by Adam Hartung | Jun 25, 2010 | Current Affairs, Defend & Extend, In the Swamp, Leadership, Lock-in
Leadership
BP's Only Hope For Its Future
It must throw out its formula for success.
"Beyond Petroleum?" BP looks anything but that now. How could a
company that spent so much money trying to make us think it was
something else remain so tied to, and now so damaged by, that product?
Was it just trying to fool us with those ads? Or is there something more
fundamentally wrong here? Perhaps something wrong in the management
system used not only by BP but by almost all companies today?
That's the first paragraph in my latest column on Forbes.com (Read BP's Only Hope For Its Future here). British Petroleum's situation was avoidable – if the company hadn't simply remained so dedicated to "Defend & Extend Management" – the practice of doing more of the same because it's what the company does best. Unfortunately too many companies follow this "best practice," sticking to their "core," and don't use White Space to find new opportunities for growth. All the way into disaster!
The Harvard Business Review web site describes the mismatch between BP's claim of heading in a new direction versus company reality in "The BP Brand's Avoidable Fall." British Petroleum's campaign is now a decade old, trying to convince everyone they weren't just an oil company. Looking back HBR recalls that authors then claimed about BP's campaign "this [strategy] seems to be at variance with organizational reality
and the [firm's] actual identity….[BP's] stated corporate aim of
being green-oriented…is an aspiration which to us bears arguably
questionable resemblance to near-term reality. At the time,
environmentalists estimated that only one percent of BP's activities
came from sustainable sources…Now, the stark contrast between BP's image and reality has substantially
weakened its reputation."
BP simply couldn't quit drilling for oil – because it was so dedicated to Defending & Extending the BP legacy. So it kept moving into more difficult fields, at higher cost, with lower yields. Now all those billions of dollars in advertising are lost, along with all the money for the clean up. Costs it will take shareholders years to recover. Even while leadership knew it had to move in a different direction – and advertised the need!
The spill costs of course move well beyond BP. For example, the network of small businesspeople that run BP refilling stations have been hurt as Crain's Chicago Business reported, "Chicago Gas Station Owners Hit By BP Spillover." Miles, and billions of dollars, removed from BP headquarters decisions, thousands of independent small businesspeople are losing revenue, due to the brand destruction created by BP taking greater and greater risks to Defend & Extend their oil business. Customers have a choice, and when a reputation is sullied many often change suppliers. Remember how Toyota car sales tanked as reports of their safety mishandling became available?
Despite the problems of Defending & Extending a business, leaders don't give up easily. The Daily Caller reports "Experts Say Obama's Drilling Plan Could Cause Another Disaster." Amidst this huge clean-up effort, there are many who want to maintain drilling activity – because short-term they want the jobs and economic benefits such drilling creates. Just the sort of marginal, Locked-in decision-making that is now hurting BP. The region is already losing fisherman, tourists and other businesses from this disaster. When will the Gulf Coast identify other ways to grow besides the economically and ecologically risky deep-water drilling activity?
BP, and the states affected by this disaster, desperately need to move "Beyond Petroleum." But doing so will require extensive use of White Space for finding and cultivating new businesses. It can be done. Yet so far, despite the horror of this disaster, there is more effort being expended to find ways to continue on the same route than disrupt old behaviors and find new sources of revenue. Not even a disaster of this magnitude disrupts those really dedicated to Defend & Extend their locked-in success formula.
As the article says, once you succumb to a Locked-in Defend & Extend strategy – like British Petroleum – management just can't help itself but to do "more of the same." Dedicated to Defend & Extend Management, no company could move "Beyond Petroleum." Are all (or most of) your resources dedicated to Defending & Extending your legacy business? Do you have White Space in your organization to move beyond your legacy? Or will it take a disaster to demonstrate how risky your strategy has become?
by Adam Hartung | Jun 24, 2010 | Current Affairs, Defend & Extend, In the Swamp, Leadership
How widely do you plan for a different future? Do you think British Petroleaum's (BP's) engineers and managers knew there was a chance of a major problem coming from deep water drilling? It seems illogical to think they didn't know the chance existed. Yet, they seemed pretty ill-prepared for the problem. As did the federal government agencies and responders – as well as all the businesses that make a living out of cleaning up water-based oil spills. Critical-Thinking.com sums up the issue pretty succinctly in the article "What is Your Company's Deepwater Horizon?" According to the article, the problem at BP is one that lots of companies have; most businesses simply don't put enough effort into planning for worst case scenarios.
Actually, the problem is worse than that. Most companies only plan for one scenario – more of the same. Planning processes rarely do more than extend past performance. In today's fast paced, global, highly competitive world it would seem that is about the least likeliest scenario. But it's the one that dominates how businesses plan. That so many businesses have been turning for the worse, or failing, is testament to how smart people are let down by planning processes that simply don't consider alternatives strongly enough. Look at the old AT&T, Tribune Corp., GM, Sears, Lehman Brothers, Silicon Graphics, Sun Microsystems, NCR, RCA, Unisys, Zenith, International Harvester, Brach's Candy…..
But planning problems are even worse than this! The first order problem is simply thinking about the potential scenarios and planning for them. Like the military does before a campaign. Even though nobody knows what will happen, by planning for a range of contingencies any business can be far better prepared. But what about the contingencies – the outcomes – you don't think about? What about scenarios you don't want to think about?
According to the New York Times there's "The Anosognosic's Dilemma: Something's Wrong but You Don't Know What It Is." Have you ever been in a meeting and someone, usually from the outside – like a vendor – said "but what about this _______" and they describe something going really, really, wrong — completely not as anticipated? And then somebody, usually somebody that's been around the company a long time and has both stature and influence says "well, if that happens then we're all dead. All bets are off." And with that, the conversation ends. It was a scenario, regardless of probability, that he simply didn't want to consider. His position was basically "hey youngster, that's crazy talk so let's not honor it with discussion."
Now we have a whole different scenario planning problem. One where we know, and will admit there are things that could happen, but we don't know what they are. Where we are so locked-in to our existing thinking that we don't even see these scenarios. We don't know what we don't know, and we're not asking what we don't know. We can't visualize an outcome that is possibly very different.
This is called the Dunning-Krueger effect, for the two psychologists who discovered it (David Dunning and Justin Krueger of Cornell.) Basically, it says we ignore options. We lose the spark to explore options that don't seem obvious. We lock-in on the way we think about the problem so strongly that potential solutions which are on a different vector – come from a different source – are simply not even considered. As if they could never exist.
And that's why all organizations need outsiders. And not just customers – who are heavily biased toward a better, faster, cheaper status quo. The Dunning-Krueger effect means that all organizations need boards, lawyers, consultants, advisors, friends that don't have their lock-in. People that can come up with scenarios that don't have their lock-in. People that can come up with scenarios that your own organization would simply never consider. Like a drilling rig blowing up in deep water and leaving a spewing hole of crude oil that has to somehow be capped —- that could shut down drilling in a major oil producing area, fishing, and all sorts of other businesses. Possibly wreck part of the ecology for decades. And wipe out the company dividend and customer goodwill while looking for a solution.
by Adam Hartung | Jun 22, 2010 | Current Affairs, Defend & Extend, In the Swamp, Leadership, Lock-in, Web/Tech
According to Reuters news service "Dell in Talks with Google over Chrome O/S." I would like to think this is a big deal for Dell, and positive, but I'm doubtful.
Eight months ago I wrote (10/20/09 – Keep an Eye on Dell – Good Things Happening) that Dell's efforts to bring a smart phone to market showed real promise for the company. Michael Dell seemed committed to shaking things up in order to launch new products. And in February I wrote (2/22/10 Looking for Winners – Dell) not to be too worried about Dell's small desktop market share losses because Dell needed to be heading into new markets – like Smart phones – seeking growth rather than over-investing in its old desktop business.
But I've since turned much more negative. The Reuter's article points out that Dell still hasn't gotten the smart phone to market in the USA. A phone was released in China last year, but sales have been minimal. There is a vague promise (no date) to release a new product in China – but none in the USA. And a potential tablet (competitor to iPad) is considered by end of 2010, but the company stresses no firm date.
Dell is moving far too slowly, and is far too uncommitted, to new businesses. The company is listening to the analysts who have traditionally followed them – the large customers who have bought Microsoft products and are still doing so – and large vendors who want to maintain the status quo. All of these folks are as locked-in as Dell.
Meanwhile Apple and Google keep selling thousands of units into these rapidly expanding new markets, growing share as well as sales at substantial profit.
This effort by Google is certainly good for its Chrome O/S. Even if Dell moves slowly, having Chrome adopted into any part of the historically monopolistic Microsoft community is a good thing. And the announcement itself shows the fragility of Microsoft in its historical market as growth slows and large distributors look to new solutions for "cloud computing" from new vendors. So this is good for Google, and another dart into the wounds of Microsoft.
The market keeps shifting toward new technology and the vendors supporting it – making the re-invention gap bigger and bigger at Dell. I don’t think Dell’s management is up to the market challenges. They had a shot at real change, but by not giving the growth projects (then or now) real permission to do what it takes to succeed, including moving much faster to market, nor sufficient resources to meet market needs, Dell is hastening its own demise. With its outdated, and now low-return, success formula firmly locked in, Dell looks likely to follow Wang, Lanier, Burroughs, DEC, Silicon Graphics and Sun Microsystems into the history books.
by Adam Hartung | Jun 20, 2010 | Current Affairs, In the Rapids, Innovation, Web/Tech, Weblogs
Will YouTube be the USAToday or Wall Street Journal or New York Times of 2015 or 2020? According to Mediapost.com "YouTubes Secret Citizen Journalism Plot Exposed." Referring to a SFWeekly article by Eve Batey "YouTube Explains Top Secret 'News Experiment' to Local Media, But Doesn't Really" the reporting is that YouTube plans to hire groups of citizens in major cities, starting in San Francisco, to report news events via YouTube. Could this replace the local newspaper? Or maybe even the local evening news?
Americans are so used to freedom of speech that it's easy to forget what the concept launched in the USA. 200 years ago anybody who could access a printing press, of any size, could produce a newspaper. That as revolutionary. "Citizen journalism" was the norm, and there were literally thousands of newspapers. That situation remained very true well into the 1900s. Eventually acquisitions led to consolidation and a dramatic reduction in the number of newspapers.
The decline in the number of newspapers was aided by consumer journalism preferences shifting, in part, to radio and television. As radio and television journalism was born the limitation was "bandwidth" and therefore access. Thus, from the beginning there was government control over the number of stations. That scenario very different from the founding of newspapers, as there were limited channels from the beginning. But that didn't mean that the desire for video journalism was lower.
What will journalism be in 2020? We know that most major city newspapers are on the brink of failure, with bankruptcies (such as Tribune Corporation, owner of The Chicago Tribune and The Los Angeles Tkimes as well as others) not uncommon. As newspaper pages have shrunk, the internet has allowed the return of "citizen journalism" as bloggers and reporters have emerged able to tell a story, and with very low cost access to potential readers. Having internet access is possibly cheaper, and certainly easier, than operating a printing press in the era of Benjamin Franklin, or even a local newspaper of 1900. By numbers there is no doubt many more "citizen journalists" than "professional journalists" working at American newspapers today.
So why couldn't YouTube take advantage of a preference for video, and link together the armies of independent "journalists?"
I can't help but recall the television program Max Headroom from 20 years ago – where it was perceived that real-time information on practically all topics would be reported on millions of televisions everywhere – televisions which could not be turned off by law. Wasn't Max simply an avatar, running around what we could now consider the web, popping up on computer – rather than television – screens? Today I can create my own Max Headroom avatar to search the web for real-time content – mostly text. Why couldn't YouTube give me a tool to do the same thing with video?
Many people are bemoaning the decline of traditional journalism. But is this a bad thing? Given all the screaming about today's "media bias" it would seem that citizen journalism could become a great equalizer. If YouTube and Google can help give me the tools to search for what's interesting to me that would seem to be a very good thing. And if in the process they sell some ads so that the content can grow, that doesn't seem like a bad thing either.
In the movie Network, made some 30 years ago, the thesis was put forward that news would become entertainment – and less "news". With the growth of Fox News, MSNBC News and the number of broadcast minutes given to television news magazines like Nightline, one could reasonably claim that the movie was surprisingly foretelling. Today, getting up to the minute news is even hard on a channel like CNN. It's not at all unclear that providing a platform for citizen journalists, via YouTube and Google searches of the web, is a bad thing at all.
Are you prepared? Are you learning how to use these new tools? Are you prepared to change your learning behavior? Your advertising programs? Could you be a citizen journalist? It certainly looks clearer every year that journalism in 2020 will look substantially different than it does in 2010.
by Adam Hartung | Jun 17, 2010 | Current Affairs, Defend & Extend, In the Swamp, In the Whirlpool, Leadership, Web/Tech
"Google Bans Use of Microsoft Company-Wide" is the headline on HuffingtonPost.com. The reason given is that Microsoft had too many security issues. This could be easily dismissed as a competitive trick. Except for a couple of facts:
- Microsoft does have a number of security issues. It's not just Google that's worried about the problems encountered when relying on Microsoft products. While Microsoft is the gorilla, it does have problems.
- Today their are very reasonable alternatives. Fifteen years ago Scott McNeely at Sun Microsystems tried to enforce the same discipline as Google. Only there ware no good alternatives to Windows and Office. That has now changed. Significantly.
As Microsoft has lost share in all its products, it is worth noting that a leading-edge tech company is able to enforce, successfully, a ban on their products. Aided by the fact that they can offer alternatives which are easy to use and better meet many user requirements today. This is not good news for investors, employees, suppliers and customers of Microsoft. A serious shift to alternative solutions has emerged, and Microsoft has given no indication it is participating in the shift.
The impact is amplified by SeekingAlpha.com's article "Apple's Growing Corporate Market Share." Like many businesses in a leading market share position, Microsoft has simply accepted that customers will keep buying their products. But their near-monopoly is increasingly threatened as organizations realize there are very real alternatives. Not just from Google, but from Apple as well as others. As companies recognize that PCs are failing faster, and as managers are displeased by Microsoft requirements that they upgrade software with new purchases, corporate customers are looking for alternatives. This can be easily dismissed as the behavior of a few "odd-balls." But increasingly such behavior is becoming mainstream. While Microsoft is busy forcing customers to upgrade, many companies are looking for greater stability and satisfaction with their information technology suppliers – including Microsoft replacements.
While Microsoft keeps struggling to maintain its customers, sales and share in its old business, Apple keeps moving forward. This week SeekingAlpha.com also reports "Apple Hits 10,000 iPad Apps, Doubling in the Past Six Weeks." Again, this might be easy to ignore for Microsoft (or status quo) fans. But as the app library keeps building Apple keeps building a bigger advantage over everyone – including Microsoft. What do we think the future holds – a world full of laptops (as we know it today) or a lot more tablets and similar smart devices? Increasingly, Microsoft is Defending its past position in the face of a tsunami of innovation for new solutions gaining adoption, and growing, very, very rapidly.
When you're the market leader it is easy to ignore competitors. To dismiss them as "fringe" with "small share" and "not important." But that is very risky. Markets can shift really fast. New competitors offer new solutions, and they allow customers to do new things. They give customers new choices, and often customers who are less than thrilled with current solutions will switch. As competitors make it easy to do new things, the customers switch even faster. Before long the unexpected can happen, and leadership can switch very quickly. Like Apple's market share in mobile devices exceeding that of Microsoft's – or Apple's cash hoard exceeding the market value of Dell (a supply chain partner of Microsoft).
Microsoft is offering a real-time lesson to business leaders. Planning your future based upon your past strengths is dangerous. Smart competitors can offer alternatives faster than you think – and create market shifts that leave you in the lurch quickly. It's a high-risk strategy to think you can succeed by Defending you past position when alternatives are on the horizon.
PS – ChannelInsider.com today published "Spotlight: 10 Things Tablet Computer Makers Must Do To Take On iPad." Item 5 is "Windows Won't Make Much Sense" Item 4 is "Chrome O/S Does Make Sense" Item 3 is "Give Android O/S Consideration". For Microsoft this is a set of recommendations that cannot sit well. The market for laptops is predicted to peak and begin declining as users shift to smaller, easier products like tablets. The market pundits, as they recommend new products, are moving away from Microsoft products. How long can Microsoft continue its focus on Defending Windows and Office?
by Adam Hartung | Jun 15, 2010 | Current Affairs, In the Swamp, Leadership, Web/Tech
There's always controversy around a politician. Some like the person, some hate the person. And that is true for Mayor Richard M. Daley in Chicago. Crain's Chicago Business decided to do an analysis of the mayor's last 20 years in office in "Mayor Daley Runs Up Big Debts Building His Global City; What About the Rest of Chicago?"
(As I write this, please keep in mind I live in Chicagoland and have done so for 20 consecutive years. This is my second time in Chicago, having first in 1982 – almost 30 years ago. It is my home, and I obviously like the area. But that doesn't mean (a) some criticisms and concerns aren't warranted and (b) that other cities and/or states aren't in equal, or worse, condition and should learn something from a look at Chicago.)
The article has a host of ways to look at. evaluate, the mayor and the city. Most of them compare one or the other to the Chicago suburbs, or to other big cities like New York, or to the situation in Chicago when he took office. In other words, relative measures. As a result, in many areas, it is possible to say Chicago is doing better than it was, or better than some comparable city. And that's the problem with relative measures – you can always say things are somewhat different. But, does it mean the city is in "good" shape, or that it is going to be prospering in 2020 – or 2050?
However, what's important isn't how a governmental leader performs in comparison to others, but absolutely. I don't care of I'm less starving than another person, I care that I'm not starving. Nor does it matter how well the leader performs on a host (15 or 20 or 30) of measures, but rather how they perform on the critical, absolute measures. I don't care how well I'm dressed, or coiffed, or energized if I'm starving.
It's also important we avoid popularity polls as a way of determining "success." The article points out that Mayor Daley is a favorite of business leaders. According to the article largely because he thinks a lot like them, talks a lot like them and enjoys associating with them. But just because he shares their personal Success Formulas, and he's a great "Happy Harry," to be around, and because he might be easier to talk to than his predecessors, or other city mayors, does not make Mayor Daley great, or the city great. It just makes him popular. Do you remember any popular students from your high school or college that simply didn't accomplish much? They were probably even very popular with the faculty in many cases. But did they make the school's reputation grow? Or help improve the test scores of students rise, or improve the success of the athletic department? Popularity is just that, but it doesn't create a long-term viable economic strategy.
That the mayor has brought a few corporate headquarters to Chicago, such as Boeing and Miller/Coors, is no doubt. And retained United Airlines. This shows the mayor is good at talking to CEOs. And it has some "celebrity" and "symbolic" benefit. Unfortunately, headquarters locations do not produce many jobs.
In the case of Chicago and mayor Daley, there are really 2 critical variables. And they aren't how well he removes snow, or how many flights go through O'Hare airport. Rather, it's debt and jobs.
Debt can be used to help growth, otherwise it's bad. If you can earn 7%, and borrow at 5%, then debt helps you grow. But if you borrow at 5% and invest in something that has no growth, well then you're just losing money faster.
Which gets us to jobs. Debt incurred by a municipality should have the impact of creating growth. It should create jobs. But, looking at Crain's "Chicago Economic Indicators" we see that between 1989, Daley's first year in the job, and 2009 jobs shrunk by 150,000 (from 1.33million to 1.18million,) or negative 11.25%. So the debt did not help Chicago grow – the only viable reason for incurring debt. In the 20 years debt (including long-term capital leases), adjusted for inflation, grew 263%. Fully 74% more than the property tax base. Or, when compared to jobs, the inflation adjusted debt per job grew by 85% (almost doubled!) in the last 20 years! What we can see is that those who are working now have one heck of a lot of debt to repay for the expenditures made by "city hall" the last 20 years! Adjusted for inflation, twice what they had to pay back when I came to Chicago!
And this is AFTER the mayor sold off the city's parking meters and other sources of income! He took one-time payments in order to keep the debt down, but gave up future income that used to be available to repay debt. Throwing even more of the debt repayment load onto each job than existed when he took office. And this hasn't factored in unfunded pension liabilities and anticipated escalating costs for infrastructure, education, public transit, etc. which will require some form of tax – or economic growth.
There is no doubt that even though he has detractors, Mayor Daley is a popular mayor. From what I've heard, he's a charismatic individual. He is obviously smart, and has great leadership skills. And masterful political skills. He also seems, from watching him on the news, to be a genuinely caring person who wants the best for all people in Chicago – and wants Chicago to be a great city for the next century. But much of what's happened during his tenure has garnered him votes, while leaving Chicago with more debt and fewer jobs to pay for that debt.
If you live in Chicago, or any other major city, it is worth spending time not getting lost in the beauty. Thirty years ago Detroit was full of glee about its investments in the Renaissance Center and other civic programs. Didn't do any good when they couldn't keep jobs in the city – or region. Pretty buildings surrounded by blight has been the result. Civic leaders need to be paying attention to the debt per job – and realize that without growth – more jobs – its tough for any city to remain "a great place to live and work."
So what should mayor Daley do? I'm offering up one idea, one article, from MedCityNews.com "I-Q Corridor is Stuff of Dreamers." This article discusses how some well placed funds, and not all that much given the overall budgets of the states and cities involved, could make a huge difference. The notion is to invest in creating a "health care corridor" from Minneapolis, MN through Madison, WI and Milwaukee, WI into Chicago, IL. This would bring together the resources of s
everal of the top engineering and health care schools in the USA, with several of the premier facilities (nearby Minneapolis area Mayo Clinic, Marshfield Clinic in WI, and Rehabilitation Institute of Chicago just to name 3 of many). This kind of investing is the kind of thing that could create a LOT of jobs in a growing industry. And probably for less than the cost of the proposed O'Hare expansion.
For 2 years I listened to the mayor trumpet the need for Chicago to seek being an Olympic venue. He roused up many corporate leaders to support him. And he spent millions of dollars. Even though it was never clear that the Olympics could even break even. And far less clear it would create even one job post-Olympics. So why not view the I-Q Corridor as a White Space project for Chicago? Why not use it to Disrupt old Lock-ins about the "rust belt" of manufacturing, and figure out how to generate high job growth? It is just one idea, but I can get a lot more excited about spending money on creating some sort of "corridor of job growth" than putting on the Olympics.
(PS – I recently met the City of Chicago CIO at the CIOMagazine Perspectives event in Chicago. He led a great panel with leading industry CIOs from the city. It was a great conference, well attended, with a number of thoughtful people. The event demonstrated what a great city Chicago is for business. You can read a flattering review I've my presentation written by Steven Stern at SternData.com "Innovate – Don't get Locked-In." I'll be updating that presentation which you can register to attend at the CIO 100 Conference August 22-24 near Los Angeles, CA.)
by Adam Hartung | Jun 9, 2010 | Current Affairs, Defend & Extend, In the Swamp, Innovation, Leadership, Lock-in, Web/Tech
I so enjoyed the feedback from my article on Chicago and Illinois politicians I decided to take on another sacred cow – so let's talk about education.
According to Inside Higher Education's article "In Search of Innovators" there is a distinct lack of innovation in higher education. They cite a number of studies that show colleges are much better at enrolling students than graduating them. Especially private schools and junior colleges. And, imagine this, professors and administrators are more interested in continuing their positions and jobs than what students learn ("learning outcomes" in the industry vernacular.) Seems that keeping things from changing is the highest interest for educators, rather than actually teaching anything students need to learn to compete today.
But, we all know this. We've all seen colleges that have courses taught by only one or two professors, who only teach at odd hours, only allow a few students, refuse to keep office hours, or refuse to post previous exams. We're all familiar with schools that limit the hours administration offices are open, and are intractable about the requirements for graduation – even if they were set 20 years ago.
Quite simply, Lock-in drives most schools. Programs like tenure which make it impossible to fire anyone help maintain Lock-in. And professors would rather argue about what they don't want to do than try anything new and different. For all of us who went to college, and especially for those of us with students in college, it's clear that students are a route to their money (or their parent's money) – sort of little money pumps – intended to allow the college to not change. Many colleges even brag about how little they've changed over the last 20, 50 or even 100 years! In a world where change is every present, and dealing with change is now one of the most important skills a young person needs!
According to The Chronicle of Higher Education "For Innovation to Occur, Colleges Need a Big Push, Scholars Say." This journal cites program after program where a college tried to start up something new, only to have the program fail. But of course, because there is no White Space in colleges. White Space is where you give Permission to break all Lock-ins and do whatever it takes to be successful – and then provide the resources for success to occur. This does NOT exist in a college, where none of the Lock-ins can be violated. A professor can't even decide to change from teaching in class to using video instruction or on-line training because it's not allowed. So how can something new really be tried?
Where we have seen growth in higher education has been in for-profit schools like Devry and Phoenix that have rapidly challenged tradition and moved into new education models. Traditional schools decry these institutions, claiming the quality isn't acceptable. Of course, the "quality" argument is what printers used to claim Xerox machines would never succeed. It's what DEC said about AutoCad – before DEC went out of business. It's what Kodak executives said would make digital photography a tiny market compared to film. It's what executives at Sony said would keep music customers from buying MP3 devices/music before Apple launched the iPod. Quality is the #1 excuse used by Locked-in organizations to justify why they shouldn't change.
Forty years ago it was pretty clear that if you could afford college and grad school, it was worth it. But as costs/prices have skyrocketed, and the relevancy of education in many institutions has declined, that argument has lost a lot of credibility. Increasingly students are saying they want their education to be meaningful, practical and applicable. The market has shifted. They want to study on their schedules, without giving up their incomes or struggling with horrible commutes. And increasingly, these customers are moving to the suppliers that meet their needs – rather than trying to Defend & Extend old practices.
It's ironic that in the one place where we should most be open to new models we have almost no innovation. But it's impossible without a change in the structures and processes – and that requires a willingness to create a lot of White Space. For most colleges, I'm not optimistic.
by Adam Hartung | Jun 7, 2010 | Defend & Extend, In the Swamp, Innovation, Leadership, Music
I was born in 1957. That year, a 3 bedroom track home in Wichita, KS sold for the same price as that very same track home in Palo Alto, CA – about $10,000. Of course, things have changed hugely since then. Agriculture value had declined markedly, and automation has allowed for dramatic productivity improvements, robbing the heartland states of hundreds of thousands of agricultural jobs. Without people on the farms, the need for agricultural cities supporting the farms declined. No growth, and values decline. Today that home in Wichita is worth something like $50,000.
The land where the track home once sat in Palo Alto is worth $500,000. Because the explosion of technology jobs in Silicon Valley made demand for housing much greater, and as the value of technology soared those employed in the industry saw their incomes rise, allowing for higher home values.
It all comes down to growth. Geographic areas are like businesses in that growth leads to all kinds of good things – including higher home values. People go where the jobs are. Especially good paying jobs. And that comes from investing in innovation, and the companies that develop new solutions aligned with market needs.
According to Forbes magazine in "Houston: Model City" Illinois has lost 260,000 jobs in the last decade. No wonder home values in Chicago never soared like San Jose. But it's also no mystery why the 15-20% decline in Chicago real estate seems never to be improving. When a city stops growing – well – look at Detroit.
Today Crain's Chicago Business reported "Chicago Economy Sees Signs of Life, But Rocky Recovery is Forecast." Why? Little has been done to improve job growth. Once an agricultural center (the famous stockyards of The Jungle fame) Chicago became a powerhouse manufacturing center. But over the last 15 years the city and state have done almost nothing to drive more jobs related to information or the coming biological growth wave.
Few realize that the University of Illinois is ranked as the 4th best engineering school in the world. Yet, most graduates end up "going coastal" in order to find high paying jobs. Worse, innovators who want seed money or venture capital find none from the state, as it continues struggling to support the costs of jobs and pensions related to the now-gone manufacturing economy! Spending money trying to Defend & Extend the old manufacturing base. And there is almost no angel or venture private financing, which has grown considerably on both coasts, because that is targeted largely in non-manufacturing industries. And the large companies in Chicago – from Kraft to Sara Lee to Motorola to Lucent – to even Boeing – invest nearly nothing in spin-off companies and innovators in their own back yard. Many start-ups report they have to move either west or east in order to obtain financing for their ideas and rapid growth.
For cities and states, growth is the key. It is OK that once all the cowboys ended their cattle drives in Wichita. And that the world's largest grain elevator is just southeast of town. When agriculture was the center of the universe that was a good thing. But because the leaders did not transition toward new job growth as the economy shifted, Wichita is now a backwater. It is so hard to recruit talent to Wichita that Pepsi moved the headquarters of Pizza Hut to Dallas, and most of the decisions for Beech aircraft are made at Raytheon Headquarters in suburban Boston. Face it, do you want to live in Wichita?
How quickly will people say the same thing about Chicago? Already, nobody wants to live in Detroit. If Chicago city leaders, and Illinois state leaders, can't get out of old Lock-ins to manufacturing mind sets we all may be surprised how quickly Chicago follows its sister cities into unattractive outcomes. For politicians, and corporate leaders, a focus on growth is extremely important if they want to keep their city vibrant.
For residents of Chicago, there is ample reason to be worried about the future of their infrastructure and home values.
by Adam Hartung | Jun 6, 2010 | Current Affairs, Defend & Extend, Innovation, Leadership, Lock-in, Openness, Web/Tech
According to Crain's Chicago Business, "Walgreen's Same Store Sales Nearly Flat." Walgreen's has been Locked-in for 3 decades. Build more stores. Simple. Just like WalMart did for many years. Demand seemed insatiable, until there was a store on almost every corner. Build stores, turn the product fast and keep people coming in for prescriptions or something on sale. Their Success Formula worked, and it helped them grow and grow.
But then about 3 years ago growth slowed. A lot. Raising capital got a lot harder to build these stores, and the apparent need for more stores was a lot less obvious. But Walgreen's didn't attack it's Lock-ins to the old Success Formula. Management kept defending it, and trying to extend by acquiring other chains they could convert into Walgreen's. But as we've seen in same-store results, Walgreen's has stalled. And we know that less than 7% of stalled companies ever consistently grow more than 2% ever again. Walgreen's just refuses to realize that health care programs are forcing more people to drugs over the web, and that retailing is fast moving to on-line sales for both convenience and price. So the Success Formula keeps struggling a bit more every year, with hope that things will somehow return to the "good old days."
A much better management team is in place at Netflix. Netflix has clobbered Blockbuster with their on-line model for movie rentals. You'd expect them to keep pushing hard for on-line rentals, in order to Defend & Extend the Success Formula – just like Walgreen's management has done. In spite of the fact that everyone knows DVD rental growth is threatened by more people simply downloading movies. Thus, I was delighted to see Netflix publish this chart:
Source: BusinessInsider.com
Netflix has admitted that its "core" business will peak in 2013! How great. And what's even better is that they are rapidly changing their model by investing heavily into streaming downloads. Where most management would say "we have to stop that transition, it will cannibalize our very profitable existing revenues" Netflix is planning for the change – and preparing to help the market move in that direction!
Only by allowing a streaming download White Space team to be formed 3 years ago is Netflix able to make this transition. It attacked its Lock-in to the traditional – and wildly successful model – in order to allow a team to have the permission and resources to figure out how to move into the new business profitably. That means Netflix has a really decent chance of keeping the company growing as the market shifts! Great news for investors, suppliers, employees and customers!
You don't want to be like Walgreen's management. They may have a chart showing the maximum number of stores needed in the USA – but they won't publish it. Because they have no idea how they'll migrate away from the old Success Formula. They have no Disruptions or White Space. They are fighting market transitions, and slowly seeing results falter. But the growth stall is a big sign that Walgreen's has a lot of heavy problems ahead.
You do want to be like Netflix. Be honest about where markets are headed. Quit trying to protect an old Success Formula with arguments like cannibalization. Instead, attack the old Success Formula with Disruptions and launch White Space teams designed to figure out how you can grow with the market shift – even if price points are destined to deteriorate. Long-term its the only way to survive – and thrive.
Don't forget, I will be the keynote speaker for the breakfast CIO Perspectives meeting hosted by CIO Magazine this Wednesday, June 10. You can hear more about how to be a market leader using The Phoenix Principle at the Intercontinental Hotel Chicago – please register and I hope to see you there!
by Adam Hartung | Jun 3, 2010 | Current Affairs, In the Rapids, Leadership, Openness
How should you select a new CEO? Loyalty? Historical management of an existing business? Understanding of company or industry heritage? Most of those criteria are rear view focused, even if dominant. Wouldn't the most important criteria for a new CEO be understanding growth markets and ability to drive growth?
Are you familiar with the acronym BRIC? It stands for Brazil, Russia, India & China. Four rapidly growing markets. If you aren't familiar, you really need to be. Because your future may well be determined by your ability to compete there – rather than your ability to compete in the USA. Those markets are growing, and they are rapidly becoming dominant in not only production capability, but in their demand requirements for products as well. Soon they won't only be places you consider for low cost resources – but places you need to sell if you want to succeed. The emerging middle class, with money to spend, is rapidly shifting to BRIC countries from the USA and Europe.
According to Crain's Chicago Business, in "Baker & McKenzie Elects New Leader" this $2.1B law firm just selected as its new CEO the head of its Brazilian operations. Uncharacteristic for most American businesses, yet such an obviously smart move. Already only 675 of 3,850 company lawyers – less than 20% – are in the USA! It's a global economy, and Baker & McKenzie are moving where the growth is!
Compare this with McDonald's, which could have put the leader of Chipotle's in charge – but instead sold Chipotles, with its very high growth, and kept putting long-term McDonald's employees in the top job. Or imagine the difference if GM's Board of Directors had put the head of EDS or Hughes Aircraft, subsidiaries of GM in the 1980s, in the top GM job 25 years ago. By continuously putting an "auto" executive in the top job GM ended up selling off the high growth subsidiaries, gutted the value out of Saturn, and ended up in bankruptcy court!
There is no more important job for an organization's leader than growth. Growth can cover a multitude of sins. Missed sales, lost customers, pricing issues, faulty products — all can be forgotten if you keep driving growth. Just look at Google's Schmidt and Apple's Jobs. Hats off to the Management Board at Baker & McKenzie for moving forward and putting the growth market leader into the top job. More companies should be so unconventional.
Maybe this will be another Disruption that will help Baker & McKenzie grow even faster than its competitors! Disrupting the Status Quo is an important part of growth. Recently Tom Parrish created a podcast interview, published on his EnterpriseLeadershipo.org blog, of us discussing the need to Disrupt in order to grow. Give it a listen for ideas on using Disruptions to grow in your organization!
