by Adam Hartung | Nov 12, 2009 | Current Affairs, Defend & Extend, In the Rapids, In the Swamp, Innovation, Leadership, Openness, Television, Web/Tech
The Myth of Market Share by Richard Minitar is one of those little books, published in 2002 by Crown Business, that you probably never read – or even heard of (available on Amazon though). And that's too bad, because without spending too many words the author does a great job of describing the non-correlation between market share and returns. There are as many, or possibly more, companies with high profitability that don't lead in market share as ones that do. Even though the famous BCG Growth/Share matrix led many leaders to believe share was the key to business success. Another something that worked once (maybe) – but now doesn't.
"Moto Looks to Sell Set-Top Box Unit" is the Crain's Chicago Business headline. Motorola's television connection box business is #1 in market share. But even though Motorola paid $11B for it in 1999, they are hoping to get $4.5B today. That's a $6.5B loss (or 60%) in a decade. For a business that is the market share leader. Only, it's profitability + growth doesn't justify a higher price. Regardless of market share.
Kind of like Motorola's effort to be #1 in mobile handset market share by cutting RAZR prices. That didn't work out too well either. It almost bankrupted the company, and is causing Motorola to sell the set top box business to raise cash in its effort to spin out the unprofitable handset business.
On the other hand, there's Apple. Apple isn't #1 in PCs – by a long shot. It has about a 14% share I think. Nor is it #1 in mobile handhelds, where it has about a 2.5% market share. But Apple is more profitable than the market leaders in both markets. Today, Apple's value is almost as high as Microsoft – historically considered the undisputed king of technology companies.
Chart source Silicon Alley Insider 11/12/09
While Microsoft has been trying to Defend & Extend it's Windows franchise, its value has declined this decade. Quite the contrary for Apple.
Additionally, Apple has piled up a remarkable cash hoard with it's meager market shares in 2 of 3 businesses (Apple is #1 in digital music downloads – although not #1 in portable MP3 players).
Chart Source Silicon Alley Insider 11/11/09
"While Rivals Jockey for Market Share Apple Bathes in Profits" is the SeekingAlpha.com headline. Nokia has 35% share of the mobil handheld market. It earned $1.1B in the third quarter. With its 2.5% share Apple made $1.6B profit on the iPhone. While everyone in the PC business is busy cutting costs, Apple has innovated the Mac and its other products – proving that if you make products that customers want they will buy them and allow you to make money. While competitors behave like they can cost cut themselves to success, Apple proves the opposite is true. Innovation linked to meeting customer needs is worth a lot more money.
Bob Sutton, Stanford management professor, blogs on Work Matters "Leading Innovation: 21 Things that Great Bosses Say and Do." All are about looking to the future, listening to the market, using disruptions to keep your organization open, and giving people permission and resources to open and manage White Space projects.
If your solution to this recession is to cut costs and wait for the market to return – good luck. If you are trying to figure out how you can Defend & Extend your core – good luck. If you think size and/or market share is going to protect you – check out how well that worked for GM, Chrysler, Lehman Brothers and Circuit City. If you want to improve your business follow Apple's lead by developing thorough scenario plans you can use to understand competitors inside out, then Disrupt your old notions and use White Space to launch new products and services that meet emerging needs.
by Adam Hartung | Nov 9, 2009 | Current Affairs, Defend & Extend, General, In the Swamp, Innovation, Leadership, Lock-in
Leadership
Why The Pursuit Of Innovation Usually Fails
Adam Hartung,
11.09.09, 04:11 PM EST
It's not what we're trained for as leaders or how our businesses are set up to work.
Forbes published today "Why the Pursuit of Innovation Usually Fails." "Most companies everywhere are struggling to grow right now. With their
revenues flat to down, they're cutting costs to raise profits. But
cutting costs faster than revenues decline is no prescription for
long-term success….."
The article goes on to discuss how from Gary Hamel to Jim Collins to Michael Tracy and Fred Wiersema to Malcolm Gladwell to Tom Peters — managers have been taught to identify their "core" and "focus" upon it. Whatever that core may happen to be, the gurus have said that all you need to do is focus on it and practice and in the end – you'll win.
But unfortunately we all know a lot of very hard working business leaders that focused on their core, working the midnight hours, sacrificed pay and bonuses, and kept trying to make that core successful — only to end up with a smaller, less profitable, possibly acquired (at a low price) or failed business. While the best practices make sense when looking at past winners, reality is that they were followed by a lot of people that didn't succeed. Their best practices give no great insight to being successful. They are of no more value than saying "treat people well, be honest, don't lie to customers, don't break the law, don't get caught if you do, show up at work." Nice things to do, but they don't really tell you anything about how to succeed.
The mantra today is for innovation, but thirty years of these "best practices" now stand as a roadblocks to doing anything more than defend & extend the current business. Only by understanding the objective to defend & extend what already exists can you explain how can one of the world's largest consumer product companies can call Tide Basic an innovation.
Enjoy the read, and please comment!
by Adam Hartung | Nov 5, 2009 | Current Affairs, Disruptions, In the Rapids, Innovation, Leadership, Music, Web/Tech
$150billion. That's a lot of money. And that's how much shareholder value has increased at Apple since Steve Jobs returned as CEO. Can you think of any other CEO that has aided shareholder wealth so much? Do any of the cost cutting CEOs in manufacturing companies, financial services firms, or media companies see their share prices rising like Apple's?
Fortune has declared this "The Decade of Steve" in its latest publication at Money.CNN.com. Such over-the-top statements are by nature intended to sell magazines (or draw page hits). But the writer makes the valid point that very few leaders impact their industry like Apple has the computer industry, under Jobs leadership (but not under other leaders.) Yet, under his leadership Apple has also had a dramatic impact on the restructuring of two other industries – music and mobile phones/computing. And a company Mr. Jobs founded, Pixar, had a major impact on restructuring the movie business (Pixar was sold to Disney, and has played a significant role in the value increase of that company.) So with Mr. Jobs as leader, no less than 4 industries have been dramatically changed – and huge value created for shareholders.
No cost-cutting CEO, no "focus on the core" CEO, no "execution" CEO can claim to have made the kind of industry changes that have occurred through businesses led by Steve Jobs. And none of those CEO profiles can say they have created the shareholder value Mr. Jobs has created. Not even Bill Gates or Steve Ballmer can claim to have added any value this decade – as Microsoft's value is now less than it was when the millenia turned. Despite the relative size difference between the market for PCs and Macs (about 10 to 1) today Apple has more cash and marketable securities than the entire value of the historically supply-chain driven Dell Corporation.
Mr. Jobs is constantly pushing his organization to focus on the future, about what the markets will want, rather than the past and what the company has made. It was a decade ago that Apple created its "digital lifestyle" scenario of the future, which opened Apple's organization to being much more than Macs. Jobs obsesses about competitors and forces his employees to do the same, to make sure Apple doesn't grow complacent he pushes all products to have leading edge components. Mr. Jobs embraces Disruption, doesn't fear seeing it in his company, doesn't mind it amongst his people, and works to create it in his markets. And he makes sure Apple constantly keeps White Space projects open and working to see what works with customers – testing and trying new things all the time in the marketplace.
Following these practices, Apple pulled itself away from the Whirlpool and returned to the Rapids of Growth. Almost bankrupt, it wasn't financial re-engineering that saved Apple it was launching new products that met emerging needs. Apple showed any company can turn itself around if it follows the right steps.
As companies are struggling with value, people should look to Apple (and Google). Value is not created by cost cutting and waiting for the recession to end. Value is created by seeking innovations and creating an organization that can implement them. Especially Disruptive ones. Whether he's the CEO of the decade or not I can't answer. But saying he's one heck of a good role model for what leaders should be doing to create value in their companies is undoubtfully true.
by Adam Hartung | Nov 4, 2009 | Current Affairs, Defend & Extend, Disruptions, Food and Drink, General, In the Swamp, Leadership
Walgreens is apparently going through a dramatic change in leadership. Drug Store News reported that the top 2 folks, including the top merchandiser, have left Walgreens in "." The article discusses the "old guard" departure and arrival of younger, new leaders. The magazine clearly paints this as a Disruption.
But I have my doubts. There's no discussion of future scenarios in which Walgreens is going to be a different company – not even a different retailer. There's no discussion about competitors, and how more prescription medications are being purchased on-line from new competiors, or even how Walgreens intends to be very different from historical brick-and-mortar competitors like CVS or Rite-Aid. No discussion about how the company might need to change its real estate strategy (being everywhere.)
There's really no discussion about changing the Walgreens' Success Formula. It's Identity has long been tied to being first and foremost a "drug store" (or pharmacy). A market which has been attacked on multiple fronts, from grocers and discounters like WalMart entering the business to the insurance mandates of buying drugs on-line. To be the biggest, Walgreens' strategy for several years has been tied to opening new stories practically every day. It was shear real estate domination – ala Starbucks. Although it's unclear how profitable many of those stores have been. Tactically Walgreens has moved heavily into cosmetics as a high turn and margin business, then items it an bring in and churn out very quickly – such as holiday material (Halloween, Thanksgiving, Christmas, Valentines Day, St. Patrick's Day, etc.), shirts, sweatshirts, on and on – stuff brought in then sold fast, even if it had to be discounted quickly to get it out the door. Churn the product because the goal is to sell the customer something else when they come in for that prescription.
There is no discussion of these executive changes creating in White Space to develop a new Walgreens. Without powerful scenarios drawing people to a new, different future Walgreens – and without a strong sense of how Walgreens intends to trap competitors in Lock-in while leveraging new fringe ideas to grow – and without White Space being installed to develop a new Success Formula to make Walgreens into something different —– this isn't a Disruption. It's a disturbance. Yes, it's a big deal, but it's unlikely to change the results.
Reinforcing that this is likely a disturbance the article talks about how the company is starting to obsess about store performance – down to targeting every 3 foot section for better turns and profits. The new leaders plan to work harder on supply chain issues, and store plannograms, to increase turns. They intend to put more energy into prioritization and reworking promotions. In other words, they want to execute better – more, better, faster, cheaper. And that's not a Disruption. It's just a disturbance. This may make folks feel better, and sound alluring, but experience has shown that this is not a route to higher growth or higher sustained profitability.
I don't expect these management changes to remake Walgreens. Walgreens has been a pretty good retailer. The Success Formula worked well until competitors changed the face of demand, and market shifts wiped out access to very low cost capital for building new stores. The Success Formula's results have fallen because the market shifted. Refocusing energy on being a better merchandiser won't have a big impact on growth at Walgreens. The company needs to rethink the future, so it can figure out what it needs to become in order to keep growing!
Real Disruptions attack the status quo. They don't focus on better execution. They attack things like "we're a pharmacy" by perhaps licensing out the pharmacy in every store to the pharmacist and changing the store managers. Or by selling a bunch of stores to eliminate the focus on real estate. Or by promoting the Walgreens on-line drug service in every store, while cutting back the on-hand pharmacy products. Those sorts of things are Disruptions, because they signal a change in the Success Formula. Coupled with competitive insight and White Space that has permission to define a new future and resources to develop one, Disruptions can help a stalled company get back to growing again.
But that hasn't happened yet at Walgreens. So expect a small improvement in operating results, and some financial engineering to quickly make new management look better. But little real performance improvement, and sustainable growth, will not occur. Nor will a sustained higher equity value.
by Adam Hartung | Nov 3, 2009 | Current Affairs, Defend & Extend, General, Leadership, Lifecycle
"TribCo Papers Will Try Ditching AP to Cut Costs" is the Crain's Chicago Business headline. Tribune is in bankruptcy because it is losing so much money trying to sell newspaper ads. Subscribers are disappearing as more people get more news from the internet, so advertisers are following them. So what should Tribune Corporation do? You might think the company would focus on other businesses in order to go where customers are headed.
But instead Tribune has decided to stop buying AP content for it's newspapers in a one week test. Not sure what they are testing, as one week rarely changes a subscriber base. What they know is that AP content has a cost, and Tribune is so broke it can't afford that cost. Seems Tribune is redefining its business – to selling papers rather than newspapers. They've dropped much of their content the last 2 years, so now they are going to drop the news as well. This is an example of trying as hard as they can to keep the old business alive, even after it's clear that Success Formula simply won't make money. In this case, we're seeing management ready to throw the baby out with the bathwater trying to keep a hold on the tub.
Interestingly "Vivek Shah Leaving Time Inc. to Go 100% Digital" is the MediaPost.com headline. Mr. Shah headed the digital part of Time, and he's decided to throw in the towel personally, promising that he is going to a 100% digital operation. He's tired of guys who think ink trying to manage bits – and doing it poorly. So another option for dealing with market shifts is to Disrupt your personal Success Formula by going to an employer positioned in growing markets. Not a bad idea if you can arrange it – even though there are lots of risks to changing employers. While the risk of change may seem great, the probability of ending up unemployed because your company fails is a very likely risk if you work for a traditional publisher these days. We often are afraid to go to the next thing because we hope that things will get better where we are. Even when we're standing on a the edge of an active volcano.
"P&G Considers Booting Some Brands" as headlined in the Wall Street Journal is yet another alternative. This one is more like GE used in the past where it sold underperforming businesses in order to invest in new ones. This has a lot of merit, and really makes a lot of sense for P&G. P&G is desperately short of any real innovation, and has been going downmarket to poorer products at lower prices in its effort to maintain revenues. A strategy that cannot withstand the onslaught of time and competitors with new products and better solutions.
I don't know if the new CEO is really serious about changing the P&G Success Formula or not. He hasn't demonstrated that he has any future scenarios for a different sort of P&G. Nor has he talked a lot about competitors and how he hopes to remain in front of companies with new solutions. Nor has he offered to Disrupt P&G's very staid organization or its very old Success Formula – which is suffering from lower returns as ad spending has less impact and younger people show less interest in old brands. So there's a lot of reason to think his buy and sell approach to shifting with markets may not really happen.
What's most important to watch are P&G's business sales. Any big company can make acquisitions to create artificial growth. That's easy. But it doesn't signal any sort of change in the company. What does signal are the kinds of businesses sold. McDonald's sold Chipotle's to invest in more McDonald's stores – that's defend & extend. Kraft sold Altoids and other growth businesses to invest in advertising for Velveeta and "core brands" – that's defend & extend. If P&G sells growth businesses – theres' little to like about P&G. But if the company sells old brands that have big revenues and little growth – like GE has done many times – then you have something to pay attention to. Selling off the "underperformers" that some hedge fund wants (like the guys that bought Chrysler from Daimler) so you get the money to invest in growth businesses can be very exciting.
When markets shift you have to go where the customers are headed. If your employer won't go there, you should consider changing employers. It's not about loyalty, it's about surviving by being where customers are. But what's best is if you can convert your business to one that is oriented on growth. Shake up the old Success Formula by attacking Lock-ins and setting up White Space and you'll remain a company where people want to work – and customers want to buy.
by Adam Hartung | Nov 1, 2009 | Current Affairs, Defend & Extend, Leadership
Jim Collins has decided to start telling people how to manage innovation. In "How Might We Emphasize Cost Effective Evaluation Tools" at the Good.is Blog Collins lays out his prescription for managing innovation. And it's pure Collins, because he's a lot more interested in focus than results. In fact, he is more concerned that before attempting innovation companies put in place a review process to rapidly cut off funds for innovations that go awry than figuring out how to behave differently.
Jim Collins has decided to tell people how to innovate. Only his first recommendations don't sound anything like the road to innovation. His five rules are timely, efficient, focused, sharable and actionable. There's no mention of getting market input, or figuring out how to behave differently. In Collins' world if you are efficient, mindful of the clock, focused and committed to extending your past Success Formula he's sure profits will evolve.
His passion for evaluation is paramount. He loves to talk about being efficient in innovation, prototyping toward some goal that is pre-set. Being "efficient" about the exercise drives his discussion – as if markets are efficient, or understanding how to make money in a shifted future marketplace is an efficient process. And he is obsessed with being vigilant. Collins is fearful that people will waste money on their innovation exercises. Efficiency, ala Taylor and scientific management, is a dogma Collins cannot escape. He wants his followers to be efficient, pre-planned, and obsessed about making sure money is not wasted from this escapade into innovation.
Jim Collins' prescription for success is one of the biggest snake oil
sales in business history. His book sales, and speaker fees,
demonstrate what a big PR budget from an aggressive publisher can
accomplish with content that sounds like "common sense." Jim Collins'
"great" companies are anything but. Just run the list and you'll find
he loved companies like Circuit City, Fannie Mae, Wells Fargo and
Phillip Morris. Companies that failed at innovation and ended up
smaller and less profitable (or gone completely.)
Today's economy has shifted. While Collins and Hamel spent years looking backward to see what worked in the 1970s, 80s and 90s those analyses are of no value today. We aren't in an industrial economy any longer where building economies of scale or entry barriers works. Being good at something is the mantra Collins lives upon, but when the market can shift in months, weeks or days to something entirely different being good at something that's obsolete does not create high rates of return.
Collins is so afraid that companies will over-invest in something new he would rather kill an innovation than possibly spend too much. His obsession with efficiency indicates an approach that is bankrupt intellectually, and has demonstrated it cannot produce better returns. It sounds so good to be very focused, to be fearful of pouring good money after bad. But reality is that businesses regularly accomplish just that – making bad investments – by trying to defend & extend a business that is no longer competitive.
Only participating in changing markets creates high returns. No business, not even huge companies like GM, Chrysler or Sun Microsystems, can "direct" a market. There are no entry barriers in a globally connected digital economy. If companies aren't willing to abandon their BHAGs (Big Hairy Audacious Goals) in favor of creating new solutions they simply are made obsolete. Nobody's "hedgehog concept" will save them when the market shifts and previous sources of value are simply no longer valuable (just ask newspaper publishers, who never imagined that customers would move so fast to the web instead of waiting for their daily paper.)
Almost 100 years ago a little known economist named Schumpeter said that value was created by introducing new solutions. His work demonstrated that pursuing optimization led to lower rates of return, not higher. As a result, he concluded that those who are flexible to market shifts – bringing new solutions to market rapidly – end up the big winners. As we look at companies today, comparing Google, Apple, Cisco and Nike to GM, Kraft, Sara Lee and AT&T we can see that Schumpeter had it right.
The gurus of business management helped us all realize how you could make improvements via optimization. Peters told us to seek out excellence, Hamel and Prahalad encouraged us to understand our core capabilities and leverage them. Collins drummed into us that we should focus. And most recently, a New Yorker editor with no business training or experience at all, Malcolm Gladwell, has admonished us to practice, practice, practice. Yet, when we really look at performance we see that these practices make organizations more brittle, and subject to competitive attacks from those who would change the markets.
We know today that innovation leads to higher rates of return than optimization of old strategies. But few recognize that innovation must be tied to market inputs. We build organizations that are designed to execute what we did last year – not move toward what is needed next year. This can be changed. But first, we have to eliminate the innovation killers — and that includes Jim Collins.
by Adam Hartung | Oct 29, 2009 | Current Affairs, Innovation, Leadership, Television
I was intrigued to read about Apple proposing to rebuild a mass transit stop in Chicago in exchange for naming rights to the stop, as well as permission to advertise in the stop (Crain's Chicago Business – "Doors will open on the right at Apple stop.") Most people would ask "why?" And it's because Apple is moving toward a very different advertising future.
Most people think of advertising as the ads in newspapers and magazines, as well as on the radio, or television, or possibly billboards. Only we know that newspapers and magazines are failing because fewer people read them every month. Advertising in print media has limited value if there aren't any readers.
Likewise, people under 30 are watching a LOT less TV than the older generation. Whereas I grew up with my eyes on the "boob tube," increasingly I watch a lot less TV as I spend more time on the web. But my web use is nothing compared to people 17 to 34, who have almost abandoned television. They go to the web for entertainment. And they increasingly only watch TV shows and movies when they can download them – or possibly watch via DVD.
And Apple is at the forefront of killing the radio business. With iPods and digital music now cheap and plentiful, why listen to somebody else's programming? When you can program your own music, radio becomes less interesting. And if you want news there's the iPhone, Blackberry or similar mobile device to access the web – so why listen to talk radio?
Advertising as it was is gone. Coke, Pepsi, Procter & Gamble, Kraft, etc. built huge companies via media advertising. But media usage is declining sharply. So how do you get the message out to people who increasingly get their entertainment without using most of the traditional media?
And that's where Apple's move makes sense. By rebuilding a train station, they help promote their brand. It reminds me of when Hooters offered to fill the potholes in Chicago (a big problem) if they could put their company logo over them. This week I noticed that in the Newark, NJ airport the jetways had big billboards on the outside. And the TSA bins (for shoes, coats, laptops, etc.) had ads printed on the bottom. It's getting harder and harder to reach customers when they don't need traditional media.
So if you have historically been a big user of traditional media advertising, you'd better be rethinking that strategy. What worked in the past isn't going to work in 2015. Staying Locked-in to old ad budgets, and approaches, is going to keep producing declining returns. Traditional advertising won't even maintain current positions – much less work for new product launches. As ad costs go up, they are less effective. To reach customers requires shifting with the market.
If your new business plas is to use advertising as a way to grow your business, think again. While advertising isn't gone – it is a lot less effective than it was when traditional media was widely the source of information and entertainment. If you want to get people to recognize your brand, you have to start being a lot more clever. You have to find new ways to get in front of customers. You have to use your scenarios of the future to help you find the best way to promote your product. Because the old channels, and the ad firms that used to supply them, increasingly are an ineffective answer.
by Adam Hartung | Oct 27, 2009 | Current Affairs, Defend & Extend, General, In the Swamp, Innovation, Leadership, Lock-in, Web/Tech
"IBM authorizes another $5Billion for share buybacks" is the Marketwatch.com headline. This brings the amount available for buying the stock to $9.2billion – or enough to buy about 73.6million shares. But it begs the question, what value will this bring anyone?
"The U.S. Workplace: A Horror Story" is the CIOZone.com headline. A survey by Monster.com and The Human Capital Institute of more than 700 companies (over 5,000 workers) discovered that by and large, employees are mad at their employers. They don't trust business leaders, and think those leaders are exploiting the recession for their own purposes (and gains). 79% of workers would like to find a better employer – to switch – but only 20% of employers have a clue how many workers have become disillusioned.
Simultaneously, "Many vanished jobs might be gone for good" is the Courier-Journal.com headline. Historically, increases in manufacturing (usually led by autos) and construction (primarily housing) caused recessions to diminish. But nobody expects either of those sectors to do well any time soon. Manufacturing is showing no signs of improving, in any sector, as we realize that all the outsourcing and offshoring has permanently reduced demand for American labor. And quite simply, very few investments are being made by business leaders that will create any new jobs.
"ALL BUSINESS: Innovation Needed Even in a Recession" is the Washington Post headline. The article points out that almost all recent improvement in profitability – boosting the stock market – has been through cost cutting. But that has done nothing to help companies improve revenues, or improve competitiveness. It's done nothing to bring new solutions to market that will increase demand. Quoting the former Intel CEO Gordon Moore – "you can't save your way out of a recession" – the article cites several consultants who point out that companies which earn superior rates of return use recessions to invest in new technologies and innovations that create new demand. And eventually new jobs. But today's CEOs aren't making those investments. Instead, they are taking short-term actions that dress up the bottom line while doing nothing about the top line.
Which brings me back to IBM. Who benefits from $9.2billion being spent by IBM on its own stock? Only the top managers who have bonuses and options linked to the stock price. The shareholders will benefit more if IBM invests in new products and services that will increase revenues and drive up long-term equity. Employees and vendors will benefit from creating new solutions that generate demand for workers and components. Almost nobody benefits from a stock buyback – except a small percentage of leaders that have most of their compensation tied to short-term stock price.
What new innovations and revenues could be developed if IBM put that $9.2billion to work (a) at its own R&D, product development labs or innovation centers, or (b) at some young companies with new ideas that desperately need capital in this market where no bank will make a loan, or (c) with vendors that have new product ideas that could meet shifting markets?
That's the beauty of an open market system, it supposedly funnels resources to the highest rate of return opportunities. But this doesn't work if managers only cut costs, then use the money to prop up stock prices short term. It's a management admission of failure when it buys its own stock. An admission that there is nothing management can find worth investing in, so it will use the money to artificially manipulate the short-term stock price. For capitalism to work resources need to go to those new business opportunities that generate new sales. Money needs to flow toward new health care products and new technologies – not toward keeping open money-losing auto companies and failed banks that won't make loans.
If we want to get out of this recession, we have to invest in new solutions that will increase demand. We have to seek out innovations and fund them. We cannot simply try to Defend & Extend Success Formulas that are demonstrating their inability to create more revenues and profits. Laid off workers do not buy more stuff. We must put the money to work in White Space projects where we can learn what customers need, and fulfill that need. That in turn will generate jobs. And only by investing in new opportunity development will workers begin to trust employers again. IBM, and most of the other corporate leaders, need to "get it."
by Adam Hartung | Oct 23, 2009 | Current Affairs, Defend & Extend, eBooks, In the Swamp, Leadership, Lock-in, Music
If you try standing in the way of a market shift you are going to get treated like the poor cowboy who stands in front of a cattle stampede. The outcome isn't pretty. Yet, we still have lots of leaders trying to Defend & Extend their business with techniques that are detrimental to customers. And likely to have the same impact on customers as the cowpoke shooting a pistol over the head of the herd.
Book publishers have a lot to worry about. Honestly, when did you last read a book? Every year the demand for books declines as people switch reading habits to shorter formats. And book readership becomes more concentrated in the small percentage of folks that read a LOT of books. And those folks are moving faster and faster to Kindle type digital e-book devices. So the market shift is pretty clear.
Yet according to the Wall Street Journal Scribner (division of Simon & Schuster) is delaying the release of Stephen King's latest book in e-format ("Publisher Delays Stephen King eBook"). They want to sell more printed books, so they hope to force the market to buy more paper copies by delaying the ebook for 6 weeks. They think that people will want to give this book as a gift, so they'll buy the paper copy because the ebook won't be out until 12/24.
So what will happen? Kindle readers I know don't want a paper book. They wait. Giving them a paper copy would create a reaction like "Oh, you shouldn't have. I mean, really, you shouldn't have." So the idea that this gets more printed books to e-reader owners is faulty. That also means that the several thousand copies which would get sold for e-readers don't. So you end up with lots of paper inventory, and unsatisfactory sales of both formats. That's called "lose-lose." And that's the kind of outcome you can expect when trying to Defend & Extend an outdated Success Formula.
Simultaneously, as book sales become fewer and more concentrated a higher percent of volume falls onto fewer titles. And that is exactly where WalMart, Target and Amazon compete. High volume, and for 2 of the 3 companies, limited selection. This gives the reseller more negotiating clout against the publisher. So as the big retailers look for ways to get people in the store, they are willing to sell books at below cost – loss leaders.
So now publishers are joining with the American Booksellers Association to seek an anti-trust case against the big retailers according to the Wall Street Journal again in "Are Amazon, WalMart and Target acting like Predators?" . Publishers want to try Defending their old pricing models, and as that crumbles in the face of market shifts they try using lawyers to stop the shift. That will probably work just as well as the lawsuits music publishers tried using to stop the distribution of MP3 tunes. Those lawsuits ended up making no difference at all in the shift to digital music consumption and distribution.
"Movie Fans Might Have to Wait To Rent New DVD Releases" is the Los Angeles Times headline. The studios like 20th Century Fox, Universal and Warner Brothers want individuals to buy more DVDs. So their plan is to refuse to sell DVDs to rental outfits like Netflix, Redbox and Blockbuster. Just like Scribner with its Stephen King book, they are hoping that people won't wait for the rental opportunity and will feel forced to go buy a copy. Like that's the direction the market is heading – right?
If they wanted to make a lot of money, the studios would be working hard to find a way to deliver digital format movies as fast as possible to people's PCs – the equivalent of iTunes for movies – not trying to limit distribution! That the market is shifting away from DVD sales is just like the shift away from music CD sales, and will not be fixed by making it harder to rent movies. Although it might increase the amount of piracy – just like similar actions backfired on the music studios 8 years ago.
Defending & Extending a business only works when it is in the Rapids of market growth. When growth slows, the market is moving on. Trying to somehow stop that shift never works. Only an arrogant internally-focused manager would think that the company can keep markets from shifting in a globally connected digital world. Consumers will move fast to what they want, and if they see a block they just run right over it – or go where you least want them to go (like to pirates out of China or Korea.)
They only way to deal with market shifts is to get on board. "Skate to where the puck will be" is the over-used Wayne Gretzsky quote. Be first to get there, and you can create a new Success Formula that captures value of new growth markets. And that's a lot more fun than getting trampled under a herd of shifting customers that you simply cannot control.
by Adam Hartung | Oct 20, 2009 | Current Affairs, Disruptions, In the Rapids, In the Swamp, Leadership, Openness, Web/Tech
Can you believe a BusinessWeek headline like "Dell's Extreme Makeover"? We read about turnarounds and makeovers all the time. Only most of the time they don't turn, and they don't get made over. Most companies cut a lot of costs, make a lot of promises, but keep on doing the same stuff. They get worse. They get acquired, or they fail. And readers of this blog know that I've long chastised Dell as an example of a Locked-in company with little hope of turning around.
But, I'm changing position today. There's a LOT of the right stuff happening, and the seeds are being sown, doing what really works, for Dell to be a good future story.
Scenario planning for the future:
- Michael Dell admits in the article that he stuck to his original Success Formula of supply chain expertise feeding direct sales too long. He admits that future success requires a new Success Formula. Specific future scenarios aren't disclosed, but it is apparent that the company does not expect future markets to look like the markets of 1995-2005.
Focus on Competition:
- Management says Dell is "not trying to become like the competition"!! That is great, because winners do new and different things. They don't try to copy/catch existing competitors.
- Dell did not chase Apple into opening its own stores. Good move. Dell isn't Apple, and can't win trying to be like Apple.
- Dell was previously obsessed with its top, big customers. Big corporate accounts. It slavishly built a business trying to please the top 10%. Now Dell is winning by putting considerably more attention on customers it previously ignored: consumers, small business, medium business and government. This not only balances the company, it keeps Dell from chasing Locked-in customers into the same old fox holes.
Disruptions:
- Michael Dell has replaced 7 of his top 10 direct reports. That's a huge step in the right direction. GM should follow that lead!
- Dell has defied its old "direct to customer" mantra by taking consumer products into retail stores! The added cost to do that, and new skills required, must have shaken buildings at the Texas headquarters campus.
- A new head of design developed options customers could specify for their consumer computers. Manufacturing said it would violate the supply chain efficiency so "NO." Michael Dell over-rode the manufacturing group and said "do it." He reinforced that efficiency would not save Dell. Manufacturing would have to adjust to innovations for Dell to succeed.
- The company has reorganized away from products (how almost all tech companies structure – including Apple) and installed a new structure organized around MARKETS!! What a great way to quit being product-push and become market-learn!
White Space:
- A board member said that after eating dinner with Michael Dell he could see that this"journey at Dell is just in its first or second inning." Although not much White Space was discussed, this implies some big things are being discussed and planned for the future.
- The article says Dell is preparing to launch smart phone sales soon. This is critical, because smart phones are part of the market shift away from PCs. Dell has a lot of learning to do in that market to be part of the shift.
This is not a "done deal." I wish I knew more about Dell's scenario planning – to be sure the company has switched to planning for the future and away from planning from the past. And I really wish I knew more about what White Space is being planned. Because we know you can't transition by changing the big organization all at once. The behemoth needs some wins it can use to lead the migration. And seeing White Space projects, with a group shepherding them into the lifecycle, is a really critical step to follow-up the many Disruptions.
So things could still go badly for Dell. But they WON'T go as badly has they went from 2005 to 2007. From this one article, the first interview with Michael Dell since he took the reigns back in 2007, it is clear lots of the right things are happening to move Dell from the Swamp backinto the Rapids. There is improvement happening, and The Phoenix Principle looks to be in early implementation stages. If Michael Dell and his team stick with it, this could be a big winner for your portfolio!
