by Adam Hartung | Aug 24, 2010 | Current Affairs, Defend & Extend, In the Rapids, Innovation, Lock-in, Web/Tech
Summary:
- It seems like the best way to find old success is to do more of what used to make you successful
- But lack of success is from market shifts, meaning you need to do more things
- Investing in what you know gets more expensive every year, with little (if any) improvement in returns
- To regain success it’s actually better to get out into new markets where you can compete with lower investment rates, generating more profitable sales
- Apple increased its sales of Macs not by focusing on Macs – but instead by becoming a winner in entirely different markets creating a feedback loop to the old, original “core”
MediaPost.com, in its article “Enterprise Sector Takes a Shine to Apple” has some remarkable statistics about Apple sales. At a time when most PC manufacturers, such as Dell and HP, are struggling to maintain even decent growth (even after the launch of upgraded Windows 7 and Office 2010) Apple is dramatically increasing its volume of Macs – and gaining market share. In last year’s second quarter:
- Mac sales jumped almost 50% in the business sector
- Mac sales jumped a whopping 200% in the government sector
- Mac sales rose over 31% in the home sector
- In Europe, Mac unit sales doubled their market share – and more than tripled their share in dollars
Yes, Macs are a small part of the market. Around 3.5% in the U.S. But, if you’re an Apple employee, supplier or investor that doesn’t matter, does it? In fact, it comes off sounding like a PC fan pooh-poohing a really astounding sales improvement. Nobody is saying the Mac will soon replace PCs (that’s more likely to happen via mobile devices where Apple has iPhone and iPad). But when you can dramatically increase your sales, especially as a $50B company, it’s a big deal.
The lesson for managers here is more unconventional. For years we’ve been told the way to grow your sales and profits is to “stick to your knitting.” To “protect your core.” The idea has been promoted that you should jettison anything that is a diversion to what you want to do best, and completely focus on what you select, and then try to out-compete all others with that product. If things don’t improve, then you need to get even more focused on your core, and invest more deeply. And hope the Mojo returns.
But that’s exactly the opposite of what Apple did. When almost bankrupt in 2001 Apple jettisoned multiple Mac products. It invested in music and entertainment products (iPod. iTouch and iTunes) to grab large sales with lower investment rates. It then rolled that success into developing the mobile computing/phone business with the iPhone and all those apps (some 250 thousand now and growing!). And it built on that success with a mobile tablet called the iPad. The Mac is now growing as a result of Apple’s success in all these other products creating a favorable feedback loop to the original “core”.
Apple spends less than 1/8th the money on R&D as Microsoft. And an even lesser amount on marketing, PR and sales. Yet, by entering new markets it gets far more “bang for its buck.” By entering new markets Apple is able to develop and launch new products, that sell in greater volumes and at higher profits, than had it stuck to being a “Mac company.” In fact, back when it only had 45 days of cash on hand, if it had stayed a “Mac company” Apple would have failed.
What we now see is that constantly re-investing in what you know drives down marginal rates of return. It keeps getting harder and harder, at ever greater cost, to drive new development and new sales with upgrades to old products. Look at the sales and profit problems at Sun Microsystems (world leader in Unix servers) and Silicon Graphics (world leader in graphics computers) and now Dell. What we’d like to think works at driving revenue and profits really raises new product costs and creates an easy target for new competitors who attack you as you sit there, all Locked-in to doing more of the same.
Contrarily, when you develop new products for new markets you grow revenues at lower cost, and thus higher profits. And you create a feedback loop that helps you get more sales without massive investments in your historical “core.” Think about Nike. It hasn’t been a “shoe company” for a very long time – but its shoes are greatly benefited by all the success Nike has in golf clubs and all those other products with a swoosh on them.
When confronted with a decision between “investing in the core” – or “protecting the mother ship” – or investing in new markets and solutions —- be very careful. Your “gut” may lead you to “in a blink” decide the obvious answer is to invest in what you know. But we are learning every quarter that this is a road to problems. You get more and more focused, and less and less prepared for the market shift that sent you into that “core focus” in the first place. Pretty soon you’re so far removed from the market you can’t survive – like Sun and SGI. It’s really a whole lot smarter to get out into new markets with White Space teams that can generate revenues with a lot less cost by being a smart, early competitor.
by Adam Hartung | Aug 11, 2010 | Defend & Extend, Food and Drink, In the Whirlpool, Leadership, Lock-in, Television, Web/Tech
“Playboy’s Circulation drops 34%” is the Chicago Tribune headline. Is anyone surprised? If ever there was a brand, and business, that was out of step with current markets it has to be Playboy. That the business still exists is a wonder. But let’s spend a few minutes to see why Playboy has fallen on hard times, and what the alternative might have been – and could still be.
The Playboy Success Formula is really clear. Since founded by Hugh Hefner, the company has focused on titillating the male libido with a magazine that focused on pictures of naked women, videos of same (physical videos, on-line videos and television), radio talk shows about sex, and alternative lifestyle issues such as recreational drug use. At one time this was unique, and in a male dominated 1960s it was even tolerated. Although never mainstream, the business was very profitable early in its lifecycle. Thus the founder kept doing more of the same, building a small empire and eventually taking the company public.
But the market shifted. Larry Flint and others ushered in a new era of pornography altering the market for prurient, sexually oriented material. Women in the workforce – and I’d like to think a heavy dose of decency – made public toleration of such material unacceptable. You couldn’t read a Playboy at work, or on the airplane, and you wouldn’t have a business lunch at their clubs. Other magazines sprung up to deal with men’s interests in automobiles, clothing, music, sports, etc. in a more acceptable – and for most people more significant and intelligent – manner. Other lifestyle publications were developed that discussed illicit drug use and non-traditional ways of life more directly, explicitly and with greater advocacy. The advent of cable TV and then the internet increasingly made access to the key features of Playboy’s product readily available, very inexpensive (often free) and targeted at niche audiences.
Yet, despite these many market changes, Playboy’s founder and his daughter, the company CEOs for 40+ years, steadfastly stuck to their old Success Formula. They kept thinking that people wanted those “bunny eared” products. They talked a lot about the heritage of Playboy, how it broke ground in so many markets, and opened the door for lots of new competitors. But they kept doing what the company always did – including foisting upon us the ever aging founder as a “role model” for male menopause and the anti-family aged entrepreneur. Playboy today is what it always was – and there simply aren’t a whole lot of people with much interest in those products any more. Nobody mismanaged the brand, the market just walked away from it. Sort of like the demand for Geritol.
Playboy focused on its core. And now its on the edge of bankruptcy. The company keeps outsourcing more and more of the work, as the staff has dropped to nearly nothing, cutting costs everywhere possible. Sales continue to decline, and the brand looks like it will soon join Polaroid and Woolworths on the heap of once famous but floundered companies. Playboy’s fatal mistake wasn’t that it was started as a prurient men’s magazine – but rather that for 40 years its leadership kept Defending & Extending that original Success Formula despite rather dramatic market shifts. Now, today, Playboy is a sour lemon that not many a marketer would want to be stuck promoting.
But – it didn’t have to be that way. Just imagine if you’d been given control of Playboy 30 years ago. What could you have done?
As soon as Hustler hit the newsstands, and the first women’s right protests developed – including the early push for the Equal Rights Amendment – it was clear that the future of the magazine was in jeopardy. Instead of doing “more of the same” could you have considered something else?
The growth of women in the workforce meant a lot of new opportunities. Why not jump onto that bandwagon? If you’re really at the forefront of “lifestyle” issues, as the leadership claimed, then you would have identified that women in the workforce meant something new was brewing – a group of consumers that would have more cash, and more influence. And not only would that be an appealing market, but so would the men who would be adjusting to new lifestyle issues as homes became dominated by 2-worker leadership.
Playboy was well positioned to be Victoria’s Secret. At a time before anybody else was really thinking about a significant market for attractive and comfortable lingerie Playboy certainly had the leading edge. Or, even more likely, the water carrying publication for Dr. Ruth-style discussions about sexuality. There was an emerging market for information targeted at increasingly affluent women about automobiles, stereos, apartments, resume writing, job hunting and even at-work etiquette — all topics that had been the dominant discussion areas for Playboy’s historically male readership. Had the leadership at Playboy opened its eyes, and scanned the horizon for growth markets being developed as a result of the trends which were negatively impacting it, these leaders would have been able to create a bevy of scenarios that were filled with opportunities for growth.
It’s hard to imagine today Playboy being anything else. But all that stopped stopped Playboy’s evolution was a commitment to its “core” – to its old Success Formula. That the CEO for over 20 years was a well educated woman is testament to the power of “core” philosophy versus a willingness to look at market opportunities. By keeping Playboy’s Success Formula tightly aligned with her father’s founding ideas she quite literally led the company into smaller and smaller sales with less and less profit. The big loser was, of course, investors. Playboy is worth very little today as Mr. Hefner hints at making a bid to take the company private once again.
Singer was once a sewing machine company. But when Japanese products surpassed Singer’s product capabilities and achieved a cost advantage in the 1970s, Singer leadership converted Singer into a defense contractor. And Singer went on to multiply its value before being acquired by General Dynamics.
IBM was an office machine company famous for mechanical typewriters and adding machines. The founder said he would never enter computers. Fortunately for employees and shareholders the founder’s son took the company into computers and the company flourished as competitive typewriter companies such as Smith Corona – stuck on the core business – disappeared.
There’s a time for lemons – in your tea or on a salad. But when markets shift, lemons just turn sour. If you want to succeed long-term you have to shift with markets. And that might well mean making significant change. Adding water and sugar to the lemons is a good start – as lemonade is less about lemons than what you’ve added to it. After you open that lemonade stand, see where the market leads you.
No matter where you start, every day offers the opportunity to head toward new, emerging markets. No matter what your historical “core” you can literally become any business you want to become. Coke was founded by a pharmacist who wanted to boost counter sales in his store – and it was worth a lot more than the pills he was constructing. Those who develop scenarios about the future prepare for market shifts, understand the competitive changes and use them to identify the opportunities for a new future. Then they use White Space teams to move the business into a new Success Formula. Anybody can do it. You could even have remade Playboy. So what’s the plan for the future of your business? More of the same …. or …..
by Adam Hartung | Aug 10, 2010 | Current Affairs, Food and Drink, In the Rapids, In the Swamp, Leadership, Lock-in
Nearly 20 years ago the Clinton campaign inspired itself with the mantra “It’s the Economy, Stupid.” Their goal was to remind everyone that the economy was critical to the health of a nation, and the economy hadn’t been doing so well. Now we could retread that for business leaders “It’s About Growth, Stupid.” For some reason, all too many seem to have gotten caught up in downsizings and cost cutting, forgetting that without growth there’s no way to have a healthy business!
I’ve long been a detractor of Sara Lee. As the company undergoes a change in leadership, the Chicago Tribune headlines “Nobody Doesn’t Like Sara Who?” Under CEO Brenda Barnes, Sara Lee sold off business after business. Now the company is so marginalized that it’s an open question if it will remain independent. For years the leaders said asset sales were to help the company “focus.” Only “focus” made the company smaller, without any growth businesses. Why would an investor want to own this? Why would a manager want to work there?
Had the asset sales been invested in growth, perhaps a positive outcome would have developed. But Sara Lee was like most companies, as that rarely happens. Had the money been paid out to investors perhaps they could have invested those gains in other growth businesses. But instead the money went into the company, where it propped up no-growth businesses. Leaving Sara Lee a smaller, no growth, low profit business. This leadership has not benefited investors, employees, customers or suppliers.
Likewise, draconian cost cutting does more harm than good. The National Public Radio headline reads “Extreme Downsizing May Hurt Companies Later.” Using deep cuts at Alcoa as an example, Wayne Crascia, professor at University of Colorado, points out that it’s unlikely Alcoa has really “prepared itself for future growth.” Instead, cost cutting often eliminates the ability to compete effectively, by cutting into R&D, marketing and sales in ways that are impossible to rebuild quickly or effectively. By trying to save the old Success Formula with cuts, rather than growth initiatives, the leadership hurts the company’s long term viability. Sort of like repeated vomiting by anorexia sufferers leaves them skinnier – but in far worse health. Even though Alcoa still boasts 60,000 employees it’s very likely the company has permanently Locked-in its old Success Formula leaving itself unable to emerge as a stronger company aligned with new market needs.
Yet, while so many company leaders are trying to “retrench to success” it’s clear that growth still abounds for the companies that understand how to create value. BrandChannel.com headlines “The Elastic Brand: Virgin Expands in Every Direction.” Instead of retrenching to focus on some sort of “core” the article points out how Virgin’s leader, Sir Richard Branson, keeps taking the business into new, far flung operations. Defying conventional wisdom, Virgin is in money lending, mobile phones, gaming, social media, international airlines, domestic airlines and even intercontinental flight! By intentionally avoiding any kind of “core” Virgin keeps growing – even during this recession – adding jobs for employees, higher value for investors, more sales opportunities for suppliers and more chances to buy Virgin for customers!
Conventional wisdom be danged ….. maybe it’s time to look at results! Organizations that whittle themselves down to “core” by asset sales or cutting destroy value. While it may feel self-flaggelatingly good to talk about cuts, it does not create value. Only growth can do that. And there is growth, when we start focusing on market needs. Virgin is finding those opportunities – so what’s stopping you? Is it your “focus on your core” business? If so, maybe you need to read the Forbes article “Stop Focusing on Your Core Business.” It may sound unconventional, but then again – isn’t it those who defy conventional wisdom that make the most money?
Postscript: I offer my personal best wishes to Ms. Barnes on her recovery. It has been reported in the press that Ms. Barnes recently suffered a stroke. I know how difficult a time this can be, as my wife stroked at age 54, and I was her personal caregiver for 3 years of difficult recovery. Stroke recovery is hard work. For the patient as well as the family it is a tough time. While I have been a detractor of Ms. Barnes leadership at Sara Lee, in no way did I ever wish my comments to be personal, and I would never wish anyone suffer such a difficult health concern as a stroke. Again, my best wishes for a full recovery to Ms. Barnes, and for both her and her family to have the strength and tenacity to come through this ordeal stronger and even more tightly knitted.
by Adam Hartung | Aug 5, 2010 | Current Affairs, In the Whirlpool, Lifecycle, Lock-in, Web/Tech
“Blame Piles Up in Tribune Cos. 2007 Buyout” is the Chicago Tribune headline. After months of research the bankruptcy judge has released a court ordered report on the transaction that left Tribune Corporation insolvent. Apparently, lots of people were aware that ad demand was falling like a stone. And that there was little hope it would recover. But selling executives shopped for a valuation company until they found one willing to say that management’s projections were plausible. Of course, they weren’t. The transition from print to digital was well along, and the projections were never going to happen.
What’s more startling is the hubris of Sam Zell to close the deal. Apparently he too had doubts about the forecasts, but he went ahead and borrowed all that money to close. That he would ignore all the market signals, and plenty of opportunities to obtain outsider input on the likely continued demise of newspaper ads, shows he wanted to close. He wanted to control Tribune Corporation. Even if it would cost him $300m.
Success Formulas are very powerful. And successful entrepreneurs often have them so locked-in that there’s no other consideration. Success, and personal fortunes, causes them to ignore external data, and external opinions, when they fly in the face of their historical Success Formula. They want to apply it to a new business, and they are ready to go! So damn the torpedos! Full speed ahead!
It’s too bad that our hero worship of successful entrepreneurs too often leaves them insufficiently challenged. Unfortunately, a lot of people got hurt in the calamity that is now the Tribune Corporation bankruptcy. Employees have lost pay, benefits and jobs. Chicagoans have seen the paper get even smaller, and the amount of local news coverage decline. And the city’s reputation has certainly not benefited.
As much as people despise consultants, it would seem that Mr. Zell would have been a lot smarter to ask some bright strategists what the future was for the newspaper before abetting the close of such an onerous, and destructive, transaction. Outsiders, including consultants, are valuable at pointing out the range of potential outcomes – not just the one that fits your Success Formula. That’s why successful organizations use outsiders to help develop scenarios and study competitors, as well as design Disruptions and establish White Space projects. Outsiders can help overcome Lock-in to historical assumptions, biases, prejudice and viewpoints in order to reduce failures and improve success.
And this is some advice hopefully Leonard Riggio will heed. “Barnes & Noble Considering Sale of Company; Possible Buyers Include Founder Leonard Riggio” is the Chicago Tribune headline. Barnes & Noble as an acquisition looks a lot like Tribune did 3 years ago. Product sales (printed books) are in a free-fall as people choose alternative products – especially digital books and journals. Books themselves are struggling to avoid obsolescence as digital publishing makes shorter format more valuable in many instances. Brick and mortar shops focused on printed material – from bookstores to magazine/news stands – have been failing for 10 years – and in fact overall brick and mortar retail across the board has declined the last 4 years as internet retailing has grown. The leading competitor (Amazon) has led the transition to digital, and is competing with an enormously successful tech company (Apple) for the future of digital publishing. Barnes & Noble may have a fledgling product, but it’s about as competitive as a junior leaguer compared to someone on the Yankees!
The Success Formula of Barnes & Noble, as created by the original founder, is obsolete. And B&N is not in the game for where the marketplace is headed. Just because he knew the business once, years ago, gives the founder no leg-up on resurrecting the company. Contrarily, his background is a decided negative as he’s likely to attempt a “throwback” strategy. Since the world goes forward, never backward, those simply don’t work. We could expect lots of store closings, layoffs and inventory reductions – but the future of publishing has radically changed and will continue doing so, and B&N has little input on that outcome. Amazon, Apple and Google (the largest purveyor of digital words through its search engine) are the giants in this game and B&N will get crushed.
And the city of Milwaukee should consider hiring some consultants, as should Harley Davidson. “In Quest for Lower Cost Harley-Davidson Considers Leaving Milwaukee after 107 years” reports Chicago Tribune. Harley would like subsidies, from its workers (unions) as well as the city and state, to keep from moving its factories. But Harley’s problems are far worse than hourly wages for plant workers, and everyone needs to be careful not to get sucked into a Tribune Corp. deal of trying to save a floundering ship.
Harley Davidson’s product has been largely unchanged for a very long time. Despite all the hoopla about tattooed customers, for 30 years competitors Honda, Suzuki, Kawasaki and Yamaha have been innovating and running circles around Harley. Their businesses have grown. Not only by dramatically expanding their motorcycle products, but adding ATVs, snowmobiles, boat engines, automobiles, electric generators, yard equipment and a raft of other products (Honda even makes a commercial airplane!) They have brought in millions of new customers, while Harley’s customer base is eroding – largely dying off as the average age of buyers has risen to well over 50!!
While competitors have pushed forward with new technology and products, and developed new markets and customers, Harley has tried standing still. So, its now an historical anachronism. Interesting to look at, and with some intriguing niches, but not really important to the industry. Should Harley disappear nobody in the motorcycle business will really notice, because almost every competitor now has a Harley-inspired v-twin motorcycle they can sell. Few people realize that most dealers make more money selling jackets and other Harley-Licensed gear/apparel than motorcycles! Harley’s days have been numbered since they let the v-Rod, a motorcycle with a Porsche engine, languish in dealer showrooms – allowing their “customers” to keep them locked-in to aging technology at ever rising prices (they typical Harley prices for over 2x the price of a comparable Japanese produced motorcycle.) Harley should have paid more attention to competitors a long time ago (instead of deriding them as “rice burners”) and a lot less attention to those very loyal – but diminishing in numbers – dealers and end-use customers.
All 3 of these companies, Tribune, Barnes & Noble and Harley-Davidson have great pasts. But the risk is thinking that means anything about the future. Tribune was fatally harmed by adding debt to a company that needed to refocus on new internet markets, then continuing to try to keep the old Success Formula operating. Barnes & Noble is the last prominent brick and mortar book retailer, but there is little reason to think there will be a need for them in just 5 years. And Harley-Davidson every year appeals to a smaller group of buyers in a niche market with aged technology and a tiring brand. In all cases, caveat emptor! (Let the buyer beware!) Before accepting any management forecasts, it would be a good idea to get some external opinions!
by Adam Hartung | Aug 4, 2010 | Current Affairs, In the Rapids, Innovation, Leadership, Lock-in, Web/Tech
Things are changing pretty fast in the “tech” world. PCs are losing market share to fast growing platforms like smartphones and tablets. New competitors are becoming a lot stronger as data and applications move from corporate servers and laptops/desktops to cloud computing. Erudite journal The Economist has declared “The End of Wintel.” It’s now considered a foregone conclusion by experts globally that how we interact with digital information is moving into a new era that will not be dominated by the old Microsoft Windows + Intel platform that practically monopolized the last 15 years.
So, what are you doing to prepare? Some people will choose to react when they are forced to. Unfortunately, that will allow faster moving competitors to gain an advantage. Those that adopt these new technologies will reach customers faster, and more accurately for their needs, than businesses that delay. It’ll be hard to compete blasting out ads on billboards, or even computer browsers, when your competition reaches out and tells a customer, on their cellphone using technology from a company like Foursquare that if they stop in – just around the corner – the customer can get a free product.
According to The Wall Street Journal this is already happening in “Getting Customers to ‘Check In’ with Foursquare.” All a customer has to do is offer a review on the mobile site, possibly bringing in one of their friends that is a block away. While you’re waiting for customers to read your ad (traditional media or internet), the competition might well have reached 100 new users!
The next option is to begin using the technology. And that would be a great start! Develop some future scenarios, figure out how to beat your competition, Disrupt your old spending and behavior patterns and set up a White Space team charged with figuring out how to update your Success Formula.
But the really big winners go even further. Take for example Amazon.com. This less than 20 year old company started as an on-line book retailer. They’ve gone a lot further, building a $44B revenue stream selling more than books. In fact, selling stuff for other people as well as themselves. But beyond that, Amazon is revolutionizing publishing by developing and selling the Kindle as a digital toolkit. As people go further along the trail of moving to mobile devices and the cloud, Kindle has begun offering a range of web services to host data and applications.
Source: Business Insider
Amazon will achieve $500M revenue this year in web services – after just 4 years of business. And could achieve $1B in a year or two! By participating aggressively in the marketplace, Amazon is creating significant revenue that other retailers – such as WalMart, Target, Home Depot or Sears – isn’t even touching. While this has nothing to do with what others might call Amazon’s “core business,” this will continue to build insight to the marketplace, allowing Amazon to further grow all aspects of its revenue! What could be more important than being knowledgeable about web services?
You may not think of yourself as an electronics firm, so you shy away from implementing computer-like hardware. But you shouldn’t think that way. Today mobile chips from ARM, and soon from Intel, will be so cheap you can include them in any item over $100. Soon any item over $20. How much better could you connect with your customers if the product you sold had the equivalent of a cheap smartphone installed? You could learn how your product is used very quickly, and develop new solutions before customers even think to ask for them!
Too often, as I wrote in my Forbes column (Stop Focusing on Your Core Business), we think about our “core business” in such a way that it keeps us from doing new things. As a result, less constrained competitors figure out how to provide more powerful solutions that are more profitable. Focusing on your “core” can keep you from doing the things that are most important for future growth!
The change in technology is not an “if” proposition. Just like we moved away from mainframes, and then minicomputers, eventually to PCs we are going toward a fully connected world of cheap hardware hooking into the cloud where everyone can access data and applications. How will you participate? You won’t be able to compete if you “opt out.” If you are a spectator you can expect the Amazon-like competitors to build a big leg-up. The winners will be those who really become players. And that means pushing your scenarios to really discuss what the year 2015 could bring, study how you can leapfrog competitors, and see how you can disrupt your approach – then implement with White Space teams – to be a big winner.
by Adam Hartung | Jul 23, 2010 | Current Affairs, Innovation, Leadership, Lock-in, Web/Tech
Are you prepared to implement tablets in your business? More specifically, how have you adjusted your hardware spending plans, your software purchase plans, your IT development plans, your field technology deployment plans and your staffing plans to spend less on servers and PCs while spending more on tablets? Unfortunately, far too many companies are stuck in their Microsoft/PC relationship – effectively waiting on their vendor to bring them a solution – something specifically CIO Magazine warns against in “You are Not Your Vendor.”
We’ve watched the unprecedented explosion in iPad adoption. in just a few months iPad sales have become as large as iPod – the product that turned around Apple’s fortunes.
Source: Silicon Alley Insider
Cisco has launched a tablet according to Channel Insider “Cisco Cius: The iPad Killer.” Hewlett Packard (HP) is launching a tablet using the WebOS operating system from its new acquisition Palm according to Channel Insider in “Microsoft – HP Tablet War.” As new tablets are launched without using Microsoft products the software giant increasingly looks like it’s missed the boat – even as Channel Insider offers up 10 ideas for how Microsoft could try to get in the game in “Windows 7 vs. Cisco Cius.”
So, have you started developing future scenarios – both business and technical – that incorporate using tablets? CIO Magazine recommends “Use Scenario Planning to Get Beyond Legacy Systems.” Have you started testing different tablets to learn how they can improve your business – and what the differences are between vendors? If you aren’t, then your legacy investment (and your legacy vendor) will keep you using old technology. If you’re stuck with PCs while others adopt the next wave you will find yourself wandering around in the Microsoft Lock-in – while the market moves rapidly in a different direction! While this may seem fine today, and cheaper than changing, what you risk is losing business to competitors who move quicker, adopting tablets and their applications to improve performance and lower cost.
by Adam Hartung | Jul 22, 2010 | Current Affairs, Lock-in, Web/Tech
“You are Not Your Vendor” is the title of my most recent column published in CIO magazine and Network World magazine. You’ll read in the article why it is critical you never rely too heavily on a vendor. As much as we’d like to say we’re “partners,” reality is that the vendor/customer relationship is adversarial. It’s up to everyone to constantly try new solutions, because lock-in to a vendor can cost you dearly when a competitor moves to a better solution that might be faster and/or cheaper. Your competitiveness relies not only on your adaptability, but that of those who supply you. This is extremely true in IT, where product lifecycles are often very short. But it’s true in all vendor relationships. It’s important all businesses overcome vendor Lock-in to avoid carrying too much legacy cost, and to continuously explore better solutions that can help you enhance – possibly redefine – your Success Formula.
Along this line, I thought it might be fun to list the top 10 Vendor Lies I’ve heard in my career – often ignored at great cost:
- Of course our application is 100% compatible with that
- That feature was in the demo, and will be available to you in just 3 weeks after purchase
- Our customer service people are some of our best trained engineers
- That problem only exists in the demo – it won’t happen in your installation
- Your installation will be on-time and on-budget
- We never point our finger at another vendor if you have a problem
- Working with an outsourcer is easier than doing the work yourself
- Our prices are firm, we never discount at end of quarter
- We can seamlessly integrate into your business – you’ll never see a glitch
- With our product strength, we’ll never go out of business
by Adam Hartung | Jul 14, 2010 | Current Affairs, Defend & Extend, In the Rapids, Innovation, Leadership, Lock-in, Web/Tech
For good reason, a lot of controversy is swirling around Apple’s iPhone 4 problems. With Consumer Reports saying the product’s antenna is defective, and the company admitting there’s a software glitch regarding signal strength reporting, Apple’s newest smartphone release is looking not so smart. Even CNN television was running reports about Apple’s “debacle” and what the company should do this morning – including product recalls, software upgrades, issuing new cases, etc. Recommendations that could cost billions of dollars!
Beyond the cost to fix outstanding customer problems, shareholders and employees have good reason to be concerned. According to MediaPost.com “Quantcast: Android Keeps Gaining Steam.” For the most recent quarter Google is now #2 in phone shipments, exceeding Apple and trailing only RIM. Google has gained 14 share points this year, while Apple has lost 7.7 share points and RIM 5.7 points. There are now 60 Android models on the market.
And Google’s open development platform seems to be picking up steam compared to the more closed/controlled Apple platform. Share of handhelds is less critical than number, and share, of downloadable (and downloaded) apps. That Google’s app base is growing quickly, as is Apple’s, is really the story to watch. But with the iPhone 4 issues, will app developers look closer at Android?
This story is a microcosm of Lock-in and Defend & Extend management. Apple was the big pioneer in pushing smartphone apps, and with only 3.5% of the phone market garnered huge PR, unit sales and profits with its early generation. It’s closed environment, along with sleek style and commitment to AT&T network, were all part of the Success Formula. Apple Locked-in on that, and through 3 generations kept growing. But now we see the kind of thing that happens when a business unit Locks-in. In an effort to make rev 4 the team starts pushing for more, better, faster, cheaper – optimizing what’s been working – and suddenly a mistake happens. A parallel to BP – only happening in “warp speed.” The team is trying to push hard to maintain, even grow, handset and app share – and using D&E management to do so. The risk, as we see, is that optimization can lead to cutting costs (antenna design and implementation), and then getting defensive when you’re caught making a mistake!
Google is still pushing forward in smartphones with largely a White Space team approach. Not yet Locked-in, it is still experimenting with new solutions. New vendors and markets. It is learning how to attack the Lock-ins at both RIM (the enterprise market) as well as Apple. And as a result, it’s share is gaining. This is good for Google – and definitely not good for Apple.
The biggest screaming is for Steve Jobs to quit being defensive and become apologetic, as BusinessInsider.com recommends in “Here’s How Apple Can Recover from the Snowballing iPhone 4 Disaster.” The claim is that Mr. Jobs is so personally magnetic that his mere verbal apologies will keep customers and developers loyal – and keep Apple in the lead.
Not so fast. Mr. Jobs is a good CEO, but if your phone doesn’t work…..
Apple needs to get the iPhone team back into White Space work. Today the iPad is the big White Space project at Apple. The Mac, iPod, iTunes and iPhone have started to lose their edge. As Apple has brought forward new products, in new markets, it has pulled off the big goal of “jumping the curve” – by going from one growth market to the next. It has been able to keep up high growth through new market entries. The iPad is the latest in this series, as it is developing the emerging – and rapidly growing – tablet marketplace.
But as we can see, the risk is that D&E behavior creeping into the other markets becomes risky. Luckily competitors for iPod, iTunes and iTouch have been rather feckless. So locked-in to their old, outdated Success Formulas they have done little to effectively attack Apple. Apple has maintained share rather easily.
But this is not the case with iPhone. Another new entrant, Google, is using new scenarios about the future, a deep understanding of competitors and a willingness to Disrupt itself and the marketplace. In a characteristically Phoenix Principle way, Google is attacking the iPhone by taking advantage of the Lock-in Apple has to its initial Success Formula. If Apple doesn’t change, not only will it continue to make unwise decision errors – such as the antenna problem and the horribly defensive PR reaction to its discovery – but it will rapidly lose its advantage. Apple’s advantage came from understanding the market – not optimizing iPhone capability. And Google looks to be gaining the marketplace understanding advantage now.
Apple has to redesign the iPhone management. The team must push itself back into White Space. Be driven not by its internal goals for iPhone, iPhone apps and capabilities – but driven by future scenarios. The team has to get a LOT, LOT savvier about competitors. RIM and Palm are non-competitors now. It’s about understanding Google and its partners – including Facebook. Apple has to rethink its future scenarios and how competitors will try to do things differently. And Apple has to Disrupt its Lock-in to the original Success Formula in order to develop new innovations that can allow it to not only grow (in a very high growth market) but maintain share!
The iPhone 4 problems should be a wake-up call to Apple. Falling into D&E management thinking is easy. Anybody can become inwardly focused on optimizing historical strengths and capabilities. It’s remarkable how you can lose sight of emerging competitors, hoping your Success Formula will win if you just work at it harder. Apple needs to keep winning with the iPad, as that’s a tremendous opportunity. But it also needs to get the iPhone team back into using White Space to behave like a Phoenix Principle organization for the smartphone business.
by Adam Hartung | Jul 12, 2010 | Current Affairs, Defend & Extend, In the Swamp, In the Whirlpool, Leadership, Lock-in
What do Tony Hayward, Jeff Skilling and Bernard Ebbers possibly have in common? They all might end up convicted felons.
While this may sound ridiculous, and very, very scary to corporate CEOs, nobody expected Skilling, the CEO of Enron, or Ebbers, the CEO of Worldcom, to go to jail. They were hailed as heros, and admired for their leadership of large, high growth companies. Yet, Ebbers is waiting out a 25 year sentence, convicted of acting illegally in the value destruction at Worldcom (CNNMoney.com “Ebbers Gets 25 Years.”) And Skilling is working on a 24 year sentence for the downfall of Enron (CNNMoney.com “Skilling Gets 24 Years.”)
Now, BusinessWeek.com is asking if the same fate awaits Tony Hayward in “The Oil Spill: Will BP Face Criminal Charges?“ As the spill goes on and on, and the damages increase, the public sentiment against BP is increasing. If the spill goes around Florida to the east coast there will be millions more citizens, and businesses, affected. It is clear that many laws were broken, as the article lays out. So it’s not a mute question that an aggressive prosecutor would go after imprisoning Hayward.
As reprehensible as many may find each of these 3 men, how did they end up facing criminal prosecution? Even The Washington Post has asked “Did Jeff Skilling Do Anything Illegal?“ A Harvard MBA and former McKinsey partner, Mr. Skilling calmly described the practices at Enron completely unapologitically. He was certain he’d done nothing wrong. Mr. Ebbers was a devout Christian and Sunday School teacher who claimed all through the trial and to reporters on the way to jail he’d done nothing wrong. I’m sure Mr. Hayward believes similarly.
What all 3 did was simply push the Success Formula too far. Worldcom, Enron and BP were wildly successful companies. They created Success Formulas that earned billions of dollars. For years they grew. But unfortunately, they kept trying to push the Success Formula to better results when market shifts left that formula earning lower returns. Rather than recognize that lower returns were an indication of a Success Formula needing change, they dug in their heals and “got creative” in Defending & Extending it. They used “best practices” to lower costs, and to seek out financial machinations which would allow the business to look more profitable – even as they undertook more, and more risk.
To them, taking risk rather than change the Success Formula wasn’t thought of as risk. They were out to protect something they felt had to be protected, at all cost. The Success Formula that had made money for years, enriching not only themselves but investors, employees and suppliers. They were blind to the added risk, because it was assumed that doing incrementally more was the “right thing to do” for the company. They were doing what they believed were “best practices” for the “health” of their companies.
Defending a Success Formula can become very risky, as I wrote in Forbes “BP’s Only Hope For Its Future.” Years of doing the same thing, only more, better, faster, cheaper, makes it harder and harder to do something different. The culture and decision-making systems are designed, and modified — Locked-in — to push employees to make the same decision over and over, regardless of risk. In BPs case we now know that cheaper parts and practices were employed to improve profitability – something each employee felt was in the company’s best interest. Only, in the end, it served to layer risk upon risk – and lead to an eventual disaster.
Are you “doubling down” on risk in your business? Are you investing more and more into trying to improve returns in a business that is earning less and less – and growing less and less? If so, you could be setting yourself up for disaster as well. Let’s hope in doing so you don’t run afoul of the law. 25 years in prison is a hefty price to pay for spending too much energy “focused on your core” business at a time when you should be looking for new ways to expand and grow where the risks are less.
by Adam Hartung | Jul 9, 2010 | Current Affairs, In the Rapids, Innovation, Leadership, Lock-in, Openness, Web/Tech
“To Boost Innovation Just Keep the Boss Away” titles the BQF Innovation website. Citing data from The Nielsen Company’s study of 30 large consumer products companies showed that companies with White Space Teams (what they call Blue Sky) teams are far more successful at creating revenue generating innovation than companies trying to innovate through the traditional organization structure. And, as recommended in this blog, these teams are more than twice as effective when they are dedicated off-site teams! And, organizations with minimal senior executive involvement generate 80% more product revenue than those with heavy senior level participation.
Hierarchy is an innovation killer. The higher a manager goes, the more he feels compelled to “weed out” options. Unfortunately, most of this weeding is based upon Defending & Extending the existing Success Formula. Doing more of the same better, faster and cheaper dominates innovation thinking the higher the manager is placed! Rather than championing new innovations that could take the business into new markets with new products, senior people will apply the 20 Innovation Killers from my last blog posting! They will say the idea doesn’t fit, for a variety of reasons, and feel justified they’ve added their managerial “value.”
The Heart of Innovation column from IdeaChampions.com amplifies this in “Breakthrough as an Accident Waiting to Happen.” The author describes how many innovations are the result of ongoing experimentation. Trying new combinations. Learning, and trying again. Managers too often want the innovation to be fully developed “in the lab.” They are unwilling to set up teams that are given the permission, and resources, to try, get market feedback, and keep trying. To learn how to compete in order to eventually win!
All companies want to grow. All claim to want innovation. But too often, the senior people just want small improvements that don’t affect any Lock-ins. They hope for spectacular results from minimal input. Contrarily, the organization itself frequently contains a large number of people who have great insights for things that could work – if given the opportunity to be applied, tested, reworked and made to fit emerging needs. We need are more managers willing to set up White Space teams and let them do their job – while holding the teams accountable for results! Like the leadership at Apple and Google, let people work and learn, and evaluate them on the outcomes – rather than trying to tell them what they need to do, how they need to do it, and setting up boundaries to keep innovation within the Locked-in Succeess Formula!
