than in the chaotic competition characterized by our currently shifting global markets!
by Adam Hartung | Dec 16, 2008 | Current Affairs, Defend & Extend, In the Whirlpool, Leadership, Lock-in, Quotes
In 1993 Pulitzer Prize winning author David Halberstam wrote a book about the 1950s – called appropriately "The Fifties". He takes time in this book to talk about GM – a company today that has seen its leadership embarrassed, and its value for investors disintegrate in the face of mounting competition. It's humiliated executives have asked Congress for a bailout to save the employees and customers from total failure – because they seem unable to figure out a solution themselves. Read what Mr. Halberstam, a New York Times reporter, had to say about GM's rise to prominence:
*******************************************
"No one at GM could ever have dared forecast so much prosperity over such a long period of time. It was a brilliant moment, unparalleled in American corporate history. Success begat success… The postware economic boom may have benefited many Americans, but no one benefited more than General Motors. The average car, which had cost $1,270 at the beginning of the decade, had risen to $1,822 by the end of it…twice as fast as the rest of the wholesale cost index.
There was in all of this success for General Motors a certain arrogance of power. This was not only an institution apart; it was so big, so rich, and so powerful that it was regarded in the collective psyche of the nation as something more than a mere corporation: It was like a nation unto itself, a seperate entity, with laws and a culture all its own.
The men who ran the corporation, almost without exception, came from small towns in America… Everything about them reflected their confidence tht they had achieved virtually all there was to achieve in life. Others, critics, outside Detroit, might believe that these men were not such giants and might believe that they did not so much create that vast postwar economic wave as they had the good fortune to ride it… As for the intellectuals, if they wanted to drive small foreign cars, live in small houses, and make small salaries, why even bother to argue with them?
As success of the company grew, its informal rules gradually became codified. The culture was first and foremost hierarchical: An enterprising young executive tended to take all signals, share all attitudes and prejudices of the men above him, as his wife tended to play the sports and card games favored by the boss's wife, to emulate how she dressed and even to serve the same foods for dinner.
The essential goodness of the corporation was never questioned. It as regarded as, of all the many places to work, the best, because it was the biggest, the most respected, made the most money and, very quietly, through bonuses and stock, rewarded its top people the most handsomely."
*********************************************************
If this was the world of GM, codified as Mr. Halberstam explains, it becomes easier to understand the behavior of GM in the 1960s, 1970s, 1980s and 1990s - as competitors kept chipping away at market share and power. From 50% share of all automobiles sold in the 1950s, GM's share is now only half that. Executives, managers and even union employees quickly came to believe (in the late 40's and 50's)the future would always be like the past. But Toyota, Honda, Nissan, Subaru, Kia and others didn't accept GM's claim to a monarchy. And now, everyone is paying for it.
Lock-in is built when companies are doing well. And Lock-in keeps the organization from changing. It is easy to belittle challenges, and blame poor performance on others. As competitors evolve, at times making big improvements, the Locked-in organization will explain away poor performance – but resist accepting the need to change. In the end, if we don't learn how to Disrupt the Lock-in and use White Space to become more competitive we all end up in the Whirlpool. Even GM.
by Adam Hartung | Dec 8, 2008 | Current Affairs, Defend & Extend, General, In the Swamp, In the Whirlpool, Leadership, Lock-in
So we now hear that Congress will loan $15billion to GM, Ford and Chrysler intended to keep them going concerns until at least March. We've been told that there are requirements on the loans that will better the industry. But honestly, there's nothing new being proposed that makes any difference, nor the proper teeth in Congress's proposed bill. (Read about the bill here.)
The bill limits executive bonuses and severance packages. But why does it let management (and the Boards of Directors) keep their jobs? It is clear that these leaders, and their management teams, led these companies into desperate circumstances. They put their bondholders, equity investors and employees all at risk. They passed the "brink" and got to the point of requiring government assistance to stop a cataclysmic disaster. So why are these people left in their jobs? How can anyone expect a really changed industry if the people who sold off assets for 2 decades trying to Defend & Extend a thoroughly out of date and broken Success Formula are given the money to invest?
Oh, we can expect a "car czar" who is supposed to oversee these loans and assure a the industry invests appropriately for change. Who's the right guy for this job (don't forget – I applied!)? We now read that the lawyer who oversaw the handout of money to survivors of 9/11/01 victims. This is, of course, the right qualifications to evaluate business plans, investment rates and innnovation programs for an industry. He's shown he can hand out money – but where has he shown he knows anything about re-engineering a very broken, large company? Where does he have credentials for un-knotting the Lock-in that keeps these companies dysfunctional? And how is he supposed to stand up to management teams that claim to have superior knowledge about auto company management – despite driving these companies into the proverbial financial ground.
The union leadership apparently wants Board seats in exchange for concessions. What difference will that make? Do union leaders know how to turn around companies where they encouraged Lock-in that cost them thousands of jobs? Are they trying to reach back to the kind of union practices that kept coal stokers on trains long after electric automotives were introduced? Defending & Extending out of date union practices won't fix these companies either. What these union leaders need to be asking for is government promises to secure the unfunded pension obligations, and creating a government program to preserve heath care costs that are likely to be stripped in an effort to lower variable costs. There is no bailout that can cover these costs indefinitely – and that is where labor restructuring needs to focus.
As investors, Americans deserve better than leftover thinking for their investment. More of the old management won't fix the problems. What's required is White Space to make significant changes:
- Auto design has to change from backward integration and standardization for manufacturing to forward-thinking which brings customers
- Distribution has to allow customers more opportunites to buy than the old-fashioned, and tedious, dealer structure which puts off almost all customers (and makes buying an unpleasant event). Customers deserve the right to buy direct if they like, and from dealers if they enjoy what dealers offer.
- Manufacturing has to change from "scale" to "build to order". Flexibility has to overtake 80 year old industrial design practices which have made the products inflexible and too expensive.
- Pension reform is essential. The overhead costs of pensions makes these companies unviable. This will require government intervention.
- Health care reform is essential. Perhaps Michigan should follow the Oregon example (and Massachusetts), and be a leader in developing programs to have state-assisted insurance coverage for everyone. Perhaps this should be an experiment in changing from employer paid health coverage, which offshore competitors do not have to shoulder, to self-paid coverage with guaranteed protection.
These are complex problems. They defy simple solutions. They require White Space. Cut Saturn free (again, like when it was founded) to experiment with new solutions. Give other nameplates the indepence to experiment with other possibilities. Monitor performance, see what works, and migrate toward what succeeds.
Now is the time to implement Disruptions and try something new. When the airline industry was grounded in 2001 there was a tremendous opportunity to restructure from unprofitable hub-and-spoke systems with outdated practices to new approaches using White Space. But neither government, nor the industry, took advantage of the stoppage to really try something new. Everyone was in a rush to start operating again, with practically no change. A huge opportunity was lost. And that sounds like the direction we're headed with the desperately uncompetitive auto industry.
We should not make that mistake again. Now is the time to Disrupt these companies. Fire the executive teams and the Boards. They've never been shy about firing employees or vendors. Put new management in place that understands how to manage innovation – rather than Lock-in. Get people in the jobs who don't want to Defend & Extend what's broken – but instead want to make changes and learn what will make these companies world class once again. And put in place competent oversight that can make sure change happens.
by Adam Hartung | Dec 7, 2008 | Current Affairs, Defend & Extend, General, In the Swamp, In the Whirlpool, Leadership, Lock-in
A year ago Sam Zell was telling Chicago that he knew how to make money in newspapers. He was certain, absolutely certain, that Tribune Company newspapers – including The Chicago Tribune and The Los Angeles Times – would soon be returned to higher readership, higher ad rates and greater profits. Now, Tribune Company is preparing for bankruptcy (read article here.)
Sam Zell did a horrible job of scenario planning. He didn't look into the future and develop scenarios about what was likely to happen in news. Instead, he simply assumed that readers would return if he made a few format and editorial changes, the economy would strengthen and he could depend on advertisers returning as well. He expected a fast, big payback for his investment. Just like he'd done in real estate all those years.
Sam Zell had a very Locked-in Success Formula. He had spent a lifetime buying property, usually properties already in locations demanded. All he had to do was fix up the property and let growing demand for the scarce resource – his building in a demanded location – drive up the value. He didn't stick around to make money off rent. He didn't run a business that made a product and sold it. He bought properties, dressed them up and sold them at a profit. To him, Tribune Company was a property that was being ignored. All he had to do was fix it up a bit, wait a bit, and sell it to someone for more than he paid.
Oops. That Success Formula doesn't work when customers are walking away from the property to pursue a better one. News seekers in droves are going to the internet for their news. They no longer want to browse a newspaper – understanding that takes time, and it gives only a single source. The internet gives them fast answers to their queries from multiple sources. And advertisers are going where the readers are going – to the internet as well. The cost for a printed medium is high, and the results are hard to prove. Whereas internet ads can be tracked for number of page views, number of click-throughs and even sales. The readers are more, and the follow-up is superior. Advertisers have found it easy to forget about newspaper ads, especially in a soft marketplace.
Meanwhile, the Tribune Company Success Formula was firmly stuck in the 1990s. From sales people to editors, denial about shifting reader needs was everywhere. Even though each news company – from newspaper to radio and TV – had great access to reporters and first touch at many news stories, they did not realize that readers were looking for that news on the web first. Each newspaper and station was Locked-in to pushing the news through its format, ignoring the enormous audience opportunity they had in their local markets by using cross-media approaches, including the web. There was no one approaching customers with multi-format advertising opportunities. Nor was the company investing heavily into web sites or portals that could attract large numbers of on-line readers. The on-line environments were under-invested, and selling ads was completely fractured. There was limited, at best, sales efforts to get advertisers onto the weak websites running news from each individual business unit.
What Tribune Company needed was not only scenario planning that identified the range of opportunities for ad sales – but a sincerely intense analysis of on-line competitors. Instead of bragging that the company had leading newspapers in major cities, the leadership should have recognized its fast declining share of total news coverage – due to shifts in how people acquire their news. By focusing internally, cutting costs and trying techniques like new formats, Sam Zell missed the opportunity to really study competitors and figure out how to transform Tribune into a competitive news company – like, say, News Corp.
And while he was busy firing people and making changes on the periphery, Sam Zell was unwilling to really Disrupt Tribune Corporation. He didn't change the business model – the Success Formula. He whacked the chicken coop, scaring employees, readers and advertisers alike as he talked about firing people until he made money. But he never caused his leadership team to really stop and talk about the future of news. They were too busy looking for people to lay off or protecting their own jobs — while Sam was trying to find buyers for the Cubs, Wrigley Field and the Tribune Tower as a potential condo project.
And Sam's Success Formula had no space for White Space. Sam didn't see any reason to try new things – like having salespeople sell internet ads as well as print ads. Or trying to drive traffic to the Tribune or L.A. Times web sites. As a property "flipper" extra-ordinary, Mr. Zell was not interested in developing a new business model. So none was developed – nor any energy spent trying to create one.
Now, America's second and third largest cities are at risk of losing their primary local newspapers. The suppliers are seeing their customer shrink, and possibly their accounts receivable jeopardized. Advertisers are wondering how they reach their local customers. And employees are looking for new jobs. Meanwhile, citizens are wondering who will be out interviewing the mayors, governors and congresspeople of their fine states. Who will be supplying the news?
The cost to Sam Zell Defending & Extending both his Success Formula and that at Tribune Company is enormous. The bond holders – most certainly pension funds and bond mutual funds - will take a horrible hit. The employees and employees of suppliers pay as well. And the citizens, dependent upon a robust news community will also suffer. It's too bad Mr. Zell didn't talk less, and listen more – implementing White Space to make a leading news company that would impress his customers across the U.S.A. I guess he'll have a lot of time to read Mr. Murdoch's newspapers (like the Wall Street Journal), watch Mr. Murdoch's Fox television stations and look at Fox's web site (have a MySpace page yet Sam?) after Mr. Zell's equity value gets wiped out in bankruptcy. Surely the creditors will ask for a new leader – who faces a much more difficult challenge now that the resources have been gutted by Mr. Zell.
by Adam Hartung | Nov 20, 2008 | Current Affairs, Defend & Extend, Disruptions, General, In the Swamp, Leadership, Lock-in
The auto execs have not made their case in Washington D.C. Speaker Nancy Pelosi is saying Congress has not yet seen a plan in which they can invest taxpayer money. Almost half of Americans don't think a bailout should be undertaken (read article here).
For those of us who've been around a while, reflections on the last time an auto company asked for help are inevitable. It was 29 years ago, from September into December of 1979, that Lee Iacocca (former Ford executive) and the UAW asked Congress to provide $1.5billion in loan guarantees (not a loan – not cash – just a government guarantee) in order to save Chrysler from bankruptcy. The economy was bad, but nothing like the banking crisis we're in now, and a recalcitrant Congress was not happy. Nonetheless, they prevailed and Democrat Jimmy Carter signed guarantee approval in January, 1978. (Read about the Chrysler loan guarantee here.)
By all accounts then, and certainly later, Lee Iacocca was nothing like Rick Waggoner (GM CEO) or Alan Mulally (Ford CEO). Iacocca had been fired from Ford because he told management they were going the wrong direction. He was a person willing to dissent, to Disrupt, and he'd shown it at Ford before ever coming to Chrysler. Additionally, as a new leader at Chrysler, he was willing to demonstrate changes were afoot by proposing from the beginning to place the head of the UAW on the Chrysler Board of Directors. After decades of labor wrangling, this was a significantly Disruptive act never before considered – and showed a leader willing to do things very differently. Mr. Iacocca even promised to take no salary his first year – he'd only get paid if his plan worked allowing him to earn a bonus according to predefined metrics. (Imagine that – an executive with real skin in the game.)
Iacocca was never a fellow to do what was "easy" or "natural". A feisty fellow with Italian roots, he spoke his mind. When Ford was making boring cars, and considered the Edsel "every man's car" (the Edsel was an enormous failure), Mr. Iacocca conceived of the Mustang — a car that was small, sporty and affordable. Something otherwise not on the American market scene. That car, more than anything else, saved Ford in the 1960s. Even today, Ford is hanging its future and much of its brand image on the 45 year old Mustang.
When he got to Chrysler, Iacocca kept that focus on the future. At a time when automakers were struggling to figure out a profitable way to develop cars that fit American needs he brought out the mini-van – a practical vehicle never before seen. As the economy improved he felt a convertible would be a good idea. He asked his head of engineering how long it would take to make a convertible for him to test – and the exec told Mr. Iacocca 3 years. CEO Iacocca told his engineer he didn't understand – Iacocca wanted him to pull a car off the line, take a saw and cut the top off. That should take about 4 hours. The action was taken, and Mr. Iacocca took the topless sedan for a ride around the block. In less than an hour he was convinced bringing back convertibles would be a huge boost to Chrysler profits.
Mr. Iacocca didn't look to his customers for ideas, he looked at future needs and competitors. Mr. Iacocca studied the cars, and manufacturing processes, from Europe and Japan. By obsessing on everything they did he found ways to make better cars that were more desirable and less costly. At a time when the Japanese Yen was a screaming buy compared to the dollar he changed processes to permenantly lower car costs – not relying on layoffs or more traditional cost cutting – making his company much more competitive than Ford or GM.
Mr. Iacocca never was slow to Disrupt those around him, or the market. As discussed, he was ready to launch new car concepts quickly, and go to the union with changes in work rules and compensation schemes. He created White Space everywhere from car design to manufacturing process groups to union discussions in order to find ways to make his company competitive with offshore players – and the most preferred of the American auto companies.
Ledership makes a difference. Congress has asked Messrs. Waggoner and Mulally to sell off the private jets, cut executive pay and produce a plan that shows the future will not be like the past. And that's fair. But it's not at all clear these leaders are of the Iacocca (or Jobs) way of thinking. If they keep trying to preserve what used to be normal, things aren't likely break their way from those in charge of giving a bailout. Mr. Iacocca is now retired, and far removed from the demands and dilemmas of the current auto manufacturers. But there are other managers out there – other leaders with the ability to focus on the future, obsess about competitors, Disrupt and implement White Space to turn around these troubled companies. I sure hope someone puts them in the right place to persuade Congress fast – before a couple million people lose their jobs and this recession turns into a Depression!
by Adam Hartung | Nov 17, 2008 | Defend & Extend, General, In the Swamp, Leadership, Lifecycle, Lock-in
It was only about 6 months ago that Microsoft was offering over $30/share for Yahoo! That deal didn't happen. And Yahoo! (see chart here) fell to under $ 11/share . Now Microsoft is saying "no thanks" despite the lower value – and Yahoo is changing it's CEO (read article here). Should Microsoft have purchased Yahoo!? Should Yang be fired?
No, and Yes. Yahoo created what is probably the fastest growing business on the planet today – internet advertising. And Search + ad sales has not only grown fast, it has been highly profitable. Look no further than Google. That one company so dominates a high growth sector is – well – incredible. Why aren't there more competitors being more effective? Yahoo! should be growing like a weed in a hot and wet garden.
And that's why it shouldn't be purchased by Microsoft. Microsoft is thoroughly Locked-in to its old Success Formula all about the PC. Money alone doesn't make a good company. Cash reserves do not assure future growth. And when you watch Microsoft you can see a company that doesn't really have a plan to grow. Microsoft is far from close to the fastest changes and growth happening in technology today – such as wireless application devices – and search. Just buying a company in either sector won't help if it is smothered by the Lock-ins surrounding Microsoft. Microsoft has been without Disruption since Bill Gates shook up things and launched Internet Explorer. And there's been no White Space as Microsoft drolled along creating updates to Windows and Microsoft Office.
At the same time, Mr. Yang has been unable to create the Disruptions and White Space that would allow Yahoo! to compete with Google. Recently, he's even been trying to license Google technology to affirm a lifelong competitive position as no better than #2. But there is no "iYahoo" phone in development – nor any other new business coming out of Yahoo! For a high tech company, with rapidly changing competitors in a dynamic marketplace, to have so few White Space projects is the kiss of death – and has been the death of Yahoo!'s stock price. So Yahoo! desperately needs a new CEO. Someone willing to apply John Chambers or Steve Jobs style business practices to get Yahoo! competing more effectively and growing again – not trying to Defend & Extend the original Success Formula which the market has moved beyond.
I just wish the Board members at GM, Ford and Chrysler would follow the Yahoo! lead. They need to change the leaders in those companies faster than Yahoo! did. If we could get different leaders guiding these auto companies, and different managers carrying out Disruptions and White Space, we could dramatically hasten the return to ecnomic growth for America.
by Adam Hartung | Nov 15, 2008 | Defend & Extend, Disruptions, General, In the Whirlpool, Innovation, Leadership, Lock-in, Openness
On Tuesday, New York Times columnist Thomas Friedman (author of The World is Flat) chided the auto companies for their lack of innovation and desire for government assistance (read article here). Setting off a firestorm of comments across the web, he not only recommended replacing the Board of Directors and executives at GM (as I have blogged), but went so far as to recommend asking Steve Jobs to take over GM leadership as an act of national service.
The other side of this argument was made by columnist John Dvorak on Marketwatch (read article here). Mr. Dvorak says this is a foolish idea, because the auto industry is so integrated and unique that only someone within the auto industry could hope to run an auto company. He recommends searching within the bowels of the auto companies for some overlooked wonderkind who is able to turn around the organization while maintaining the existing business model. He goes on to say that the only reason Steve Jobs has been successful is due to the unique features of the tech industry, implying no tech manager could hope to run a company as complex as GM.
Mr. Dvorak suffers from the sort of traditional management thinking that has gotten GM (Ford, Chrysler, Citibank, Washington Mutual, Sears, General Growth Properties, Sun Microsystems, etc.) into big trouble. As he lists off the "unique features" of the industry, and discusses "the manufacturing, inventory, subassemblies, delivery and other systems that are in place…too delicately balanced and complicated for a newbie to deal with" he describes Lock-in. Mr. Dvorak views what's been done in the name of Defend & Extend Management as good – and therefore necessary to keep. Thus, any turnaround would require doing more of what's been done – hoping somehow doing it better, faster and cheaper can make the company successful again. But he completely ignores the fact, which he actually makes in his article, that there are a lot of other auto companies competing with GM, Ford and Chrysler — and they are better at running these complexities than GM, because they are able to make autos that customers purchase at a higher profit. Mr. Dvorak ignores the obvious fact that it is very likely the structural and behavioral Lock-ins which he thinks impossible for a new leader to manage that are causing the horrible results in the U.S. auto companies. He ignores the notion that it is the very heart of the GM Success Formula that is competitively outdated, and thus causing these horrible results.
Successful turnarounds are rarely accomplished by people who are part of the industry. Because those in the companies are Locked-in to the Success Formula which is producing the poor results. Existing leders and mangers accept those Lock-ins, and that old Success Formula, thus trying marginal changes – or more of the same but with less resource. What really works is when a new leader implements significant Disruptions that cause people to approach the work with a very different frame of mind, and then implement White Space projects (usually several, and with lots of resources and visibility) which allow the company to develop a very different Success Formula to which the company can migrate. Example – consumer products leader Lou Gerstner's turnaround of tech giant IBM.
While Steve Jobs likely could make a significant difference in GM, I don't think it has to be Steve Jobs. We so love our heros we start thinking only they can make a difference. What GM needs is new leadership that works like Steve Jobs. Leadership that (a) focuses on future needs rather than current problems (b) obsesses about competition rather than thinking all solutions lie within the company (c) is not only willing to be Disruptive – but enjoys creating Disruptions to the Lock-ins which overwhelm the Status Quo Police and (d) set up White Space projects where leaders are given permission to do things very differently, and the resources to achieve significant goals.
It can happen in the auto industry. About 25 years ago much maligned Chairman Roger Smith took cost savings from closing outdated plants in places like Flint, Michigan (the reason for Michael Moore's first docu-story Roger and Me) and invested them in a start-up company called Saturn. Saturn was White Space where the leaders were not forced to follow old G.M. Success Formula tactics – like keeping the same union contracts, or using the same components, or using the same dealers, or using the same customer pricing mechanisms. Saturn came on the scene with great fanfare. With only 3 vehicles in their initial line-up, the company's brand became "Apple-like" with its near-cult status. People loved the smaller cars, the focus on safety and consistency, the no-negotiating price method and the low-pressure dealerships. This was a great example of White Space that produced a very significant change in customer opinions about American cars - and car companies – and in just a few years.
Unfortunately, Roger Smith retired and over the years GM's management has dismantled what made Saturn great. Rather than migrate GM in the direction of what made Saturn a winner, they slowly pulled Saturn into the old Success Formula of GM, killing its advantages. Away went all the uniqueness of Saturn as it was turned into just another division GM. Similarly, the acquisition of Hummer from American General offered an opportunity for GM to move in unique directions – but quickly Hummer became just another division which focused on a narrow product range and eliminated much of its uniqueness homogenizing the brand into something far less desirable. GM spent billions on developing an electric car, more than a decade before the hybrids were launched by Toyota and Honda. But management's Lock-in to preset ideas about what that car needed to do caused them to kill the project — and go so far as to sue test customers to retrieve the electric autos they LOVED.
GM desperately needs leaders willing to Disrupt. And willing to implement White Space to develop a new Success Formula. Leaders willing to let the company migrate toward new ways of operating – who believe it is essential. People like Steve Jobs. People the auto companies weeded out long ago when forcing those who move up to slavishly accept the failing Success Formula and focus on Defending & Extending it – despite the declining results. It will take people from outside GM, Ford and Chrysler to turn them around. It can be done.
by Adam Hartung | Nov 13, 2008 | Defend & Extend, General, In the Swamp, Leadership, Lifecycle, Lock-in
For years we've heard how important it is to listen to you customers. Many books have been written on the importance of listening to customers and giving them what they want. Unfortunately, and this ay sound like heresy, listening to customers can be more problematic than helpful. It's better to use scenario planning, compiling info from a range of resources, than let customers lead your planning.
Look no further than the current problems at GM, Ford and Chrysler. While they may have done many things poorly, one thing they did slavishly was listen to customers. Throughout this decade American customers have told them"we want bigger cars, with bigger engines, with more power." The #1 selling vehicle in the USA for several years was the Ford F Series pick-up, a gas user. For all 3 manufacturers their large SUVs were not only big sellers, but huge profit producers. Customers were willing to pay big dollars for the steel, V-8 engines and luxuries that went with 12 miles per gallon in the city. When asked what they wanted, buyers cried for "more." So Chrysler relaunched the hemi engine – a high horsepower and gas sucking beast. When launched, they sold out hemis – even in station wagons! But this close listening to customers meant the companies were NOT thinking about potential market shifts that could cause customers to shift quickly away from what the Big 3 were making. $150/barrel oil caught them flat-footed, unprepared, with loads of inventory and weak balance sheets. A sitting duck for the recession and debt crisis.
We see this phenomenon in many markets. IBM invented the personal computer, then exited the business 4 years later because their customers – data center managers – had no use for PCs and didn't buy any. Apple launched the Newton – the first PDA – but dropped it like a hot potato when customers told them they were more interested in enhanced Macintosh computers. Harley Davidson's 50 year old customer base keeps saying they only want big V-Twin roaring motorcycles – so Harley has ignored the faster growing and more profitable crotch rocket and scooter cycle markets (not to mention quadrunners, waverunners and snowmobiles.) Harley sales are down over 30% this year.
And we can see emerging trends that point to problem companies who listened too long to customers. Sony, EMI and other traditional music companies missed the digital/MP3 music wave because their retailers wanted to keep making CDs. They kept listening to Blockbuster Music until it disappeared. Major movie studios have missed the move to digital/MP4 film distribution as they keep listening to customers (like Wal-Mart, Target and Best Buy) that want DVDs to sell. Sam Zell spent hundreds of millions of dollars buying the newspaper-dominated Tribune Company, famously saying how he reads 4 newspapers a day, only to find out that people younger than 30 never read newspapers – and never will. When projecting future subscriber numbers, and ad sales, he talked to older folks who read newspapers and didn't recognize a major, permanent market shift in the market. Circuit City catered to their in-store customer, but now is finally waking up to the reality that on-line retailers can kill its profit with lower overhead, less inventory, faster turns and lower cost. Where once on-line shopping was only for the young, everybody is now going to the lower prices. And we now have evidence that for people under 35, they see no value in a traditional stock brokerage (read article here) – meaning bad things portend for companies like Merrill Lynch that keep thinking their over-40 customer base with $2million in liquid assets is the group to listen to. In all these instances, their "core" customers were not telling them where the market was heading, thus letting them drive right off a profit cliff. Heads up to travel agents (yes, a few still exist) and insurance agents out there!
Your customers Lock-in to your Lock-ins. They like what you offer. When you ask them what they want, you'll hear "more, better, faster, cheaper." Nothing insightful there. The customers you need to listen to are those who left you – those who never signed on to you – and those using competitors you've conveniently organized out of your "core segment." They can help you see where markets are headed, and where your Lock-in to old products, services and practices leaves you vulnerable. Otherwise, like GM, Ford, Lehman Brothers, Bear Sterns, Sears, Circuit City and Best Buy you'll be planning from the past – and when market shifts happen – KA-POW!
To be successful you have to use scenario planning that keeps you prepared for future markets. You have to understand not only current competitors, but future competitors. And you have to anticipate what customers will want in the future, not just what they can tell you about their needs today. So be careful about listening to your customers, they are very likely to lead you right into the abyss. Just ask Mr. Waggoner at GM and Mr. Ford, Jr.
