by Adam Hartung | Sep 20, 2006 | Disruptions, General, In the Rapids, Innovation, Leadership, Lifecycle, Openness
I recently blogged about the way Honda managed to be in so many markets, from lawn mowers to airplanes. Maybe not focused, just consistently growing revenues and profits. A very good thing for employees, suppliers, investors and customers.
In that vein, I was delighted yesterday to hear that Motorola is buying Symbol Technologies. Most analysts thought the acquisition "ho-hum" (see Chicago Tribune article here). But they should be excited, because in fact it demonstrates another clear move into White Space.
Most people would think of Motorola as a cell phone manufacturer. And there is no doubt that is their largest business. So, analysts get excited when Motorola talks about cell phones. But there is so much more to Motorola. Their last big acquisition was General Instrument in 2000 (before Ed Zander took over), growing their dominant business in set-top boxes and helping them grow their DVR business. Remember a fast-growing gadget called TiVo? That’s a DVR.
Now, Symbol gets Motorola into bar code readers, mobile computers and enterprise software for inventory management and retail. Included in this business is RFID systems, a new market that lots of people are trying to develop. You could challenge this kind of acquisition as being "off focus", but then you wouldn’t understand the importance of White Space. Here Motorola has just bought itself a nice business, at a good price, that it can use to explore expanding technologies and solutions for people on trucks, in warehouses, using all kinds of wireless technology. New markets, new technologies, new solutions – and even more important new customers.
This is not one of those "restructuring" acquisitions intended to drive up revenue through industry consolidation. This is bona fide expansion into new markets, and creation of more White Space. An effort that can create Disruption opportunities and help define a new Success Formula. All hallmarks of what has been turning Motorola around the last few months. Bravo to management for doing the right thing again!
by Adam Hartung | Sep 17, 2006 | Defend & Extend, Disruptions, General, Lock-in, Openness
I am not terribly mechanically inclined. Yes, I do work on lots of things I own, but I do not consider myself a skilled professional.
I was surprised recently when my 18 year old son told me he was going to buy an old Jeep. "But you already have an old Jeep I bought you" I said. "Yes," he told me "but I want the transmission out of this other one because it is much better for my V-8 than the original one installed. I can switch these transmissions and it will be better for both vehicles, and I should make some money on the situation."
I immediately recognized that this was not a simple job. Heck, he was talking about switching transmissions in two vehicles from different years with different engines and other configuration issues. What if things didn’t line up? What if they didn’t fit? "Son," I said "this is no simple job. I’m afraid it is beyond my skills these days. Do you know what you’re doing?"
To which I got a tremendous answer. "No dad," he said "I’m not sure what it will take. But I have enough money to pull off the job, even if things go really wrong and I have to change the clutch and many other parts. I have lined up a consultant (a professional mechanic) who will advise me on problems. And even though I’m not sure what to do, I’m confident I can figure it out. And, when I’m done, the Jeep I buy will be worth at least what I paid for it and my Jeep will be worth a lot more. I just need permission to tear into it."
Voila! White Space was requested. He didn’t have all the answers, but he was certain he could figure it out. And he had prepared all the resources. Not only to do the job, but what he would do for transportation while his machine was under repair. He had created personal White Space, and all he needed was to Disrupt my Lock-in – my Lock-in that said such a job required a "professional."
Now the transmissions are switched, and things are better all around. Why? Because he created some personal White Space – and I accepted the need for a little Disruption.
by Adam Hartung | Sep 9, 2006 | Defend & Extend, In the Rapids, In the Swamp, Lifecycle, Lock-in
Now is the time to Supersize a stock that might be in your portfolio. McDonald’s has announced that it will allow every shareholder of McDonald’s to swap that stock for Chipotle’s – and in fact investors can received $1.11 of Chipotle’s stock for every $1.00 of McDonald’s stock you tender (see Chicago Tribune article here). So investors get a 10% discount on the Chipotle’s stock (see prospectus.)
Let’s see, we have a horribly Locked-in McDonald’s, with practically no growth, that is spinning off it’s best White Space project. And McDonald’s will allow investors to move from the traditional mired-in-the-Swamp business to the high-growth Rapids business and get a 10% discount in the process. Talk about Supersizing the opportunity!!
McDonald’s stock is currently propped up by a hedge fund operator who’s buying up shares in order to attempt forcing McDonald’s to spin off company owned stores and sell company owned real estate. He’s trying to force a 1980’s-style asset play, and in doing so he’s buying thousands of shares. So despite sluggish growth and limited prospects, McDonald’s shares have been rising. McDonald’s is so desparate to preserve it’s Lock-in, and beat back this guy, that they are making an incredible offer in order to bring back in more shares, hopefully raise the EPS, and beat back this fellow. Like the leaders of too many Locked-in businesses, McDonald’s is following the tactics of "If you can’t figure out how to run a good business, then you use financial machinations!"
So, here’s the "golden" opportunity to get out of McDonald’s while the value is high, and get into a high-growth company without any transaction costs – and at a 10% discount to boot. Now that is an Incredible offer!
by Adam Hartung | Aug 28, 2006 | Defend & Extend, General, In the Swamp, Leadership, Lifecycle, Lock-in, Quotes
I need to thank one of my readers for bringing to my attention a recent BusinessWeek article on Dell (see article here.) As he pointed out, this article comes almost exactly 3 months after I talked about how Dell’s Lock-in was disastrous. There are some great quotes worthy of sharing:
Regarding Lock-in:
- "Dell remained slavishly loyal to its core idea of ultra-efficient supply-chain management and direct sales to consumers, even as rivals have stepped up their game and markets have shifted to take away some of Dell’s key advantages. Instead of adapting, critics say, Dell cut costs in ways that compromised customer service and, possibly, product quality."
Some readers may recall on April 16, 2006 when I pointed out Wal-Mart’s problems and discussed the risk of being a 1-Trick Pony:
- "They’re a one-trick pony. It was a great trick for over 10 years, but the rest of us have figured it out and Dell hasn’t plowed any of its profits into creating a new trick."
Regarding identifying Telltales of big problems that indicate a company is moving into the Swamp – or Whirlpool:
- "Dell’s culture is not inspirational or aspirational," says Geoffrey Moore, a tech consultant and author of Dealing with Darwin: How Great Companies Innovate at Every Phase of Their Evolution. "This is when they need to be imaginative, but [Dell’s] culture only wants to talk about execution."
Of course, in an execution focused company there is no room for White Space, and you don’t get innovation:
- "They don’t feel they’re part of something at Dell, and they generally leave because they feel frustrated," says Snyder. "Dell is not a fun place to work, and it’s less fun now than it used to be."
- "Even the CEO admitted so in 2003 – "There are some organizations where people think they’re a hero if they invent a new thing," he said. "Being a hero at Dell means saving money."
- "Inside Dell, ideas that break from the model are discouraged, say former Dell managers. Notes one: "You had to be very confident and thick-skinned to stay on an issue that wasn’t popular. A lot of red flags got waved—but only once."
Lock-in makes you an easy target for competitors:
- "But it was clear some time ago that Dell’s model was not keeping pace and was not going to be such a big advantage in the future… And while experts believe Dell got the best prices on components when it was outgrowing all of its rivals, these days newly ascendant HP and Asian rivals Lenovo Group (LNVYG) and Acer are offering plenty of growth themselves."
Once a company commits to a Defend & Extend strategy, it becomes so structurally Locked-in it becomes almost powerless to change:
- "So why hasn’t Michael Dell—clearly a brilliant guy—changed tactics? For starters, say rivals and Dell alums, shifting gears would upset investors who expect hyper-profitability from Dell’s hyper-efficiency. And having stuck to his guns in the past, he can’t risk letting customers think that "Direct from Dell" is no longer the cheapest, smartest way to go."
By following the Siren’s song of "operational excellence" Dell adopted a Defend & Extend strategy that has placed it at great risk. Now it lacks the tools for innovation that could help the company to have a longer, more successful future. Without a serious Disruption, and new leadership that can implement and manage White Space Dell’s future is easy to predict.
by Adam Hartung | Aug 27, 2006 | Defend & Extend, General, Leadership, Lock-in
Almost two years ago I published a case study comparing McDonald’s and Motorola (download paper here). As a reader of this blog you know the former I don’t care for, while the latter is doing all the right things.
This week, the #2 fellow at McDonald’s abruptly left. Why? Because he was considered to radical, and too quick to try and change things. As you know, McDonald’s dramatically cut back its number of stores 4 years ago. Since then, the company has sold off all it’s growth businesses, and has made minor changes to the existing stores which has helped them to improve sales and profits – although the company still does not support the number of stores it once did. And McDonald’s still is not winning the battle for growth against Starbucks and other less Locked-in competitors.
The thing McDonald’s most needs is someone willing to Disrupt the organization, install White Space and get the company on a growth path for the future. Unfortunately, the current CEO, Chairman and Board members are more interested in historical consistency. Content to Defend & Extend a Success Formula that is no longer leading the marketplace, they have pushed out their best hope for rejuvenating the organization.
Meanwhile Motorola last week again announced it is taking market share from competitors. Its phones simply keep attracting new customes, as unit volumes are up 46% versus a year ago. As you know, Motorola’s Board took the opposite set of actions that McDonald’s took, putting in place a CEO who has Disrupted the company and installed White Space in multiple locations.
While McDonald’s has shown signs of reviving the last couple of years, it is important to remember that it still is smaller than at its peak, it has sold off its growth businesses (such as Chipotles) and it is not the dominant market leader it once was. This most recent action simply demonstrates that the Board is more interested in Consistency than Success. Too bad for all those employees and shareholders.
by Adam Hartung | Aug 17, 2006 | Defend & Extend, General, In the Whirlpool, Lifecycle, Lock-in
Here in Chicago we have a convenience chain called White Hen. The stores have been a fixture in Chicago for 4 decades. But they are about to all disappear. That is, the remaining ones. Although the chain is being bought by the much larger 7-11 chain, there is no premium being paid for the company. On the contrary, investors are losing money on the sale. Sold in 2000 to Clark (a gas station operator) for $80million, the company went bankrupt and was acquired by management in 2002 for $45million. Now, 7-11 is paying $35million. So what happened?
During those 6 years, White Hen shrunk from 245 stores to 206 in Chicago. This may not sound like a huge problem, but for a debt-laden acquired company losing 16% of capacity is enough to drown it. In short, the management of White Hen spent too much focus on trying to generate fast profits, and not enough recognizing the need to grow. They kept trying to cut size and cost to create more profits, and in the end they simply cut cash flow and killed the company.
White Hen is a microcosm of what we see in far too many companies today. They forget that either you win, or you lose. You can’t simply "mark time" and try to tweak the profit model. Competitors today won’t let you do that, they are too smart and too capable. Today, you have to keep innovating, meeting Marketing Challenges, creating new Success Formulas — or you lose. There is no tie. You win, or you lose. And the leadership of those companies trying to follow the example of White Hen (such as Sara Lee and Sears) should take note of this example.
by Adam Hartung | Aug 15, 2006 | General, In the Swamp, Lifecycle, Lock-in
Today WalMart announced that for the first time in a decade it’s quarterly earnings actually declined. The stock is down again, remaining a very poorly performing equity investment since the company peaked back around 2000. Since then, investors have not been rewarded for staying with the Locked-In strategy of the world’s largest retailer.
Did you see it coming? You should have. For over a year this blog has been pointing out that Wal-Mart is horribly Locked-in to its old ways, and unwilling to use White Space to create a new Success Formula. Although it’s impossible to predict the day when things will demonstrably go south, it isn’t hard to predict the trend if you pay attention to White Space – or lack thereof.
When announcing these poor results, Wal-Mart blamed high gasoline prices. Let’s see, for 3 years now we’ve had high gas prices, and Wal-Mart has blamed petroleum costs for its problems. You’d think by now, if management was as good as it claims, the company would have adjusted to the reality that gasoline is most likely to remain expensive. At the very least, they should have executed contingency plans to react to such a market Challenge. Instead, they plod forward with the same Success Formula, fail to meet expectations, then blame circumstances that they long ago should have planned for and dealt with.
Worse, Wal-Mart leadership blamed this specific quarterly failure on selling off WHITE SPACE projects in Germany and Korea. Wal-Mart is a company that desperately needs to find a new future. To overcome its Lock-in. Yet, once again, we see they have decided to exit markets where they should be learning and growing. If they can’t succeed the Wal-Mart way, then they leave. If there was ever a big, bright red flag that says this company is in trouble, missing earnings forecast while exiting White Space and blaming the cost of White Space for their earnings problems – while ignoring market challenges like high oil prices – has got to be it.
This should be a clarion call to avoid this company as an investment, as an employer, and as your primary customer – unless you want to suffer prolonged poor performance. If they miss forecasts again next quarter they will officially enter a growth stall, and that will put them in the category of having less than a 10% chance of ever maintaining growth of a meager 2%. The chances of a turnaround are nil, simply due to demonstrated Lock-in, and the odds of a growth stall just jumped dramatically.
by Adam Hartung | Aug 9, 2006 | Defend & Extend, General, In the Rapids, In the Swamp, Innovation, Leadership, Lock-in, Openness
Once again we have the opportunity to view the tale of two companies. Both troubled, yet capable of success if they do the right things.
Motorola was struggling a few years ago. Then, a new leader came on board and started Disrupting the old Success Formula. Simultaneously, he opened up White Space all around the company. Sales went up, and so did innovation. While everyone knows about the success of RAZR, Motorola also built its business in digital video recorders and networks. Now, today, we learn that Motorola has further grown its success, winning a $3billion deal to build out a wireless data network for Sprint/Nextel. (See full article here.)
Sara Lee found itself also struggling a few years ago. They also hired a new leader. But this leader chose to disturb the organization without really changing the Success Formula – focusing on cost cutting and selling businesses without creating any new White Space. Now, today, we find out that the leader is conceding she won’t meet her margin goals (even as the business shrinks more than 50%), and isn’t really sure when the company will be growing again. (See full article here.)
Motorola is up over 30% in market value. Sara Lee is down more than 30% in market value. Those who read this blog know that I was a very early fan of Motorola’s turnaround, and recommended it as an investment. They also know I’ve been a longstanding pessimist of Sara Lee. Why? It’s as simple as White Space. At Motorola you could observe a leader attacking the Lock-in and implementing White Space. At Sara Lee there was no attack on company, or industry, Lock-in to old formulas and there was absolutely no White Space.
A successful turnaround absolutely requires fast action to Disrupt and implement White Space. It is the single best predictor of whether a company will overcome its growth stall, or not. Any time you need to decide whether to invest in, join, or supply a troubled company follow one simple rule – Follow the White Space.
by Adam Hartung | Jul 22, 2006 | Disruptions, General, In the Swamp, Innovation, Leadership, Openness
Everyone wants an evergreen company – one that is constantly growing and self-renewing, generating more revenues and profits year over year. One such company is Illinois Tool Works. Have you heard of it? Do you know what they do?
One of the most important things ITW does is avoid Lock-in. ITW has no fixation with core markets, core customers, core products nor core competencies. In fact, the company is a collection of over 600 small businesses around the world, in a wide range of businesses. They don’t seek imagined synergy and push for consolidations and mergers, instead allowing each business to each maximally develop their customer opportunities and markets. Headquarters does not dictate the strategy or markets for these businesses. ITW doesn’t even try to limit its businesses to being in similar markets, functions, technologies or product lines.
What ITW does is consistently grow, and consistently make more money. For 90 years. Revenues grow at about 10%/year, earnings at about 15%/year and earnings per share about 14%/year.
How? Like I said, the company first and foremost avoids Lock-in. Leadership isn’t trying to follow fad definitions of new markets, or catch the latest wave of analyst hot buttons. They disrupt themselves by constantly looking into new markets, new technologies and new product opportunities. They don’t focus their acquisitions on cutting products or quickly generating more money with cost reduction, instead relying upon customers to help define how they can improve market performance leading to financial performance. By not seeking "optimization" of their acquisitions (like Tyco), they remain constantly in a disruptive state of enquiry. And each and every business is allowed to operate in its own White Space – free of dictates from a hierarchy or home office about how to succeed. Results are what matter at ITW – not slavish response to structural or behavioral Lock-ins.
And the company lauds innovation. Innovators are sought out, and rewarded. ITW is one of American’s largest patent filers, and patent holders, and it works hard to maintain that position – even if you’ve never heard of them. They want White Space projects in their businesses, and they reward the efforts as well as the results.
ITW defies all the rules of best management practice. They don’t optimize. They don’t "focus on the core." Instead they live without Lock-in, constantly innovate and Disrupt, and allow White Space to flourish all over the company. And for that they achieve innovation on the scale of an IBM, and returns like an old-fashioned (Jack Welch era) GE. And the result is an Evergreen Company that grows beyond average and makes above average rates of return.
by Adam Hartung | Jul 16, 2006 | Disruptions, In the Swamp, Leadership, Lock-in
There has been much written lately about Carlos Ghosn. Some are thinking that with Kirk Kerkorian’s urging, this fellow is likely to be the next head of GM. Of course, there’s a lot required for this to happen, but would it make any difference?
Mr. Ghosn is considered an auto industry turnaround expert. How? Does he ride in with a program to slash costs by cutting marketing and R&D and killing new products – vis-a-vis Chainsaw Al Dunlap of Scott Paper infamy? Does he randomly implement across the board cost cutting? Hardly.
At Nissan, he quickly disrupted the company by killing off the Japanese keiretsu system of long-term relationships.. This opened the door for a dramatic series of actions which threw the company into White Space. For example, new competitive bidding teams were created for sourcing, and a wave of innovation programs were started. In one year, the company went from a loss to a record profit. That has been followed with 6 years of record profits.
Never one to stop disrupting, Mr. Ghosn recently took the dramatic action of moving Nissan’s U.S. headquarters from Southern California – the legacy location of headquarters for all Japanese auto companies – to Nashville, TN, much closer to the company’s plants. While this has upset a lot of industry watchers, there is no doubt he has used the move to change the leadership and the processes of Nissan U.S.A.
If he follows the same plans at GM, Mr. Ghosn could be a tremendously beneficial change for America’s largest car company. Like Ed Zander when he arrived at Motorola, Ghosn is likely to Disrupt the status quo, and implement White Space. Being a master disruptor is one of the most valuable traits of a good leader. Especially one needing to turnaround a behemoth. Just look at the Disruptions implemented by Lou Gerstner at IBM, which saved the company from the brink of disaster.
Given the incapability of GMs leadership to attack its Lock-in and create White Space for generating future opportunities, there is no doubt change is needed. Given his record, Mr. Ghosn would make dramatic change in GM by attacking its Lock-in and implementing White Space. And that would be good for everyone. If Mr. Ghosn gets the top job at this venerable company, give investing in GM another long hard look.
(Link here for more information on Mr. Ghosn courtesy of the Chicago Tribune.)
