by Adam Hartung | Oct 17, 2005 | Defend & Extend, General, In the Swamp, Leadership, Lifecycle, Lock-in
GM announced a plan to cut retiree and employee healthcare costs by $18B per year today. It also plans to cut another 8% of its workforce (25,000 jobs) on top of the 30% cut in employment it’s taken over the last 5 years. Oh, and by the way, the company is investigating selling it’s most profitable (and practically only) profitable business – GMAC.
Analysts cheered the actions, and the stock climbed on the news (despite reporting big losses.) What do they expect? Is GM going to save its way to prosperity?
GM is hopelessly mired in the Swamp. With losses mounting, and a corporate raider on their doorstep (Kirk Kerkorian now owns 10% of GM) you’d think leadership would recognize that the Challenges warrant some serious Disruption of their Success Formula (and not these ineffective disturbances). But no, not this leadership. They appear willing to take any action to Defend & Extend their failing Success Formula. Even if it means cutting off their supply of resources (GMAC) and cutting rations to their own troops.
Maybe Kerkorian can bring in a management team capable of really changing GM (he did team with Lee Iacocca on his takeover of MGM Grand). It’s certainly clear that the current leadership has no clue how to overcome existing Lock-In.
by Adam Hartung | Oct 17, 2005 | General, In the Swamp, Leadership, Lifecycle, Lock-in, Openness
To do something truly new and innovative requires operating in White Space. You have to get outside the box of the traditional business in order to develop a new Success Formula. And for White Space to have breakthrough results it must have Permission (as well as resources) to be breakthrough.
I spoke to a colleague recently who is head of change for a very, very large oil company. As you can imagine, profits are exceptional there these days. And he’s been very eager to make some big changes in a behemoth. But, even though top management puts out lots of words about their desire to make breakthroughs, his role is constantly being pushed to "manage" incremental improvements to existing processes.
He doesn’t really have permission, nor committed resources, to make breakthroughs. In this environment, he’s worked hard for two years to get leadership to accept the use of virtual teams for process analysis. He’s had to nudge and cajole to gain acceptance for experimenting with process changes that have saved millions of dollars while greatly improving customer and supplier relationships.
Is he failing? Not at all. His company does not perceive a serious external Challenge to their business – profits are greater than ever. Without a threat, there isn’t the passion for an internal Disruption. And they haven’t established White Space. If he were to try and drive breakthroughs he would be on a suicide mission that would do him, and his company, no good. So, in the current environment he’s actually doing quite well. He’s realized that until a Challenge promotes a Disruption his success comes from helping the organization further Defend & Extend its Success Formula. While the sledding has been slow, and sometimes frustrating, he’s in fact made some great contributions.
Success requires understanding what you can do, not just what you want to do. If you’re organization isn’t ready for White Space then recognizing your role is to help promote D&E practices is critical. Kamikaze’s have short life expectancies – and they don’t do much for helping the organization succeed.
by Adam Hartung | Oct 6, 2005 | In the Rapids, Innovation, Leadership, Lifecycle, Lock-in
Fashion to Figure is a very small retailer that recently learned how to apply The Phoenix Principle the hard way (see full story).
When founded, the hard working Harvard MBA behind this start-up locked-in on what he thought he would need for success. Unfortunately, he was so locked into his business plan that even after he obtained seed funding he lost 9 months trying to open his first store. He kept trying to perfect his execution plan. And his investor walked.
But his investor finally got the founder to wake up, and now he realizes "the biggest thing I’ve learned is that it’s not getting everything right as much as fixing the things you get wrong." For this young fellow it took the Challenge of losing his seed money to Disrupt his approach (taught at B-School) and get himself into White Space.
Markets are dynamic. Entrepreneurs jump in because they see opportunities that existing competitors leave available. But capitalizing on an opportunity is not about hard execution of guesses made in the business plan. Execution focus leads to Lock-In and failure. Start-up companies live in White Space, where versatility and agility are requirements for creating a Success Formula which will lead them into the Rapids.
by Adam Hartung | Oct 4, 2005 | In the Swamp, Leadership, Lifecycle, Lock-in
Sailors tie up small pieces of cloth on their lines to observe changes in the wind. These pieces are called "telltales", as they give the first indications of issues which the sailor must address. We use this analogy when looking at businesses, since we find that it is very valuable to recognize the early telltales of trouble.
Management often gives the most glaring signs of a telltale problem. Last week (as reported in the Chicago Tribune), Sears Holdings’ CEO, Aylwin Lewis, sent a letter to all employees. In it he placed a ban on employees carrying bags from other retailers into their jobs.
There is no doubt that it’s good for retail employees to shop at their employers. But, when a CEO puts such a dictum into writing, that is a telltale of a strategy, and organization, in trouble. Such a telltale is more important than a dozen press releases of a company’s strategy, it’s intended plans or it’s anticipated results. When a CEO takes the time to tell his employees he doesn’t like their shopping patterns it shows a leadership team struggling to defend and extend a broken Success Formula rather than find a new one.
by Adam Hartung | Sep 19, 2005 | Disruptions, In the Rapids, In the Swamp, Leadership, Lifecycle
Readers of this BLOG know I’m a big fan of companies avoiding lock-in. I’m always pushing organizations to open White Space projects. So you’d think that a company looking to sell a business would be someone I’d attack.
Not so quick there.
Motorola is putting out feelers to sell it’s auto parts business. Ostensibly to "focus." That’s a word reporters and investors understand. You might think I’d say "hey, why don’t you fix that business? Why not explore new options?"
In this case, I fully support management. For over a year now Motorola has been opening White Space right and left. The results have been fantastic (six consecutive higher profit quarters) as Motorola has grown revenues in several new markets while breaking down old lock-ins and expanding revenues in the hotly contested cell phone business. The company is doing practically everything right.
Now is the BEST time to walk away from the old legacy business. Nowhere is lock-in stronger, and less valuable, than in the original legacy business. In Motorola’s case, finding a new future has been augmented by cutting its ties to the past – past practices, past metrics, past cultures and now past markets.
Sometimes developing a new future is best augmented by knowing when to walk away from the old business. And if you’ve already established White Space that’s producing results, you can walk away smiling.
by Adam Hartung | Sep 15, 2005 | Defend & Extend, General, Leadership, Lifecycle, Lock-in, Quotes
"The slide into bankruptcy protection of two of the USA’s largest airlines is more a result of the carriers’ bad assumptions and slowness to act than the recent rise in fuel prices or the devastating terror attacks four years ago." USAToday 9/15/05 page B1.
Woe are many of the airline companies. They’ve been challenged to find a new, profitable business model. And instead they’ve blamed their employees (too expensive), their customers (disloyal and cheap) and commodity traders (rising fuel prices) for their failures. The leadership of these companies has done everything it can to continue Defending and Extending their broken Success Formula. But not even post 9/11 federal government bailouts were enough.
When companies don’t step up to their market challenges by disrupting their operations and finding new solutions then their future is easy to predict. Too bad for America that nearly half of the industry capacity is now in bankruptcy (and thousands of jobs at risk, not to mention the strain on the federal government’s Pension Benefit Guarantee system) simply because management would not stop trying to do more of what it had been doing (more, better, faster, cheaper) – an impossible plan for saving these companies.
by Adam Hartung | Sep 9, 2005 | Disruptions
There is no silver lining to hurricane Katrina. The storm has laid waste to a huge area, killed thousands and left many thousands more with no homes or income. The nation’s infrastructure has been greatly harmed. There’s nothing good to be said about such a storm.
We can, and will, recover. The critical question is "how"? At the end of WWII Japan was left with thousands dead and homeless and it’s infrastructure destroyed. With the help of lots of U.S. aid Japan rebuilt. It did not just rebuild what it had, but went beyond. In several industries, let’s pick steel for example, Japan made investments to have the world’s leading technology and lowest cost production. Within 10 years of WWII Japan was becoming a player in the world steel market. By the 1970s Japan’s steel industry was "cleaning up" on U.S. integrated steel manufacturers. The actions Japan took to build a NEW infrastructure (not just rebuild) set the stage for Japan to be a world economic power twenty years later – a position it maintains to this day.
There are similar stories about the devastation in post WWII Germany, which is now a leader in many industries including chemicals and automobiles.
We must recover from Katrina. We will. The important thing for us to remember is that we should take this opportunity not to simply rush to rebuild what we had before – but rather to use this horrible challenge to lead us into White Space for determining how our Gulf Coast can be even more productive, more capable, a better economic leader than it was before. We can confront not only the immediate challenge, but challenges which have been building for years as we move forward — and in doing so make the Gulf Coast an even greater American jewel than before. We should not shortchange our investments in planning, resource utilization nor rebuilding as we return the Gulf Coast to a vital economic region. Now is the time to move forward and be even better than before!
by Adam Hartung | Sep 6, 2005 | Books, Defend & Extend, General, Lifecycle, Lock-in
There’s a new book out that’s well worth reading. Bait and Switch by Barbara Ehrenreich. There’s a great review (in case you don’t have time to read the whole book right now) In the Chicago Tribune by a University of Chicago Professor of history – Eric Arnesen.
Barbara’s thesis is pretty simple – there are a lot of white collar people unemployed and underemployed. So, as a quasi-anthropologist/journalist she faked up a resume, joined some networking groups and went job hunting. What she found is all too familiar to those struggling with white collar unemployment, and simultaneously insightful.
Barbara learned that unemployed and underemployed people tend to blame themselves for their difficulties. As if they simply didn’t work hard enough, try hard enough and diligently pursue all possibilities. Likewise, the herds of advisors in network groups, outplacement firms, job counselors and authors all put the blame for the unemployed squarely on those without good jobs and looking. Lots of advice is "more, better, faster – and consider making yourself cheaper." The same sort of lousy advice that gets businesses with broken Success Formulas into deeper trouble (and failure).
What Barbara also points out is that this answer is….. well…… insufficient. The economy has changed. The work world isn’t like we were promised in school. Globalization of skills, rapid "boom to bust" lifecycles of companies and wicked swings in market shares have made employment opportunities shorter and underemployment a fact of life. Much of what people are suffering through isn’t caused by them – but rather by a change in the working environment in which we all participate.
I regularly speak to networking groups. I find the same phenomenon Barbara describes. People searching for their "last job", rather than the "next job." Individuals become locked-in to a personal Success Formula developed early in their careers, and they keep trying to find a way to make that Success Formula work. But it won’t. The world has changed. What’s needed isn’t "the old jobs" but rather for those who are looking to realize they really have to change what they are looking for, how they are looking for it and often their own primary strengths. They have to compete in this new, transparent "information economy." And that requires a personal implementation of The Phoenix Principle.
Those who will continue to succeed will be able to understand that the employment market has changed. They must recognize their lock-in to old notions, and they must attack that lock-in so they can open doors to new approaches for developing their careers. They need to disrupt themselves, internally, and create personal White Space in order to find new search processes and improve those strengths which are valuable in today’s job marketplace. The Phoenix Principle doesn’t just apply to industries and companies that lock-in to old competitive structures – but to individuals as well.
Give Barbara’s book a read. And then think about what it will take for you to stop trying to Defend & Extend your career, and instead grow into a whole new set of opportunities. We all have to face the fact that retirement age is being pushed higher and higher, and thus we’ll all have to work longer. We might as well enjoy it – and that means modifying our Success Formulas to fit the working world of the future.
by Adam Hartung | Sep 2, 2005 | Defend & Extend, General, In the Rapids, In the Swamp, Leadership, Lifecycle
How do you read the trends in a business from the outside? Look at the articles on page 3. We all read the headlines. But headlines are dictated by what’s relatively interesting TODAY. This short-term phenomenon is not a good way to interpret what’s happening over time.
On Wednesday of this week (8/31/05) the Chicago Tribune business section led with articles about the business impact of Katrina. As they should. But when you turned the page, there were two very interesting, and short, adjacent articles on Motorola and McDonalds (courtesy of Bloomberg News).
The 4 inch by 4 inch text box on Motorola calmly reported that the company was retiring another $1B in bonds. This is on top of $2B in bond repurchases over the last year. Debt is down over 40% since January, 2004 and the company’s credit rating by Moody’s has been raised. By the way, sales and profits have risen over 10% for 6 straight quarters. The lower debt will allow Motorola to consider new investments in R&D and possibly acquisitions.
Meanwhile, the 2 inch by 8 inch text box on McDonald’s said the company was borrowing $3B to repatriate foreign earnings in order to take advantage of a short-term government tax break. By the way, this caused a recent 10% drop in reported earnings on top of the smallest sales gain in 2 years. The repatriated cash will be used to extend the company’s business model by opening new stores (anyone recall the store shuttering program in 2000-2001?), remodelings and paying salaries (no joke – paying salaries!).
I’ve written in this BLOG before about the great difference between Motorola and McDonald’s. One has disrupted itself and opened White Space to innovate – clearly moving rapidly from the Swamp back into the Rapids. The other is practicing Defend & Extend management as it continues struggling in the Swamp. To track performance, keep your eyes on page 3.
by Adam Hartung | Aug 30, 2005 | Defend & Extend, General, In the Swamp, Leadership, Lifecycle, Lock-in
Warren Buffet is often called the Oracle of Omaha. His track record at making money for investors in his company – Berkshire Hathaway – was remarkable for several years. Many have heard the story about how a mere $1,000 invested inthe late 1970’s is worth over $80,000 today. But, if you look closer, you’ll see that the company stock is about the same today as it was in 1998. Buffet really hasn’t made a lot of money for investors the last several years.
It’s foolish to attack an investing legend, yet it is worthwhile to look at whether what worked for Buffet for years is still working. As we know, the future is not the past and any company is subject to lock-in and deteriorating returns.
Last year Buffet’s Berkshire made a big investment in Pier 1 Imports. This helped prop up Pier 1’s stock price for a few months, but since then the company’s value has declined about 50%. This year the company suffered it’s first quarterly loss in history. According to Business Week, the company’s CEO has admitted he’s ashamed of company performance. Oops! Buffet hasn’t commented.
About 8 years ago Buffet’s Berkshire made a big investment in Coca-Cola. Such a large investment they put him on the Board. After that investment Coke’s market value doubled by 1998 – but then it started a slide that has Coke’s value back again to about what Buffet paid. Other than dividends, Berkshire hasn’t made any money. Oops! (And if you invested after Buffet you would have lost money.)
Buffet made a huge fortune with a strategy that worked incredibly well. But will it work going forward? He enjoyed buying companies that had a large asset which he perceived as undervalued and then hanging on while that asset rose in value. But increasingly these kinds of assets aren’t able to regain their old value. Companies like Pier 1 and Coke have hit growth stalls that have been deadly. Attempts to implement short-term fixes to their business models have been ineffective in the face of larger challenges to those models.
No one bats 1.00 (to use a baseball analogy) on their investments. But it’s increasingly obvious that Berkshire Hathaway’s strategy hasn’t been hitting so well. Their insurance and re-insurance investments aren’t producing like before, and even Mr. Buffet has been required to give testimony on intercompany relationships with scandals such as AIG. Oops! (This is not to impune Mr. Buffet – there have been no accusations of wrong doing by him or Berkshire Hathaway.)
Has Berkshire Hathaway hit a growth stall itself? Is the Oracle of Omaha locked-in, and possibly missing opportunities to improve shareholder return? Time will tell, but short term (looking at the last 10 years) Buffet shows all the signs of lock-in, and a stall – and that would trouble me if I owned Berkshire Hathaway stock. Mr. Buffet well deserves his opportunities on the public stage, yet it’s worth some hard thinking the next time you’re tempted to follow his lead on investments.
