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 11, 2004 | Defend & Extend, Lock-in
I have noticed a common behavior among companies in the Swamp and Whirlpool stages of the lifecycle. They never seem to plan ahead for unexpected things to happen. It is as if they make an annual plan and there are no contingencies for marketplace challenges and disruptions. Maybe they really do believe that the plan will turn out like they lay it out if they simply hold the leaders accountable, which would indicate a terminal case of denial and self-deception.
Consider the major airlines which always seem to be on the verge of bankruptcy. After 9/11, they have all been in survival mode and their actions have been classic Defend & Extend Management: cut costs, layoff employees and reduce their pay, reduce prices, reorganize the business, replace management. They think that if they can do these things, they will become competitive again.
But they didn’t plan on oil prices reaching all time highs, which meant they had to make deeper cuts and go to even harsher extremes. And now, it seems that these troubled airlines didn’t plan on their healthy competitors adding more planes as part of their growth plans. (Well duh!) That’s a problem because more planes means more capacity which means more competition which means lower prices. And that means that the major airlines’ plans to rebound aren’t worth much. The fact is that they never were worth much.
Troubled organizations like those late in their lifecycle don’t have
any excess capacity. That’s why they keep getting knocked further and
further down by marketplace changes. No sooner than they recover from
one crisis, another crashes onto the scene. If you need proof, read the
countless annual reports that offer excuse after excuse for unexpected
events that hurt the company’s performance that year. Then read the hollow
promises about how they’ll plan better next year.
It would be valuable for any senior manager of a business or functional unit to assume that unexpected things are going to happen and to plan ahead for them. Scenario planning as a discipline has been around for many years and is a useful practice. In addition, every organization must budget for excess capacity to deal with unexpected challenges. Where will you get the money, people, capital, and management bandwidth to deal with surprises? In order to estimate how much extra capacity is necessary, managers can evaluate prior years and determine how much was consumed by surprises in the past. This, coupled with effective scenario planning, can help companies minimize the consequences of unexpected disruptions.
Oh, and adopting The Phoenix Principle wouldn’t be a bad idea either!
by Adam Hartung | Nov 10, 2004 | Lock-in
The Praying Mantis is a remarkable example of evolutionary adaptation. I saw one today and marveled at how well it had adapted to prey on unsuspecting insects. It was solid brown, looked like a stick and has lethal forearms and claws. It is easy to understand how it can blend into the limb it is standing on and capture its prey as it wanders by.
Trouble is, the Praying Mantis that I saw was on my garage wall, which is solid white. So, it stuck out like, well, a carnivorous bug. This particular specimen wasn’t going to surprise any prey. It may as well have hung up a sign saying " BUGS BEWARE, I"M HERE TO EAT YOU!"
The Preying Mantis has an exceptional Success Formula… for the right habitat (context). However, when the context changed, that Success Formula became a liability. A brown colored Praying Mantis on a white background loses the element of surprise, and will go hungry.
That’s exactly what has happened to countless businesses today. They developed Success Formulas for a different competitive environment and have not adapted adequately to the changing business context. They’re like a brown Praying Mantis on a white wall, and they are struggling and suffering as a result.
by Adam Hartung | Oct 29, 2004 | Lock-in
I was worried. I couldn’t find my son and his grandfather who were supposed to be fishing together. I looked out behind my father-in-law’s house at the boat dock where they should have been standing to fish in the lake. And they weren’t there. I knew they weren’t out on the lake because the fishing boat was slung up in the boat house. Despite looking everywhere I thought they would be, I still couldn’t find them. So, perplexed, I waited in the house for them to show up, trusting that my son was in good hands.
An hour later, they walked in and I immediately jumped up and demanded to know where they had been. “We we’re out fishing on the lake,” my son said with a puzzled expression on his face. I explained that they couldn’t have been because the boat was docked in the slip. My son laughed and said “Dad, take another look,” and pointed to the boat house. I did, and there were… TWO boats! My father-in-law’s fishing boat was tied up at the dock looking just like I remembered it—small, green hulled, simple, rigged for fishing. And there, moored in the slip, was a ski boat—a big, white, designed-for-speed rigged-for-skiing boat-that-looked-nothing-like-a-fishing-boat boat sat there as clear as day. And despite looking right at it all morning, I had not seen it. I had not expected it to be there, and to me, it wasn’t.
The real voyage of discovery consists not in seeking new landscapes, but in having new eyes. — Marcel Proust
This story illustrates the power that our expectations have to distort our perception and literally show us what we expect to see rather than what is really there. It is this perceptual bias that is a main reason that businesses do not see competitive threats until it is too late. It is why leaders look at the numbers and see evidence that defending the old Success Formula is working… right up to the day that everything crashes down around them. It is why customer-facing employees often have a dramatically different—and mostly more accurate—understanding of the competitive realities than senior executives.
In order to create the breakthroughs that they desire, executives must first disrupt their mental lock-in. This is the only way to open up their perceptual bias to see new information and reach new understandings. Only in seeing the situation “with new eyes” are rich new possibilities opened up for truly novel innovation.
by Adam Hartung | Aug 25, 2004 | Lock-in
“Better the devil we know than the one we don’t know…” I saw this quote from a business leader the other day and realized that this pretty much sums up the logic that leads to lock-in.
Every CEO is saying today that their strategic agenda is innovation and growth. But what they’re doing instead is incrementalism and cost optimization. Why would business leaders do the opposite of what they say they’re going to do?
One reason is that innovation requires venturing into the unknown, what we call “white space.” In this creative space there is infinite potential for innovation, but there are no guarantees. In fact, most innovations fail… and failure is a career killer in Defend & Extend Management.
I’m sure that business leaders’ reasoning goes something like this: “I can put a lot of time and money into finding a breakthrough strategy which we have no way of knowing will succeed or not, OR, I can drive up short-term profits through more cost-cutting and efficiency efforts like more downsizing or squeezing our vendors. Hmmm, the first option holds the promise that we’ll be here a decade from now, but the second assures me I’ll make a big bonus this year… I think I’ll go with option 2 and study this innovation thing a bit longer…” As they say, nobody ever got fired for making the current quarter’s numbers…
Ok, so maybe that’s an exaggeration, but it is surely accurate in principle. Here’s the flaw in that logic: it assumes that avoiding innovation is the safer option. In today’s economy, if you don’t reinvent your success formula on a recurring basis—that is, take the risk of breakthrough innovation—you may not even have a decade, you may have only a couple of years. In fact, the only way to HAVE a future is to disrupt and reinvent your business.
To stay ahead, leaders and their organizations must learn to trust the devil they don’t know—to trust the future to innovation. This requires that leaders must place their confidence in their ability to figure things out when there is no proven road forward, instead of relying solely on what they already know and can prove. And that will be a big step for leaders, a step that we predict very few will make.
