Don’t leave ObamaCare to the Attorneys!

No businessperson thinks the way to solve a business problem is via the courts.  And no issue is larger for American business than health care.  Despite all the hoopla over the Supreme Court reviews this week, this is a lousy way for America to address an extremely critical area.

The growth of America's economy, and its global competitiveness, has a lot riding on health care costs. Looking at the table, below, it is clear that the U.S. is doing a lousy job at managing what is the fastest growing cost in business (data summarized from 24/7 Wall Street.)

Healthcare costs 2011
While America is spending about $8,000 per person, the next 9 countries (in per person cost) all are grouped in roughly the $4,000-$5,000 cost — so America is 67-100% more costly than competitors.  This affects everything America sells – from tractors to software services – forcing higher prices, or lower margins.  And lower margins means less resources for investing in growth!

American health care is limiting the countries overall economic growth capability by consuming dramatically more resources than our competitors.  Where American spends 17.4% of GDP (gross domestic product) on health care, our competitors are generally spending only 11-12% of their resources.  This means America is "taxing" itself an extra 50% for the same services as our competitive countries.  And without demonstrably superior results.  That is money which Americans would gain more benefit if spent on infrastructure, R&D, new product development or even global selling!

Americans seem to be fixated on the past.  How they used to obtain health care services 50 years ago, and the role of insurance 50 years ago.  Looking forward, health care is nothing like it was in 1960.  The days of "Dr. Welby, MD" serving a patient's needs are long gone.  Now it takes teams of physicians, technicians, nurses, diagnosticians, laboratory analysts and buildings full of equipment to care for patients.  And that means America needs a medical delivery system that allows the best use of these resources efficiently and effectively if its citizens are going to be healthier, and move into the life expectancies of competitive countries.

Unfortunately, America seems unwilling to look at its competitors to learn from what they do in order to be more effective.  It would seem obvious that policy makers and those delivering health care could all look at the processes in these other 9 countries and ask "what are they doing, how do they do it, and across all 9 what can we see are the best practices?" 

By studying the competition we could easily learn not only what is being done better, but how we could improve on those practices to be a world leader (which, clearly, we now are not.)  Yet, for the most part those involved in the debate seem adamant to ignore the competition – as if they don't matter.  Even though the cost of such blindness is enormous.

Instead, way too much time is spent asking customers what they want.  But customers have no idea what health care costs.  Either they have insurance, and don't care what specific delivery costs, or they faint dead away when they see the bill for almost any procedure.  People just know that health care can be really good, and they want it.  To them, the cost is somebody else's problem. That offers no insight for creating an effective yet simultaneously efficient system.

America needs to quit thinking it can gradually evolve toward something better.  As Clayton Christensen points out in his book "The Innovator's Prescription: A Disruptive Solution for Health Care" America could implement health care very differently.  And, as each year passes America's competitiveness falls further behind – pushing the country closer and closer to no choice but being disruptive in health care implementation.  That, or losing its vaunted position as market leader!

Is the "individual mandate" legal?  That seems to be arguable.  But, it is disruptive.  It seems the debate centers more on whether Americans are willing to be disruptive, to do something different, than whether they want to solve the problem.  Across a range of possibilities, anything that disrupts the ways of the past seems to be argued to death.  That isn't going to solve this big, and growing, problem.  Americans must become willing to accept some radical change.

The simple approach would be to look at programs in Oregon, Massachusetts and all the states to see what has worked, and what hasn't worked as well.  Instead of judging them in advance, they could be studied to learn.  Then America could take on a series of experiments.  In isolated locations.  Early adopter types could "opt in" on new alternative approaches to payment, and delivery, and see if it makes them happy.  And more stories could be promulgated about how alternatives have worked, and why, helping everyone in the country remove their fear of change by seeing the benefits achieved by early leaders.

Health care delivery, and its cost, in America is a big deal.  Just like the oil price shocks in the 1970s roiled cost structures and threatened the economy, unmanagable health care delivery and cost threatens the country's economic future.  American's surely don't expect a handful of lawyers in black robes to solve the problem.

America needs to learn from its competition, be willing to disrupt past processes and try new approaches that forge a solution which not only delivers better than anyone else (a place where America does seem to still lead) but costs less.  If America could be the first on the moon, first to create the PC and first to connect everyone on smartphones this is a problem which can be solved – but not by attorneys or courts!

How Harry Potter predicts Success for AOL


Evolution doesn’t happen like we think.  It’s not slow and gradual (like line A, below.)  Things don’t go from one level of performance slowly to the next level in a nice continuous way.  Rather, evolutionary change happens brutally fast.  Usually the potential for change is building for a long time, but then there is some event – some environmental shift (visually depcted as B, below) – and the old is made obsolete while the new grows aggressively.  Economists call this “punctuated equilibrium.”  Everyone was on an old equilibrium, then they quickly shift to something new establishing a new equilibrium.

Punctuated EquilibriumMomentum has been building for change in publishing for several years.  Books are heavy, a pain to carry and often a pain to buy.  Now eReaders, tablets and web downloads have changed the environment.  And in June  J.K. Rowling, author of those famous Harry Potter books, opened her new web site as the location to exclusively sell Harry Potter e-books (see TheWeek.comHow Pottermore Will Revolutionized Publishing.”) 

Ms. Rowling has realized that the market has shifted, the old equilibrium is gone, and she can be part of the new one.  She’ll let the dinosaur-ish publisher handle physical books, especially since Amazon has already shown us that physical books are a smaller market than ebooks.  Going forward she doesn’t need the publisher, or the bookstore (not even Amazon) to capture the value of her series.  She’s jumping to the new equilibrium.

And that’s why I’m encouraged about AOL these days.  Since acquiring The Huffington Post company, things are changing at AOL.  According to Forbes writer Jeff Bercovici, in “AOL After the Honeymoon,” AOL’s big slide down in users has begun to reverse direction.  Many were surprised to learn, as the FinancialPost.com recently headlined, “Huffington Post Outstrips NYT Web Traffic in May.” Huffpo beats NYT views june 2011
Source: BusinessInsider.com

The old equilibrium in news publishing is obsolete.  Those trying to maintain it keep failing, as recently headlined on PaidContent.orgCiting Weak Economy, Gannett Turns to Job Cuts, Furloughs.” Nobody should own a traditional publisher, that business is not viable.

But Forbes reports that Ms. Huffington has been given real White Space at AOL.  She has permission to do what she needs to do to succeed, unbridled by past AOL business practices.  That has included hiring a stable of the best talent in editing, at high pay packages, during this time when everyone else is cutting jobs and pay for journalists.  This sort of behavior is anethema to the historically metric-driven “AOL Way,” which was very industrial management.  That sort of permission is rarely given to an acquisition, but key to making it an engine for turn-around. 

And HuffPo is being given the resources to implement a new model.  Where HuffPo was something like 70 journalists, AOL is now cranking out content from some 2,000 journalists and editors!  More than The Washington Post or The Wall Street Journal.  Ms. Huffington, as the new leader, is less about “managing for results” looking at history, and more about identifying market needs then filling them.  By giving people what they want Huffington Post is accumulating readers – which leads to display ad revenue.  Which, as my last blog reported, is the fastest growing area in on-line advertising

Where the people are, you can find advertsing.  As people are shift away from newspapers, toward the web, advertising dollars are following.  Internet now trails only television for ad dollars – and is likely to be #1 soon:

US Adv rev by market
Chart source: Business Insider

So now we can see a route for AOL to succeed.  As traditional AOL subscribers disappear – which is likely to accelerate – AOL is building out an on-line publishing environment which can generate ad revenue.  And that’s how AOL can survive the market shift.  To use an old marketing term, AOL can “jump the curve” from its declining business to a growing one.

This is by no means a given to succeed.  AOL has to move very quickly to create the new revenues.  Subscribers and traditional AOL ad revenues are falling precipitously.

AOL earnings

Source: Forbes.com

But, HuffPo is the engine that can take AOL from its dying business to a new one.  Just like we want Harry Potter digitally, and are happy to obtain it from Ms. Rowlings directly, we want information digitally – and free – and from someone who can get it to us.  HuffPo is now winning the battle for on-line readers against traditional media companies. And it is expanding, announced just this week on MediaPost.comHuffPo Debuts in the UK.”  Just as the News Corp UK tabloid, News of the World,  dies (The Guardian – “James Murdoch’s News of the World Closure is the Shrewdest of Surrenders.“)

News Corp. once had a shot at jumping the curve with its big investment in MySpace.  But leadership wouldn’t give MySpace permission and resources to do whatever it needed to do to grow.  Instead, by applying “professional management” it limited MySpace’s future and allowed Facebook to end-run it.  Too much energy was spent on maintaining old practices – which led to disaster.  And that’s the risk at AOL – will it really keep giving HuffPo permission to do what it needs to do, and the resources to make it happen?  Will it stick to letting Ms. Huffington build her empire, and focus on the product and its market fit rather than short-term revenues?  If so, this really could be a great story for investors. 

So far, it’s looking very good indeed. 

 

 

 

Status Quo Police – Innovation Killers


Nobody admits to being the innovation killer in a company.  But we know they exist.  Some these folks “dinosaurs that won’t change.”  Others blame “the nay-saying ‘Dr. No’ middle managers.”  But when you meet these people, they won’t admit to being innovation killers.  They believe, deep in their hearts as well as in their everyday actions, that they are doing the right thing for the business.  And that’s because they’ve been chosen, and reinforced, to be the Status Quo Police.

When a company starts it has no norms.  But as it succeeds, in order to grow quickly it develops a series of “key success factors” that help it continue growing.  In order to grow faster, managers – often in functional roles – are assigned the task of making sure the key success factors are unwaveringly supported.  Consistency becomes more important than creativity.  And these managers are reinforced, supported, even bonused for their ability to make sure they maintain the status quo.  Even if the market has shifted, they don’t shift.  They reinforce doing things according to the rules.  Just consider:

Quality – Who can argue with the need to have quality?  Total Quality Management (TQM,) Continuous Improvement (CI,) and Six Sigma programs all have been glorified by companies hoping to improve product or service quality.  If you’re trying to fix a broken product, or process, these work pretty well at helping everyone do their job better.

But these programs live with the mantra “if you can’t measure it, you can’t improve it.  Measure everything that’s important.”  If you’re innovating, what do you measure?  If you’re in a new technology, or manufacturing process, how do you know what you really need to do right?  If you’re in a new market, how do you know the key metric for sales success?  Is it number of customers called, time with customers, number of customer surveys, recommendation scores, lost sales reports?  When you’re trying to do something new, a lot of what you do is respond quickly to instant feedback – whether it’s good feedback or bad.

The key to success isn’t to have critical metrics and measure performance on a graph, but rather to learn from everything you do – and usually to change.  Quality people hate this, and can only stand in the way of trying anything new because you don’t know what to measure, or what constitutes a “good” measure.  Don’t ever forget that Motorola pretty much invented Six Sigma, and what happened to them in the mobile phone business they pioneered?

Finance.  All businesses exist to make money, so who can argue with “show me the numbers.  Give me a business plan that shows me how you’re going to make money.”  When your’e making an incremental investment to an existing asset or process, this is pretty good advice. 

But when you’re innovating, what you don’t know far exceeds what you know.  You don’t know how to meet unment needs.  You don’t know the market size, the price that people will pay, the first year’s volume (much less year 5,) the direct cost at various volumes, the indirect cost, the cost of marketing to obtain customer attention, the number of sales calls it will take to land a sale, how many solution revisions will be necessary to finally put out the “right” solution, or how sales will ramp up quarterly from nothing.  So to create a business plan, you have to guess. 

And, oh boy, then it gets ugly.  “Where did this number come from?  That one?  How did you determine that?”  It’s not long until the poor business plan writer is ridden out of the meeting on a rail.  He has no money to investigate the market, so he can’t obtain any “real” numbers, so the business plan process leads to ongoing investment in the old business, while innovation simply stalls.

Under Akia Morita Sony was a great innovator. But then an MBA skilled in finance took over the top spot.  What once was the #1 electronics innovator in the globe has become, well, let’s say they aren’t Apple.

Legal – No company wants to be sued, or take on unnecessary risk.  And when you’re selling something, lawyers are pretty good at evaluating the risk in that business, and lowering the risk.  While making sure that all the compliance issues are met in order to keep regulators – and other lawyers – out of the business.

But when you’re starting something new, everything looks risky.  Customers can sue you for any reason.  Suppliers can sue you for not taking product, or using it incorrectly.  The technology could fail, or have negative use repercussions.  Reguators can question your safety standards, or claims to customers. 

From a legal point of view, you’re best to never do anything new.  The less new things you do, the less likely you are to make a mistake.  So legal’s great at putting up roadblocks to make sure they protect the company from lawsuits, by making sure nothing really new happens.  The old General Motors had plenty of lawyers making sure their cars were never too risky – or interesting.

R&D or Product Development – Who doesn’t think it’s good to be a leader in a specific technology?  Technology advances have proven invaluable for companies in industries from computers to pharmaceuticals to tractors and even services like on-line banking.  Thus R&D and Product Development wants to make sure investments advance the state of the technology upon which the company was built.

But all technologies become obsolete.  Or, at least unprofitable.  Innovators are frequently on the front end of adopting new technologies.  But if they have to obtain buy-in from product development to obtain staffing or money they’ll be at the end of a never-ending line of projects to sustain the existing development trend.  You don’t have to look much further than Microsoft to find a company that is great at pouring money into the PC platform (some $9B, 16% of revenue in 2009,) while the market moves faster each year to mobile devices and entertainment (Apple spent 1/8th the Microsoft budget in 2009.)

Sales, Marketing & Distribution – When you want to protect sales to existing customers, or maybe increase them by 5%, then doing more of what you’ve always done is smart.  So money is spent to put more salespeople on key accounts, add more money to the advertising budget for the most successful (or most profitable) existing products.  There are more rules about using the brand than lighters at a smoker’s convention.  And it’s heresy to recommend endangering the distribution channel that has so successfully helped increase sales.

But innovators regularly need to behave differently.  They need to sell to different people – Xerox sold to secretaries while printing press manufacturers sold to printers.  The “brand” may well represent a bygone era, and be of no value to someone launching a new product; are you eager to buy a Zenith electronic device?  Sprucing up the brand, or even launching something new, may well be a requirement for a new solution to be taken seriously.

And often, to be successful, a new solution needs to cut through the old, high-cost distribution system directly to customers if it is to succeed.  Pre-Gerstner IBM kept adding key account sales people in hopes of keeping IT departments from switching out of mainframes to PCs.  Sears avoided the shift to on-line sales successfully – and revenue keeps dropping in the stores.

Information Technology – To make more money you automate more functions.  Computers are wonderful for reducing manpower in many tasks.  So IT implements and supports “standard solutions” that are cost effective for the historical business.  Likewise, they set up all kinds of user rules – like don’t go to Facebook or web sites from work – to keep people focused on productivity.  And to make sure historical data is secure and regulations are met.

But innovators don’t have a solution mapped out, and all that automated functionality is an enormously expensive headache.  When being creative, more time is spent looking for something new than trying to work faster, or harder, so access to more external information is required.  Since the solution isn’t developed, there’s precious little to worry about keeping secure.  Innovators need to use new tools, and have flexibility to discover advantageous ways to use them, that are far beyond the bounds of IT’s comfort zone.

Newspapers are loaded with automated systems to collect and edit news, to enter display ads, and to “Make up” the printed page fast and cheap.  They have automated systems for classified advertising sales and billing, and for display ad billing.  And systems to manage subscribers.  That technology isn’t very helpful now, however, as newspapers go bankrupt.  Now the most critical IT skills are pumping news to the internet in real-time, and managing on-line ads distributed to web users that don’t have subscriptions. 

Human Resources – Growth pushes companies toward tighter job descriptions with clear standards for “the kinds of people that succeed around here.”  When you want to hire people to be productive at an existing job, HR has the procedures to define the role, find the people and hire them at the most efficient cost.  And they can develop a systematic compensation plan that treats everyone “fairly” based upon perceived value to the historical business.

But innovators don’t know what kinds of people will be most successful. Often they need folks who think laterally, across lots fo tasks, rather than deeply about something narrow.  Often they need people who are from different backgrounds, that are closer to the emerging market than the historical business.  And pay has to be related to what these folks can get in the market, not what seems fair through the lens of the historical business.  HR is rarely keen to staff up a new business opportunity with a lot of misfits who don’t appreciate their compensation plan – or the rules so carefully created to circumscribe behavior around the old business.

B.Dalton was America’s largest retail book seller when Amazon.com was founded by Jeff Bezos.  Jeff knew nothing about books, but he knew the internet.  B.Dalton knew about books, and claimed it knew what book buyers wanted.  Two years later B.Dalton went bankrupt, and all those book experts became unemployed. Amazon.com now sells a lot more than books, as it ongoingly and rapidly expands its employee skill sets to enter new markets – like publishing and eReaders.

Innovation requires that leaders ATTACK the Status Quo Police.  Everything done to efficiently run the old business is irrelevant when it comes to innovation.  Functional folks need to be told they can’t force the innovatoirs to conform to old rules, because that’s exactly why the company needs innovation!  Only by attacking the old rules, and being willing to allow both diversity and disruption can the business innovate.

Instead of saying “this isn’t how we do things around here” it is critical leaders make sure functional folks are saying “how can I help you innovate?”  What was done in the name of “good business” looks backward – not forward.  Status Quo cops have to be removed from the scene – kept from stopping innovation dead in its tracks.  And if the internal folks can’t be supportive, that means keeping them out of the innovator’s way entirely.

Any company can innovate.  Doing so requires recognizing that the Status Quo Police are doing what they were hired to do.  Until you take away their clout, attack their role and stop them from forcing conformance to old dictums, the business can’t hope to innovate.

 

Leading Google – Larry Page Needs More White Space


Summary:

  • Google is locking-in on what it made successful
  • But as technologies, and markets, change Google could be at risk of not keeping up
  • Internal processes are limiting Google’s ability to adapt quickly
  • Google needs to be better at creating and launching new projects that can expand its technology and market footprint in order to maintain long-term growth

Google has been a wild success.  From nowhere Google has emerged as one of the biggest business winners at leveraging the internet.  With that great success comes risk, and opportunity, as Larry Page resumes the CEO position this year. 

Investors hope Google keeps finding new opportunities to grow, somewhat like Apple has done by moving into new markets with new solutions.  Where Apple has built strong revenue streams from its device and app sales in multiple markets, Google hasn’t yet demonstrated that success. Despite the spectacular ramp-up in Android smartphone sales, Google hasn’t yet successfully monetized that platform – or any other.  Something like 90% of revenues and profits still come from search and its related ad sales. 

Investors have reason to fear Google might be a “one-trick pony,” similar to Dell.  Dell was wildly successful as the “supply chain management king” during the spectacular growth of PC sales.  But as PC sales growth slowed competitors matched much of Dell’s capability, and Dell stumbled trying to lower cost with such decisions as offshoring customer service.  Dell’s revenue and profit growth slowed.  Now Dell’s future growth prospects are unclear, and its value has waned, as the market has shifted toward products not offered by Dell. 

Will Google be the “search king” that didn’t move on?

When companies are successful they tend to lock-in on what made them successful.  To keep growing they have to overcome those lock-ins to do new things.  The risk is that Google can’t overcome it’s lock-ins; that internal status quo police enforce them to the point of keeping new things from flourishing into new growth markets.  That the company becomes stale as it avoids investing effectively in new technologies or solutions.

At Slacy.com (“What Larry Page Really Needs to Do to Return Google to its Start-up Roots“) we read from a former Google employee that there are some serious lock-ins to worry about within Google: 

  1. The launch coordination process sets up a status quo protection team that keeps things from moving forward.  When an internal expert gains this kind of power, they maintain their power by saying “no.”  The more they say no, the more power they wield.  Larry Page needs to be sure the launch team is saying “here’s how we can help you launch fast and easy” rather than “you can’t launch unless…”
  2. Hiring is managed by a group of internal recruiters.  When the people who actually manage the work don’t do recruiting, and hiring, then the recruits become filtered by staffers who have biases about what makes for a good worker.  Everything from resume screening to background reviews to appearances become filters for who gets interviewed by engineers and managers.  In the worst case staffers develop a “Google model employee” profile they expect all hires to fit.  This process systematically narrows the candidates, leading to homogeneity in hiring, a reduction in new approaches and new ways of thinking, and a less valuable, dynamic employee population.
  3. Increasingly engineers are forced to use a limited set of Google tools for development.  External, open source, tools are increasingly considered inferior – and access to resources are limited unless engineers utilize the narrow tool set which initially made Google successful. The natural outcome is “not invented here” syndrome, where externally created products and ideas are overlooked – ignored – for all the wrong reasons.  When you’re the best it’s easy to develop “NIH,” but it’s also really risky in fast moving markets like technology where someone really can have a better idea, and implement, from outside the halls of the early leader. 

These risks are very real.  Yet, in a company of Google’s size to some extent it is necessary to manage launches systematically, and to have staffers doing things like recruiting and screening.  Additionally, when you’ve developed a set of tools that create success on an enormous scale it makes sense to use them.  So the important thing for Mr. Page to do is manage these items in such a way that lock-in doesn’t keep Google from moving forward into the next new, and possibly big, market.

Google needs to be sure it is not over-managing the creation of new things.  The famous “20% rule” at Google isn’t effective as applied today.  Nobody can spend 80% of their job conforming to norms, and then expect to spend 20% “outside the box.”  Our minds don’t work that way.  Inertia takes over when we’re at 80%, and keeps us focused on doing our #1 job.  And we never find the time to really get started on the other 20%.  And it’s unrealistic to try dedicating an entire day a week to doing something different, because the “regular job” is demanding every single day.  Likewise, nobody can dedicate a week out of the month for the same reason.  As a result, even when people are encouraged to spend time on new and different things it really doesn’t happen.

Instead, Google needs a really good method for having ideas surface, and then creating dedicated teams to explore those ideas in an unbounded way.  Teams that have as their only job the requirement for exploring market needs, product opportunities, and developing solutions that generate profitable new revenue.  Five people totally dedicated to a new opportunity, especially if their success is important to their career ambitions, will make vastly more headway than 25 people working on a project when they can “find the time.”  The bigger team may have more capabilities and more specialties, but they simply don’t have the zeal, motivation or commitment to creating a success.  Failing on something that’s tertiary to your job is a lot more acceptable, especially if your primary work is going well, than failing on something to which your wholly dedicated.  Plus, when you are asked to support a project part-time you do so by reinforcing past strengths, not exploring something new.

Especially worrisome is Inc magazine’s article “Facebook Poaches Inc’s Creative Director.”  This is the fellow that created, and managed, the new opportunity labs at Google.  What will happen to those now?

These teams also must have permission to explore the solution using any and all technology, approaches and processes.  Not just the ones that made Google successful thus far.  By utilizing new technologies, which may appear less robust, less scalable and even initially less powerful, Google will have people who are testing the limits of what’s new – and identifying the technologies, products and processes that not only threaten existing Google strengths but can launch Google into the next new, big thing.  Supporting their needs to explore new solutions is critical to evolving Google and aiding its growth in very dynamic technologies and markets.

The major airlines all launched discount divisions to compete with Southwest.  Remember Song and Ted?  But these failed largely because they weren’t given permission to do whatever was necessary to win as a discount airline.  Instead they had to use existing company resources and processes – including in-place reservation systems, labor union standards, existing airports and gates – and honor existing customer loyalty programs.  With so many parameters pre-set, they had no hope of succeeding.  They lacked permission to do what was necessary because the airlines bounded what they could do.  Lock-in to what already existed killed them.

The concern is that Google today doesn’t appear to have a strong process for creating these teams that can operate in white space to develop new solutions.  Google lacks a way to get the ideas on the agenda for management discussion, rapidly create a team dedicated to the tasks, resource the teams with money and other necessary tools, and then monitor performance while simultaneously encouraging behaviors that are outside the Google norms.  Nobody appears to have the job of making sure good ideas stay inside Google, and are developed, rather than slipping outside for another company to exploit (can you say Facebook – for example?)

I’m a fan of Google, and a fan of the management approaches Larry Page and Google have openly discussed, and appear to have implemented.  Yet, success has a way of breeding the seeds of eventual failure.  Largely through the process of building strong sacred cows – such as in technology and processes for all kinds of activities that end up limiting the organization’s ability to recognize market shifts and implement changes.  Success has a way of creating staff functions that see themselves as status quo cops, dedicated to re-implementing the past rather than scouting for future requirements.  The list of technology giants that fell to market shifts are legendary – Cray, DEC, Wang, Lanier, Sybase, Netscape, Silicon Graphics and Sun Microsystems are just a few. 

It’s good to be the market leader.  But Larry Page has a tough job.  He has to manage the things that made Google the great company it is now – the things that middle management often locks in place and won’t alter – so they don’t limit Google’s future.  And he needs to make sure Google is constantly, consistently and rapidly implementing and managing teams to explore white space in order to find the next growth opportunities that keep Google vibrant for customers, employees, suppliers and investors.

View a short video on Lock-in and why businesses must evolve http://on.fb.me/i2dekj

Finding the Money – Be Smarter, like IBM


You gotta love the revenue growth in companies like Apple and Google.  From 2000 to 2010 Apple revenues jumped from $8B to $65B.  Google grew from nothing to $29B.  But for some organizations, amidst market shifts, simply maintaining revenues is an enormous challenge. 

In a dynamic world, many companies are losing revenues to new competitors who seem on a suicide mission to destroy industry profitability!  In this situation, the ability to grow takes on an entirely different flavor.  As “core” markets retract (in revenues or profits,) can the company find a way to enter new markets in order to maintain revenues – and possibly grow profits? For many organizations, facing radical market shifts, moving from no-growth, declining profit markets into higher growth, better profit markets is a huge challenge.

Recall that IBM once completely dominated the computer industry.  An IBM skunk works program in Florida is credited for creating the modern day personal computer – and because of the team’s decision to  use external componentry (an IBM heresy at the time) creating Microsoft.  As the market shifted toward these smaller computers, IBM focused on defending its traditional mainframe base, eschewing PC sales entirely. By the 1990s IBM was almost bankrupt! In trying to preserve its old, “core,” mainframe business IBM completely missed the market shift and waited until its customers started disappearing before taking action.  But by then new competitors had claimed the new market!

In came an outsider, Louis Gerstner, who saw the trend toward far greater user of external services by people in information technology.  He pushed IBM from being a “hardware” company to an “IT services” provider (overly simplified explanation, to be sure) and IBM roared back as a tremendous turnaround success story.

But, what would be next?  As Mr. Gerstner left IBM the company’s “core” market was in for another huge upheaval.  Vast armies of IT consultants had been created in other companies, such as Electronic Data Systems (EDS), Computer Sciences Corporation (CSC) and audit firms such as Anderson (now named Accenture) Coopers & Lybrand and Deloitte & Touche.  This created rampant competition and margin pressures from so much capacity. 

Simultaneously, the emergence of similar armies, often even more highly trained, of consultants in India at companies such as Tata Consultancy Services (TCS) and Infosys – at dramatically lower cost and using development standards such as the Capability Maturity Model – was further transforming the landscape of service providers. More and more services contracts were going to these new competitors in foreign countries at prices a fraction of historical rates.  Domestic margins were tanking!

As IT integration and services lost its margin several big competitors began paying enormous premiums to buy customer computer shops, completely taking them over customer via a new approach called “outsourcing” – a solution offering that nearly bankrupted EDS due to the razor thin margins.  The market IBM entered to save itself, and make Mr. Gerstner famous, was no longer capable of keeping IBM a profitably growing concern.

In 2002 it was by no means clear whether IBM would remain successful, or end up again in dire straights.  But, as detailed in Fortune’s CNNMoney web site, “IBM’s Sam Palmisano: A Super Second Act” things haven’t gone too badly for IBM this decade as profits have grown 4 fold.

Rather than simply trying to do more of what Mr. Gerstner did, Mr. Palmisano lead IBM into developing a new scenario of the future, leading to the birth of the Smarter Planet program.  Not dissimilar from how Steve Jobs used Apple’s scenario planning to push the company from Macs into new growth product markets, the scenario planning such as Smarter Planet opened many doors for new business opportunities at IBM.  The result has been a dramatic increase (well more than doubling) its more profitable software sales, as well as development of new solutions for everything from global banking to transportation management, government systems and a whole lot more.  New solutions driven by the desire to fulfill the future scenario  – and solutions that are considerably more profitable than the gladiator war that had become IT services.

Ibm_pretax_income_chart

Using scenario planning to create White Space where employees can develop new solutions is a hallmark of successful companies.  By redirecting resources away from defensive activities, new solutions can be created before the proverbial roof collapses in the declining margin business. By spending money on new product development, and new market development, new revenues are generated where there is more growth – and less competition.  And that allows the company to shift with the marketplace, rather than be stuck in a bad business when it’s way too late to shift — because new competitors have already captured the new markets. 

(For a White Space primer, check out the InnovationManagement.com article “White Space Mapping – Seeing the Future Beyond the Core.”)

When markets shift the first sign is intense competition, driving down margins.  Too many leaders decide to “hunker down” and put all resources into defending the old business.  Costs are slashed and all spending is put into competitive warfare.  This, inevitably, leads to ugly results, because such behavior ignores the market shift.  Being Smarter means recognizing the market shift, and changing investments – putting more money into new projects directed at finding new revenues, and most often higher rates of return.

Not all companies are growing like Apple, Google, Facebook or Groupon.  But that doesn’t mean they aren’t on the road to growth by shifting their revenues into new markets – like IBM.  What ties these companies together is their use of scenario planning to focus on the future, rather than relying on traditional planning systems firmly tied to the past. And investing in White Space so the company can find new markets, and new solutions, before competition eliminates the margin altogether.

If Mr. Palmisano is soon to leave IBM, as the article indicates is likely, we can surely hope the Board will seek out a replacement who is equally willing to make the right investments.  Keeping the company pushing forward by developing future scenarios, and creating solutions that fulfill them. 

 

 

Why McDonald’s Isn’t Apple – and It Matters


Summary:

  • McDonald's relies on operational improvements to raise profits, these are short-lived and give no growth
  • McDonald's growth cycles, and investors forget long-term it isn't growing much at all
  • You can't depend on recurring recessions to make your business look good
  • Apple has shown how to create long-term revenue growth, and greater investor wealth, by developing new markets and solutions
  • Investors in McDonald's are likely to be less pleased than investors in Apple

Subway is now #1 in size, as "McDonald's Loses World's Biggest Title to Subway" according to Crain's Chicago Business.  The transition wasn't hard to predict, since Subway has been much larger in the USA for several years.  Now Subway has gained on McDonald's internationally.  What's striking about this is that McDonald's could see it coming, and really did nothing about it.  While Subway keeps focused on growth, McDonald's has focused on preserving its historical business.  And that bodes poorly for long-term investor performance.

For more than a decade McDonald's size has swung back and forth as it opened stores, then closed hundreds in an "operational improvement program," before opening another round of stores – to then repeat the cycle. McDonald's has not shown any US store growth for a long time, and has relied on expanding its traditional business offshore. 

Even the menu remains almost unchanged, dominated by burgers, fries and soft drinks.  "New" product rollouts have largely been repeats of decades old products, like McRib, which cycle on and off the menu.  And the most "strategic" decision we hear about was executives spending countless hours, along with thousands of franchisees, trying to figure out whether or not to reduce the amount of cheese on a cheeseburger (which they did, saving billions of dollars.)  Even though it spent almost a decade figuring out how to launch McCafe, the whole idea gets little atttention or promotion.  There just isn't much energy put into innovation, or growth at McDonald's.  Or even trying to be a leader in new marketing tools like social media, where chains like Papa John's have done much better.

Most people have forgotten that McDonald's acquired and funded the growth of Chipotle's, one of the fastest growing quick food chains.  But in 2006 McDonald's leadership sold Chipotle's to raise cash to fund another one of those operational improvement rounds.  The business that showed the most promise, that has much more growth opportunity than the tiring McDonald's brand, was sold off in order to Defend and Extend the known, but not so great, McDonald's. 

Sort of like selling your patents in order to pay for maintenance and upgrades on the worn out plant tooling.

Soon after Chipotle's sale the "Great Recession" started. And people quit dining out – or went downmarket.  Thousands of restaurants closed, and chains like Bennigan's declared bankruptcy.  As people started eating a bit more frequently in McDonald's investors cheered.  But, this was really more akin to the old phrase "even a stopped clock is right twice a day."  McDonald's was the benefactor of an unanticipated economic event.  And as the economy has improved McDonald's has cheered its improved oprations and higher profits.  But, where is future growth?  What will create long-term growth into 2015 and 2020? (To be honest, I'm not sure where this will be for Subway, either.)

This cycle of bust and repair – which will lead to another bust when a competitor or other external event challenges McDonald's unaltered success formula – is very different from what's happened at Apple.  Rather than raising money to defend its historical business (the Macintosh business) Apple actually cut back its Mac products to fund development of new businesses – the big winner being iPod and iTunes.  Then Apple focused on additional new markets, transforming smart phone growth with the iPhone and altering the direction of computing with the iPad.  Rather than trying to Defend its past and Extend into new markets (like McDonald's international efforts) Apple has created, and led, new markets.

Performance at Apple has been much better than McDonald's.  As we can see, only during the clock-stopped period at the height of the recession did investors lose faith in Apple's growth, while defaulting to defensiveness at McDonald's.

AAPL v MCD 3.11

Chart source:  Yahoo Finance

Steve Toback at bNet.com gives us insight into how Apple has driven its growth in "10 Ways to Think Different – Inside Apple's Cult-like Culture."  These 10 points look nothing like the McDonald culture – or hardly any company that has growth problems.  A quick scan gives insight to how any company can identify, develop and grow with new solutions in new markets:

  1. Empower employees to make a difference. 
  2. Value what's important, not minutiae
  3. Love and cherish the innovators
  4. Do everything important internally
  5. Get marketing
  6. Control the message
  7. Little things make a big difference
  8. Don't make people do things, make them better at doing things
  9. When you find something that works, keep doing it
  10. Think different

What's most worrisome is that the protectionist culture we see at McDonald's, and frankly most U.S. companies, is the kind that led General Motors to years of faultering results and eventual bankruptcy.  Recall that GM once bought Hughes Aircraft and EDS as growth devices (around 1980,) and opened the greenfield Saturn division to learn how to compete with offshore auto makers head-on.  But the first two were sold, just like McDonald's sold Chipotle, to raise funds for propping up the poorly performing auto business.  Saturn was gutted of its uniqueness in cost-saving programs to "align" it with the other auto divisions, and closed in the recent bankruptcy.  (Read more detail on The Fall of GM in this short eBook.)

While McDonald's isn't at risk of immediate bankruptcy, investors need to understand that it's value is unlikely to rise much.  Operational improvements are not the source of growth.  They are short-term tactics to support historical behaviors which trade off short-term profit improvement for long-term new market development.  In McDonald's case, this latest round of performance focus matched up with an economic downturn, unexpectedly benefitting McDonald's very quickly.  But long-term value comes from creating new business opportunities that meet changing needs.  And for that you need to not sell your innovations — instead, invest in them to drive growth.

Are you Enchanting? Guy Kawasaki tells how to be like Apple


Why do some businesses (or products) seem to launch onto the scene with incredible success?  According to a new book, “Enchantment” releasing March 8, 2011 (available on Amazon.com at about 50% off the list price), it is the ability to go beyond normal marketing, PR and other business practices in a way that enchants customers.  Author Guy Kawasaki says that being likable, trustworthy and prepared allows you to overcome natural resistance to change and move people to accept, adopt – and even become supporters of your solution.

The book is tailor-made for entrepreneurs.  Especially those in high-tech, who are looking for rapid adoption of new platforms.  So when Guy sent me a copy and asked for my review I asked him for a 1-on-1 interview where I could focus on how the vast majority of people, who work away in large, less than enchanting, organizations, could gain value from reading his latest effort.  I wanted him to answer “how am I supposed to be enchanting when dullness reigns in my environment?” 

Here’s his finput from our meeting, and his reasons to buy and read Enchantment:

Guy’s first recommendation – “enchant your boss.”  There’s a chapter in the book, but he focused on what to do if your boss is a real dullard.  Firstly, don’t ever forget to make the boss’s priority your priority, because without that you won’t be effective.  The more you can convince your boss the 2 of you are on the same wavelength, the more he’ll be likely to give you space.  And space is what you want/need in order to start to identify the next perfomance curve.  Then, if you have some space, you can start to demonstrate how new solutions could work.  Use your aligned priorities to help you reframe your boss’s opinion about the future, and always ask for forgiveness if you’re found reaching a bit too far.

Secondly, enchant those who work for you.  Give them a MAP.  (M) is for Mastery of a new skill or technology.  Give your employees permission and encouragement to master new areas that will help them grow – and put them in a position to teach you! (A) is for Autonomy. In other words, give them the space discussed above. (P) is for Purpose.  Help people to see their work as having more value than just money.  Add purpose to their results so they can feel great. With a MAP they can succeed, and you can too.

Thirdly, enchant your peers by working hard to be likable. Guy offers a chapter in which he deconstructs likability, and provides a series of tactics to make you more likable.  This isn’t manipulation (although it may sound like it), but rather a guidebook of what to do to help your true self be more likable.  With peers, the #1 objective is to be trustworthy!  Show them that you can help expand the pie, so there is more success for everyone, rather than being the kind of person always lining up to get his piece first!

When you find yourself disappointed in your work, or employer, Guy recommends we take from his book the idea that you seek out a dream for what your work group, or employer, can be.  Don’t accept that today is the best case, and instead promote the notion that tomorrow can always be better, more fun, more fulfilling.  He believes that if you say you’re going to do something that seems impossible, and you undertake it with enchanting techniques, your behavior will become infectious. Behave like an enchanter and you will create other enchanters in the organization.  (If this sounds a bit Pied Piper-ish I guess it does take some faith to follow Guy’s recommendations.)

I asked him how a Chief Enchantment Officer could help Microsoft (readers of this blog know I’ve long been a distractor of the strategy and CEO at Microsoft).  Guy said he felt Micrsoft could become VERY enchanting if the company would:

  • Focus on making Micrsooft more likable and trustworthy.  Old behaviors were in the past.  Going forward, if leadership applied itself Microsoft could implement the things in his book and drive up the company’s likability and trustworthiness amongst constituents – including customers, developers, suppliers and investors.
  • Rethink the definition of a “product” to make offerings more enchanting.  In Guy’s view, Apple would never say a product is good enough based upon its specifications or functionality.  An iPad has to go beyond those things to offer something much more.  Too many companies (not just, or even specifically, Microsoft he was clear to point out) launch “ugly” products – without realizing they are ugly!  With a bit different direction, different thinking, about how to define a product they could be more enchanting, and more successful.  (When I compare the iPhone or iPad to the xBox I start to clearly see the difference in product description to which Guy refers. Guy agreed with me that Kinect is a very enchanting product. Unfortunately it appears to me like Microsoft still doesn’t realize the value of this in its xBox efforts.)
  • Train the organization on the importance of, value of, and ability to be enchanting.  Most companies are clueless about the notion, as people work hard delivering solutions with too much of an “engineering mentality”.  Apple has trained its organization so the people think about how to make products, services and solutions enchanting, and therefore non-enchanting things are unacceptable.  Raise the bar for making sure solutions are likable, trustworthy and prepared for what the customer will want/need.  Not merely functional.  Build that into the behavioral lock-in and Guy believes any organization cannot miss success!

I told Guy that often I’m frequently pushed to believe that a company is “beyond the pale;” unable to do better, or to be better.  Simply incapable fo ever being “enchanting.”  Guy is convinced this is balderdash – if you want to change.  He talked about Audi, which suffered horribly from problems with unintended acceleration a couple of decades ago.  Audi changed itself, and now is doing quite well (according to Guy) while Toyota is suffering.  It’s easy for an organization to slip into dis-enchanting behavior over time if it starts cost-cutting and obsessing about optimizing its past.  But any company can become enchanting again.  “Hey, look at how Apple slipped, then came back, and you can see how enchantment is possible for any company.”

I don’t know that Enchantment will solve all your business problems, but for $14 (and free shipping on Amazon.com) it’s full of ideas about how you can move a company to better performance.  And surely make it a better, more compelling place to work!

Guy Kawasaki became famous as a Macintosh Evangelist for Apple back in the 1980s.  His passion for creating technology products that help people’s lives, and work, improve, has been compelling for 2 decades.  His blog is entitled “How to Change the World,” demonstrating how high Guy sets his sites.  Guy also created and remains active in Alltop.com, a compendium of blog listings on important topics, where ThePhoenixPrinciple.com is part of the Innovation section.

Throw away that slide rule! Use Facebook, iPhones, iPads and Groupon


My high school physics teacher spent a week teaching students how to use a slide rule.  I asked him, "why can't we just use calculators?" At the time a slide rule was about $2, and a calculator was $300.  The minimum wage was $1.14/hour.  He responded that slide rules had been around a long time, and you never knew if you'd have access to a calculator. To the day he retired he insisted on using, and teaching, slide rule use.  Needless to say, by then plenty of folks were ready to see him go.  Too bad for his students he stayed as long as he did, because that was a week they could have spent learning physics, and other important materials. Ignoring the new tool, and its advantages, was a wasteful decision that hurt him and his customers.

Yet, I am amazed at how few people are using today's new tools for business, and marketing.  At a small business Board meeting this week the head of marketing presented his roll-out of the boldest campaign ever in the business's history.  His promotion plan was centered around traditional PR, supplemented with radio and billboard ads.  I asked for his social media campaign, and after he confirmed I was serious he said he had a manager working on that.  I asked if he had a facebook page ready, the videos on YouTube, a linked-in program ready to run against targets and his twitter communications established, including hash tags? He said if those things were important somebody had to be working on them.  Two weeks from roll-out and he wasn't giving them any personal consideration.

I then asked the roughly 20 attendees, all but one of which were over 40, some questions:

  • How many of you use skype at least once/month? Answer – 5%
  • How many of you have a facebook page and check it daily? A – 15%
  • How many of you check twitter daily? A – 5%  Tweet at least 5 times/week? A – none
  • How many own and use a tablet? A – 10%
  • How many of you have a smartphone on which you've downloaded at least 10 apps? A – 10%
  • How many of you carry a laptop? A – 100%
  • Who knows the #1 company for new hires in Chicago in 2010? Answer – 5% (GroupOn)
  • Who has used a Groupon coupon? Answer – 30%

Slide rule users.

New tools are here, and adopters will be the winners. If you still think we're a nation of laptop users, you need to think again.  Laptop usage declined 20% in the last 2 years, to 2006 levels, as people have adopted easier to use technology

Declining PC Usage 2010

Chart Source: Silicon Alley Insider of BusinessInsider.com

If you are trying to pump out ads the new medium is mobile – not television, radio, outdoor or even web sites.  Have you tested the look and feel of your web site on popular mobile devices? Do you know if new users to your business are even able to access your information from a mobile device?

And, it's more likely a customer will hear about you, and obtain a review of your product or service, via Facebook than vai the web!  A CNet.com article asks the leading question "Will Facebook Replace Company Web Sites?" Want to understand the importance of Facebook, check out these same month comparisons:

  • Starbucks: Facebook likes – 21.1M, site visits – 1.8M
  • Coca-Cola: Facebook likes – 20.5M, site visits – .3M
  • Oreo: Facebook likes – 10.1M, site visits – .3M

Yes, these are consumer products.  But if you don't think the first place a potential customer looks for information on your business is Facebook, whether it's financial services, business insurance, catering or blow-molded plastic housings you need to think again.  The use of facebook is simply exploding. 

According to Business Insider, by the end of December, 2010 Facebook apps were downloaded to iPhones at a rate exceeding 500,000/day as the total shot to nearly 60million! Meanwhile the Facebook app downloads to Android devices grew to over 20million!  Blackberry Facebook users has reached 27million, bringing the total by end of 2010 to well over 100M – just on smartphones!  In September, 2010 Facebook became the #1 most time spent on the internet, passing combined time on all Google and all Yahoo sites!  With over 500million users, Facebook isn't just kids checking on their friends any longer. When somebody wants a first peak at your business, odds are great it will be done over a smartphone and likely via a Facebook referral!

Facebook minutes 9.2010

Chart Source: Silicon Alley Insider at Business Insider

As fast as smartphone usage has grown, tablet usage is on the precipice of explosion.  Tablet sales will be 6 times (or more) notebook sales in just a few years!  The second most popular product will be, of course, continued sales of advanced smartphones as the two new platforms overtake the traditional laptop.  So what's your budgeted spend on mobile devices, mobile apps and mobile marketing?

Tablet Sales Forecast 2.11

Chart Source: Silicon Alley Insider of Business Insider

And in the effort to attract new customers, if you think the route will be newspapers, radio, TV, billboards, or direct mail – think again.  Digital local deal delivery is projected to grow at least 45%/year through 2015 creating a market of over $10billion! If you want somebody to know about your product or service, Groupon and its competitors is already taking the lead over older, traditional techniques.  By the way, when was the last time you bothered to open that latest Vallasis direct mail package – or did you just throw it immediately in the recycling bin without even a look?

Groupon Market forecast 1.11

Chart Source: Silicon Alley Insider of Business Insider

So, what is your business doing to leverage these tools?  Are your marketing, and technology, plans for 2011 and 2012 still mired in old approaches and technologies?  If so, expect to be eclipsed by competitors who more quickly implement these new solutions.

Too often we become comfortable in our old way of doing things.  We keep implementing the same way, like the teacher giving slide rule instructions.  And that simply wastes resources, and leaves you uncompetitive.  The time to use these new solutions was yesterday – and today – and tomorrow – and every day.  If you don't have plans to adopt these new solutions, and use them to grow your business, what's your excuse?  Is it that much fun using the old slide rule?

 

Why Steve Jobs Couldn’t Find a Job


Business people keep piling onto the innovation and growth bandwagon.  PWC just released the results of its 14th annual CEO survey entitled “Growth Reimagined.”  Seems like most CEOs are as tired of cost cutting as everyone else, and would really like to start growing again.  Therefore, they are looking for innovations to help them improve competitiveness and build new markets.  Hooray!

But, haven’t we heard this before?  Seems like the output of several such studies – from IBM, IDC and many others – have been saying that business leaders want more innovation and growth for the last several years!  Hasn’t this been a consistent mantra all through the last decade?  You could get the impression everyone is talking about innovation, and growth, but few seem to be doing much about it!

Rather than search out growth, most businesses are still trying to simply do what their business has done for decades – and marveling at the lack of improved results.  David Brooks of the New York Times talks at length in his recent Op Ed piece on the Experience Economy about a controversial book from Tyler Cowen called “The Great Stagnation.”  The argument goes that America was blessed with lots of fertile land and abundant water, giving the country a big advantage in the agrarian economy from the 1600s into the 1900s.  During the Industrial economy of the 1900s America was again blessed with enormous natural resources (iron ore, minerals, gold, silver, oil, gas and water) as well as navigable rivers, the great lakes and natural low-cost transport routes.  A rapidly growing and hard working set of laborers, aided by immigration, provided more fuel for America’s growth as an industrial powerhouse.

But now we’re in the information economy.  Those natural resources aren’t the big advantage they once were.  Foodstuffs require almost no people for production.  And manufacturing is shifting to offshore locations where cheap labor and limited regulations allow for cheaper production.  And it’s not clear America would benefit even if it tried maintaining these lower-skilled jobs.  Today, value goes to those who know how to create, store, manipulate and use information.  And success in this economy has a lot more to do with innovation, and the creation of entirely new products, industries and very different kinds of jobs.

Unfortunately, however, we keep hiring for the last economy.  It starts with how Boards of Directors (and management teams) select – incorrectly, it appears – our business leaders.  Still thinking like out-of-date industrialists, Scientific American offers us a podcast on how “Creativity Can Lesson a Leader’s Image.”  Citing the same study, Knowledge @ Wharton offers us “A Bias Against ‘Quirky’ Why Creative People Can Lose Out on Creative Positions.” While 1,500 CEOs say that creativity is the single most important quality for success today – and studies bear out the greater success of creative, innovative leaders – the study found that when it came to hiring and promoting businesses consistently marked down the creative managers and bypassed them, selecting less creative types!

Our BIAS (Beliefs, Interpretations, Assumptions and Strategies) cause the selection process to pick someone who is seen as less creative.  Consider these comments:

  • “would you rather have a calm hand on the tiller, or someone who constantly steers the boat?” 
  • “do you want slow, steady conservatism in control – or irrational exuberance?”
  • “do we want consistent execution or big ideas?” 

These are all phrases I’ve heard (as you might have as well) for selecting a candidate with a mediocre track record, and very limited creativity, over a candidate with much better results and a flair for creativity to get things done regardless of what the market throws at her.  All imply that what’s important to leadership is not making mistakes.  Of you just don’t screw up the future will take care of itself.  And that’s so industrial economy – so “don’t let the plant blow up.”

That approach simply doesn’t work any more.  The Christian Science Monitor reported in “Obama’s Innovation Push: Has U.S. Really Fallen Off the Cutting Edge” that America is already in economic trouble due to our lock-in to out-of-date notions about what creates business success.  In the last 2 years America has fallen from first to fourth in the World Economic Forum ranking of global competitivenes.  And while America still accounts for 40% of global R&D spending, we rank remarkably low (on all studies below 10th place) on things like public education, math and science skills, national literacy and even internet access! While we’ve poured billions into saving banks, and rebuilding roads (ostensibly hiring asphalt layers) we still have no national internet system, nor a free backbone for access by all budding entrepreneurs!

Ask the question, “If Steve Jobs (or his clone) showed up at our company asking for a job – would we give him one?”  Don’t forget, the Apple Board fired Steve Jobs some 20 years ago to give his role to a less creative, but more “professional,” John Scully.  Mr. Scully was subsequently fired by the Board for creatively investing too heavily in the innovative Newton – the first PDA – to be replaced by a leadership team willing to jettison this new product market and refocus all attention on the Macintosh.  Both CEO change decisions turned out to be horrible for Apple, and it was only after Mr. Jobs returned to the company after nearly 20 years in other businesses that its fortunes reblossomed when the company replaced outdated industrial management philosophies with innovation.  But, oh-so-close the company came to complete failure before re-igniting the innovation jets.

Examples of outdated management, with horrific results, abound.  Brenda Barnes destroyed shareholder value for 6 years at Sara Lee chasing a centrallized focus and cost reductions – leaving the company with no future other than break-up and acquisition.  GE’s fortunes have dropped dramatically as Mr. Immelt turned away from the rabid efforts at innovation and growth under Welch and toward more cautious investments and reliance on a set of core markets – including financial services.  After once dominating the mobile phone industry the best Motorola’s leadership has been able to do lately is split the company in two, hoping as a divided business leadership can do better than it did as a single entity.  Even a big winner like Home Depot has struggled to innovate and grow as it remained dedicated to its traditional business. Once a darling of industry, the supply chain focused Dell has lost its growth and value as a raft of new MBA leaders – mostly recruited from consultancy Bain & Company – have kept applying traditional industrial management with its cost curves and economy-of-scale illogic to a market racked by the introduction of new products such as smartphones and tablets.

Meanwhile, leaders that foster and implement innovation have shown how to be successful this last decade.  Jeff Bezos has transformed retailing and publishing simultaneously by introducing a raft of innovations, including the Kindle.  Google’s value soared as its founders and new CEO redefined the way people obtain news – and the ads supporting what people read.  The entire “social media” marketplace is now taking viewers, and ad dollars, from traditional media bringing the limelight to CEOs at Facebook, Twitter and Linked-in.  While newspaper companies like Tribune Corp., NYT, Dow Jones and Washington Post have faltered, pop publisher Arianna Huffington created $315M of value by hiring a group of bloggers to populate the on-line news tabloid Huffington Post.  And Apple is close to becoming the world’s most valuable publicly traded company on the backs of new product innovations. 

But, asking again, would your company hire the leaders of these companies?  Would it hire the Vice-President’s, Directors and Managers?  Or would you consider them too avant-garde?  Even President Obama washed out his commitment to jobs growth when he selected Mr. Immelt to head his committee – demonstrating a complete lack of understanding what it takes to grow – to innovate – in today’s intensely competitive information economy. Where he should have begged, on hands and knees, for Eric Schmidt of Google to show us the way to information nirvana he picked, well, an old-line industrialist.

Until we start promoting innovators we won’t have any innovation.  We must understand that America’s successful history doesn’t guarantee it’s successful future.  Competing on bits, rather than brawn or natural resources, requires creativity to recognize opportunities, develop them and implement new solutions rapidly.  It requires adaptability to deal with new technologies, new business models and new competitors.  It requires an understanding of innovation and how to learn while doing.  Amerca has these leaders.  We just need to give them the positions and chance to succeed!

 

Think Young! Be like Cisco, Netflix and Amazon.com!


Summary:

  • Company size is irrelevant to job creation
  • New jobs are created by starting new businesses that create new demand
  • Most leaders behave defensively, trying to preserve the old business
  • But success comes from acting like a start-up and creating new opportunities
  • Companies need to do more future-based planning that can change the competitive landscape and generate more growth, jobs and higher rates of return

A trio of economists just published "Who Creates Jobs? Small vs. Large vs. Young" at the National Bureau of Economic Research. For years businesspeople have said that the majority of jobs were created by small companies, therefore we should provide loans and other incentives for small business.  At the same time, we all know that large companies employee millions of people, and therefore they have received benefits to keep their companies going even in tough times – like the recent bailouts of GM and Chrysler.  But what these researchers discovered was that size was immaterial to job creation – and this ages-old debate is really irrelevant!

Digging deeper into the data, they discovered as reported in the New York Times, "To Create Jobs, Nurture Start-Ups."  Regardless of size, most businesses over time get stuck defending their original success formula. What helped them initially grow becomes locked-in by behavioral norms, structural decision-making processes and a business model cost structure that may be tweaked, but rarely changed. Best practices serve to focus management on defending that business, even as market shifts lower the industry growth rate and profits.  It doesn't take long before defensive tactics dominate, and as the leaders attempt to preserve historical practices there are no new jobs created.  Usually quite the opposite happens as cost cutting dominates, leading to outsourcing and lay-offs reducing the workforce. 

Look no further than most members of the Dow Jones Industrial Average to witness the lack of jobs created by older companies desperately trying to defend their historical business model. But what we've failed to realize is how the same management practices dominate small business as well! Most plumbing suppliers, window installers, insurance agencies, restaurants, car dealers, nurseries, tool rental shops, hair cutters and pet sitters spend all their time just trying to keep the business going.  They look no further than what they did yesterday when making business decisions.  Few think about growth, preferring instead to just keep the business the same – maybe by the owner/operator's father 3 decades ago!  They don't create any new jobs, and are probably struggling to maintain existing employment as computers and other business aids reduce the need for labor – while competition keeps whacking away at historical margins.

So if you want to create jobs, throwing incentives at General Electric, General Motors or General Dynamics is not likely to get you very far.  And asking the leaders of those companies what it takes to get them to create jobs is a wasted conversation.  They don't know, and haven't really thought about the question.  Leaders of almost all big organizations are just trying to make next quarter's profit projection any way they can – and that doesn't involve new hiring.  After a lifetime of cutting costs and preservation behavior, how is Jeffrey Immelt of GE supposed to know anything about creating new businesses which leads to job creation? 

Nor is offering loans or grants to the millions of existing small businesses who are just trying to keep the joint running going to make any difference.  Their psychology is not about offering new products or services, and banks sure don't want to take the risk of investing in new experimental behaviors.  They have little, if any, interest in figuring out how to grow when most of their attention is trying to preserve the storefront in the face of new competitors on-line, or from India, China or Vietnam! 

To create jobs you have to focus on growth – not defense. And that takes an entirely different way of thinking.  Instead of thinking about the past you have to be obsessive about the future, and how you can do things differently!  Most of the time, business leaders don't think this way until their backs are up against the wall, looking at potential failure! For example, how Mr. Gerstner turned around IBM when he moved the company away from mainframe obsession and pointed the company toward services.  Or when Steve Jobs redirected Apple away from its Mac obsession and pushed the company into new markets for music/entertainment and smartphones.  Unfortunately, these stories are so rare that we tend to use them for a decade (or even 2 decades)! 

For years Cisco said it would obsolete its own products, and by implementing that direction Cisco has grown year after year in the tech world, where flame-outs abound (just look at what happened to Sun Microsystems, Silicon Graphics, AOL and rapidly Yahoo!) Look at how Netflix has pushed Blockbuster aside by expanding its business from snail-mail to downloads.  Or how Amazon.com has found explosive growth by changing the way we read books, now selling more Kindle products than printed.  Rather than thinking about how each could do more of what they always did, fearing cannibalization of the "core business," they are aiding destruction of their historical business by implementing the newest technology and solution before some start-up beats them to the punch!

As you enter 2011 and prepare for 2012, is your planning based upon doing more of what your business has always done?  A start up has no last year, so its planning is based entirely on views of the future.  Are you fixated on improving your operations?  A start up has no operations, so it is fixated on competitors to figure out how it can meet market needs better, and use "fringe" solutions in new ways that competitors have not yet adopted.  Are you hoping that market shifts slow, or stop, so revenue, market share and profit slides abate? A start up is looking for ways to disrupt the marketplace to it can grab high growth from existing solutions while generating new demand by meeting unmet needs. Are you trying to preserve resources in order to defend your business from competitors? A start up is looking for places to experiment with new solutions and figure out how to change the competitive landscape while growing revenues and profits.

If you want to thrive you have to grow.  To grow, you have to think young!  Be willing to plan for the future, like Apple did when it moved into new markets for music downloads.  Be willing to find competitive holes and fill them with new technology, like Netflix.  Don't fear market changes – create them like Cisco does with new solutions that obsolete previous generations.  And keep testing new ways to expand the market, even as you see intense competition in historical markets being attacked by new competitors.  That is the only way to create value, and generate new jobs!

 

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