by Adam Hartung | Jan 2, 2006 | Disruptions, General, In the Rapids, Innovation, Leadership, Lifecycle
Most people I know think Howard Stern is an oddity. Although he’s had a loyal following for 30 years, most business people never listen to his show. And they can’t believe he’s being offered $500M to change his broadcast to satellite radio. Of course, few of them listen to satellite radio, either.
But, I think anyone who uses radio advertising had better get serious about Sirius. Many electronics stores (Best Buy, Circuit City) sold out of satellite radio equipment this Christmas. Sirius now has over 3 million subscribers. XM Radio (the competitor) has over 5 million subscribers. Quarterly subscriber growth, before Christmas, exceeded 20%.
Back when Ted Turner launched 24 hour news, and "America’s Team" (the Atlanta Braves) to fill programming for his cable TV stations most people thought cable TV was an oddity. Now, the networks have long lost their grip on market share as customers flock to targeted stations on cable TV and increasingly avoid commercials with Tivo and other Digital Video Recorders. Do we think the transition in radio will be slower, or faster? History would say that the adoption rate of similar technologies is exponentially quicker.
If you own stock in a radion station, and think people want "local programming", you’d best be taking stock of Sirius and XM. This is a serious shift in behavior. Sirius only needs 1 million new subscribers to make the Stern offer profitable. Since they added nearly 360,000 new listeners in the third quarter that looks pretty likely.
Challenges to business don’t often present themselves like a hurricane. They are subtle. Business people have to read the Challenges to catch winds early and make changes. The Telltales are showing that something is happening in radio-land. Don’t take long to prepare. If you invest, or if you depend on radio advertising, you had better pay close attention and start making your contingency plans. As shocking as Howard Stern is, he won’t cost you money like the shock of missing the lastest shift in behavior.
You don’t want to be committed to CDs when iTunes hits. You don’t want to be long on newspapers when Google’s classified ads start making inroads. And right now, I’d be paying close attention to listener behavior in radio — and thinking about how it will impact your business and investments.
by Adam Hartung | Dec 23, 2005 | Disruptions, General, Innovation, Leadership, Lifecycle, Lock-in, Openness
This week before Christmas, 2005 I had a great lunch. I was in L.A. and I called an old acquaintance to join me for lunch. He’s a great guy, somewhat trapped in an "old-line" American manufacturing company that’s been Locked-in for several years. They’ve not done their shareholders, nor their employees, much good for a decade. Executive turnover hasn’t helped as new leaders just follow worn-out strategies that have eroded their pricing and competitiveness.
"How about some Sushi?" I asked. Now, this buddy was a "meat and potatoes" guy, so my question was intended as a ribbing. I was surprised when he said, "Sure. Whatever you like." "You must be kidding" I said, "since when do you eat so adventurously?" "Over lunch" he said, leading me to wait for a juicy answer.
During the last year, he had taken on a new role helping develop a company strategy. In that role, he had made a half dozen trips to China. "You know" he said to me "I never really understood just how dramatic the globalization changes were going to be to our business until I went to China. They do work entirely differently than us. It’s beyond culture and how smart we versus they are. The Chinese are using resources we ignore, and approaching the opportunities differently. If our company doesn’t change – fundamentally change – we won’t survive another 10 years. The decision, the opportunity, is up to us. If I can get our top management to see what I’ve seen, and we step up to the Challenges, we can get out of our Lock-in and create a future that exceeds everyone’s expectations. But, if we sit doing what we’ve done – well, we’re a gonner."
My friend got outside the box. When he changed roles and entered strategy he Disrupted his thinking about the business. He visited foreign companies, and he saw opportunities for sales, marketing, product development, and manufacturing that he believes obsolete the existing Success Formula and create opportunities for a new one. And, while doing this, he changed himself. His personal Lock-ins to "the way this business is done" for the last 20 years disappeared and he sees a new industry competition developing.
Now he eats Sushi. And he eats all kinds of Chinese food I’ve never had the opportunity. He also eats Indian, or whatever food is served. He got outside the box, he started thinking, and the old barriers fell away as he moved toward a new definition of success
I hope everyone enjoys their Christmas, Hanukah or Kwanzaa meals in joy and peace this year. Whether it’s roast beef, turkey, goose, lamb — or Sushi.
by Adam Hartung | Dec 12, 2005 | Defend & Extend, Disruptions, Leadership, Lock-in
Can you tell the difference between a disturbance and a Disruption? I’ve found in my speeches that most people can’t.
There’s actually a big difference. A disturbance will cause you to pause and think about how to get your Success Formula to react quickly. But a Disruption causes you to stop and think about the viability of your Success Formula. It creates a pattern interrupt that it causes you to think about your Lock-ins and consider entirely new Success Formulas. A disturbance is often externally generated, a whack to your head so to speak, while a Disruption comes from within the organization because it attacks your Lock-in.
I’m going to reach out of business for this example. When Katrina hit the Gulf Coast I urged the government to stop business as usual, and create White Space for rebuilding the area into a better, more powerful economic environment. Katrina created a severe Challenge to the area. The problems left behind were so large that business as usual could not deal with them. But would the area actually change, or be left to cope via its old means and resources?
The President went on television in front of bright lights (powered by portable generators) to say that yes, New Orleans needed to be rebuilt. And he promised lots of money. But there were no specific agenda items that would change the old ways we had of dealing with catastrophes, nor solutions to the patchwork of local, parish, state and national approaches that often conflict. At the time of the speech we all wished for a quick rebuilding, but it was clear that would not happen – and it hasn’t. It couldn’t if we didn’t change our way of operating – change our Success Formula.
This happened similarly when we responded to the attacks of September 11, 2001. We gave families of the dead money, but otherwise we lost our opportunity to change how we prepare, how we manage first-responders, and how we operate our airlines. Those things are all still the same – and unlikely to change – because we did not Disrupt our way of doing things and create White Space to develop new solutions.
We didn’t Disrupt the way we deal with catastrophes. We didn’t change the way we’d always operated. To mimic a recent clever TV ad, all that was really offered was "throwing money at the problem." And that, in fact, hasn’t happened because the way we distribute money is so broken the process can’t allocate funds quickly enough to help. The money is promised, but not distributed and it looks increasingly like it won’t be due to chronic government deficits and urgent needs from elsewhere (such as Iraq, Medicaid, etc.)
Katrina was a Challenge. It demonstrated our inability to prepare for and respond to catastrophes. It begged for a Disruption to our Lock-in to old government approaches so we could develop new solutions. But, rather than undertake a Disruption we instead mired ourselves in disturbances as lawmakers and spending officials haggle through the problems of our dysfunctional process. The Challenge pointed out the flawed approach, but we have not done anything about it.
Some have said to me that these government examples are unfair – because government can’t be Disrupted. And that is simply untrue. After December 7, 1941 we Disrupted government allowing businesses to react quickly in the production of Liberty Ships, airplanes and all manner of military apparatus to move us expeditiously into WWII. We opened the floodgates to new ideas for fast action – and we produced more equipment (and solutions) faster than anyone, including our enemies, believed possible.
Challenges expose weaknesses. But we too often focus on the problems created by the Challenges rather than the Challenge itself. We quickly reach for Disturbances that make a lot of noise, but don’t really change our Success Formula. When that happens, you can predict the future quite well – for behavior will remain unchanged. Only by Disrupting – implementing pattern interrupts that cause us to question the status quo – and bringing in committed White Space can we meet the Challenge head-on and create Success.
by Adam Hartung | Nov 27, 2005 | Defend & Extend, In the Swamp, Leadership, Lifecycle
Every time we hear about a company hitting a stall we want to be optimistic. We want to believe they will turn around their situation and recover their growth. Unfortunately, once a business hits a growth stall (regardless of the cause), it has a less than 7% chance of ever sustaining growth greater than 2%/year.
Merck hit a growth stall about a year ago when one of its products was pulled from the market. Several other products were challenged. The immediate result was a dramatic decline in market capitalization. The company lost about 1/3 of its value in a day – and over about 6 months the company lost half its value. We would love to believe the company will recover its historic growth, so value shoppers begin buying up the stock. But the fact is that Merck has a greater than 70% chance of NEVER recovering that lost market capitalization.
We would love to blame the regulators, personal injury lawyers and even product customers for creating this stumble for Merck. But, regardless of cause, what we do know is that for Merck to recover will require a significant change in its Success Formula. The marketplace has shifted, competition has changed (affecting the profits of all pharmaceutical companies) and Merck must change if it is going to try and regain its lost growth.
But the company is not trying to reinvent its Success Formula. Instead, it is trying to Defend and Extend its old Success Formula with marginal changes and cost cutting. Although the company appointed a new CEO last May, it has not really Disrupted its Lock-in (in response to these market Challenges). It has not created White Space to develop a new Success Formula. It keeps trying to capture the lost growth by doing more, better, faster, cheaper.
Those who have heard me speak over the last year know that I have been a constant pessimist regarding Merck. While it’s stock occasionally gains a point or two, there is no upward trajectory. Why do I remain pessimistic? Because, like 70% of companies that stall, Merck keep trying to "fix" its problems with tweaks. Until the leadership Disrupts and uses White Space to reinvent, it will not address its market-based problems effectively.
I’d love to be optimistic – but there just aren’t any signs that would be prudent.
by Adam Hartung | Nov 20, 2005 | Defend & Extend, In the Swamp, Leadership, Lock-in
We all know how Apple rejuvenated itself with the iPod. From a declining, niche player in personal computers the company took off after launching the iPod. Taking advantage of commercially available MP3 technology, Apple stepped in after Napster was sued into oblivian to help customers accomplish their goals of building individual music libraries.
Why didn’t Sony take this tack? Sony not only had all the hardware (after all, they were leaders in radios, personal CD players and the marketplace for personal entertainment), but they actually owned a recording company — they had the content. Sony could have been first to build on the market Napster pioneered to reap the results.
But Sony chose to Lock-in on CDs. It missed the MP3 wave. And it still is. After leading the industry wave to wipe out Napster, Sony is now leading the industry to block piracy with copy protection software. Instead of folowing its customers and developing the marketplace, Sony keeps trying to blame its customes for its woes. Sony keeps fighting the last war, and in the process it is alienating its customers and its most important suppliers – the recording artists.
When markets shift, those who succeed move quickly to the new competitive ground. You can moan and groan and try to use lawyers in an effort to protect and old business, but that never works. Customers will find the suppliers who figure out how to give them what they want. Sony needs to wake up and align with its customers, instead of trying to find ways to protect its out-of-date (and failing) Success Formula.
by Adam Hartung | Nov 2, 2005 | Defend & Extend, General, In the Swamp, Leadership, Lifecycle, Lock-in
Vornado has acquired a 1.2% stake in McDonald’s (check out full Bloomberg News article.) Does anyone remember this scenario? It was just November, 2004 when Vornado bought 4.8% of Sears leading to Sears acquisition by Kmart. Simply put, the Sears real estate was worth more than the stores (KMart’s rebirth as Sears Holdings hasn’t changed that situation, either). Vornado has learned how to spot these opportunities – including acting as a principal in buying Toys R Us in March to capture the value of that struggling retailer’s real estate.
While everyone knows that McDonald’s franchises most restaurant operations, did you know the company owns about 37% of the land under those stores, and 59% of the buildings? Once again, to sharp real estate people the land and buildings look more attractive than the hamburger operations which use them.
McDonald’s reaction? In an email McDonald’s spokesperson Anna Rozenich said that McDonald’s plans to stick to its current business strategy. Over the last 5 years McDonald’s has struggled with flattening demand for its products, selling off most non-hamburger operations, closing stores and restructuring. Now an external party has emerged to question the validity of the business model. But despite all these Challenges McD has refused to Disrupt its old Success Formula and develop new value for its shareholders, employees, vendors and customers.
This is the operating definition of Lock-in.
by Adam Hartung | Oct 27, 2005 | Defend & Extend, In the Swamp, Leadership, Lock-in
…. Apparently a lot. Have you seen what’s been happening to the share prices of companies like New York Times, Gannett, Knight Ridder and Dow Jones? Down, down, down, down – from 25% to 35% in the last year. Why should such great companies be struggling?
I always thought of these companies as news companies. But they think of themselves as newspaper companies. Seem subtle. Until you realize that newspaper readership is down across the board, as is advertising for newspapers. As we all know (and this blog demonstrates) most of us get most of our news from the web now. Instantaneous, customized, searchable news. We don’t wait for a paper to arrive and take time to browse it.
It would seem obvious that the best newspapers, who have the best news bureaus, would be leaders in taking news to the web. And leaders in attracting readers to those sites. But, alas, they spent most of their energy in early web days Defending & Extending their hard-copy business. They feared the web and the uncertain revenue model. They waited, and waited. Now, people don’t go to those sites first, or second, or often at all when they want news (for more detail see Chicago Tribune story.) And, most importantly, younger readers completely ignore these venerable names for finding their news, prefering web sites more customized to their interests.
These companies got themselves into trouble because they didn’t see themselves as News companies. They ignored the challenges the web brought in the 1990’s. They Defended & Extended their old Success Formulas. They reassured themselves their business would return. They failed to Disrupt their Lock-in to newsprint (what a simple, and obvious Lock-in), and they never created White Space teams with the PERMISSION to actually develop leadership in on-line news delivery (as well as a profit model for the emerging new market). Now they have a HUGE Re-invention Gap as they struggle to find a way to catch up with their customers, who are leaving them in the proverbial dust. And once again we see their employees (layoffs), vendors (cost cutting), customers (forced to find new ways to advertise effectively) and investors (losing billions of dollars in equity value) suffer.
Be careful how you refer to your business. Deadly Lock-in might start with something as simple as calling your business News versus Newspaper.
by Adam Hartung | Oct 26, 2005 | Defend & Extend, General, In the Swamp, Innovation, Leadership, Lifecycle, Lock-in
Imagine you bought stock in a small restaurant concept in 1993 (12 years ago) with a handful of restaurants. Today, that chain has expanded to 450 locations, profits have grown five-fold since turning profitable in 2004 and sales are up 33 percent in the first six months of this year after doubling between 2002 and 2004. Would you want to sell that stock?
I wouldn’t either. But that’s what McDonald’s is doing, by selling off ownership in Chipotles. Chipotles is growing faster, and more profitably than McDonald’s. But McD is saying they can’t afford to invest in Chipotle, they need to sell their ownership to have others pay for continuing to grow this skyrocketing opportunity. Why? Because McD wants to focus on their 37,000 stagnant hamburger restaurants.
The urge to Defend & Extend the hamburger business is greater than the urge to grow at McDonald’s. McDonald’s shareholders and franchisees would all benefit from McD getting behind expanding Chipotles. The growth and profit opportunities in the new business are multiples of the hamburger business. Yet, even though the data is clear, the Lock-in to perpetuating its outdated Success Formula keeps McDonald’s from taking advantage of its own opportunity. Instead of migrating McDonald’s Success Formula toward this overwhelmingly successful White Space project, they are sending it out the door.
McDonald’s is horribly Locked-in. Leadership doesn’t understand how to Disrupt that Lock-in in order to move the company from the Swamp back into the Rapids. They only difference between McD and GM is that McD hasn’t moved far enough into the Swamp. But time will tell.
For employees and investors, now’s the time to run, not walk, toward Chipotle. It’s always better to be in the Rapids of Growth than stuck in the Swamp of mediocre performance.
by Adam Hartung | Oct 25, 2005 | Disruptions, General, In the Rapids, Innovation, Leadership, Lifecycle
What is ESPN? Many people would say "a TV channel about sports." What an understatement. ESPN has not one, but several channels (in multiple languages) and radio channels. Beyond that ESPN is a magazine, an internet portal (over 17million hits/month), a provider of on-demand video, book publisher, apparel maker and retailer, restauranteur, video game producer, and soon to be provider of cell phone services.
Is all this just so much brand extension? I don’t think so. All of these are different businesses that ESPN has entered, learned, and now makes money on. Cable TV content is a tough, low margin business with more failures than successes, yet ESPN has grown its viewership and revenues by more than double digits every year for a decade. Radio listenership has been declining for almost a decade. Periodical publishing has had negative growth in ad dollars and pages printed for over 5 years (just review the declining fortunes of New York Times and Gannett). Apparel makers and retailers are struggling with changing market tastes and offshore competitors, while restaurants is the #1 most likely to fail start-up business and video games are dominated by a handful of very large, trendy shops. And ESPN has entered all these extremely competitive businesses and turned a profit within only a few months.
ESPN has profitably grown by staying in the Rapids, rather than resting on it’s original Success Formula to provide sports news over cable TV. The company has overcome its Lock-In to the past by hunting out opportunities which aren’t obvious, and certainly aren’t core competencies, and then openings White Space for these opportunities to succeed. Instead of trying to optimize its old Success Formula, the company keeps trying to invent a new one. Every time you’d think the growth would flatten, they run right past the market Challenges to put more projects into the Rapids for ongoing growth.
At the top of ESPN is a mild-mannered 47 year old named George Bodenheimer who for the last 7 years has led the charge into all these initiatives. Like all leaders that keep their organizations growing, he constantly Disrupts his organization. He creates White Space, and he works to make the new projects a success. He’s atypical of many executives (especially media executives) in his emphasis on teamwork rather than ego, and success rather than promotion. Things simply get done – maybe not because he tries to "own" all the success and instead by unleashing his organization to succeed.
by Adam Hartung | Oct 20, 2005 | Defend & Extend, General, In the Swamp, Leadership, Lock-in
Kraft‘s shares have dropped about 22% in the last year. They are flat over 2 years. They are down around 25% for three years, and down 35% from their peak in 2002. Recent profit announcements affirmed that Kraft is currently making 13.5% less than it made in the same quarter a year ago.
Company CEO Deromedi explained away the poor performance with "We don’t want to repeat mistakes we made in early 2003 when we raised prices and had significant share declines." So, 3 years into a restructuring the CEO says investors can hope for either sales at low profits, or less sales? (see full Chicago Tribune story)
When was the last time your boss said you could spend 3 years trying to get your job right with no performance improvement? The CEO certainly has high expectations for investor patience, doesn’t he?
Kraft is completely stuck in the Swamp, as it moves toward the Whirlpool. The company never disrupted its worn out Success Formula, and keeps trying to regain the glory years when "America Spelled Cheese K-R-A-F-T" (remember that ad slogan?) Yes, it is launching a new South Beach Diet line, but because it’s still using its old, poorly performing Success Formula that line is not moving the company toward a bright (and more profitable future.) The head of new products left in June. And in the last year they’ve sold businesses to both Wrigley and Kellogg in an effort to shore up the P&L.
Kraft’s leadership needs to create some White Space and find a new future – instead of trying to resurrect Velveeta-land.
