by Adam Hartung | Dec 8, 2009 | Current Affairs, General, Leadership
In "Uptick Catches Entrepreneurs by Surprise" the Wall Street Journal points out that defensively-minded entrepreneurs are unprepared to undertake hiring or business expansion. Simultaneously, the Washington Post reports "Obama Preparing New Push to Add Jobs". What's clear is that there are incentives to undertake hiring, and with productivity at record highs it appears hiring needs are increasing. Yet, because they were looking in the rear view mirror many small business leaders are not prepared to participate and grow.
In "A Key To A Successful Business Plan" Forbes has just published my latest column, detailing why scenario planning is the first step for any business to overcome inertia and grow successfully. Instead of planning by looking to the past, we need to spend a lot more time looking at the future. Building scenarios that help us figure out where we want to be, successfully, in 2 to 5 years – rather than trying to replay the last inning over and over. Look at how well it worked at Apple the last decade!
"Now is absolutely the best time for your business to succeed. As the
collapse of Dubai World just demonstrated, enormous market changes keep
happening. Laggards and the unwise are failing, and businesses that
position themselves smartly to take advantage of market shifts are
winning big gains. Look at Google. There's never been a better
time to move ahead by developing plans for leading your business to
dramatic growth in revenue and profits." (read more of the article here)
My previous Forbes columns focused on the many current maladies of management. Insufficient innovation caused by Lock-in and obsession with outdated best practices has far too many companies performing far too poorly today. But followers of The Phoenix Principle know that it is possible to break out of this "doom loop" and be successful at growth through innovation implementation. Scenario planning is the first step, and a powerful replacement for traditional planning which wastes far too many cycles trying to review the past.
by Adam Hartung | Dec 3, 2009 | Books, Current Affairs, In the Swamp, Innovation, Leadership, Lock-in
Seizing the White Space is a new book being launched by HBS Press (and being pre-sold on Amazon.com.) I'm very glad to read about others who are taking up the message of Create Marketplace Disruption – which first published the critical role of White Space in successfully managing any business (published in 2008 by Financial Times Press and also available on Amazon.com).
The author, Mark Johnson, is Chairman of Innosight, a consulting firm he co-founded with Clayton Christenson who's on the Harvard Business School faculty (and author of The Innovator's Dilemma also on Amazon.com). Innosight primarily focuses on consulting businesses to identify Disruptive innovations. Now the Chairman is starting to realize that implementation is as important as identifying the implementation – and he's linked it to WHITE SPACE. Great!!!
You can read his insights to how IBM and some of his other large clients have used White Space in an Harvard Business Publishinng Blog "Is Your Company Brave Enough For Business Model Innovation?" You'll quickly see that he applies The Disruptive Opportunity Matrix from chapter 10 of Create Marketplace Disruption – which is how companies have been shown to reach new businesses using White Space. It's so gratifying to read somebody else who's applied your research and come to the same conclusions!
I'm looking forward to the book. Readers please let me know what you think of the author's blog post – and the book when it comes out.
Post-script to yesterday's blog about the CEO of GM:
"Cat's Owens, Deere's Lane on short list of CEO candidates" is the AP article appearing on Crain's Chicago Business about the search for a new leader at GM. As I predicted yesterday, recruiters seem to think the ideal candidate for the job needs to be from another big industrial company. And preferably, an auto company "to understand the industry complexities." Not only is there no incentive for these highly paid executives to take a similar job, at a lot less pay, in a government funded organization — but investors shouldn't want it! GM needs change. And more change than trying to make GM into John Deere, or CAT.
John Deere has had weak results for decades. The company has been wedged between other equipment manufacturers so badly that most of its profits now come from yard tractors homeowner's buy from Home Depot. Just because the company is big, and one of the few left making equipment for which there is declining demand, is no reason to want the CEO at a turnaround like GM. Likewise, CAT is under intense competition from Komatsu, Volvo and other manufacturers who are squeezing it from all sides – jeapardizing revenues and profits. Only acquistions have kept CAT growing the last 10 years, and margins have plummeted. That leadership is not what's needed at GM either.
When will somebody speak up for the investors and start a search in the right direction? GM needs leadership that thinks entirely differently. Unwilling to accept old-fashioned industrial notions about how to lead a company. Like I recommended, go somewhere entirely different. Maybe recruit somebody from Dell or HP or Cisco that understands rapid design cycles. Or someone from Wal-Mart or Target that understands how to sell things – cheaply. Or someone from Oracle or Mozilla or Google that understands the value of software – and that the product is a lot more than the iron – so you can capture the right value. It's so disappointing to read how the "recruiting industry" is just as Locked-in as GM.
If one of you readers knows somebody on the GM Board, maybe you should send them this blog (and yesterday's) to see if they can consider searching in the right place for new leadership!
Don't miss the recent ebook, "The Fall of GM" for a
quick read on how easily any company (even the nation's largest employer) can be
easily upset by market shifts. And learn what GM could have done to avoid
bankruptcy – lessons that can help your business grow! http://tinyurl.com/mp5lrm
by Adam Hartung | Dec 2, 2009 | Current Affairs, Defend & Extend, In the Swamp, In the Whirlpool, Leadership
"Henderson Never Fit In At GM Helm" is the Detroit Free Press headline. Imagine that – the CEO of GM has been asked to leave. Industry sales are down about 24%, and GM is down 32%. Meanwhile, Mr. Henderson had proposed selling 4 divisions (Saab, Opel, Hummer and Saturn) – which were the most interesting divisions in the company – and none of those deals have closed. In fact, 3 have fallen apart completely. Only the Hummer sale to a Chinese firm is potentially going to happen. In fact, it's hard to find anything good that's happened at GM since Mr. Henderson took over. Including closing Pontiac.
When the government invested in GM this year the existing Chairman/CEO, Rick Waggoner, was forced to resign. Imagine that, after puting several bilion in a company the investor's transition team replaced the CEO who got the company into bankruptcy, almost out of cash, with no plan for recovery. Also, the Board, which had allowed GM to get into such a mess without even raising tough questions, was replaced. All seems remarkably sensible given the sorry state of the company.
The goverment led transition team, which rocketed GM through bankruptcy, cleaned the ceiling, but then selected Mr. Waggoner's hand-picked successor (Mr. Henderson) to replace him. The claim was they'd need 6 months to search for somebody new and didn't want to take the time. And they put in a lifetime monopolist, Mr. Whiteacre of AT&T, as Chairman. And a 40+ year industry veteran was made head of marketing (Mr. Lutz.) And a 40+ year company employee was kept as CFO. And we're supposed to be surprised that things aren't going well?
The Chairman and replacement CEO says of the company says "Whiteacre: GM On the Right Path," also in the Detroit Free Press. But do you believe him? What does he know about competing successfully against intense foreign led competitors who move fast? The AT&T that trained him early in his career failed horribly, never succeeding in any market outside the U.S. and getting cleaned by offshore competitors in hardware and mobile telephony. And as head of Southwestern Bell, all he did was rebuild the old "Bell system" of land-line companies – without effectively taking a leading position in any new telephony business. Or any other business. Broadband, mobile phones, digital television – can you think of any market where today's AT&T is a technology, product development, innovation or other market leader? He may have bought up a bunch of the old spun out businesses, but those are on their last legs as people give up land lines and transition to a different sort of connected future.
What's surprising is that GM isn't doing worse. But it's unlikely Mr. Whiteacre, or Mr. Henderson's replacement, will do much better. Several candidates are from inside GM – all with the same Lock-ins that allowed Messrs. Waggoner, Henderson and Lutz to perform so abysmally – despite incredible pay packages for many years. In "Selling GM's CEO Job to be Tough Task" (Detroit Free Press) headhunters claim that the industry is so complex they'll have a hard time finding someone talented who will work for the pay. Balderdash. That's only true because they are so Locked-in to traditional thinking about who should lead GM that they keep trying to recycle already overpaid CEOs who have done little for shareholders. That's not what's needed at GM.
Give us a break. Who would want an industry veteran in the job at all? And why would a recruiter hunt for somebody with a lot of industrial-era Lock-ins. GM's investors (that's the citizens of the USA and Canada,) employees and vendors need somebody who's ready to move beyond the old industry and company Success Formulas and do something very different. Willing to develop entirely new scenarios of the future which alter the competitive playing field and then Disrupt the organization in order to start doing new things. Before Tata Motors and China's Chery auto join the other companies ready to put GM into the grave.
It's amazing how "inside the box" the people who are leading GM, and advising the company, remain. Why not try to recruit somebody from Tesla to take over? The long-delayed electric Chevy Volt might well get to market faster – and in a more desirable form – if that were to happen. Or how about an heir apparent at fast growing Cisco Systems? Those people know how to pay attention to the market and move quickly to give customers what they need – profitably.
Turning around GM requires leadership that will change the Success Formula. Not try to Defend it, or Extend it with slowly evolving variations and minimal change. The whole house needs to be cleaned. The investor representatives who led the transition pulled up short of finishing their job. Only by bringing in new managers who are willing to see a very different future, unbounded by the GM legacy, can GM's competitive position be changed – and if GM tries to keep competing the way it has Toyota, Honda, Hyundai, Kia, Tata Motors, et. all will eat GM's dinner. And only by Disrupting the old Lock-ins, using White Space teams to develop new solutions, can GM regain viability.
by Adam Hartung | Nov 29, 2009 | Current Affairs, Disruptions, In the Rapids, Leadership, Openness, Web/Tech
Cisco is an admirable company. In the high tech world, few survive half as long as Cisco. Even fewer maintain growth and profitability. Cisco's willingness to obsolete its own products has been a stated objective which has helped the company keep on top of new technologies and products, growing to $36B. It's Disruptive when you are compelled to obsolete your own products. Most companies make the mistake of trying to sell products too long, trying to extend profitability by selling the product while winding down development. They fear launching new products which might "cannibalize" an existing product. As a result, competitors leapfrog their products and by the company admits things are obsolete it's too late – and the business is in deep trouble.
Now Cisco is working to keep growing by utilizing a Disruptive organization model. Headlined "Cisco's Extreme Ambition" has BusinessWeek overviewing the distribution of decision-making power to 48 different councils. Instead of a traditional hierarchy, the councils can make decisions about products themselves, thus shortening the decision process and the time to get new products to market or make acquisitions.
Cisco competes in at least 30 markets. Staying on the leading edge in that many businesses requires rethinking how to organize. Especially when you know it is critical to keep Disrupting your organization to bring forward new products which can keep you competitive. By distributing decision-making this organizational model overcomes traditional Lock-ins that could slow down Cisco
- Now strategy can be developed for the markets, built on multiple scenarios (perhaps even competing scenarios), overcoming monolithic strategy processes that are too confining and do too much option narrowing
- Hiring, including executives, won't require everybody look alike. Different kinds of people allows for alternative thinking and different sorts of decision processes – as well as different decisions
- The structure can form to the market needs – rather than being dictated from an insider perspective. By organizing to the market need each council is more likely to keep close to emerging needs
- Investments are made at a lower level, reducing the "big bang" investments that Lock-in organizations to monolithic technologies or products
- Internal experts don't gain too much power, which often limits the technologies and markets pursued.
Maintaining its willingness to remain Disruptive is critical to the ongoing success of Cisco. This new organization model is allowing Cisco to enter the lower margin server business, for example, which would be (and has been) escewed by a more centralized decision making. By focusing the organization on markets, Cisco can keep finding new ways to compete — and set new metrics for measuring itself market-by-market. And Cisco can more quickly and easily set up White Space projects to continue pursuing new market opportunities. All it has to do is add another council!
by Adam Hartung | Nov 27, 2009 | Current Affairs, General
So while most Americans are taking the traditional 4 day Thanksgiving holiday another debt crisis has emerged. Easy enough for most Americans to miss the news, if only because they are vacationing or shopping. But this debt crisis involves a company in a foreign land, so most Americans will say "Why should I even care? This doesn't involve my bank." That Dubai World looks to be unwilling to repay some of its debt, and will make no payments for 6 months, could be something a lot of Americans simply ignore – if for no reason than they simply can't link it to their work or life.
Dubai World is a very large real estate developer, owned by the Dubai government. The banks that loaned Dubai World billions were more European than American. Yet, we live in a global economy. When things happen elsewhere, they have an impact on U.S. businesses and citizens.
American companies depend upon international banks to make local currency loans for their offshore operations. And American companies depend upon businesses, and individuals, in foreign countries to borrow money in order to spend on American company goods. With the U.S. economy in the doldrums, companies that have robust offshore businesses selling to people in the foreign markets have done considerably better than most U.S. focused companies. But when these offshore banks don't get paid by Dubai World, they have to take write-downs. And if they don't get payments, the bank's reserves dwindle. As a result, these banks can't make loans – just like we've had happening in the USA since Bank of America, Citibank, etc. almost collapsed – due significantly to large real estate loan defaults.
Additionally, the U.S. government depends upon offshore entities – banks, businesses and individuals – to buy U.S. bonds. Without offshore buyers, the U.S. government could not fund its recurring debts. When a big corporation like Dubai World, part of a government backed with oil money, runs out of cash it causes a chain reaction of people not making loans. Not investing. And that can have a big impact on U.S. bond sales. When the government can't sell bonds it has to increase the interest rate – which spells a worse economy or inflation. So scared debt investors can have a quick impact on U.S. interest rates – because when U.S. Treasury bond rates go up all other rates, from municipal bonds to commercial loan rates to car loans, have to go up as well.
And this is why everyone needs to know about, and pay attention to, a big real estate developer in Dubai "restructuring" its debt and stopping payments. In a global economy, the impact will be felt by Americans.
- This action can further exacerbate real estate price deflation – a major cause of economic weakness and wealth destruction globally.
- If foreigners buy more stuff, Americans who sell this stuff will see lower sales – and that leads to less employment.
- The debt collapse in America is causing huge problems for small and medium-sized companies to stay in business. European banks trimming their loans will have similar negative impact on smaller businesses in many countries rolling-up to substantially larger population than America.
- Higher interest rates further dampen any American recovery.
- This could lead to less money available for lending in the USA, and a lot of additional lost jobs.
Scenario planning is not about predicting a collapse of Dubai World. It's impossible to forecast such specific events with any accuracy. But that doesn't mean U.S. companies shouldn't be spending a lot more energy thinking about global impacts on their business. What happens by central banks, big companies and even real estate developers around the globe is important. In prior years, when these collapses happened (Mexico, Korea, Japan) the USA stepped in to stop the collapse from cascading. But the U.S. government is no longer in position to thwart future declines.
It's important all companies undertake scenario plans that consider the impact of higher international interest rates, changes in currency valuations, import/export restrictions or tariffs and country-by-country unemployment rates. Our businesses are increasingly dependent upon offshore companies as our suppliers, customers and investors. If your scenario plans aren't considering the impact of global changes, like the disaster now happening to European banks, you may well find yourself wondering what hit you in 2, 4 or 6 months when the impact hits home.
by Adam Hartung | Nov 22, 2009 | Defend & Extend, General, Openness
There's no doubt that many more people are looking for jobs than there are those hiring. As a result, organizations offering jobs can find themselves flooded with applicants. Several are complaining about how hard it is to find "the right person." Reality is most companies have been struggling to find "the right person" for a long time. It just wasn't as obvious.
According to The Wall Street Journal "To Find Best Hires, Firms Become Creative." Yet, these creative ideas are largely about finding new ways to restrict the number of people getting into the hiring funnel. Increasingly, asking potential employees to carry more cost of the hiring process. And often putting employees through a longer (sometimes days) battery of interviews. Yet, it is unclear that these new hurdles are helping organizations hire "the right person" any more often.
In today's changing marketplace, "the right" people are often those who can help the organization adapt. They think laterally about what is happening in the market, and how to develop creative solutions. They rely less on their historical experience, and more on their scenarios about the future. They pay a lot of attention to competitors, and push for decisions that leapfrog competitive actions. And they aren't afraid to Disrupt historical ways of behaving and recommend white space projects where new things can be tried. They don't try to Defend & Extend the company's Success Formula. Instead they seek improved results.
But that is not how hiring processes are designed. They focus on developing tight requirements. With so many applicants now, the focus is on making very, very tight requirements so resumes can be sifted efficiently for specific experiences. But this approach means hiring requirements are based on what history has dictated was needed. They reflect what the company used to do, how it used to hire, what previous employees did that supported the old Success Formula. Job requirements rarely look forward, instead they try to find homogeneous individuals who are like people that succeeded in the past. Usually by reinforcing the old Success Formula. They are out to find candidates who want to Defend & Extend the Success Formula, not evolve it to better results.
Most hiring organizations even have an "ideal prototype candidate." This goes down to specifying the type of degree, and the university attended. It may well include specifying a geography where the candidate was raised. Common certifications. A preferred set of previous jobs that are like what others have been through. These approaches are all about yielding candidates that look alike – not different. In most companies, an employee from Google. Amazon or Apple – very successful companies – could not get through the first round.
Then the prolonged interviews. These simply force candidates to be like the people doing the interviews. Rafts of studies have been done on interviewing, and they always return the result that interviewers like people who are like themselves. The interviewer has a sense of what they think made them successful – education, experience and problem solving approach. And they simply look to see if the candidate is like them. If the interviewing goes on for days, they even look to see if the candidate orders food like them, drinks like them, has the same approach to mornings or working late. The long interview approach merely ensures that candidates are more likely to be just like existing employees.
These approaches are about finding candidates that have a good "initial fit." But if the organization is in need of adapting to changing market conditions, is that the employee you really need? All the people at the old AT&T were much alike – but that company still didn't survive deregulation. The people at most airlines are much alike, yet outside of Southwest the airlines don't make any money. GM had an "ideal employee profile" yet the people leading the company could not deal with market shifts that sent the organization into bankruptcy.
Today your organization might well need new employees who are not like previous employees. They may well need different education. Different experiences. Work in different industries. And different approaches to problem solving. With so many available candidates, is your approach to hiring helping you find people who can help your company grow, or is it trying to find the kind of people who reinforced the old Success Formula? Are you hiring for the future, or searching for people like you hired in the past?
by Adam Hartung | Nov 20, 2009 | Current Affairs, General, Leadership, Lifecycle, Lock-in, Weblogs
"The Illusion of Brand Control" is a great article at Harvard Business Publishing. Andrew McAfee, who is a research scientist at the MIT Sloan school Center for Digital Business, offers the insight that in today's market it's not possible for a business to "control" its brand. "New media" like the internet and Facebook are bi-directional. People no longer just absorb a crafted message, they are able to push back. Bloggers and internet commenters can have more influence on a brand than traditional advertising and PR. As a result, a business's brand becomes the result of what others say about it – not just what the owner says.
And this mirrors what is happening across business today. As we've moved from the industrial to the information economy, success is no longer about amassing and controlling assets. Scale advantages have disappeared, with scale accessible to anyone who has a browser and a credit card. Where the business leader of 1965 likely felt success required controlling everything from employees and facilities to the brand message, in 2015 success is about adapting to rapidly shifting market requirements.
If you want your brand, and your business, to grow and be profitable, you have to realize the dramatic limits of "command and control." That approach works in very static, clearly defined environments. Like the military. Businesses today no longer operate in slow moving static environments with high levels of regulation and rigid business limits and significant entry barriers. Businesses today operate in complex, highly adaptive systems. Competitors can move fluidly, quickly, globally to offer new solutions and react to changes.
Today's leaders have to recognize that many of the most important impacts on their business (or brand) come from outside their organization. Completely out of management's control. Being Locked-in on what you know how to do has less and less value when you might well have to react very quickly to an external event in an entirely new way in order to maintain product position and growth. Just ask the leaders at Circuity City, who could not adapt quickly enough and saw their company fail. Adaptability to shifting market requirements becomes key to sustaining growth. Competitive advantage is not created by seeking entry barriers. Rather, competitive advantage now comes from understanding market shifts, and moving rapidly to position yourself in the right place – over and over and over.
Executives who feel like they have "control" of their business are under an illusion in 2009. And that has been demonstrated time and time again as this recession has driven home a plethora of market shifts. There are many things managers can control. But many of the most important things to success are completely out of management's hands. Thus, the ones who succeed aren't trying to control their brand, or business. Instead they are building organizations that have great market sensing and are quick to react. Just compare GM to Google and you'll see the gap between what worked in 1965, and what works 45 years later.
by Adam Hartung | Nov 19, 2009 | Current Affairs, General, Innovation, Leadership, Lifecycle, Lock-in
According to Marketing Daily "Electric Cars Set to Tiptoe Into Showrooms." Nissan is supposed to introduce the Leaf. Chevrolet, Toyota and Ford are all supposed to begin offering a plug-in hybrid. None have announced prices, but all indicate they intend to price them at the high end – more costly than a like-sized traditional gasoline powered automobile. One reason for the higher price is that dealers normally expect to make 20% of a traditional vehicle's price in high-margin maintenance and repairs, and because these electrics won't provide that revenue and margin the manufacturers believe the dealer has to make more on the initial auto sale – or they won't sell them.
The manufacturers themselves are not optimistic about sales. They are targeting wealthy early adopter consumers for whom climate change and environment are critical issues. Citing a lack of infrastructure for recharging, and battery technology that takes too long to recharge, the manufacturers are non-committal on how many cars they will make – preferring to wait and see if demand develops.
Sort of sounds like a self-fulfilling prophecy, doesn't it? This approach is very unlikely to succeed, because they manufacturers are trying to sell electric cars to people who are already well served by existing petroleum powered traditional and hybrid cars. These people have little or no reason to pay extra for new technology, so will be a hard sell. And with built-in excuses for the technological limits, the manufacturers aren't being promotional. Simultaneously, the manufacturers are more worried about the impact on dealers than the success of the vehicles.
It's not the product that's wrong, its the approach. These manufacturers are trying to launch a very different product, that really needs to appeal to very different customers. But they are trying to do it in the totally traditional way. Same brand names, same distribution, same sales people, same marketing, same financing – same everything. They are trying to have the existing organization, with all its Lock-ins, do something very different. And that never works.
Electric cars are ideal for White Space team introduction. White Space projects are given permission to do what it takes to make a project succeed. They are given permission to operate outside the Lock-ins. It's that permission to find the right answer, to find the market-based solution, which allows the innovation to develop a new Success Formula that meets market needs.
Electric cars are not a solution for the way automobiles have been used in the past. To succeed requires appealing to different scenarios about the future. Electric cars need to appeal to people for whom a traditional auto has limitations they don't like, and instead the electric auto is something they want. People who are underserved by the current products. The electric car will succeed with buyers who have reasons to want one. For whom the electric car is the solution to their problem – not a second-rate, overpriced solution to an old need.
Cell phones didn't succeed because they were purchased by people who already had wired phones with long distance. Early cell phones, for all their expense and weakness, were bought by people who had a real need for mobile telephony. For years, mobile phones were used only by a small group of people. It took years for cell phones to become commonplace. We all now know younger generation people who have no land line phone – for whom the mobile phone has displaced a traditional phone. But the cell phone didn't succeed by trying to be a high-priced alternative to the existing solution, it was a product that was desired by people for the advantages it offered – even when it was expensive, big and had limited range. Only over time did the cell phone evolve to a new Success Formula that is making traditional phones obsolete – and leaving traditional phone companies with a very hard transition.
Electric cars need an entirely "greenfield" start. Those responsible need to be chartered to "make this work" in an environment where failure is not an option for them. They need to believe their careers depend on finding the right solution, and developing it. And they need permission to do what the market requires. They need to be able to have a stand-alone brand, and its own distribution system, and unique marketing. They need the White Space with permission to do what it takes, and the resources to accomplish the task. Free from worrying about dealer reaction, marketing impact on traditional autos in the brand, or requirements to solve "infrastructure issues."
Imagine urbanites who want cars just for short hauls. Think about the ZipCar business in most major U.S. cities as the target buyer, rather than selling cars to individuals. Or think about other markets – outside the USA. How about places like Taiwan or Malaysia where distances are short and traffic is bad and much fuel is wasted just sitting. Towns like Tel Aviv. Maybe as delivery vehicles in urban areas where traveling is rarely more than 200 miles in a day because most time is spent sitting at lights – or making the delivery. There are places for which an electric car could be an ideal solution – just as they are today. Where a head-to-head match-up favors the electric vehicle.
Secondly, who says a traditional dealer is the right way to sell this vehicle to these people? Maybe it should be sold on-line, with somebody delivering the vehicle to the buyer and offering personalized instruction? Maybe it should be sold out of a Home Depot, or Staples, or Best Buy like an expensive appliance or computer? It's not clear to me that people, or companies, have much value for auto dealers – so perhaps this is the time to change the distribution system entirely — and perhaps take a lot of cost out of auto distribution.
There is a market for electric cars. Today. Just as the technology exists. And if White Space teams were allowed to find and develop that market, we could have a robust electric car industry in just a few years. But it won't happen via traditional approaches, from companies Locked-in to their traditional ways. Those companies only see obstacles, not opportunity. Without White Space, this will be just another example of a technology delayed.
But it does leave the door wide open for a company like Tesla. Tesla is a stand-alone company pioneering the electric car market. They are operating in White Space. Easy as Tesla is now to ignore, they may prove to be the upstart like Southwest Airlines that succeeds and makes money while the traditional industry players keep struggling.
by Adam Hartung | Nov 18, 2009 | Current Affairs, Defend & Extend, Leadership, Travel
Most Americans pay no attention at all to the value of the U.S. dollar. As an island nation, and largely an importer of goods, all most Americans care about is how much something costs at the store. Since the vast majority of Americans never set foot on foreign soil in any year, they just don’t think about how many Euros or Yen you get for a dollar.
But they should. We now live in a global economy. People in foreign countries have a direct impact on the lives of Americans every day. And they watch the value of the dollar constantly. Just look at outsourcing – the transfer of jobs offshore. Or the cost of products at Wal-Mart – mostly made in foreign countries (China) in foreign currency values. All scenarios of the future, all planning, has to include scenarios for the value of America’s currency. And that is true for all companies, in all countries, because the U.S. dollar is the primary basis for pricing everything in the world.
There’s a great chart showing the U.S. dollar value at FXStreet.com. This shows that in 2001 the dollar compared to other currencies was at a value of 120. Since then the value has plummeted to about 75 (there was a rally earlier in 2009, but almost all of that has been given up.) This means if you went to Paris on holiday in 2001 you could buy a Euro for $.75. So taking your own personal “National Lampoon’s European Vacation” was affordable. Now, a Euro costs you almost $1.50. So, it costs twice as much. With all that value loss happening prior to 2009 (during the previous administration and the previous stock market highs.)
So you don’t plan to go to Europe on vacation, you say. That’s a good thing, because you probably can’t afford it. But, as American homes go into foreclosure, who do you suppose is buying them? To foreigners, American houses are extremely cheap. In coastal areas of Florida, as many as half of all home sales are to foreigners – and upwards of 90% of those are cash transactions – no loan! While Americans struggle with mortgages, others are buying American houses as vacation spots.
One way to think about this is how many ounces of gold does it take to buy a house? Gold is a store of value, like a house. Its limited supply and abundant uses to allow it to remain a good measure of value. InvestmentTools.com has a great chart showing the value of U.S. houses. in 1985, as America was crauling out of the horrible 1982 recession it took about 280 ounces. In 2000, the value peaked at about 780 ounces – so by global standards, American houses had tripled in value. But today, the value has declined again to 280! So globally, we’re no more wealthy now than we were at the worst recession since the Great Depression – and value is falling as we’re still in a major recession.
If Americans have trouble paying their child’s college fund, that’s not the problem for students from offshore. Many are so relatively wealthy they now can buy condo’s for $200,000 or $300,000 to live in while attending schools. They relative wealth of their offshore parents means that there are dramatically more offshore students who find an American education affordable – while Americans are finding education increasingly unaffordable for their own citizens.
To someone from outside America, the country is on sale! Because everything in America costs half – or often far less than half because America has no excise or Value Added Taxes. So people from Europe, Asia and the middle east fly to New York to go shopping – and save enough to pay for the plane ticket! Some even fly to America to buy goods from their own country because the products are cheaper priced in dollars and without the taxes!
And actually, America is acting just like a business facing foreclosure. Debts have been mounting. Each year, America sells more assets in order to pay interest on the debt. In this bad economy, as income has declined, even more asset sales happen. States are selling highways to foreigners in order to get cash today in exchange for road tolls the next 100 years. Or in Chicago – the sale of all the parking meters. Those in other countries are buying fire-sale assets to give Americans the money just to pay the interest.
Meanwhile, the debt keeps rising. Each month sales of bonds exceeds redemptions. For those buying the bonds offshore, this is pretty amazing. If a bond yields 3% (or say even 5% of 6%) that value has been overwhelming wiped out by the decline in the principle value. Remember, the dollar value of those bonds has dropped by 50% just in this decade! There’s no way to recover that through interest collection.
So why do these offshore folks buy the American bonds? It’s kind of like townspeople buying bonds to prop up a local business. If the local plant goes bust, then the jobs go away. Then the restaurant has to close shop. Then the bank has to close because the plant can’t repay its loan. So the people keep buying plant bonds to keep it open – to forestall an imminent disaster. And because they hope that the plant will someday start making enough money to repay the bonds. That it will someday see employment rise, not fall. And the restaurateur, and the machine shop owner, and the car dealer all keep buying bonds to keep the plant going. The American central bank calls those folks who buy U.S. bonds the central banks of China and other countries.
How low will the dollar go? If people quit buying bonds, really low. Increasingly, those who produce commodities like oil and gas are asking to price commodities in something other than dollars. They don’t like seeing their prices halved due to currency devaluation. If businesses don’t have to trade in dollars, then they don’t need the dollar value to remain high – and they lose interest in buying bonds to prop it up.
American’s don’t pay attention to other currencies either. So most don’t remember the 1994 Mexican Peso crisis. Mexico had incurred a huge debt, and was selling more debt from the 1970s into the 1990s. The primary source of revenue had been oil and gas sales, but prices collapsed in the 1980s, and production failed to keep up with that from other countries. There was more spending than revenue collection. When the Mexican government stopped propping up the Peso, it dropped more than 50% in a week! Currency devaluations can happen fast, and can be devastating, because suddenly a flood of buyers become sellers – reversing position and cratering the value. To keep the government and economy from collapsing the U.S. central bank stepped in to buy bonds and stop further devaluation.
This blog is sure to not be one of the more popular. Because most Americans simply don’t care about the dollar’s value
– and even more don’t understand anything about currency values. Americans are so used to assuming that the dollar will be the world’s currency, and that it will be propped up by foreign debt buyers, that they simply expect the future to be like the past.
I’m not predicting the future value of the dollar. But what’s clear is that the dollar’s value is really important to the future of your business. Whether in America, or not. What kills businesses isn’t the things management knows and plan for, it’s what they don’t plan for. And most American business planners pay very little attention to the value of the dollar. But having a robust scenario around the future value of the dollar could prove to be the difference between many winners and losers in as quick as 12 to 24 months. There are plans that can leverage these shifts in ways to create enormous value.
Is your company, as it prepares budgets for 2010, prepared to deal with a dramatic shift – up or down – in the value of the U.S. dollar? Have you considered the impact, and developed contingency plans? Do you have White Space projects that will leverage currency shifts? If you’re planning from the past, you may well not be prepared for a very different future if the U.S. dollar’s value shifts dramatically. Especially if it continues falling.
by Adam Hartung | Nov 13, 2009 | Current Affairs, In the Swamp, Leadership, Lock-in
"Rupert Murdoch to remove News Corp's content from Google in months" is the London Telegraph headline. Claiming that Google gets a "free ride" on the newspaper content, the News Corp. Chairman claims he can block Google from referring his content – and that the conclusion will be bad for Google because it will hurt the search engine's ability to add value. He also expects that his newspaper and its website will do fine without Google, including doing fine without any Google-placed ads on the newspapers' web sites.
Really.
Ever heard the phrase "cutting off your nose to spite your face?" It means that you get so mad at something, or someone, that you take a stupid action just trying to get even. Given the gruffness of Mr. Murdoch, I mashed that phrase up into my own explanation of his threat – that he's trying to bite off his own nose.
There is no changing the shift to on-line news readership. People will never again return to reading print-format newspapers. Print demand will continue to decline. Simultaneously, nobody will revert to searching for news on their own – such as by browsing around any particular web site. Users now know they can find news with the aid of powerful search engines, like Google, that deliver them directly to the page that tells them what they want to know. And advertisers now know that they must use services like Google to deliver ads to the pages that present their most likely targets. Advertisers are not willing to accept "views" alone, now knowing that ads can be targeted to specific readers associated with specific page content. Those shifts have happened, and are now trends moving forward. No hoping for "the good old days" will change these shifts.
Google doesn't need the News Corp. newspaper output to succeed as a search engine nor News Corp's pages for its ad placement business. There is so much access to news, from press releases (source news) to bloggers to other newspapers that any individual news source is relatively irrelevant. And Google can place all of its advertisers' ads – whether News Corp. makes its pages available to Google or not.
Simply, News Corp. needs Google. Without Google page referrals, visitors will drop. Lower visitors means fewer ad views means lower revenue. No news organization can stand lower revenues. Simultaneously, News Corp. needs as many advertisers competing for its ad space as possible. To turn down any ad placement service will only hurt revenues further.
Mr. Murdoch said in the article "I don’t believe the media industry can continue to exist in this way." He's right. Media companies are going through a major market shift. But trying to walk away from the #1 search engine and #1 ad placement company is —– foolish. And Mr. Murdoch knows this – because News Corp. owns MySpace and other internet properties. Google may not need News Corp., but News Corp. definitely needs Google
