by Adam Hartung | Sep 17, 2014 | Current Affairs, Disruptions, In the Whirlpool, Leadership, Lock-in
Sony was once the leader in consumer electronics. A brand powerhouse who’s products commanded a premium price and were in every home. Trinitron color TVs, Walkman and Discman players, Vaio PCs. But Sony has lost money for all but one quarter across the last 6 years, and company leaders just admitted the company will lose over $2B this year and likely eliminate its dividend.
McDonald’s created something we now call “fast food.” It was an unstoppable entity that hooked us consumers on products like the Big Mac, Quarter Pounder and Happy Meal. An entire generation was seemingly addicted to McDonald’s and raised their families on these products, with favorable delight for the ever cheery, clown-inspired spokesperson Ronald McDonald. But now McDonald’s has hit a growth stall, same-store sales are down and the Millenial generation has turned its nose up creating serious doubts about the company’s future.
Radio Shack was the leader in electronics before we really had a consumer electronics category. When we still bought vacuum tubes to repair radios and TVs, home hobbyists built their own early versions of computers and video games worked by hooking them up to TVs (Atari, etc.) Radio Shack was the place to go. Now the company is one step from bankruptcy.
Sears created the original non-store shopping capability with its famous catalogs. Sears went on to become a Dow Jones Industrial Average component company and the leading national general merchandise retailer with powerhouse brands like Kenmore, Diehard and Craftsman. Now Sears’ debt has been rated the lowest level junk, it hasn’t made a profit for 3 years and same store sales have declined while the number of stores has been cut dramatically. The company survives by taking loans from the private equity firm its Chairman controls.
How in the world can companies be such successful pioneers, and end up in such trouble?
Markets shift. Things in the world change. What was a brilliant business idea loses value as competitors enter the market, new technologies and solutions are created and customers find they prefer alternatives to your original success formula. These changed markets leave your company irrelevant – and eventually obsolete.
Unfortunately, we’ve trained leaders over the last 60 years how to be operationally excellent. In 1960 America graduated about the same number of medical doctors, lawyers and MBAs from accredited, professional university programs. Today we still graduate about the same number of medical doctors every year. We graduate about 6 times as many lawyers (leading to lots of jokes about there being too many lawyers.) But we graduate a whopping 30 times as many MBAs. Business education skyrocketed, and it has become incredibly normal to see MBAs at all levels, and in all parts, of corporations.
The output of that training has been a movement toward focusing on accounting, finance, cost management, supply chain management, automation — all things operational. We have trained a veritable legion of people in how to “do things better” in business, including how to measure costs and operations in order to make constant improvements in “the numbers.” Most leaders of publicly traded companies today have a background in finance, and can discuss the P&L and balance sheets of their companies in infinite detail. Management’s understanding of internal operations and how to improve them is vast, and the ability of leaders to focus an organization on improving internal metrics is higher than ever in history.
But none of this matters when markets shift. When things outside the corporation happen that makes all that hard work, cost cutting, financial analysis and machination pretty much useless. Because today most customers don’t really care how well you make a color TV or physical music player, since they now do everything digitally using a mobile device. Nor do they care for high-fat and high-carb previously frozen food products which are consistently the same because they can find tastier, fresher, lighter alternatives. They don’t care about the details of what’s inside a consumer electronic product because they can buy a plethora of different products from a multitude of suppliers with the touch of a mobile device button. And they don’t care how your physical retail store is laid out and what store-branded merchandise is on the shelves because they can shop the entire world of products – and a vast array of retailers – and receive deep product reviews instantaneously, as well as immediate price and delivery information, from anywhere they carry their phone – 24×7.
“Get the assumptions wrong, and nothing else matters” is often attributed to Peter Drucker. You’ve probably seen that phrase in at least one management, convention or motivational presentation over the last decade. For Sony, McDonald’s, Radio Shack and Sears the assumptions upon which their current businesses were built are no longer valid. The things that management assumed to be true when the companies were wildly profitable 2 or 3 decades ago are no longer true. And no matter how much leadership focuses on metrics, operational improvements and cost cutting – or even serving the remaining (if dwindling) current customers – the shift away from these companies’ offerings will not stop. Rather, that shift is accelerating.
It has been 80 years since Harvard professor Joseph Schumpeter described “creative destruction” as the process in which new technologies obsolete the old, and the creativity of new competitors destroys the value of older companies. Unfortunately, not many CEOs are familiar with this concept. And even fewer ever think it will happen to them. Most continue to hope that if they just make a few more improvements their company won’t really become obsolete, and they can turn around their bad situation.
For employees, suppliers and investors such hope is a weak foundation upon which to rely for jobs, revenues and returns.
According to the management gurus at McKinsey, today the world population is getting older. Substantially so. Almost no major country will avoid population declines over next 20 years, due to low birth rates. Simultaneously, better healthcare is everywhere, and every population group is going to live a whole lot (I mean a WHOLE LOT) longer. Almost every product and process is becoming digitized, and any process which can be done via a computer will be done by a computer due to almost free computation. Global communication already is free, and the bandwidth won’t stop growing. Secrets will become almost impossible to keep; transparency will be the norm.
These trends matter. To every single business. And many of these trends are making immediate impacts in 2015. All will make a meaningful impact on practically every single business by 2020. And these trends change the assumptions upon which every business – certainly every business founded prior to 2000 – demonstrably.
Are you changing your assumptions, and your business, to compete in the future? If not, you could soon look at your results and see what the leaders at Sony, McDonald’s, Radio Shack and Sears are seeing today. That would be a shame.
by Adam Hartung | Aug 6, 2014 | Defend & Extend, In the Whirlpool, Innovation, Lifecycle, Web/Tech
Remember the RAZR phone? Whatever happened to that company?
Motorola has a great tradition. Motorola pioneered the development of wireless communications, and was once a leader in all things radio – as well as made TVs. In an earlier era Motorola was the company that provided 2-way radios (and walkie-talkies for those old enough to remember them) not only for the military, police and fire departments, but connected taxies to dispatchers, and businesses from electricians to plumbers to their “home office.”
Motorola was the company that developed not only the thing in a customer’s hand, but the base stations in offices and even the towers (and equipment on those towers) to allow for wireless communication to work. Motorola even invented mobile telephony, developing the cellular infrastructure as well as the mobile devices. And, for many years, Motorola was the market share leader in cellular phones, first with analog phones and later with digital phones like the RAZR.
But that was the former Motorola, not the renamed Motorola Solutions of today. The last few years most news about Motorola has been about layoffs, downsizings, cost reductions, real estate sales, seeking tenants for underused buildings and now looking for a real estate partner to help the company find a use for its dramatically under-utilized corporate headquarters campus in suburban Chicago.
How did Motorola Solutions become a mere shell of its former self?
Unfortunately, several years ago Motorola was a victim of disruptive innovation, and leadership reacted by deciding to “focus” on its “core” markets. Focus and core are two words often used by leadership when they don’t know what to do next. Too often investment analysts like the sound of these two words, and trumpet management’s decision – knowing that the code implies cost reductions to prop up profits.
But smart investors know that the real implication of “focusing on our core” is the company will soon lose relevancy as markets advance. This will lead to significant sales declines, margin compression, draconian actions to create short-term P&L benefits and eventually the company will disappear.
Motorola’s market decline started when Blackberry used its server software to help corporations more securely use mobile devices for instant communications. The mobile phone transitioned from a consumer device to a business device, and Blackberry quickly grabbed market share as Motorola focused on trying to defend RAZR sales with price reductions while extending the RAZR platform with new gimmicks like additional colors for cases, and adding an MP3 player (called the ROKR.) The Blackberry was a game changer for mobile phones, and Motorola missed this disruptive innovation as it focused on trying to make sustaining improvements in its historical products.
Of course, it did not take long before Apple brought out the iPhone and with all those thousands of apps changed the game on Blackberry. This left Motorola completely out of the market, and the company abandoned its old platform hoping it could use Google’s Android to get back in the game. But, unfortunately, Motorola brought nothing really new to users and its market share dropped to nearly nothing.
The mobile phone business quickly overtook much of the old Motorola 2-way radio business. No electrician or plumber, or any other business person, needed the old-fashioned radios upon which Motorola built its original business. Even police officers used mobile phones for much of their communication, making the demand for those old-style devices rarer with each passing quarter.
But rather than develop a new game changer that would make it once again competitive, Motorola decided to split the company into 2 parts. One would be the very old, and diminishing, radio business still sold to government agencies and niche business applications. This business was profitable, if shrinking. The reason was so that leadership could “focus” on this historical “core” market. Even if it was rapidly becoming obsolete.
The mobile phone business was put out on its own, and lacking anything more than an historical patent portfolio, with no relevant market position, it racked up quarter after quarter of losses. Lacking any innovation to change the market, and desperate to get rid of the losses, in 2011 Motorola sold the mobile phone business – formerly the industry creator and dominant supplier – to Google. Again, the claim was this would allow leadership to even better “focus” on its historical “core” markets.
But the money from the Google sale was invested in trying to defend that old market, which is clearly headed for obsolescence. Profit pressures intensify every quarter as sales are harder to find when people have alternative solutions available from ever improving mobile technology.
As the historical market continued to weaken, and leadership learned it had under-invested in innovation while overspending to try to defend aging solutions, Motorola again cut the business substantially by selling a chunk of its assets – called its “enterprise business” – to a much smaller Zebra Technologies. The ostensible benefit was it would now allow Motorola leadership to even further “focus” on its ever smaller “core” business in government and niche market sales of aging radio technology.
But, of course, this ongoing “focus” on its “core” has failed to produce any revenue growth. So the company has been forced to undertake wave after wave of layoffs. As buildings empty they go for lease, or sale. And nobody cares, any longer, about Motorola. There are no news articles about new products, or new innovations, or new markets. Motorola has lost all market relevancy as its leaders used “focus” on its “core” business to decimate the company’s R&D, product development, sales and employment.
Retrenchment to focus on a core market is not a strategy which can benefit shareholders, customers, employees or the community in which a business operates. It is an admission that the leaders missed a major market shift, and have no idea how to respond. It is the language adopted by leaders that lack any vision of how to grow, lack any innovation, and are quickly going to reduce the company to insignificance. It is the first step on the road to irrelevancy.
Straight from Dr. Christensen’s “Innovator’s Dilemma” we now have another brand name to add to the list of those which were once great and meaningful, but now are relegated to Wikipedia historical memorabilia – victims of their inability to react to disruptive innovations while trying to sustain aging market positions – Motorola, Sears, Montgomery Wards, Circuit City, Sony, Compaq, DEC, American Motors, Coleman, Piper, Sara Lee………..
by Adam Hartung | Jul 28, 2014 | Current Affairs, Defend & Extend, In the Whirlpool, Web/Tech
Over the last couple of weeks big announcements from Apple, IBM and Microsoft have set the stage for what is likely to be Microsoft’s last stand to maintain any sense of personal technology leadership.
Custer Tries Holding Off An Unstoppable Native American Force
To many consumers the IBM and Apple partnership probably sounded semi-interesting. An app for airplane fuel management by commercial pilots is not something most people want. But what this announcement really amounted to was a full assault on regaining dominance in the channel of Value Added Resellers (VARs) and Value Added Dealers (VADs) that still sell computer “solutions” to thousands of businesses. Which is the last remaining historical Microsoft stronghold.
Think about all those businesses that use personal technology tools for things like retail point of purchase, inventory control, loan analysis in small banks, restaurant management, customer data collection, fluid control tracking, hotel check-in, truck routing and management, sales force management, production line control, project management — there is a never-ending list of business-to-business applications which drive the purchase of literally millions of devices and applications. Used by companies as small as a mom-and-pop store to as large as WalMart and JPMorganChase. And these solutions are bundled, sold, delivered and serviced by what is collectively called “the channel” for personal technology.
This “channel” emerged after Apple introduced the Apple II running VisiCalc, and businesses wanted hundreds of these machines. Later, bundling educational software with the Apple II created a near-monopoly for Apple channel partners who bundled solutions for school systems.
But, as the PC emerged this channel shifted. IBM pioneered the Microsoft-based PC, but IBM had long used a direct sales force. So its foray into personal computing did a very poor job of building a powerful sales channel. Even though the IBM PC was Time magazine’s “Man of the Year” in 1982, IBM lost its premier position largely because Microsoft took advantage of the channel opportunity to move well beyond IBM as a supplier.
Microsoft focused on building a very large network of developers creating an enormous variety of business-to-business applications on the Windows+Intel (Wintel) platform. Microsoft created training programs for developers to use its operating system and tools, while simultaneously cultivating manufacturers (such as Dell and Compaq) to build low cost machines to run the software. “Solution selling” was where VARs bundled what small businesses – and even many large businesses – needed by bringing together developer applications with manufacturer hardware.
It only took a few years for Microsoft to overtake Apple and IBM by dominating and growing the VAR channel. Apple did a poor job of creating a powerful developer network, preferring to develop everything users should want itself, so quickly it lacked a sufficient application base. IBM constantly tried to maintain its direct sales model (and upsell clients from PCs to more expensive hardware) rather than support the channel for developing applications or selling solutions based on PCs.
But, over the last several years Microsoft played “bet the company” on its launch of Windows 8. As mobile grew in hardware sales exponentially, and PC sales flattened (then declined,) Microsoft was tepid regarding any mobile offering. Under former CEO Steve Ballmer, Microsoft preferred creating an “all-in-one” solution via Win8 that it hoped would keep PC sales moving forward while slowly allowing its legions of Microsoft developers to build Win8 apps for mobile Surface devices — and what it further hoped would be other manufacturer’s tablets and phones running Win8.
This flopped. Horribly. Apple already had the “installed base” of users and mobile developers, working diligently to create new apps which could be released via its iTunes distribution platform. As a competitive offering, Google had several years previously launched the Android operating system, and companies such as HTC and Samsung had already begun building devices. Developers who wanted to move beyond Apple were already committed to Android. Microsoft was simply far too late to market with a Win8 product which gave developers and manufacturers little reason to invest.
Now Microsoft is in a very weak position. Despite much fanfare at launch, Microsoft was forced to take a nearly $1B write-off on its unsellable Surface devices. In an effort to gain a position in mobile, Microsoft previously bought phone maker Nokia, but it was simply far too late and without a good plan for how to change the Apple juggernaut.
Apple is now the dominant player in mobile, with the most users, developers and the most apps. Apple has upended the former Microsoft channel leadership position, as solution sellers are now offering Apple solutions to their mobile-hungry business customers. The merger with IBM brings even greater skill, and huge resources, to augmenting the base of business apps running on iOS and its devices (presently and in the future.) It provides encouragement to the VARs that a future stream of great products will be coming for them to sell to small, medium and even large businesses.
Caught in a situation of diminishing resources, after betting the company’s future on Windows 8 development and launch, and then seeing PC sales falter, Microsoft has now been forced to announce it is laying off 18,000 employees. Representing 14% of total staff, this is Microsoft’s largest reduction ever. Costs for the downsizing will be a massive loss of $1.1-$1.6B – just one year (almost to the day) after the huge Surface write-off.
Recognizing its extraordinarily weak market position, and that it’s acquisition of Nokia did little to build strength with developers while putting it at odds with manufacturers of other mobile devices, the company is taking some 12,000 jobs out of its Nokia division – ostensibly the acquisition made at a cost of $7.2B to blunt iPhone sales. Every other division is also suffering headcount reductions as Microsoft is forced to “circle the wagons” in an effort to find some way to “hold its ground” with historical business customers.
Today Apple is very strong in the developer community, already has a distribution capability with iTunes to which it is adding mobile payments, and is building a strong channel of VARs seeking mobile solutions. The IBM partnership strengthens this position, adds to Apple’s iOS developers, guarantees a string of new solutions for business customers and positions iOS as the platform of choice for VARs and VADs who will use iBeacon and other devices to help businesses become more capable by utilizing mobile/cloud technology.
Meanwhile, Microsoft is looking like the 7th Cavalry at the Little Bighorn. Microsoft is surrounded by competitors augmenting iOS and Android (and serious cloud service suppliers like Amazon,) resources are depleting as sales of “core” products stagnate and decline and write-offs mount, and watching as its “supply line” developer channel abandons Windows 8 for the competitive alternatives.
CEO Nadella keeps saying that that cloud solutions are Microsoft’s future, but how it will effectively compete at this late date is as unclear as the email announcement on layoffs Nokia’s head Stephen Elop sent to employees. Keeping its channel, long the source of market success for Microsoft, from leaving is Microsoft’s last stand. Unfortunately, Nadella’s challenge puts him in a position that looks a lot like General Custer.
by Adam Hartung | Jul 15, 2014 | Current Affairs, Defend & Extend, In the Swamp, Leadership
Famed actor and comedian Tracy Morgan has filed a lawsuit against Walmart. He was seriously injured, and his companion and fellow comedian James McNair was killed, when their chauffeured vehicle was struck by a WalMart truck going too fast under the control of an overly tired driver.
It would be easy to write this off as a one-time incident. As something that was the mistake of one employee, and not a concern for management. Walmart is huge, and anyone could easily say “mistakes will happen, so don’t worry.” And as the country’s largest company (by sales and employees) Walmart is an easy target for lawsuits.
But that would belie a much more concerning situation. One that should have investors plenty worried.
Walmart isn’t doing all that well. It is losing customers, even as the economy recovers. For a decade Walmart has struggled to grow revenues, and same store sales have declined – only to be propped up by store closings. Despite efforts to grow offshore, attempts at international expansion have largely been flops. Efforts to expand into smaller stores have had mixed success, and are marginal at generating new revenues in urban efforts. Meanwhile, Walmart still has no coherent strategy for on-line sales expansion.
Unfortunately the numbers don’t look so good for Walmart, a company that is absolutely run by numbers. Every single thing that can be tracked in Walmart is tracked, and managed – right down the temperature in every facility (store, distribution hub, office) 24x7x365. When the revenue, inventory turns, margin, distribution costs, etc. aren’t going in the right direction Walmart is a company where leadership applies the pressure to employees, right down the chain, to make things better.
Unfortunately, a study by Northwestern University Kellogg School of Management has shown that when a culture is numbers driven it often leads to selfish, and unethical, behavior. When people are focused onto the numbers, they tend to stretch the ethical (and possibly legal) boundaries to achieve those numerical goals. A great recent example was the U.S. Veterans Administration scandal where management migrated toward lying about performance in order to meet the numerical mandates set by Secretary Shinseki.
Back in November, 2012 I pointed out that the Walmart bribery scandal in Mexico was a warning sign of big problems at the mega-retailer. Pushed too hard to create success, Walmart leadership was at least skirting with the law if not outright violating it. I projected these problems would worsen, and sure enough by November the bribery probe was extended to Walmart’s operations in Brazil, China and India.
We know from the many employee actions happening at Walmart that in-store personnel are feeling pressure to do more with fewer hours. It does not take a great leap to consider it possible (likely?) that distribution personnel, right down to truck drivers are feeling pressured to work harder, get more done with less, and in some instances being forced to cut corners in order to improve Walmart’s numbers.
Exactly how much the highest levels of Walmart knows about any one incident is impossible to gauge at this time. However, what should concern investors is whether the long-term culture of Walmart – obsessed about costs and making the numbers – has created a situation where all through the ranks people are feeling the need to walk closer to ethical, and possibly legal, lines. While it may be that no manager told the driver to drive too fast or work too many hours, the driver might have felt the pressure from “higher up” to get his load to its destination at a certain time – or risk his job, or maybe his boss’s.
If this is a widespread cultural issue – look out! The legal implications could be catastrophic if customers, suppliers and communities discover widespread unethical behavior that went unchecked by top echelons. The C suite executives don’t have to condone such behavior to be held accountable – with costs that can be exorbitant. Just ask the leaders at JPMorganChase and Citibank who are paying out billions for past transgressions.
Worse, we cannot expect the marketplace pressures to ease up any time soon for Walmart. Competitors are struggling mightily. JCPenney cannot seem to find anyone to take the vacant CEO job as sales remain below levels of several years ago, and the chain is most likely going to have to close several dozen (or hundreds) of stores. Sears/KMart has so many closed and underperforming stores that practically every site is available for rent if anyone wants it. And in the segment which is even lower priced than Walmart, the “dollar stores,” direct competitor Family Dollar saw 3rd quarter profits fall another 33% as too many stores and too few customer wreak financial havoc and portend store closings.
So the market situation is not improving for Walmart. As competition has intensified, all signs point to a leadership which tried to do “more, better, faster, cheaper.” But there is no way to maintain the original Walmart strategy in the face of the on-line competitive onslaught which is changing the retail game. Walmart has continued to do “more of the same” trying to defend and extend its old success formula, when it was a disruptive innovator that stole its revenues and cut into profits. Now all signs point to a company which is in grave danger of over-extending its success formula to the point of unethical, and potentially illegal, behavior.
If that doesn’t scare the heck out of Walmart investors I can’t imagine what would.
by Adam Hartung | Jul 1, 2014 | Current Affairs, Defend & Extend, Leadership, Religion
Yesterday the U.S. Supreme Court ruled in favor of Hobby Lobby and against the U.S. government in a case revolving around health care for employees. I’m a business person, not a lawyer, so to me it was key to understand from a business viewpoint exactly what Hobby Lobby “won.”
It appears Hobby Lobby’s leaders “won” the right to refuse to provide certain kinds of health care to their employees as had been mandated by the Affordable Care Act. The justification primarily being that such health care (all associated with female birth control) violated religious beliefs of the company owners.
As a business person I wondered what the outcome would be if the next case is brought to the court by a business owner who happens to be a Christian Scientist. Would this next company be allowed to eliminate offering vaccines – or maybe health care altogether – because the owners don’t believe in modern medical treatments?
This may sound extreme, and missing the point revolving around the controversy over birth control. But not really. Because the point of business is to legally create solutions for customer needs at a profit. Doing this requires doing a lot of things right in order to attract and retain the right employees, the right suppliers and customers by making all of them extremely happy. I don’t recall Adam Smith, Milton Friedman, Peter Drucker, Edward Demming, John Galbraith or any other historically noted business writer saying the point of business to set the moral compass of its customers, suppliers or employees.
I’m not sure where enforcing the historical religious beliefs of founders or owners plays a role in business. At all. Even if they have the legal right to do so, is it smart business leadership?
Hobby Lobby Store
Hobby Lobby competes in the extraordinarily tough retail market. The ground is littered with failures, and formerly great companies which are struggling such as Sears, KMart, JCPenney, Best Buy, etc. And recently the industry has been rocked with security breaches, reducing customer faith in stalwarts like Target. And profits are being challenged across all brick-and-mortar traditional retailers by on-line companies led by Amazon, who have much lower cost structures.
All the trends in retail bode poorly for Hobby Lobby. Hobby Lobby does almost no business on-line, and even closes its stores on Sunday. Given consumer desires to have what they want, when they want it, unfettered by time or location, a traditional retailer like Hobby Lobby already has its hands full just figuring out how to keep competitors at bay. Customers don’t need much encouragement to skip any particular store in search of easily available products and instant price information across retailers.
Social trends are also very clear in the USA. The great majority of Americans support health care for everyone. Including offering birth control, and all other forms of women’s health needs. This has nothing to do with the Affordable Care Act. Health care, and women’s rights to manage their individual reproductiveness, is something that is clearly a majority viewpoint – and most people think it should be covered by health insurance.
So, given the customer options available, is it smart for any retailer to brag that they are unwilling to offer employees health care? Although not tied to any specific social issues, Wal-Mart has long dealt with customer and employee defections due to policies which reduce employee benefits, such as health care. Is this an issue which is likely to help Hobby Lobby grow?
Is it smart, as Hobby Lobby competes for merchandise from suppliers, negotiates on leases with landlords, seeks new store permits from local governments, recruits employees as buyers, merchandisers, store managers and clerks, and seeks customers who can shop on-line or at competitors to brandish the sword of intolerance on a specific issue which upsets the company owner? And one where this owner is on the opposite side of public opinion?
Long ago a group of retired U.S. military Generals told me that in Vietnam America won every battle, but lost the war. Through overwhelming firepower and manpower, there was no way we would not win any combat mission. But that missed the point. As a result of focusing on the combat, America’s leaders missed the opportunity win “the hearts and minds” of most Vietnamese. In the end America left Vietnam in a rushed abandonment of Saigon, and the North Vietnamese took over all of South Vietnam. Although we did what leaders believed was “right,” and fought each battle to a win, in the end America lost the objective of maintaining a free, independent and democratic Vietnam.
The leaders of Hobby Lobby won this battle. But is this good for the customers, suppliers, communities where stores are located, and employees of Hobby Lobby? Will these constituents continue to support Hobby Lobby, or will they possibly choose alternatives? If in its actions, including legal arguing at the Supreme Court, Hobby Lobby may have preserved what its leaders think is an important legal precedent. But, have their strengthened their business competitiveness so they will be a long-term success?
Perhaps Hobby Lobby might want to listen to the CEO of Chick-fil-A, which suffered a serious media firestorm when it became public their owners donated money to anti-gay organizations. CEO Cathy decided it was best to “just shut up and go sell chicken.” Business is tough enough, loaded with plenty of battles, without looking for fights that are against trends.
by Adam Hartung | Jun 19, 2014 | Current Affairs, Disruptions, In the Swamp, Leadership, Web/Tech
Yesterday Amazon launched its new Kindle Fire smartphone.
“Ho-hum” you, and a lot of other people, said. “Why?” “What’s so great about this phone?”
The market is dominated by Apple and Samsung, to the point we no longer care about Blackberry – and have pretty much forgotten about all the money spent by Microsoft to buy Nokia and launch Windows 8. The world doesn’t much need a new smartphone maker – as we’ve seen with the lack of excitement around Google/Motorola’s product launches. And, despite some gee-whiz 3D camera and screen effects, nobody thinks Amazon has any breakthrough technology here.
But that would be completely missing the point. Amazon probably isn’t even thinking of competing heads-up with the 2 big guns in the smartphone market. Instead, Amazon’s target is everyone in retail. And they should be scared to death. As well as a lot of consumer products companies.
Amazon’s new Kindle Fire smartphone
Apple’s iPod and iPhones have some 400,000 apps. But most people don’t use over a dozen or so daily. Think about what you do on your phone:
- Talk, texting and email
- Check the weather, road conditions, traffic
- Listen to music, or watch videos
- Shopping (look for products, prices, locations, specs, availability, buy)
Now, you may do several other things. But (maybe not in priority,) these are probably the top 4 for 90% of people.
If you’re Amazon, you want people to have a great shopping experience. A GREAT experience. You’ve given folks terrific interfaces, across multiple platforms. But everything you do with an app on iPhones or Samsung phones involves negotiating with Apple or Google to be in their store – and giving them revenue. If you could bypass Apple and Google – a form of retail “middleman” in Amazon’s eyes – wouldn’t you?
Amazon has already changed retail markedly. Twenty years ago a retailer would say success relied on 2 things:
- Store location and layout. Be in the right place, and be easy to shop.
- Merchandise the goods well in the store, and have them available.
Amazon has killed both those tenets of retail. With Amazon there is no store – there is no location. There are no aisles to walk, and no shelves to stock. There is no merchandising of products on end caps, within aisles or by tagging the product for better eye appeal. And in 40%+ cases, Amazon doesn’t even stock the inventory. Availability is based upon a supplier for whom Amazon provides the storefront and interface to the customer, sending the order to the supplier for a percentage of the sale.
And, on top of this, the database at Amazon can make your life even easier, and less time consuming, than a traditional store. When you indicate you want item “A” Amazon is able to show you similar products, show you variations (such as color or size,) show you “what goes with” that product to make sure you buy everything you need, and give you different prices and delivery options.
Many retailers have spent considerably training employees to help customers in the store. But it is rare that any retail employee can offer you the insight, advice and detail of Amazon. For complex products, like electronics, Amazon can provide detail on all competitive products that no traditional store could support. For home fix-ups Amazon can provide detailed information on installation, and the suite of necessary ancillary products, that surpasses what a trained Home Depot employee often can do. And for simple products Amazon simply never runs out of stock – so no asking an aisle clerk “is there more in the back?”
And it is impossible for any brick-and-mortar retailer to match the cost structure of Amazon. No stores, no store employees, no cashiers, 50% of the inventory, 5-10x the turns, no “obsolete inventory,” no inventory loss – there is no way any retailer can match this low cost structure. Thus we see the imminent failure of Radio Shack and Sears, and the chronic decline in mall rents as stores go empty.
Some retailers have tried to catch up with Amazon offering goods on-line. But the inventory is less, and delivery is still often problematic. Meanwhile, as they struggle to become more digital these retailers are competing on ground they know precious little about. It is becoming commonplace to read about hackers stealing customer data and wreaking havoc at Michaels Stores and Target. Thus on-line customers have far more faith in Amazon, which has 2 decades of offering secure transactions and even offers cloud services secure enough to support major corporations and parts of the U.S. government.
And Amazon, so far, hasn’t even had to make a profit. It’s lofty price/earnings multiple of 500 indicates just how little “e” there is in its p/e. Amazon keeps pouring money into new ways to succeed, rather than returning money to shareholders via stock buybacks or dividends. Or dumping it into chronic store remodels, or new store construction.
Today, you could shop at Amazon from your browser on any laptop, tablet or phone. Or, if you really enjoy shopping on-line you can now obtain a new tablet or phone from Amazon which makes your experience even better. You can simply take a picture of something you want, and your new Amazon smartphone will tell you how to buy it on-line, including price and delivery. No need to leave the house. Want to see the product in full 360 degrees? You have it on your 3D phone. And all your buying experience, customer reviews, and shopping information is right at your fingertips.
Amazon is THE game changer in retail. Kindle was a seminal product that has almost killed book publishers, who clung way too long to old print-based business models. Kindle Fire took direct aim at traditional retailers, from Macy’s to Wal-Mart, in an effort to push the envelope of on-line shopping. And now the Kindle Fire smartphone puts all that shopping power in your palm, convenient with your other most commonplace uses such as messaging, fact finding, listening or viewing.
This is not a game changing smartphone in comparison with iPhone 5 or Galaxy S 5. But, as another salvo in the ongoing war for controlling the retail marketplace this is another game changer. It continues to help everyone think about how they shop today, and in the future. For anyone in retail, this may well be seen as another important step toward changing the industry forever, and making “every day low prices” an obsolete (and irrelevant) retail phrase. And for consumer goods companies this means the need to distribute products on-line will forever change the way marketing and selling is done – including who makes how much profit.
by Adam Hartung | May 16, 2014 | Current Affairs, Defend & Extend, In the Swamp, Leadership, Lifecycle, Web/Tech
IBM had a tough week this week. After announcing earnings on Wednesday IBM fell 2%, dragging the Dow down over 100 points. And as the Dow reversed course to end up 2% on the week, IBM continued to drag, ending down almost 3% for the week.
Of course, one bad week – even one bad earnings announcement – is no reason to dump a good company’s stock. The short term vicissitudes of short-term stock trading should not greatly influence long-term investors. But in IBM’s case, we now have 8 straight quarters of weaker revenues. And that HAS to be disconcerting. Managing earnings upward, such as the previous quarter, looks increasingly to be a short-term action, intended to overcome long-term revenues declines which portend much worse problems.
This revenue weakness roughly coincides with the tenure of CEO Virginia Rometty. And in interviews she increasingly is defending her leadership, and promising that a revenue turnaround will soon be happening. That it hasn’t, despite a raft of substantial acquisitions, indicates that the revenue growth problems are a lot deeper than she indicates.
CEO Rometty uses high-brow language to describe the growth problem, calling herself a company steward who is thinking long-term. But as the famous economist John Maynard Keynes pointed out in 1923, “in the long run we are all dead.” Today CEO Rometty takes great pride in the company’s legacy, pointing out that “Planes don’t fly, trains don’t run, banks don’t operate without much of what IBM does.”
But powerful as that legacy has been, in markets that move as fast as digital technology any company can be displaced very fast. Just ask the leadership at Sun Microsystems that once owned the telecom and enterprise markets for servers – before almost disappearing and being swallowed by Oracle in just 5 years (after losing $200B in market value.) Or ask former CEO Steve Ballmer at Microsoft, who’s delays at entering mobile have left the company struggling for relevancy as PC sales flounder and Windows 8 fails to recharge historical markets.
CEO Rometty may take pride in her earnings management. But we all know that came from large divestitures of the China business, and selling the PC and server business. As well as significant employee layoffs. All of which had short-term earnings benefits at the expense of long-term revenue growth. Literally $6B of revenues sold off just during her leadership.
Which in and of itself might be OK – if there was something to replace those lost sales. (Even if they didn’t have any profits – because at least we have faith in Amazon creating future profits as revenues zoom.)
What really worries me about IBM are two things that are public, but not discussed much behind the hoopla of earnings, acquisitions, divestitures and all the talk, talk, talk regarding a new future.
CNBC reported (again, this week,) that 121 companies in the S&P 500 (27.5%) cut R&D in the first quarter. And guess who was on the list? IBM, once an inveterate leader in R&D has been reducing R&D spending. The short-term impact? Better quarterly earnings. Long term impact????
The Washington Post reported this week about the huge sums of money pouring out of corporations into stock buybacks rather than investing in R&D, new products, new capacity, enhanced marketing, sales growth, etc. $500B in buybacks this year, 34% more than last year’s blistering buyback pace, flowed out of growth projects. To make matters worse, this isn’t just internal cash flow going for buybacks, but companies are actually borrowing money, increasing their debt levels, in order to buy their own stock!
And the Post labels as the “poster child” for this leveraged stock-propping behavior…. IBM. IBM
“in the first quarter bought back more than $8 billion of its own stock, almost all of it paid for by borrowing. By reducing the number of outstanding shares, IBM has been able to maintain its earnings per share and prop up its stock price even as sales and operating profits fall.
The result: What was once the bluest of blue-chip companies now has a debt-to-equity ratio that is the highest in its history. As Zero Hedge put it, IBM has embarked on a strategy to “postpone the day of income statement reckoning by unleashing record amounts of debt on what was once upon a time a pristine balance sheet.”
In the case of IBM, looking beyond the short-term trees at the long-term forest should give investors little faith in the CEO or the company’s future growth prospects. Much is being hidden in the morass of financial machinations surrounding acquisitions, divestitures, debt assumption and stock buybacks. Meanwhile, revenues are declining, and investments in R&D are falling. This cannot bode well for the company’s long-term investor prospects, regardless of the well scripted talking points offered last week.
by Adam Hartung | Apr 8, 2014 | Current Affairs, Disruptions, In the Rapids, Innovation, Leadership
“Car dealers are idiots” said my friend as she sat down for a cocktail.
It was evening, and this Vice President of a large health care equipment company was meeting me to brainstorm some business ideas. I asked her how her day went, when she gave the response above. She then proceeded to tell me she wanted to trade in her Lexus for a new, small SUV. She had gone to the BMW dealer, and after being studiously ignored for 30 minutes she asked “do the salespeople at this dealership talk to customers?” Whereupon the salespeople fell all over themselves making really stupid excuses like “we thought you were waiting for your husband,” and “we felt you would be more comfortable when your husband arrived.”
My friend is not married. And she certainly doesn’t need a man’s help to buy a car.
She spent the next hour using her iPhone to think up every imaginable bad thing she could say about this dealer over Twitter and Facebook using various interesting hashtags and @ references.
Truthfully, almost nobody likes going to an auto dealership. Everyone can share stories about how they were talked down to by a salesperson in the showroom, treated like they were ignorant, bullied by salespeople and a slow selling process, overcharged compared to competitors for service, forced into unwanted service purchases under threat of losing warranty coverage – and a slew of other objectionable interactions. Most Americans think the act of negotiating the purchase of a new car is loathsome – and far worse than the proverbial trip to a dentist. It’s no wonder auto salespeople regularly top the list of least trusted occupations!
When internet commerce emerged in the 1990s, buying an auto on-line was the #1 most desired retail transaction in emerging customer surveys. And today the vast majority of Americans, especially Millennials, use the web and social media to research their purchase before ever stepping foot in the dreaded dealership.
Tesla heard, and built on this trend. Rather than trying to find dealers for its cars, Tesla decided it would sell them directly from the manufacturer. Which created an uproar amongst dealers who have long had a cushy “almost no way to lose money” business, due to a raft of legal protections created to support them after the great DuPont-General Motors anti-trust case.
When New Jersey regulators decided in March they would ban Tesla’s factory-direct dealerships, the company’s CEO, Elon Musk, went after Governor Christie for supporting a system that favors the few (dealers) over the customer. He has threatened to use the federal courts to overturn the state laws in favor of consumer advocacy.
It would be easy to ignore Tesla’s position, except it is not alone in recognizing the trend. TrueCar is an on-line auto shopping website which received $30M from Microsoft co-founder Paul Allen’s venture fund. After many state legal challenges TrueCar now claims to have figured out how to let people buy on-line with dealer delivery, and last week filed papers to go public. While this doesn’t eliminate dealers, it does largely take them out of the car-buying equation. Call it a work-around for now that appeases customers and lawyers, even if it doesn’t actually meet consumer desires for a direct relationship with the manufacturer.
Apple’s direct-to-consumer retail stores were key to saving the company
Distribution is always a tricky question for any consumer good. Apple wanted to make sure its products were positioned correctly, and priced correctly. As Apple re-emerged from near bankruptcy with new music products in the early 2000’s Apple feared electronic retailers would discount the product, be unable to feature Apple’s advantages, and hurt the brand which was in the process of rebuilding. So it opened its own stores, staffed by “geniuses” to help customers understand the brand positioning and the products’ advantages. Those stores are largely considered to have been a turning point in helping consumers move from a world of Microsoft-based laptops, Sony music products and Blackberry mobile devices to new iDevices and resurging Macintosh popularity – and sales levels.
Attacking regulations sounds – and is – a daunting task. But, when regulations support a minority of people outside the public good there is reason to expect change. American’s wanted a more pristine society, so in 1920 the 18th Amendment was passed prohibiting alcohol. However, after a decade in which rampant crime developed to support illegal alcohol production Americans passed the 21st Amendment in 1933 to repeal prohibition. What seemed like a good idea at first turned out to have more negatives than positives.
Auto dealer regulations hurt competition, and consumers
Today Americans do not need a protected group of dealers to save them from big, bad auto companies. To the contrary, forced distribution via protected dealers inhibits competition because it keeps new competitors from entering the U.S. market. Small production manufacturers, and large ones in countries like India, are effectively blocked from reaching American customers because they lack a dealer base and existing dealers are uninterested in taking the risks inherent in taking these new products to market. Likewise, starting up an auto company is fraught with distribution risks in the USA, leaving Tesla the only company to achieve any success since the dealer protection laws were passed decades ago.
And that’s why Tesla has a very good chance of succeeding. The trends all support Americans wanting to buy directly from manufacturers. At the very least this would force dealers to justify their existence, and profits, if they want to stay in business. But, better yet, it would create greater competition – as happened in the case of Apple’s re-emergence and impact on personal technology for entertainment and productivity.
Litigating to fight a trend might work for a while. Usually those in such a position are large political contributors, and use both the political process as well as legal precedent to protect their unjustified profits. NADA (National Automobile Dealers Association) is a substantial organization with very large PAC money to use across Washington. The Association can coordinate election contributions at national and state levels, as well as funding for judge elections and contributions for legal defense.
But, trends inevitably win out. Today Millennials are true on-line shoppers. They have no patience for traditional auto dealer shenanigans. After watching their parents, and grandparents, struggle for fairness with dealers they are eager for a change. As are almost all the auto buyers out there. And they are supported by consumer advocates long used to edgy tactics of auto dealers well known for skirting ethics and morality when dealing with customers. Those seeking change just need someone positioned to lead the legal effort.
Tesla wins because it uses trends to be a game changer
Tesla has shown it is well attuned to trends and what customers want. When other auto companies eschewed Tesla’s first entry as a 2-passenger sports car using laptop batteries, Tesla proceeded to sell out the product at a price much higher competitive gas-powered cars. When other auto companies thought a $70,000 electric sedan would never appeal to American buyers, Tesla again showed it understood the market best and sold out production. When industry pundits, and traditional auto company execs, said it was impossible to build a charging grid to support users driving up the coast, or cross-country, Tesla built the grid and demonstrated its functionality.
Now Tesla is the right company, in the right place, to change not only the autos Americans drive, but how Americans buy them. It’s rarely smart to refuse a trend, and almost always smart to support it. Tesla looks to be positioning itself as much smarter than older, larger auto companies once again.
by Adam Hartung | Apr 1, 2014 | Current Affairs, Defend & Extend, In the Swamp, Leadership, Web/Tech
“Hope springs eternal in the human breast” (Alexander Pope)
As it does for most investors. People do not like to accept the notion that a business will lose relevancy, and its value will fall. Especially really big companies that are household brand names. Investors, like customers, prefer to think large, established companies will continue to be around, and even do well. It makes everyone feel better to have a optimistic attitude about large, entrenched organizations.
And with such optimism investors have cheered Microsoft for the last 15 months. After a decade of trading up and down around $26/share, Microsoft stock has made a significant upward move to $41 – a new decade-long high. This price has people excited Microsoft will reach the dot.com/internet boom high of $60 in 2000.
After discovering that Windows 8, and the Surface tablet, were nowhere near reaching sales expectations after Christmas 2012 – and that PC sales were declining faster than expected – investors were cheered in 2013 to hear that CEO Steve Ballmer would resign. After much speculation, insider Satya Nadella was named CEO, and he quickly made it clear he was refocusing the company on mobile and cloud. This started the analysts, and investors, on their recent optimistic bent.
CEO Nadella has cut the price of Windows by 70% in order to keep hardware manufacturers on Windows for lower cost machines, and he announced the company’s #1 sales and profit product – Office – was being released on iOS for iPad users. Investors are happy to see this action, as they hope that it will keep PC sales humming. Or at least slow the decline in sales while keeping manufacturers (like HP) in the Microsoft Windows fold. And investors are likewise hopeful that the long awaited Office announcement will mean booming sales of Office 365 for all those Apple products in the installed base.
But, there’s a lot more needed for Microsoft to succeed than these announcements. While Microsoft is the world’s #1 software company, it is still under considerable threat and its long-term viability remains unsure.
Windows is in a tough spot. After this price decline, Microsoft will need to increase sales volume by 2.5X to recoup lost profits. Meanwhile, Chrome laptops are considerably cheaper for customers and more profitable for manufacturers. And whether this price cut will have any impact on the decline in PC sales is unclear, as users are switching to mobile products for ease-of-use reasons that go far beyond price. Microsoft has taken an action to defend and extend its installed base of manufacturers who have been threatening to move, but the impact on profits is still likely to be negative and PC sales are still going to decline.
Meanwhile, the move to offer Office on iOS is clearly another offer to defend the installed Office marketplace, and unlikely to create a lot of incremental revenue and profit growth. The PC market has long been much bigger than tablets, and almost every PC had Office installed. Shrinking at 12-14% means a lot less Windows Office is being sold. And, In tablets iOS is not 100% of the market, as Android has substantial share. Offering Office on iOS reaches a lot of potential machines, but certainly not 100% as has been the case with PCs.
Further, while there are folks who look forward to running Office on an iOS device, Office is not without competition. Both Apple and Google offer competitive products to Office, and the price is free. For price sensitive users, both individuals and corporations, after 4 years of using competitive products it is by no means a given they all are ready to pay $60-$100 per device per year. Yes, there will be Office sales Microsoft did not previously have, but whether it will be large enough to cover the declining sales of Office on the PC is far from clear. And whether current pricing is viable is far, far from certain.
While these Microsoft products are the easiest for consumers to understand, Nadella’s move to make Microsoft successful in the mobile/cloud world requires succeeding with cloud products sold to corporations and software-as-service providers. Here Microsoft is late, and facing substantial competition as well.
Just last week Google cut the price of its Compute Engine cloud infrastructure (IaaS) platform and App Engine cloud app platform (PaaS) products 30-32%. Google cut the price of its Cloud Storage and BigQuery (big data analytics) services by 68% and 85% as it competes headlong for customers with Amazon. Amazon, which has the first-mover position and large customers including the U.S. federal government, cut prices within 24 hours for its EC2 cloud computing service by 30%, and for its S3 storage service by over 50%. Amazon also reduced prices on its RDS database service approximately 28%, and its Elasticache caching service by over 33%.
To remain competitive, Microsoft had to react this week by chopping prices on its Azure cloud computing products 27%-35%, reducing cloud storage pricing 44%-65%, and whacking prices on its Windows and Linux memory-intensive computing products 27%-35%. While these products have allowed the networking division formerly run by now CEO Nadella to be profitable, it will be increasingly difficult to maintain old profit levels on existing customers, and even a tougher problem to profitably steal share from the early cloud leaders – even as the market grows.
While optimism has grown for Microsoft fans, and the share price has moved distinctly higher, it is smart to look at other market leaders who obtained investor favorability, only to quickly lose it.
Blackberry was known as RIM (Research in Motion) in June, 2007 when the iPhone was launched. RIM was the market leader, a near monopoly in smart phones, and its stock was riding high at $70. In August, 2007, on the back of its dominant status, the stock split – and moved on to a split adjusted $140 by end of 2008. But by 2010, as competition with iOS and Android took its toll RIM was back to $80 (and below.) Today the rechristened company trades for $8.
Sears was once the country’s largest and most successful retailer. By 2004 much of the luster was coming off when KMart purchased the company and took its name, trading at only $20/share. Following great enthusiasm for a new CEO (Ed Lampert) investors flocked to the stock, sure it would take advantage of historical brands such as DieHard, Kenmore and Craftsman, plus leverage its substantial real estate asset base. By 2007 the stock had risen to $180 (a 9x gain.) But competition was taking its toll on Sears, despite its great legacy, and sales/store started to decline, total sales started declining and profits turned to losses which began to stretch into 20 straight quarters of negative numbers. Meanwhile, demand for retail space declined, and prices declined, cutting the value of those historical assets. By 2009 the stock had dropped back to $40, and still trades around that value today — as some wonder if Sears can avoid bankruptcy.
Best Buy was a tremendous success in its early years, grew quickly and built a loyal customer base as the #1 retail electronics purveyor. But streaming video and music decimated CD and DVD sales. On-line retailers took a huge bite out of consumer electronic sales. By January, 2013 the stock traded at $13. A change of CEO, and promises of new formats and store revitalization propped up optimism amongst investors and by November, 2014 the stock was at $44. However, market trends – which had been in place for several years – did not change and as store sales lagged the stock dropped, today trading at only $25.
Microsoft has a great legacy. It’s products were market leaders. But the market has shifted – substantially. So far new management has only shown incremental efforts to defend its historical business with product extensions – which are up against tremendous competition that in these new markets have a tremendous lead. Microsoft so far is still losing money in on-line and gaming (xBox) where it has lost almost all its top leadership since 2014 began and has been forced to re-organize. Nadella has yet to show any new products that will create new markets in order to “turn the tide” of sales and profits that are under threat of eventual extinction by ever-more-capable mobile products.
While optimism springs eternal long-term investors would be smart to be skeptical about this recent improvement in the stock price. Things could easily go from mediocre to worse in these extremely competitive global tech markets, leaving Microsoft optimists with broken dreams, broken hearts and broken portfolios.
Update: On April 2 Microsoft announced it is providing Windows for free to all manufacturers with a 9″ or smaller display. This is an action to help keep Microsoft competitive in the mobile marketplace – but it does little for Microsoft profitability. Android from Google may be free, but Google’s business is built on ad sales – not software sales – and that’s dramatically different from Microsoft that relies almost entirely on Windows and Office for its profitability
Update: April 3 CRN (Computer Reseller News) reviewed Office products for iOS – “We predict that once the novelty of “Office for iPad” wears off, companies will go back to relying on the humble, hard-working third parties building apps that are as stable, as handsome and far more capable than those of Redmond. It’s not that hard to do.”
by Adam Hartung | Mar 13, 2014 | Food and Drink, Investing, Leadership, Lock-in, Trends
Understanding trends is the most important part of planning.
Yet, most business planning focuses on internal operations and how to improve them, usually neglecting trends and changes in the external environment that threaten not only sales and profits but the business’ very existence.
Take Sbarro’s recent bankruptcy. That was easy to predict, especially since it’s the second time down for the restaurant chain. You have to wonder why leadership didn’t do something different to avoid this fate.
Traditional retail has been in decline for a decade. As consumers buy more stuff on-line, from a rash of retailers old and new, there is simply less stuff being bought at stores. It’s an obvious trend which affects everyone. But we see business leaders surprised by the trend, reacting with store closings and cost reductions, and we are surprised by the headlines:
Thousands of retail stores will close in 2014. It should surprise no one that physical retail traffic has been in dramatic decline. Large malls are shutting down, and being destroyed, as the old “anchor tenants” like Sears and JC Penney flail. Over 200 large malls (over 250,000 square feet) have vacancy rates exceeding 35%. Retail rental prices keep declining as the overbuilt, or under-demolished, retail square footage supply exceeds demand.
Business planning is about defending and extending the past.
Given this publicly available information, you would think a company with most of its revenue tightly linked to traditional retail would —- well —- change. Yet, Sbarro stuck with its business of offering low cost food to mall shoppers. Its leaders continued focusing on defending & extending its old business, improving operations, while trends are clearly killing the business.
Almost all business planning efforts begin by looking at recent history. Planning processes starts with a host of assumptions about the business as it has been, and then try projecting those assumptions forward. Sbarro began when malls were growing, and its plans were built on the assumption that malls thrive. Now malls are dying, but that is not even part of planning for the future. Planning remains fixated on execution of a strategy that is no longer viable .
No one can “fix” Sbarro – they have to change it. Radically. And that means planning for a future which looks nothing like the past. Planning needs to start by looking at trends, and developing future scenarios about what customers need. Regardless of what the business did in the past.
Planning should be about understanding trends and developing future scenarios.
For all businesses the important planning information is not sales, sales per store, product line offerings, cost of goods sold, labor cost, gross margin, rents, cleanliness scores, safety record, location, etc., etc. The important information is in marketplace trends. For Sbarro, what will be dining trends in the future? What kind of restaurant experience do people want not only in 2014, but in 2020? Or should the company move toward delivery? At-home food preparation?
Success only happens when we understand trends and build our business to deliver what people want in the future. The world moves very fast these days. Technologies, styles, fashions, tastes, regulations, prices, capabilities and behaviors all change very quickly. Tomorrow is far less likely to look like today than to look, in important ways, remarkably different.
Plan for the future, not from the past.
To succeed in today’s fast changing environment requires we plan for the future, not from the past. We have to understand trends, and create keen vision about what customers will want in the future so we can steer our business in the right direction. Before we even discuss execution we have to make sure we are going to give customers what they want – which will be aligned with trends.
Otherwise, you can have the best run operation in the country and still end up like Sbarro.
Connect with me on LinkedIn, Facebook and Twitter.
Links:
Radio Shack is a leader… in irrelevancy… and why that’s important for you
Old assumptions, and the CEO’s bias, is killing Sears
Winners shift with trends, losers don’t – understanding Sears’ decline
The CEO problem and the failure of JCPenney
The RIGHT way to implement planning to thrive in changing markets
How to plan like Virgin, Apple and Google
