by Adam Hartung | Aug 25, 2009 | Current Affairs, Defend & Extend, In the Swamp, Leadership, Lock-in
I think it's a lose – lose – lose. "Brett Favre Signs with Vikings" was the ESPN.com headline. I wasn't going to bring this up, but in 2 days I've had 8 requests, so I guess people are more interested in Mr. Favre at the start of this American NFL season than I imagined. The situation is simply dripping with Defend & Extend behavior, and an inability to focus on the future. And it's hard t see how anybody wins.
The first loss goes to the Minnesota Vikings. Every team is built by growing a powerful squad. By hiring "yesterday's hero" the Vikings have admitted they are not looking to the future. The coaches are trying to somehow capture yesterday. Were they concerned the team would repeat last year's Detroit fiasco and lose every game? Because if they weren't why sacrifice the team's future by hiring an on-field leader that everyone knows is unable to play much longer? This isn't a lot different than GM putting Mr. Bob Lutz, at age 77, in charge of marketing. What was a great past does not make for a great future.
The young people in Minneapolis want to see their home-town team be Super Bowl champs in 2010, 2011, 2012, 2013 and onward. With someone age 39 in the job, slower than ever, it is certain that the team is not "building" toward a potential legacy like teams have had in Green Bay and Dallas. Sixteen year old attendees weren't even alive when Mr. Favre started his football career. They want to see people in the jobs who can help their team become a dynasty – and that's not Mr. Favre. Minnesotans, especially young ones, have to question coaches and owners that would hire someone who, at best, is good (impossible to be great) for a year or two. It rings of defeatism, of desperation, to take this action.
Mr. Favre himself loses with this move by denying his own ability to grow. Americans have great respect for sports heroes that prove themselves after playing ball. Look at those who are revered for not only their play, but their after-play prowess
- Troy Aikmen won Super Bowls at Dallas, then never skipped a beat becoming a respected and popular sports announcer
- Roger Staubach won Super Bowls also at Dallas, but worked summers learning real estate then built his own multi-million dollar real estate development empire
- Jack Kemp played football for the Buffalo Bills, then went on to be a successful Congressman and even was a Vice Presidential candidate with Bob Dole
- Bill Bradley played basketball for championship winning New York Knicks, then became a 3 term senator from New Jersey
- Roger Penske was a world winning race car driver, but is even better known today for building the largest auto dealership company in North America, one of the largest truck leasing companies and recently bidding to purchase Saturn from GM.
By returning to football, Mr. Favre demonstrates he is so Locked-in to playing ball that he isn't looking forward for himself. He can't play football forever, so what will he do next? He has enough money to retire, but there's not much personal growth in retirement. Life is about growth, and at age 39 Mr. Favre has a lot of time to grow into new and even more powerful roles. But he can't if he keeps going back and playing football. It's not a good thing that Mr. Favre isn't growing into other roles where he can be a significant contributor.
The third loser is Wrangler jeans, a division of VF Corporation. "Favre Should Add Bang to Wrangler Effort" is the MediaPost.com headline. Mr. Favre recently agreed to be advertising spokesperson for Wrangler, and the initial view is that his return to football will sell more jeans. To whom? Forty-ish men who dream of a sports career? Cast as an outdoorsman, or new businessman, with a proud legacy Mr. Favre has appeal to a wide group of buyers. But as an aged football player he represents all the people who are questioned as "over the hill."
Mr. Favre could be a role model for younger people as a retired football player. But as an active one he has limited appeal to younger people who are more attuned to Phil Rivers or Tony Romo. Young people don't desire to be the oldest quarterback in the NFL. By Mr. Favre playing football, Wrangler de facto gets positioned as the "jeans for old guys." Mr. Favre could have been a powerful young sports hero starting a new career – a much more favorable position for Wrangler.
When we slip into Defend & Extend thinking nobody wins. Success comes from focusing on the future, and taking the actions that will beat your competitors. Reaching into the past does not bode well for anybody looking to beat the competition, because the competition knows all those old moves. Everyone involved would have been better off if Minnesota had Disrupted its plans by bringing in a quarterback with a sizzling chance to be THE NEXT Brett Favre, rather than Mr. Favre himself. And then building a program that would position them as the next dynasty, not one trying to protect its Defend its current season by Extending the career of somone who's already twice retired. And Wrangler should have thought about this in advance, with a clause in Mr. Favre's contract not allowing him to play football any more if he wants to continue representing their brand.
by Adam Hartung | Aug 24, 2009 | Current Affairs, General, In the Rapids, In the Whirlpool, Leadership, Lifecycle, Lock-in, Music, Openness
"Sears Axes Ad Budget As Sales Slide" is the latest Crain's article. Revenues have been falling at Sears ever since Mr. Ed Lampert took control of the venerable Chicago retailer. His initial actions were to cut costs in order to prop up profits. Which worked for about 8 quarters. But then the impact of cost cutting cracked back like a bullwhip, shredding profits. Mr. Lampert reacted by further cutting costs to "bring them in line with sales." And the whirlpool started. Cut costs, revenue falls, cut costs, revenue falls, cut costs…… And now he largely blames the recession for Sears poor performance. As if his Lock-in, and that of the management, to old approaches had nothing to do with the dismal results now at Sears.
There are those who think these actions are smart, to bring costs "in alignment with retail trends" as Morningstar put it. But reality is Sears is now in the Whirlpool of failure. Looking at the lifecycle, they've gone past the point of no return – out of the Swamp of slow growth – and into the last stage - failure. The stores would be closed and sold to other retailers, except there's a dearth of retail buyers out there these days. Thus shareholders are stuck with underperforming real estate, constantly declining revenues and falling cash flow.
Not all retailers are seeing declining revenues. Bloomberg.com reported today "Apple May Be Highest Grossing Fifth Avenue Retailer." While Sears and others are watching sales go down, Apple's retail store revenues rose 2.5% this year – and it's Fifth Avenue store has seen traffic increase 22% this last quarter. In a town where tourists often put an emphasis on shopping, they used to ask locals how to find Bloomingdales or Saks. Now they want to know where to find the Apple store.
Markets shift. When they do, you have to change your Success Formula or your results decline. When customers change their behavior, you have to change as well or your sales and profits go down. But most leaders react to market shifts by trying to do the same thing they've always done, only faster, better and cheaper. Oops. That only leaves you chasing your tail – just like Sears. You keep working harder and harder but results don't improve. Then eventually something happens that throws you into bankruptcy, or an acquisition for your assets, and it's "game over." Meanwhile, all the time you're watching returns shrink shareholders watch value decline, employees grow disgruntled as you whittle away bonuses, benefits, pay and jobs, and vendors grow tired of the impossible negotiations for lower costs while waiting to get paid on strung-out terms. Nobody is having a good time. Just go ask the folks at Sears.
But there are always businesses that catch the market shift and use it to propel their growth. Like Apple. Once a niche and low-profit computer manufacturer, they've turned into a producer of music players, music distributor and mobile phone supplier as well as computer manufacturer. And when everyone would have said that retail is a terrible investment, they've turned into a surprisingly successful retailer as well. Appple keeps throwing itself back into the Rapids of growth, rather than slipping into the Swamp of stagnation and Whirlpool of failure.
Apple keeps going toward the market shifts. Apple's CEO (and increasingly other executives) Disrupts the company's Success Formula, always challenging the company to do new things. And White Space is constantly created where permission is given to operate outside old Lock-ins and resources are provided for the opportunity to grow. Apple could have done a half-hearted job of retailing, trying to act like Best Buy or Nike with its stores and merchandise, or only funding stores in suburban malls instead of tier 1 retail space on the very best (and most expensive) retail avenues.
The next time you're asking yourself "when will this recession end?" think about Sears and Apple. If your business acts like Sears your recession won't be anytime soon. If you keep doing more of the same, cutting costs and hoping to hold on for a recovery, your doing nothing to end the recession and it's unlikely you'll find much improvement in your business. But if you develop scenarios about the future which allow you to attack competitors, using Disruptions to change your approach and the market, then using White Space to develop new solutions you can bring this recession to an end sooner than you think. People in your business will have chances to grow, and so will your revenues and profits.
For more about how we set ourselves up for failure, and how to avoid the traps download the free ebook The Fall of GM: What Went Wrong and How To Avoid Its Mistakes.
by Adam Hartung | Aug 21, 2009 | Current Affairs, Disruptions, General, Innovation, Leadership, Lock-in, Openness
Smartphones will outsell PC by 2011 according to Silicon Valley Insider:
Your first reaction might be "interesting chart, so what's the big deal?" That's the way a lot of people react to news about market shifts. Like the shift is important maybe for the suppliers, but what difference should it make to me? That's kind of how a lot of people reacted to PCs when they came along – and those businesses ended up with IT costs that were too high and processes that were too slow.
Market shifts affect us all. As the number of smart phone users keeps doubling, the number of new PC buyers doesn't. You may not care today that there will be more smartphones sold in 2011 – but if you think about it, you should.
- Do you deliver information across the internet? If so, are you formatting content for access on a PC screen – or on a smartphone?
- Are you publishing information for long-format page views like a PC, or short-format small views like a smartphone?
- Are you planning to continue sending people information on email, or will texting be more efficient and practical soon?
- Do your on-line ads present well on a smartphone?
- Do you print things you should send immediately via smartphones? Could you stop printing?
- Do you have a PC in your family room – and will you need to have one there when everything you want to know is available on a smartphone?
- If you can access 90%+ of your information on a smartphone, will you still carry around a laptop?
- Will fax machines become obsolete? What will that do for land-line demand? What does this portend for maintaining land-line service to your home or business?
These are just a few thoughts about how things could change as smartphone sales grow. There will be more. The biggest risk in this chart isn't that the lines meet in 2011 – but that as we get into 2010 smartphone sales keep growing on a log (rather than linear) line and PC sales don't recover anywhere close to the projections shown here. Realizing that forecasts tend to be wrong by more than 25% as often as they are correct within 10%, we can realistically expect that in 2011 smartphone sales might be more than 500MM units, and PC sales might be less than 250MM units – or rougly double!!! When that sort of impact happens, we see sales fall off a cliff of old technology. Do you remember when every admin had a typewriter – then suddenly none did – like in a matter of months.
So, are you preparing for this possibility? If you did, could you gain advantage over your competition? If you were the first to aggressively plan for, and implement, smart phone technology use can you lower your cost? Better connect with customers? Find new customers? React faster to customer needs? Offer new services? Promote new products?
If you wait, what can your competitor do to you? How could she clip your customer relationships? Lower her prices? Expand her offerings? If you wait, how could you find yourself doing poorly?
This will be a big deal for the technology companies. This shift is the kind of thing that could expose the great weaknesses in Microsoft's and Dell's horribly Locked-in Success Formulas. It also could catapult Apple, Google — or maybe an outside player like Motorola (largely given up for dead) into a leadership position. Positions could change very fast if the adoption rate turns more aggressive. Is your investment portfolio prepared?
We see these kind of charts all the time. But do you do anything about it? Market shifts happen. They obsolete old Success Formulas. They put businesses at risk that aren't paying attention. They create new winners out of companies that aggressively pursue the shifts. We often see the shift coming – but Lock-in keeps us from doing anything about it. Perhaps you need to consider Disrupting your status quo and setting up some White Space to see what you can do to improve your position!
by Adam Hartung | Aug 20, 2009 | Current Affairs, General, In the Swamp, Innovation, Leadership, Lock-in, Openness
I was struck to learn that most people with a growth plan simply think they will sell more to customers in existing markets. About 2/3 of respondents to a Harvard study.
Chart from Harvard Business School Publishing
But we know that not only you, but your competitors are all hoping to sell more to the existing market! This is the fodder for price wars, and declining returns. When we think we can somehow eke more out of existing customers – even if we think we'll take them a new product – we are ignoring competitors. As a result, we rarely get the growth. The results are pre-ordained, when everyone is trying to do the same thing all you get is a war to Defend your existing business!
The encouraging sign is that about 40% of respondents are considering new markets. And that's a good thing. A GREAT Wall Street Journal article "The New, Faster Face of Innovation" tells us that everyone has the opportunity to apply more innovation today. At length this article explains how today's computer deep, networked world allows for testing of almost everything, almost anywhere, pretty nearly continuously, for very small cost. The biggest obstacle to testing more options, trying more innovation, is the self-imposed limits management puts on the tests!
Now, more than ever, businesses need to be oriented on growth. But that doesn't mean entering gladiator style battles to see who can win, usually coming out the bloodiest, battling in existing markets. Quite to the contrary, now is the perfect time for trying new things to connect with shifted markets. People are looking for new solutions to their problems, and willing to evaluate more options than ever. But management Lock-in to traditional notions about the market – set at an earlier time, under different conditions – will often keep a company from trying new things, entering new markets, testing new solutions. Too often management wants to remain "focused" on its "core offerings" and "core strengths" creating the gladiator-style environment!
Use innovation to test! Leaders need to let lower level managers test new options. The most important thing leaders can do today is give PERMISSION to the organization to create new options, and the RESOURCES (now smaller commitments than ever) for testing those options. These become White Space projects where we can forget the conditions which initially created the old Success Formula and find out what works NOW. Those companies that are willing to Disrupt Locked-in notions about how markets should behave will use these market tests to create the most desirable solutions in the future. And these companies will come out the winners.
Just think like these folks:
- Amazon retailer creating the Kindle e-reader
- Apple computer creating iTunes and the iPod
- Google search engine creating AdWords for on-line advertising placement
- Singer Sewing Machines becoming a defense contractor
- Royal Dutch Shell Petroleum building wind farms
[And, like I wrote in my latest Forbes article, this will work for health care as well
http://tinyurl.com/pkupxv]
by Adam Hartung | Aug 19, 2009 | Current Affairs, General, Innovation, Leadership, Openness
"Want to stir up controversy? Bring up health care. Everybody has a
story to tell–something that went wrong, someone left in the cold,
something the government or an insurer failed at. Everybody has an
opinion about all the current proposals too. And everybody has a
solution they'll happily (or angrily) defend all night long."
That's the opening paragraph for my latest article as a columnist for Forbes "Fixing Health Care: It's Time to Experiment". I recommend using White Space projects to let market participants determine a better approach to paying for health care in America. Since businesses pay for most health care, given our largely employer-paid system, the biggest burden is on American business. If we don't develop a better solution that controls cost, America's competitiveness could seriously falter.
Why would we want lawyers to try "designing" a better answer, when we could let all of us participate in solution development if we open up some market tests? What we need from the government is permission to work around existing rules allowing the tests, and some resource commitment to conduct them. America's health delivery system isn't bad – if you have access to it and can afford it. The broken part has to do with access and cost – not the capability of providers to do a decent job. Those are business problems, not health care problems. We aren't talking about "product" problems, we're talking about "distribution" and "pricing" problems. If we use good business practices, especially White Space to foster creativity, we could develop a new and uniquely American solution that is far better than the current accident of history.
Hope you enjoy. And hopefully we'll be able to move from our currently Locked-in, and amazingly expensive, health care payment system to something that meets more people's needs while bringing rationality back to cost.
by Adam Hartung | Aug 17, 2009 | Current Affairs, Defend & Extend, In the Rapids, In the Whirlpool, Leadership, Lock-in, Web/Tech
For almost 3 years this blog has discussed how newspapers, and most traditional media, have ignored the changes being created by shifting markets for news readers and advertisers. Unfortunately, not a lot has changed in how newspapers, magazines and traditional media companies operate. They still don't put enough energy into using the web, for distribution or revenue generation. They keep trying to Defend & Extend their old models – and these companies keep going bankrupt. So much the worse for investors, employees and suppliers.
Today the Chicago Sun Times reported "Everyblock acquired by MSNBC.com." The sort of short article you could easily miss. Because the Sun Times, and most traditional media, still don't like to talk about the web. But this is a pretty big deal.
Everyblock was started 2 years ago by a 28 year old in Naperville, Il. He acquired $1M on a Knight Foundation grant to see if he could build a reporting engine that would supply information at the local level to web sites. An ambitious undertaking. Something you would think every major newspaper would try to do. But they didn't. They were so Locked-in to their old business model that they kept crying about the decline in subscriptions and print ads – but didn't do anything beyond cost cutting. That's what Lock-in will do to you – leave you crying about the past but taking no affirmative action to deal with shifting markets. They left the market for on-line local reporting available for someone more ambitious. Someone age 28 who really wanted to see if he could make it work.
After Everyblock hired some folks and figured out this would work you'd think Tribune Corporation would be all over how to apply this in order to build its on-line business. Guess again. Mr. Zell is so Locked-in to his big debt deal that he's too busy trying to sell the Cubs and otherwise raise money. He doesn't have a dime to invest in building the future. Same at the Sun-Times where leadership is still realing from the old owner's plundering of traditional assets with no game plan for how to succeed long-term. Both companies are well into the Whirlpool. So close to failure they've lost track of any plan to grow. So they ignored the local talent, cutting costs to prolong the ride instead of investing smartly.
Now MSNBC.com is going where the newspapers wouldn't go. It's acquiring the Everyblock business, one that's desperate for cash to grow, in order to expand its footprint. MSNBC.com is ready to develop a new model for local news coverage. Good for them. We all know the day will come when we can get local news from the web, and it's good to see MSNBC set up the White Space to explore how to make it happen. MSNBC.com is in the Rapids of growth, building on growth of its cable TV partner. It's good news for GE shareholders, who could benefit from the next big thing since Google or Twitter. All for the mere investment of a few million dollars. Less than Mr. Zell spends on personal jets every year.
The world keeps changing. Too many businesses are simply trying to do the same thing, only cheaper or faster or somehow better. They aren't reacting to shifts by actually Disrupting their approach and setting up White Space to learn. At the media companies the impact is sevee as fewer and fewer magazines get printed, and newspapers get thinner, and more companies file for bankruptcy. But the smart ones do something – like MSNBC. And MSNBC could just end up being the one taking it to the bank!
by Adam Hartung | Aug 14, 2009 | Innovation, Investing, Music
This weekend marks the 40th anniversary of Woodstock, the rock concert that everyone remembers – even though almost none of us were there. Amidst all the tributes this weekend, I was taken by how much the music industry has changed during those 40 years – and how this industry can help us realize the need we all have to be adaptable.
When Woodstock occurred most music was listened to an a long-playing vinyl album, sold through a record store. Wow, have things changed. From albums to 8-tracks to cassettes to CDs and now MP-3 players. In just 40 years we went through 4 different technologies, and made at least 2 (8-tracks and cassettes) obsolete. Nobody at Woodstock was thinking about that, but it's made a huge difference in who makes money.
When you bought music in 1969 you went to an independent record store. Or Musicland, a retailer with over 1,000 stores in shopping centers that exclusively sold records – and 8-tracks. Now we buy almost all our music on-line. Either ordering a CD from someplace like Amazon, or downloading the music directly into a player with no physical item being shipped. Mass merchandisers like KMart and WalMart eventually made record shops obsolete, and increasingly the mass merchandisers are of less importance. Musicland went bankrupt.
In 1969 the artists made practically nothing from a concert. Concerts existed as promotional events for the records. An artist signed a multi-album deal with a record label – like EMI. The label offered a studio and put together the album. They then packaged it, and shipped it to record stores. For this, the band members got almost nothing. Only if the album sold well did they get any cash. So the record label told the musicians to go on the road and play. The objective was to do concerts so people got turned on to your tunes and went to buy them at the store. The musician didn't make anything until the album sold – in high volume.
In 1969 promoters paid the record label for the musician to pay, and the record label paid the musician. A promoter could not hire a musician, even if the musician wanted to play, unless the label agreed. Any performance fees were deducted from album royalties, so from the label's point of view the event fee was irrelevant. Headliners – a band that was already famous and trying to stay that way – usually took a big fee, but it was just an advance on royalties. There would be lesser known bands, and the label barely gave them enough money for gas because they didn't know if the album would ever sell enough to be profitable. "On the road" was a bad thing as far as musicians were concerned.
Tickets to Woodstock cost $18, and the promoters lost money (of course, about 90% of the attendees didn't pay). That's about $100 in today's money. Most promoters lived a grand life, but in reality made little money. Some events profited, but a lot didn't. The fee to the labels were high, and audiences were often not large enough. Not to mention bands that no-showed or arrived stoned because they didn't care — remember they got paid little to nothing. So eventually a couple of bad concerts in a row sent the promoter to bankruptcy court once too often and he ended up snorting cocaine in trailer-park-city.
Today, going to a 3 day event costs over $250 for tickets – and the promoters expect to profit in the millions. The labels get a lot less, as many musicians negotiate their own contracts. But the prices are high enough that the musician is guaranteed a rate of return, and the promoter is as well. And the promoter usually insures all events just in case the musician no-shows are turns up stoned. Unprofitable events are rare.
Labels no longer run the show. Musicians now can negotiate much better single-album deals because distribution is far easier. Musicians can self-publish if they like, selling their own tunes off their own websites. This has meant that top performers make unbelievable sums – far more than their counterparts in 1969. The Carpenters used to have to beg for money for a new car, while their albums sold millions. Now, because they can guarantee the big audiences, all that money the label used to take, the musicians get. So tens of millions flow their way. If you have any doubt, look at the private jets and helicopters owned and flown by the lead drummer for Pink Floyd. Or about any rapper on late night MTV. It would make a corporate CEO envious.
And the company that makes the most money of all in music is Apple. They have the biggest distribution system, and sell the most music. They don't have any artists on contract, don't produce any music, and don't carry any inventory. They just run a server farm that collects money and sends out digital files.
Of course, it's still tough to be a new musician. But you no longer have to sell your soul to a label. You can produce your own music, using affordable gear in your basement that's better than Joan Baez had in 1969 at the EMI studio. And you can sell the tunes yourself. If you work hard at promotion, including working those promoters to give you a warm-up slot, you can capture all the revenue from your songs from your own web site, and sign up your own distribution groups. It's much more in your own hands. Of course, that also means the labels don't have the money they once did to create an Elvis, or Beatles, or Rare Earth. So it's a lot more up to you to earn that money, rather than hope you get lucky and lots of label backing.
I doubt Jimi Hendrix would recognize anything about the music industry today. Of course, given how stoned he liked to get it's hard to imagine Jimi Hendrix being alive today.
Things change. We sometimes don't see them, because it's like watching the grass grow. You don't notice differences unless you compare two snapshots in time. Then we can see just how much things change. If you want to be a winner, you have to learn to shift with these changes. Only those who make the shifts survive. Just ask Barry Gordy, the one-time founder of Motown who saw his billion dollar business disappear. Now a footnote in history. For all of us to avoid becoming similar footnotes, the moral is to be ever vigilant about identifying and adapting to market shifts.
by Adam Hartung | Aug 13, 2009 | Current Affairs, Defend & Extend, General, In the Whirlpool, Innovation, Leadership
"It's Hard to Like Sara Lee" was the Barrons headline this week. And how could you, after the company reported its third straight quarter with sales and earnings below expectation. Check out this quote "Failed expansion has become a hallmark of Sara Lee in recent years, as
the company entered and exited businesses more frequently than tourists
passing through Grand Central station."
Meanwhile, over at Businessweek the headline is "Sara Lee, Why Investors Won't Bite." The company keeps focusing on cost cutting. "Sara Lee Chairman and Chief Executive Brenda Barnes
said on Aug. 12 that she expects annual cost savings of $350 million to
$400 million by 2012." I wonder how far revenues will fall during that same period? Since Ms. Barnes took the helm 5 years ago, Sara Lee's value has shrunk 54% (chart here). Yet, her biggest plan remains more sales of existing businesses – now focused on selling the "houesehold and body care segments." Although after all the sales the last 4 years the takers keep getting thinner and thinner, and the prices lower and lower. Buyers recognize when a business has been stripped of its value and is nothing more than a shell of its previous self – no longer able to grow and produce cash flow.
Meanwhile at Sara Lee there are no real plans to sell any new products or services, so the P/E just keeps falling. Now at 11, it's one of the industry's lowest. But when you expect revenues and profits to keep getting smaller, you can't justify much of a P/E now can you? It takes growth to increase your P/E multiple.
Forbes tried putting lipstick on the pig with its headline "Sara Lee Sees Meaty Growth." The writer tried to focus on hopes the company has for selling more sausage and lunch meat. But there's no innovation. Just a hope that low commodity prices will improve the margins on these products – and the commodities will stay low so the margins don't dip. Sara Lee hasn't launched a new product since Ms. Barnes took the helm. Crain's summarized the situation more bluntly "Investors Find Little Tasty in Sara Lee."
Business is about creating shareholder value, not destroying it. And Ms. Barnes has been going the wrong way her entire tenure leading Sara Lee. As I pointed out in her first year of leadership in this blog, and have repeated often, Ms. Barnes has not developed any new products for the future, she has not identified competitive opportunities for growth, nor has she been willing to Disrupt old patterns and use White Space to develop and launch new revenue opportunities. Instead, she has slowly and painfully sold off one asset after another – and none of that money has come back to shareholders. Today all shareholders have as a result of her leadership is a smaller and less profitable declining company. And no cash to compensate for the shrinkage.
If we want to come out of this recession we have to replace leaders who are so wrong headed. There's no value in quarter after quarter of cost cutting. There's no value in selling off assets for one time gains to cover ongoing losses. There's no value in shrinking a company without distributing proceeds to the owners for investing elsewhere. Thus, there's no value to the leadership at Sara Lee. What's needed is someone at the helm willing to look to the marketplace for new product ideas and then use White Space to innovate those new solutions. Someone who will put energy and resources behind growth.
The employees, shareholders and vendors at Sara Lee have a lot of scars for waiting – and nothing good. Even the suburban Chicago town of Downer's Grove, IL is hurt by the loss of jobs. To get America going again we have to start growing – and there's no better place to start than Sara Lee. Before it disappears into oblivion – like the onetime Chicago retailer Montgomery Wards!
by Adam Hartung | Aug 12, 2009 | Current Affairs, Defend & Extend, General, In the Swamp, In the Whirlpool, Leadership, Lock-in, Weblogs
GM. Those two letters call up a lot of emotion these days. People ask,
"What went wrong?" "How could a company that large, that successful, go
bankrupt?" The less polite say: "General Motors' leadership is
corrupt." "They ignored customers." "The union killed them."
"Government interference." "Idiots."
This is the first paragraph of my new column on Forbes.com. You can read it, and future articles, in the Leadership section – Link Here.
I'm very excited to find new audiences for discussing what's caused the latest round of business problems – and failures. As well as spreading the message about how businesses can start growing again. Check out the column.
by Adam Hartung | Aug 10, 2009 | Current Affairs, Defend & Extend, In the Swamp, Leadership
I've long been a fan of GE. The only company to be on the Dow Jones Industrial Average for more than 100 years. A company that has transitioned through countless businesses, willing to get into and out of many opportunities in order to find ways to keep growing. Buried deep in the heart of this company's operating principles are tools which keep it from becoming too Locked-in. The constant 360 degree evaluations, the demand for results, the willingness to disagree, the acceptance of Disruptions, the investments in White Space. These have done GE well for years, allowing the company to evolve its Identity, Strategy and Tactics.
But recently, GE has been more disappointing. The stock crashed to $6/share earlier in 2009. And now Forbes reports "Accounting Tricks Catch Up With GE". One of the misguided tools of Defend & Extend Managers is using financial machinations – in effect generating profits out of thin air by playing with the accounting rules rather than making and selling something. I talk this through at length in "Create Marketplace Disruption" (FT Press, 2008) because for the CEO of a publicly traded company, it's an easy route to take. By playing with the accounting a business looks better, allowing the CEO to do more of the same instead of more deeply investigating market shifts that jeopardize the future.
I was deeply disappointed to read where GE allowed this to happen. They counted as revenue, and profit, sales of locomotives to financial institutions – rather than end users. And the use of derivatives at GE was an outright D&E practice to try making money on financial investments that weren't so good. I've decried the use of derivatives loudly – even by Warren Buffett – in previous blogs because they are a tool designed to make weak financial practices look better. This isn't what made GE great, but apparently these were the tools of "modern management" current executives used to prop up sales and profits – instead of focusing on the business. And now the SEC has forced GE to pay a fine for its actions.
Investors, employees and vendors need to be very wary of this. It could mark a sea-change in GE. For years, top executives made their mark by developing new businesses that were attuned to shifting markets. Jet engines and NBC are just a couple of huge businesses GE entered as a result of recognizing shifting markets and the huge opportunity being created. And GE has always been quick to pull the trigger on selling a business when a market shift meant the growth was starting to slow.
But now we can see that GE has used financial machinations to make some businesses look better. These kind of D&E actions are telltales of a company slipping from Phoenix Principle actions – which help you grow – into a company that could stall. And growth stalls are deadly. Only 7% of stalled companies every consistently grow at a mere 2% ever again.
So far, we know that these actions have hurt GE pretty badly. Firstly, there's the $50million fine. You may think this is chump change to GE – but it's money that didn't go into developing a new water filtration system, for example, which could make money down the road. Or invested into a new business plan that could turn into something big. Secondly, its use of financial instruments, including derivatives, and the SEC mark has dramatically eroded investor confidence. Like I said, over $150billion in market cap eroded (about 50%) in the last year alone – and that's after a recovery from $6 to nearly $15 per share (chart here).
High performing companies do NOT resort to D&E Management. It's a Siren's song, straight from Homer's travels, to lure the company ship onto the rocky shores. It seems so simple, and it is, to protect the existing business with financial adjustments that make it look better. But reality is that these poor returns indicate the market is shifting, and that action is needed to reconnect with the shifted marketplace. Whenever executives use D&E practices, including financial machinations (even legal ones) to make the business look better they are ignoring market shifts – which undermines the organization's ability to develop new scenarios, understand the impact of emerging competitors, disrupt old practices and develop White Space projects that can help the company move forward and meet market needs.
It was the willingness to resort to D&E Management that started GM on its long path to bankruptcy. Read "The Fall of GM: What Went Wrong and How To Avoid Its Mistakes" for more info on how easy it is to slip into a rut wiping out future returns.
