Hey I.T. – Give users iPads!!

by | Apr 29, 2011 | Current Affairs, In the Rapids, Innovation, Leadership, Web/Tech


CIO Magazine today published my latest article for IT professionals “Why You Should Stop Worrying and Let End Users Have iPads.” (note: free site registration may be required to read the full article)

The editors at CIO agreed with me that a big change is happening in “enterprise IT.”  User technology is now so cheap, and good, that employees no longer depend upon corporate IT to provide them with their productivity tools.  When you can buy a smartphone for $100, and a tablet for $500, increasingly users are happy to supply their own, private, productivity tools rather than try using something they find larger, heavier and harder to use from their boss — and also something which they’ve been told for years should not have personal items on it.

The serious impact is that increasingly the users feel “burdened” by corporate IT.  They become less accessible as they leave the company laptop at work – and shut off the company Blackberry after work hours.  They complain about the inefficiency of corporate tools, while using personal phones and tablets to do internet searches, access networks for fast info sharing (Facebook, Twitter, Linked-in), and generally find greatest productivity by ignoring technology supplied by employers.  Often tehnology that is incredibly expensive.

Leading companies are taking advantage of this trend, and supplying the latest devices to employees.  They recognize that greatest good comes not from “controlling” employee technology use.  Rather, productivity is greatly enhanced by encouraging employees to take advantage of newest technology in the course of their work.  Thus, leaders are providing iPhones and iPads, and giving access to Facebook and YouTube through the company network.

The world of IT shifts fast.  Changes in IT have often seperated winners from losers.  IT leaders have to change their mindsets if they want to help their companies profitably grow.  And the first step is giving users technology they want, rather than technology they too often despise.

You can also access this article by clicikng on links to the following journals:

I look forward to your opinion about this topic! Do you think IT departmernts are slow to react to new tools?  Do you think the new tools are “enterprise ready?” Do you think the advantages of newer techbnology outweigh potential IT risks?  Drop comments here, or on the article pages!  Love to hear what others think

 

Sell Research In Motion Now

by | Apr 17, 2011 | Current Affairs, Defend & Extend, In the Swamp, In the Whirlpool, Innovation, Leadership, Lock-in, Web/Tech


Research in Motion pioneered the smartphone business.  While Motorola, Samsung and others thought the answer to market growth was making ever cheaper mobile phones, RIM figured out that corporations wanted to put phones in employee hands, control usage cost, while also securely offering email distribution and texting.  Blackberry handsets and servers met user needs while providing IT departments with everything they needed. 

This success formula was a winner, driving tremendous growth for RIM.  People joke about their “crackberry” connecting them to their company 24×7, but it was a tremendous productivity enhancer.  RIM produced a consistent string of growing revenues and earnings, meeting or exceeding projections.  RIM still dominates the “enterprise” smartphone business.  The overwhelming majority of mobile phones issued by companies are still Blackberries.

“RIM’s CEO is Annoyed that People Don’t Appreciate Our Profits” headlined Silicon Alley Insider.  He can’t understand why the stock languishes, despite meeting financial projections.  When challenged about whether or not RIM is as secure as it claims, “RIM CEO Abruptly Ends an Interview After Getting Annoyed About Security Questons” (SAI).

That the CEO is annoyed is the first of two reasons you need to sell RIMM now.  If you are waiting for a recovery to old highs, forget about it.  Won’t happen. Can’t happen.

The mobile phone/smartphone market has taken an enormous shift.  Apple’s iPhone introduced the “app” phenomenon – allowing smartphone users to do a plethora of things on their devices that aren’t possible on a Blackberry.  If we just count apps, as a baseline, iPhone users can do some 350,000 things that Blackberry users cannot.  Additionally, iPhones – and increasingly Android phones – are simply a lot easier to use, with bigger touch screens, more built-in functionality and easier user navigation. 

As charted in my last column, RIM has only about 5% the apps of iPhone.  And less than 10% the apps of Android.  Even Microsoft will soon provide more apps than Blackberry.  But the CEO of RIM is stuck – defending his company and its success formula – rather than aggressively migrating the company into new products.  He’s hoping all those company employees, including execs, now carrying 2 phones – their corporate Blackberry and personal iPhone – will keep doing that.   

He’s letting the re-invention gap between RIMM and Apple/Google widen with every passing quarter.  While no other provider offers the “enterprise solution” of RIM, increasingly the gap between the usability of new solutions and RIM is widening.  It won’t be long before users won’t put up with having 2 phones – and the loser will clearly be RIM

And it won’t be long before people completely stop carrying laptops as well. Rather quickly we are seeing a market shift to tablets.  Into this market RIMM launched its Playbook product last week.  And that’s the second reason you need to sell RIMM.

We all know the iPad has been a remarkable success.  To date, nobody has developed a tablet that users, or reviewers, find comparable.  Unfortunately, RIM launched its Playbook tablet to entirely consistent reviews, such as “The Playbook: Blackberry’s ‘Unfinished’ Product” headlined at TheWeek.com.  The Playbook simply isn’t comparable to an iPad – and doesn’t look like it ever will be.

Most concerning, to use a Playbook you must also have a Blackberry.  Playbook relies on the Blackberry to provide connectivity – via Bluetooth.  In other words, RIM is trying to keep customers locked-in to Blackberries, using Playbook to defend and extend the original company product.  Playbook doesn’t even look like it’s ever intended to be a stand-alone winner.  And that’s a really bad strategy.

RIM sees Playbook is seen as an extension of the Blackberry product line; the first in a transition to a new operating system for all products.  Not a product designed to compete heads-up against other tablets.  It lacks apps, it lacks its own connectivity, it has a smaller screen, and it doesn’t have the intuitive interface.  Basically, it’s an effort to try and keep Blackberry users on Blackberries – an effort to defend and extend the original success formula.

When markets shift it is absolutely critical competitors shift with them.  Xerox invented desktop publishing at its PARC facility, but tried to defend xerography and lost the new market to Apple.  Kodak invented digital cameras, but tried to defend the film business and lost the new market to Japanese competitors.  When the CEO tries to defend and extend the old success formula after a market shifts only bad things happen.  When new products are extensions of old products, while competitors are bringing out game changers, the world only becomes uglier and uglier for the stuck, old-line competitor. 

The analysts are right.  RIM has no future growth.  Companies are already switching  into iPhones, iPads and Androids.  Simultaneously, Microsoft will pour billions into helping Nokia push Windows 7 phones and future tablets the next 2 years, and that will be targeted right at “enterprise users” which are RIM’s “core.”  Microsoft will spend far more resources than RIM could ever match trying to defend its “installed base.”  RIMM is stuck fighting to keep current users, while the market growth is elsewhere, and those emerging competitors are quickly going to hollow out RIM’s market. 

There’s simply no way RIM can increase its value.  Time to sell.

Update 4/20/2011 Goldman Sachs Survey Results – CIO intention to adopt Tablets by Operating System provider:

CIO Tablet intentions by Brand 1-2011
Published in SiliconAlleyInsider.com

 

Hyperdigitization: A Shift Toward Virtual

by | Apr 11, 2011 | Current Affairs, In the Rapids, Innovation, Leadership


Today’s Guest Blog is provided by Mike Meikle.  He offers some great insight to the declining value of manufacturing as producitivity continues to skyrocket, pushing all of us toward understanding and competing in markets where greater value lies in digital products rather than physical.

Summary

  • Hyperdigitization is the economic shift toward “virtual” goods and services
  • Manufacturing jobs have dropped 31 percent but output is at a near record $1.7 trillion.
  • Economic output of Hyperdigitization is $2.9 trillion.
  • Google, Facebook and GroupOn all have large revenue streams/valuations yet no physical product.
  • Industrial Age economic model of static business models is rapidly fading.
  • Organizations must release their innovative capabilities to survive and thrive.

Recently, I was engaged by ExecSense to give a Risk Management & Outsourcing Trends for 2011 webinar targeted for Risk Management executives.  Since I only had an hour to cover a vast amount material, I could only briefly touch on some interesting topics. One of these was Hyperdigitization, a jargon-laden term that means economic output is moving toward “virtual” goods and services.

So how does hyperdigitization tie into outsourcing trends?  As companies continue shift their business processes to outside service providers, firms will have to develop ways to protect their intellectual property and virtual output.  Since intellectual property is data, risk managers will have to develop and monitor Key Performance Indicators (KPI) and Key Risk Indicators (KRI) to ensure their firm does not sacrifice their long-term competitive advantage for short-term cost savings.  This penny-wise, pound-foolish strategy has been discussed previously by Mr. Hartung.

But before we dig further into explaining hyperdigitization, let us review an example of the current fading Industrial economic model.  One of the chief laments heard throughout the Great Recession is that America doesn’t “make” anything anymore.  Manufacturing jobs have left primarily to cheaper labor, less regulation, lower tax countries.  Without construction jobs to fall back on, this has left a broad swath of the population unemployed.  Unfortunately this high unemployment fallout is a result of our economic model shifting away from Industrial Age practices.

While the jobs may have left (down 31%) productivity boosts have pushed the U.S. manufacturing output to near record highs of 1.7 trillion dollars.  We make more goods with less people due to technological advances.  Contrary to the economic doomsayers this is a positive trend, one that has happened before (agrarian-based economy) and will undoubtedly happen again.

What does this hyperdigitization of economic output mean in real terms?  Well, based on a Gartner report, about 20 percent of U.S. economic output in 2009 or 2.9 trillion dollars. That’s nearly double the U.S. manufacturing output.  We are awash in virtual products and services.  Think about Google alone.  The company is worth $163 billion at last estimate and does not have one physical product.

Other examples are Facebook and GroupOn.  Both are projected to be worth $65 billion and $25 billion respectively.  Yet again, neither has a physical product.   These three companies have based their business models on information arbitrage; the process of mining available data for new opportunities.

So where does all this intellectual property (data) that generates billions in profit come from?  People, who are supported by a corporate culture that values innovation and measured risk taking.

As the global economy gets exponentially more competitive, organizations need to be fast, flexible and innovative; a near polar opposite of the Industrial Age business model. A large percentage of companies are still mired in outdated business practices that protect the status-quo (Extend & Defend), squash risk taking and stifle innovation.  This has especially become prevalent in the era of downsizing culminating in the practices of the Great Recession.

In order to compete in an economy driven by hyperdigitization, the human capital of an organization has to be made a priority.  Developed nation’s economies are shifting away from static business models that produce generic widgets and services.  To thrive in the hyper competitive, constantly shifting global economy, organizations will have to create and promote a culture that emphasizes and values the Information Age success triumvirate of risk taking, innovation and rapid-execution.

Thanks Mike!  Mike Meikle shares his insights at “Musings of a Corporate Consigliere” (http://mikemeikle.wordpress.com/). I hope you read more of his thoughts on innovation and corporate change at his blog site.  I thank Mike for contributing this blog for readers of The Phoenix Principle today, and hope you’ve enjoyed his contribution to the discussion about innovation, strategy and market shifts.

If you would like to contribute a guest blog please send me an email.  I’d be pleased to pass along additional viewpoints on wide ranging topics.

Leading Google – Larry Page Needs More White Space

by | Apr 1, 2011 | Current Affairs, In the Rapids, Innovation, Leadership, Openness, Transparency, Web/Tech


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

How to Manage Lock-in, including applying social media marketing, Video on Facebook

by | Mar 31, 2011 | Current Affairs, Defend & Extend, Leadership, Lock-in


Here’s a link to a very short video (1-2 minutes) posted on Facebook today about Lock-in.  Hope you enjoy!  Please provide feedback and comments!

Adam Hartung on Lock-in – Why we do it, and how to be better by managing it!  Includes a discussion about using social media – why it is so important, why so many people are overlooking these tools and the success application can create.

I was recently asked to be interviewed regarding most of the major themes of “Create Marketplace Disruption” and why they are timely – and important – to businesses globally.  A few exerpts from those interviews have been edited, and are being sent to me for posting on YouTube and Facebook.  This is the first in the series.

Hey Pfizer, learn a lesson from Google about how to grow!

by | Mar 30, 2011 | Current Affairs, In the Swamp, Innovation, Leadership


Summary:

  • Too many leaders spend too much effort minimizing uncertainty
  • Stock buybacks reflect fear of uncertainty, but are a losing investment
  • Good performing organizations invest in new markets, products and services
  • Success comes from not only investing, but in learning quickly what works (or doesn’t) and rapidly adapting

“If you don’t ever do anything, you can never screw up” my boss said.

I was 20 years old working in the blazing Oklahoma July sun at a grain elevator.  I had asked the maintenance lead to modify a tool, thinking I could work faster.  Unfortunately, my idea failed and my production started lagging.  Offload production was slowing.  I had to ask that the tool be put back to original condition, and I apologized to the elevator manager for my mistake. 

That’s when he used my opening line, and went on to say “Don’t ever quit trying to do better.  You’re a clever kid. Sometimes ideas work, sometimes they don’t, but if we dont’ try them we’ll never know.  That’s why I agreed to your idea originally.  I’ll accept a few well-intentioned ‘mistakes’ as long as you learn from them. Now go back to work and try to make up that production before end of day.”

Far too few leaders today give, or follow, such advice.  The Economist recently waxed eloquently about how much today’s leaders dislike any kind of uncertainty (see “From Tsunami’s to Typhoons“).  Most very consciously make decisions intended to reduce uncertainty – regardless of the impact on results!  Rather than take advantage of events and trends, doing something new and different, they intentionally downplay market changes and diligently seek ways to make it appear as if things are not changing – amidst massive change!  The mere fact that there is uncertainty seems to be the most troubling issue, as leaders don’t want to deal with it, nor know how. 

This fear of uncertainty manifest itself in decisions to buy back stock, rather than invest in new products, services and markets.  24/7 Wall Street reported $34B in announced share buybacks in early February (2011 Stock Buybacks on Fire), only to update that to $40B by end of the month.  Literally dozens of companies choosing to spend money on buying their own shares, which creates no economic value at all, rather than invest in something that could create growth!  And these aren’t just companies with limited prospects, but include what have been considered growth entities like Pfizer, Astra-Zeneca, Electronic Arts, MedcoHealth, Verizon, Semantec, Yum! Brands, Quest, Kohl’s, Varian and Gamestop to name just a few. 

All of these companies have opportunities to grow – heck, all companies have the opportunity to grow.  But there is inherent uncertainty in spending money on something that might not work out.  So, instead, they are taking hard earned cash flow and spending it on buying back the company stock.  The real certainty, from this investment, is that it limits growth — and eventually will lead to a smaller company that’s worth less.  Don’t forget, the only investment Sara Lee made under Brenda Barnes the last 5 years was buying back stock – and now the company has shriveled up to less than half its former size while the equity value has disintegrated.  Nobody wins from share buybacks – with the possible exception of senior executives who have compensation tied to stock price.

At the Harvard Business Review Umar Haque admonishes leaders today “Fail Bigger Cheaper: A Three Word Manifesto.” Silicon valley investors, deep into understanding our change to an information economy, are far less interested in “scale” and more interested in how leaders, and their companies, are learning faster – so they see where they might fail faster – and then being nimble enough to adjust based upon what they learned.  And not just to do more of the same better, but in order to identify bigger targets – larger opportunities – than originally imagined.  Often the “failure” can direct the business into grander opportunities which have even higher payoffs.

That’s why we don’t see companies like Google, Apple, Netflix, Virgin, or Cisco buying back their own stock.  They see opportunities, and they invest.  They don’t all work out.  Remember Google Wave?  Looked great – didn’t make it – but so what?  Google learns from what works, and what doesn’t, and uses that information to help it develop newer, more powerful growth markets. 

Long ago Apple let its lack of success with the Newton PDA cause it to retrench into strictly Mac development – which took the company to the brink of disaster by 2000.  Since then, by investing in new markets and new products, Apple has grown revenues and profits like crazy, making it more valuable than arch-rival Microsoft and close to being the most valuable publicly traded company.

Apple revenue by segment december 2011
Source: Silicon Alley Insider of BusinessInsider.com

Virgin used its success in music retailing to enter the trans-atlantic airline business (Virgin Atlantic).  Since then it has launched dozens of businesses.  Some didn’t work out – like Virgin Bridal – but many more have, such as Virgin Money, Virgin Mobil, Virgin Connect – to name just a handful of the many Virgin businesses that contribute to company growth and value creation.

Nobody wants to screw up.  But, unless you do nothing, it is inevitable.  No leader, or company, can create high value if they don’t overcome their fear of uncertainty and invest in innovation.  But, hand-in-glove with such investing is the requirement to learn fast whether an innovation is working, or not.  And to adapt.  Some things need time for the market to develop, others need technology advances, and others need a change in direction toward different customers.  It’s the ability to invest in uncertain situations, then pay attention to market feedback in order to recognize how well the idea is working, and constantly adapt to market learning that sets apart those companies creating wealth today. 

Update 4/1/2011 – AOLSmallBusiness.com reminds us of another great adaptation story, based upon entering an unknown market and learning, in “Yes, Even Apple Screws Up Sometimes.” When personal computers were all text-based machines Apple introduced the Lisa as the first commercial computer to utilize on-screen icons, and a mouse for navigation, as well as other key productivity enhancers like the trash can.  But the Lisa failed.  Apple studied the market, kept what was desirable and modified what wasn’t, re-introducing the product as the Macintosh in 1984.  The Mac was a huge success, creating enormous value for Apple which was undeterred by both the uncertainty of the fledgling PC market and its initial failure at various changes in the user interface.

America’s Wrong-Headed Jobs and Innovation Policies – why we don’t create enough Amazon.com’s

by | Mar 25, 2011 | Current Affairs, Defend & Extend, In the Swamp, Innovation, Leadership, Lock-in


It is unlikely anyone in business or government thinks productivity is a bad thing.  Productive students get their homework done faster, and learn more in the available time.  Productive musicians make more recordings, and tend to learn more over their careers.  And productive companies produce more goods and services with less inputs – like labor – thus offering more to customers at lower cost while making more money for investors.  At a national level, the more productive we are at everything from growing wheat to making cabinets to writing smartphone apps improves the quantity of goods available to our population – growing the gross domestic product (GDP.)  Improving productivity is one of the most critical activities to creating and maintaining a healthy economy, improving incomes and generating wealth.

Then why is American policy so anti-productivity?

American manufacturers today are about the most productive in the world.  In the Wall Street Journal's "The Truth About U.S. Manufacturing" we learn that American factory workers are producing triple the output of 1972.  The use of ever more sophisticated equipment, often with digital controls, and a higher trained workforce has made it possible to make more and more stuff with less and less labor.  While considerable manufacturing has gone offshore, it is not because our workers are competitively unproductive.  To the contrary, productivity is amongst the highest in the world! 

Unfortunately, most of America's business/economic policy at the government level has been trying to preserve jobs that are, well, not that productive.  Take for example agriculture subsidies.  They pay farmers to produce less and otherwise make less productive use of land, feedstocks, grains, etc.  By giving farmers (most of which are now huge corporations, not the "family farm" circa 1970 and before) subsidies it actually lowers agricultural productivity.

Similarly, bank and auto bailouts (and all subsidies to any manufacturer) in effect lowers productivity.  It gives money to a bank, which makes nothing.  Or to an unproductive manufacturer to keep its plant operating when the value of the output is insufficient to cover costs.    These spending programs serve only to defend and extend the least productive jobs in society – jobs that are economically unviable.  By spending money in these areas the government attempts to preserve the old (companies such as GM and Chrysler) at the expense of productivity.

America can create highly productive jobs

"Amazon.com On Hiring Spree" is the Seattle Times headline. Amazon has revolutionized book retailing, publishing and is changing a number of other markets as well.  The result is a far more productive workforce in these industries than previous competitors.  Borders, to cite a recent example, could not be nearly as efficient selling or publishing books with its out of date model, so it recently followed 90% of other book sellers into bankruptcy. The more productive company, Amazon, is hiring people as fast as it can to grow its business.  Its productivity allows Amazon to sell more and create jobs. 

Had the government chosen to bail out Borders there would have been a public outcry. Why should we protect the jobs of those store shelf stockers?  Likewise, as the number of printed books drops, replaced by digital books, should it be government policy to subsidize book (or magazine, or newspaper) publishers/printers?  Whenever a business is no longer competitively productive – whether it be agricultural, manufacturing or anything else – bailouts serve only to keep the unproductive competitor alive.  Which actually harms the more competitive company that subsequently must fight the subsidized competitor.

The right policy would be to subsidize Amazon.  Amazon is growing.  Theoretically, the more money Amazon has the faster it could grow and the more jobs it could create.  But, of course, nobody feels good about subsidizing a growing, profitable concern.  And Amazon isn't asking for subsidies, anyway.

Our public investments are shifting in the wrong direction.

The right public policy is to invest in creating new Amazons.  New businesses that create products and services which are desirable to customers, productively using resources and creating jobs.  By helping these new businesses get going the government spending creates new markets.  Government money "primes the pump" for investors.  Early stage funding allows the business to get started, create a product or service, generate initial revenues, demonstrate a P&L and entice others to invest.  The payback to society is a growing enterprise that creates jobs, both of which creates future tax revenues which repay the early investment funding.

The current administration touts investing in the tools for creating growth.  In early February the MercuryNews.com reported on a Presidential speech in Michigan, "Obama Promotes Plan for Near Universal High-Speed Wireless."  But, like previous Presidential administrations, this is just a lot of talk.  While Mr. Obama may think national wireless technology to promote economic growth is good, there is no money for it.  In the same article it is noted that Michigan congressional representatives, who resoundingly backed putting billions into the auto bailouts, question the efficacy of investing in emerging infrastructure tools.  Protecting the past, while questioning (or opposing) investments in the future.

Unfortunately, for the last 50 years American policy has been headed in the wrong direction!  Innovation investment projects peaked around the Kennedy administration (early 1960s) with several American efforts to dominate new technologies through programs such as the famous "space race."  Since then, less and less has gone into America's future, and more and more has been spent preserving the past – through entitlements, military spending and tax cuts which provide less and less incentive to invest in unproven projects.

Us spending on R and D1953-2008

Source: Silicon Alley Insider Chart of the Day from BusinessInsider.com

Since 1953 government "pump priming" by spending on R&D for innovations has declined by 50%!!!  No longer is even 1% of Gross Domestic Product spent on R&D.  Businesses, which require an immediate return on investment and are generally loath to spend money on things which are uncertain, have been left to fill the vacuum.  As a result, total spending has been stagnant.  Worse, most spending by business is on sustaining innovations – improvements which defend and extend an existing business – rather than on breakthroughs which create new markets, and a lot more jobs (for more on sustaining innovation investments by business read Clayton Christenson's books including "The Innovator's Dilemma.")  Investment in innovation has been woefully underfunded, allowing America's economic leadership position to shrink.

America is driving innovation offshore

The Wall Street Journal has reported "More Companies Plan to Put R&D Offshore."  When things are equal, business will invest where the costs are lowest.  With little incentive to undertake innovation in America, increasingly U.S. companies are moving their R&D — along with manufacturing, customer service, telesales, etc. — to emerging markets.  And their plans are to increase this movement offshore by 50-100% by 2015!

[EMERGING]

What will happen if innovation investments move from America into emerging markets?  Will intellectual property remain an American advantage?  Will new product development be done in America, or elsewhere?  If the manufacturing is already in these markets, is it hard to predict that new products will increasingly be made offshore as well?  Asked another way, if we outsource the innovation jobs – what jobs will America have left?

A dramatic change in American policy is needed

Last week America started bombing Libya.  Part of protecting the national interest.  But, this is not free – reportedly costing Americans $100M/day.  Two weeks is $1.4B (probably a lot more, to be honest.). Let's not debate whether this is necessary, but rather recognize (as Roseanne Rosannadanna used to say on Saturday Night Live) "it's always something."  There are programs, policies, military bases, agricultural lands, national parks and jobs to protect in every district of America – and its interests around the globe.  And that's increasingly where America's money goes.  Not into innovation.

So why are Americans surprised that job growth struggles?  When the head of GE, a company that has moved manufacturing, information technology, engineering and R&D to offshore centers across the last decade, is made head of the U.S. jobs initiative is there much doubt?  When the spending and incentives, as well as the selected leaders, have as their #1 interest preserving the past – largely in areas where American productivity lags – why would anyone expect new job creation?

America's protectionist mentality is causing its lead in innovation to slip away.  The President, administration officials, Senators and Congresspeople needs to quit thinking that talking about innovation is going to make any difference in investments, or job creation.  If America wants to remain globally economically vibrant it requires a change in investments – starting with more money for R&D via grants, subsidies and tax breaks.

If America wants jobs, and healthy economic growth, it needs innovation.  Innovation that will create new, highly productive jobs  And that requires investing in the future, rather than spending all the money protecting the past.

Electric Utilities Need to Plan Like Google – Lessons from Japan

by | Mar 22, 2011 | Current Affairs, Defend & Extend, In the Swamp, Leadership, Lock-in, Web/Tech


Summary:

  • The Japanese nuclear crisis is the result of historical industry decisions to build very large facilities and transmit power to distant locations – a strategy at risk of “force majure” activities
  • U.S. electric utilities are locked-in to identical approaches to generation and transmission, which puts them at equal risk AND limits their willingness to innovate or implement new solutions
  • Historical industry approaches to planning are all based on extending the past, even though new technologies and approaches offer potentially better, and less risky, solutions. Utilities are merely one example
  • Google is expert in a far better planning approach, using scenario planning for identifying and taking to market innovations and new solutions
  • All companies, would benefit from planning like Google, rather than using traditional approaches – and several are bullet listed below
  • The electric utility industry really needs to adopt a Google approach, or everyone remains at risk

Everybody is now aware of the great radiation risk Japan faces from its damaged nuclear reactor powered electricity generators.  This has repercussions on U.S. electric utilities, as Americans have renewed concerns about the safety of similar General Electric supplied reactors. 

For example, Crain’s Chicago Business reports “Exelon Faces Regulatory Fallout After Japanese Nuclear Disaster.”  The country’s largest nuclear plant operator is facing stepped-up reviews, likely delays in expansion, and discussions about long-term viability of facilities that are 30 years into an anticipated 40 year life.  All of this threatens the viability of meeting affordable electricity needs for millions of midwestern Americans in as little as 5 years.  And it puts a lot of risk on the viability of Exelon as a going concern should the regulators require extensive re-investment to keep the plants open, or build replacements – most likely without a rate increase. All utilities dependent upon nuclear – and coal as well – for generation are now facing significant challenges.

This points out a horrible weakness in planning by most participants in America’s electric utility industry.  Almost all planning boils down to “we need to increase capacity to meet needs.  The cost of new plants, plant expansions and transmission lines from massive facilities to customers is $X, therefore, we need to lobby regulators, rate-setters and the populace to allow us a rate increase of $.xxx per kilowatt hour to cover the cost.”  Planning entirely driven by the past.  Projecting the future based upon historical demand, sources of generation, cost of fuel, etc. utilities mostly keep planning to do what they have always done, and asking regulators and customers to fund doing what they always did.  If you want anything new (like a renewables effort) then the companies want the cost for that added on top of the “business as usual” price increase.

But customers are increasingly tired of hearing about rising rates, while they are constantly trying to conserve.  The old “compact” in which the price regulators guaranteed utilities a rate of return is under considerable stress.  Increasingly, people are asking why they need to pay more, why these plants are so expensive, why the industry keeps doubling down on old technologies and fuel sources.  Customers, and regulators, are asking for innovation, but the industry offers almost nothing, because it’s planning is all about extending the past, and defending its historical approach and investments. 

Today we know that the industry’s future will not be like the past.  Increasingly customers (with government support in many cases) are demanding changes in the sourcing of electricity.  Requesting decommissioning of polluting generators (coal in particular), shut-downs of perceived risky, and now aging, nuclear facilities, more supply from renewable, or sustainable, sources — and without higher prices. 

There are a lot of new technologies available.  And some customers recommend a dramatic change in approach, from huge, centralized generation facilities to many smaller, safer, renewable generation facilities that are decentralized and closer to end-users.  But most industry veterans are unable to even consider these options, because they see no way to get to the future from today.  They are locked-in to defending and extending what the industry has always done, even if it means extending known risks, environmental concerns and creating higher prices for fuel and maintenance.

And that’s where Larry Page and Google have a lot to offer the utility industry planners.  Instead of planning from the past forward, Google plans from the future back to the present.  By helping employees develop future scenarios the leaders at Google identify far better solutions than the linear, historical planning approaches.  Once a better future is identified, then the organization is unleashed to create that future by planning backward from the scenario, figuring out how to implement it.

Wired magazine, in “Larry Page Wants to Return Google to its Start-up Roots” gives great insights to how Google has created a $30B business in a decade – using scenario planning at the heart of its approach to business.

  • Don’t fear being audacious when setting goals.  Even if you don’t reach the ultimate goal, your improvement could be game-changing for the industry and greatly benefit the early adopter
  • Instead of saying trying to help somebody with an immediate question, ask what would have the maximum impact in 10 years.  Don’t just accept more of the same, look for the best answer
  • Leaders should not fear being viewed as having stepped into the future, and returned to tell everyone what they’ve seen
  • Don’t assume that the way things are done is the best way.  Instead, ask “why is it done like that?  Is there possibly a better way?”
  • Is the obstacle to future success something that is impossible – say because of the laws of physics – or is the obstacle a need for resources – in engineering, scale design or implementation?  Don’t confuse things that can’t be done with things that simply lack resources (even if the initial resource demand seems very high)
  • When someone pitches an idea, leader’s should avoid questioning the viability.  Rather, they should offer a variation that is an order of magnitude more ambitious and ask why the latter cannot be accomplished.
  • Ask regulators what they want, and try really hard to achieve that goal rather than arguing with them. Offer creative solutions that are non-traditional, but that just might achieve the goal.  Change the conversation to achieving the goal, rather than extending the past.
  • If an idea requires creative thinking, be excited about it.  Don’t hesitate to represent unrealistic expectations.
  • Speed is really, really important.  If there is merit, rush it toward the future state as fast as possible.  Let implementation and the marketplace determine what’s successful, rather than trying to guess.
  • Do the numbers, but don’t expect those who disagree to believe your numbers.  It’s easy for people to pooh-pooh projections.  Don’t let disagreement over forecasts stop you from proceeding.
  • Don’t let potential legal problems stop you.  Take action, and deal with legal issues when, and if, they arise.

Planning for the future, and being ambitious about what that future entails, has created a slew of new products from Google that have benefited everyone around the world.  Google’s use of scenario planning to drive development and investments is a business implementation of an historical echo – asking not what Google needs from historical customers to succeed, but rather what Google can do to create something future customers will value.  Google uses planning to rush headlong into providing a growing and profitable future, rather than trying to optimize the historical solution.

Giant, centralized distribution facilities that use nuclear or fossil fuels, then sending electricity over massive distances losing upwards of 70-80% of the power in transmission, is the historical utility industry approach.  For a very long time it worked pretty darn well.  But the limitations of that approach are being seen, and felt, in many locations – causing blackouts in various regions, health risks in others, rising polution levels, rising demands for limited fuels, higher costs (especially for maintenance and upgrades) and potential deadly disasters from unexpected events of mother nature. Industry outsiders question whether America’s growth will be limited (due to supply or pricing issues) if this approach is not changed.

Lots of options exist for the electric utility industry to do things differently.  But it will take a big change in how the industry leaders plan. Maybe they’ll ask the folks at Google for a few ideas on how to change their approach to planning.  Can you imagine a future where Google managed the electric grid?

Finding the Money – Be Smarter, like IBM

by | Mar 15, 2011 | Defend & Extend, In the Rapids, Innovation, Leadership, Openness, Web/Tech


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

by | Mar 9, 2011 | Current Affairs, Defend & Extend, eBooks, Food and Drink, In the Swamp, Innovation, Leadership, Lock-in, Openness


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.