by Adam Hartung | Nov 26, 2008 | Investing, Leadership, Travel
Thanksgiving is tomorrow, so the crush of people flying through O’Hare airport has started. It’s natural to think about the largest airline in Chicago – United.
United was on the brink of failure last summer as jet fuel prices skyrocketed. In response, United started charging people for baggage. Take a couple of bags along and your baggage costs could be 50% or more of your ticket price for a round trip. United also raised prices, and cut flights. None of these actions were likely to make United a more competitive airline – and weren’t designed to. United leadership was using “foxhole management” – trying to survive. Of course the problem is that it doesn’t take long sitting in a foxhole to get blown up.
Last week I had a business trip from Chicago to south Florida. Imagine my surprise to learn that United no longer services 2 of the 3 airports in south Florida, and for the remaining destination it has one flight each direction daily. The result? To get to south Florida from Chicago (something done by many people in the winter), I had to fly U.S. Airways connecting through Charlotte. Not supporting any loyalty to United. And the latest word is that United intends to further cut flights (read article here). United is the example of a company that is slowly killing itself in its effort to save its old Success Formula.
Meanwhile, Southwest Airlines keeps growing. After United left South Florida, Southwest raised its fares on those flights, from its lower-cost Midway airport, to over $800! It has been a profit boon for Southwest that United is cutting flights – and allowing Southwest to keep on growing.
When oil prices took their dramatic rise last summer, United was already a very weak competitor. Although it was large, it had never addressed the market changes making its hub-and-spoke system and militaristic operating practices less viable. Not the shutdown on 9/11/01, nor the bankruptcy filing, caused United to alter its business practices established 3 decades ago. Thus the oil run-up put a weak competitor on the edge of viability – with a nudge over the other side. United’s reaction demonstrates how, when confronted with the non-viability of its outdated Success Formula, an organization can remain entrenched – and uwilling to take actions that would save it. Locked-in, without White Space, United was unprepared to deal with yet another market shift. Intead, United chose to take minimal actions short term, HOPING somehow things would change back to the good old days, long ago, when the company was less unprofitable (keep in mind that over its lifetime since deregulation United has never consistently been profitable.)
Trying to save a troubled business, in rough economic waters, during a period of market change, cannot be done by doing more of the same – “better, faster, cheaper.” Market Challenges pile up, until a punctuated equilibrium changes the market for all competitors – and rendering some no longer viable. To be viable long-term takes a willingness to recognize the future must be different from the past, that competitors are more successfully growing and are worthy of intense study, that Disrupting old patterns which keep the status quo in place makes it possible to leverage White Space to create a new Success Formula. Unfortunately for all those travelers out there this holiday – that’s not what United has done.
by Adam Hartung | Nov 25, 2008 | Current Affairs, Defend & Extend, General, In the Swamp, Leadership
Are you encouraged by the Federal Reserve's actions to purchase $100B debt from Freddie Mac, Fannie Mae and Ginnie Mae? Government leaders say this is necessary to "get the markets moving again" (read article here).
Unfortunately, this action is really no different than if the government purchased $100B of SUVs from GM, Ford and Chrysler to "get the auto market moving again." Or, if they purchased $100B of coffee from struggling Starbucks, whose per store sales are predicted to fall all through 2009 (read article here) to "get the coffee shop market moving again." Or if they purchased $100B of homes, now that prices have fallen over 17% in the last year and sales are down at least that much (read article here) in order to "get the real estate market moving again". None of these actions will help the banks, or the auto companies, or Starbucks or homebuilders be more competitive. At best, any of these (including the Fed's planned action) is a stop-gap effort attempting to protect the status quo – in the middle of dramatic market change.
When markets shift, the impact is often delayed by ongoing efforts to Defend & Extend the status quo. Eventually, however, the market shift is unavoidable – and in what seems a very sudden shift change is very dramatic. The market moves from one equilibrium to another. And it is at this shift point (what's called a punctuated equilibrium) that the weaknesses in old competitors become highly visible. Like Citigroup, GM, etc. At the same time, the opportunities for new solutions become visible as well.
When violent market shifts happen, efforts to return to the old status quo never work. Look no further than Japan's economy in the 1990s – which suffered a recession for more than a decade as the country's leaders refused to adjust to the changed competitiveness of Japan in the global economy. Today, 15 years after Japan's recession began, that economy has still not recovered on a consistent growth plan because the leaders keep spending resources trying to protect old business practices which do not work in today's global economy. Consequently, Japan keeps falling further behind China, India and other more competitive economies - and the companies in those economies. Is this the direction we should lead America today?
Future success depends upon changing to meet dynamic market requirements. So far, none of the TARP activities, or the spending by the Treasury or Federal Reserve, are meeting this need. While Congress denies aid to everyone else, a situation likely to change, the spending on financial assets is not creating any new jobs, nor helping the advancement of any innovations in technology, or business practices. Increasingly, however, people are beginning to realize that attempts to shore up these old industry practices are not preparing the American economy, and its companies, for global competition.
What's needed is leadership that will use funding to improve competitiveness – not attempt to preserve the past. Spending funds on unnecessary business trips, unnecessary perquisites, bonuses and dividends does not increase the likelihood of having a vibrant competitive set of industry players in 2010. What does work is installing leaders willing to develop new Success Formulas which are more competitive – by intensely focusing on competitors, Disrupting current practices and using White Space to innovate. If Congress is going to make citizens stakeholders in these businesses, it is within their purview to demand Disruptions – or create them – so the recipients move forward rather than waste money in a vainglorious effort to find the past.
by Adam Hartung | Nov 24, 2008 | General, In the Rapids, Openness, Television
As consumers, it's easy to forget that news is a business. After all, we don't directly pay for news. It comes free to us via television, radio, print or the web. Thus, it's easy to forget that the providers rely on advertisers to foot the bill. Of course, they attract advertisers by competing to get us consumers to watch, read or listen to their news programming. So, you may not have noticed the change in competitors recently in national news – and the big difference this is having on some valuations.
Focusing on television, CNN was the first at making news into a stand-alone business. For many years, CNN was practically uncontested. But in the late 1980s Rupert Murdoch woke up to realize that any business with one player deserved some competition, and he launched Fox. Using tools right out of The Phoenix Principle, he managed to unseat CNN and become #1:
- Fox looked into the future and predicted the market for news was likely to grow, even if the market for newspapers was not. Thus, even though News Corporation had been a newspaper company up until that time, Murdoch invested the vast bulk of all money he could raise into creating a brand new, from scratch, television news company that would be on broadcast television as well as cable. Many people thought he was nuts – but he quickly proved them wrong creating enormous profits.
- Fox obsessed about competition. The new leaders studied what the competitors in broadcasting (NBC, CBS, ABC) did, and studied CNN. They looked for what they could copy – and the weaknesses.
- Fox Disrupted. Where everyone thought news had to be neutral, Fox chose to be non-neutral. Recognizing that many advertisers were corporations that perceived news media were biased liberally politically, Fox news proposed to counter that bias by being biased conservatively politically. Not only was this opportunity available, but Fox recognized there was no way to counter this position by the existing competitors. What could they say they would do differently once Fox said they were going to be conservatively biased? That they would be more neutral? Fox found a way to change how viewers thought about news coverage and what they would watch.
- Fox used White Space to develop new programming. News was not just reporting, but stealing an idea from Nightline people were hired to interpret the news. Bill O'Reilly, Sean Hannity and many others were hired to interpret the news for viewers, not merely report it. While not all of these efforts succeeded, some were wildly successful drawing so many viewers Fox surpassed CNN as #1 in cable news.
Fox developed a Success Formula that grew revenues quickly. The Lock-ins helped Fox attract viewers, and grow revenues and produce prodigous profits. But, that's not the end of the story.
In the 1990s Microsoft joined with NBC investing in a new company to launch a cable channel and internet presence. That company had wide berth, but was intended to provide news. MSNBC faced the competitive marketplace that now had both powerhouses Fox News and CNN. So, what did they do?
- Looking into the future, the leaders recognized that if there was a market for neutrality, and for political conservatism, there was probably a market for political liberalism. So they identified a counterpoint to Fox and CNN.
- They studied what worked at CNN, Fox and cable news. They identified weaknesses in them all. They recognized that many of the programs on both stations had audiences that weren't growing, leaving time slots available for alternative programming.
- And they Disrupted. MSNBC mixed general news coverage with "special investigation" programs into prisons and other locations with news interpretation programs that took a distinctly politically liberal bent. Additionally, program hosts directly compared their programs to Fox and CNN, and even blatantly compared their competitive audience size ratings.
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And there was plenty of White Space. Programs were tried, added and dropped as fast as they could get them to market. Some were produced fewer than 2 months. Others were tried in multiple time slots. And as programs were shown to have audiences, they were moved around to compete directly with similar programs on the other channels. Newscasters from other NBC programming, such as CNBC or NBC news, were shared with MSNBC creating a different operating model than existed at either CNN or Fox News. Links to MSNBC web programming were added to augment the television programs, offering multi-media capability for viewers.
As a result, MSNBC is now closely tied with Fox News and has a lead in many age groups and time slots (read Marketwatch article here.) The valuation at News Corp. has fallen 67% in the last year (see chart here) – a staggering $10.5billion.
In any market, no matter how strong the competition, the opportunity exists to attack competitor Lock-ins and introduce a new Success Formula which can grow. Even if earlier competitors used The Phoenix Priniciple, if they change to Defending & Extending Lock-in on their Success Formula and do not keep applying the principles to remain evergreen new competitors can re-apply the principles to grow and take share.
Now, in this soft economy, the tendency is to focus on what you always did. But it is during this kind of economy that weaknesses in competitors become more apparent. Opportunities to change competition can become clearer. Customers are more willing to try alternative solutions, giving new competitors a better chance of success. Suppliers are willing to take greater risks to develop new business, making new business launch easier. If you programmatically apply The Phoenix Principle, it is possible to tackle the new economic/customer requirements more quickly, and improve your competitive position.
by Adam Hartung | Nov 20, 2008 | Current Affairs, Defend & Extend, Disruptions, General, In the Swamp, Leadership, Lock-in
The auto execs have not made their case in Washington D.C. Speaker Nancy Pelosi is saying Congress has not yet seen a plan in which they can invest taxpayer money. Almost half of Americans don't think a bailout should be undertaken (read article here).
For those of us who've been around a while, reflections on the last time an auto company asked for help are inevitable. It was 29 years ago, from September into December of 1979, that Lee Iacocca (former Ford executive) and the UAW asked Congress to provide $1.5billion in loan guarantees (not a loan – not cash – just a government guarantee) in order to save Chrysler from bankruptcy. The economy was bad, but nothing like the banking crisis we're in now, and a recalcitrant Congress was not happy. Nonetheless, they prevailed and Democrat Jimmy Carter signed guarantee approval in January, 1978. (Read about the Chrysler loan guarantee here.)
By all accounts then, and certainly later, Lee Iacocca was nothing like Rick Waggoner (GM CEO) or Alan Mulally (Ford CEO). Iacocca had been fired from Ford because he told management they were going the wrong direction. He was a person willing to dissent, to Disrupt, and he'd shown it at Ford before ever coming to Chrysler. Additionally, as a new leader at Chrysler, he was willing to demonstrate changes were afoot by proposing from the beginning to place the head of the UAW on the Chrysler Board of Directors. After decades of labor wrangling, this was a significantly Disruptive act never before considered – and showed a leader willing to do things very differently. Mr. Iacocca even promised to take no salary his first year – he'd only get paid if his plan worked allowing him to earn a bonus according to predefined metrics. (Imagine that – an executive with real skin in the game.)
Iacocca was never a fellow to do what was "easy" or "natural". A feisty fellow with Italian roots, he spoke his mind. When Ford was making boring cars, and considered the Edsel "every man's car" (the Edsel was an enormous failure), Mr. Iacocca conceived of the Mustang — a car that was small, sporty and affordable. Something otherwise not on the American market scene. That car, more than anything else, saved Ford in the 1960s. Even today, Ford is hanging its future and much of its brand image on the 45 year old Mustang.
When he got to Chrysler, Iacocca kept that focus on the future. At a time when automakers were struggling to figure out a profitable way to develop cars that fit American needs he brought out the mini-van – a practical vehicle never before seen. As the economy improved he felt a convertible would be a good idea. He asked his head of engineering how long it would take to make a convertible for him to test – and the exec told Mr. Iacocca 3 years. CEO Iacocca told his engineer he didn't understand – Iacocca wanted him to pull a car off the line, take a saw and cut the top off. That should take about 4 hours. The action was taken, and Mr. Iacocca took the topless sedan for a ride around the block. In less than an hour he was convinced bringing back convertibles would be a huge boost to Chrysler profits.
Mr. Iacocca didn't look to his customers for ideas, he looked at future needs and competitors. Mr. Iacocca studied the cars, and manufacturing processes, from Europe and Japan. By obsessing on everything they did he found ways to make better cars that were more desirable and less costly. At a time when the Japanese Yen was a screaming buy compared to the dollar he changed processes to permenantly lower car costs – not relying on layoffs or more traditional cost cutting – making his company much more competitive than Ford or GM.
Mr. Iacocca never was slow to Disrupt those around him, or the market. As discussed, he was ready to launch new car concepts quickly, and go to the union with changes in work rules and compensation schemes. He created White Space everywhere from car design to manufacturing process groups to union discussions in order to find ways to make his company competitive with offshore players – and the most preferred of the American auto companies.
Ledership makes a difference. Congress has asked Messrs. Waggoner and Mulally to sell off the private jets, cut executive pay and produce a plan that shows the future will not be like the past. And that's fair. But it's not at all clear these leaders are of the Iacocca (or Jobs) way of thinking. If they keep trying to preserve what used to be normal, things aren't likely break their way from those in charge of giving a bailout. Mr. Iacocca is now retired, and far removed from the demands and dilemmas of the current auto manufacturers. But there are other managers out there – other leaders with the ability to focus on the future, obsess about competitors, Disrupt and implement White Space to turn around these troubled companies. I sure hope someone puts them in the right place to persuade Congress fast – before a couple million people lose their jobs and this recession turns into a Depression!
by Adam Hartung | Nov 15, 2008 | Defend & Extend, Disruptions, General, In the Whirlpool, Innovation, Leadership, Lock-in, Openness
On Tuesday, New York Times columnist Thomas Friedman (author of The World is Flat) chided the auto companies for their lack of innovation and desire for government assistance (read article here). Setting off a firestorm of comments across the web, he not only recommended replacing the Board of Directors and executives at GM (as I have blogged), but went so far as to recommend asking Steve Jobs to take over GM leadership as an act of national service.
The other side of this argument was made by columnist John Dvorak on Marketwatch (read article here). Mr. Dvorak says this is a foolish idea, because the auto industry is so integrated and unique that only someone within the auto industry could hope to run an auto company. He recommends searching within the bowels of the auto companies for some overlooked wonderkind who is able to turn around the organization while maintaining the existing business model. He goes on to say that the only reason Steve Jobs has been successful is due to the unique features of the tech industry, implying no tech manager could hope to run a company as complex as GM.
Mr. Dvorak suffers from the sort of traditional management thinking that has gotten GM (Ford, Chrysler, Citibank, Washington Mutual, Sears, General Growth Properties, Sun Microsystems, etc.) into big trouble. As he lists off the "unique features" of the industry, and discusses "the manufacturing, inventory, subassemblies, delivery and other systems that are in place…too delicately balanced and complicated for a newbie to deal with" he describes Lock-in. Mr. Dvorak views what's been done in the name of Defend & Extend Management as good – and therefore necessary to keep. Thus, any turnaround would require doing more of what's been done – hoping somehow doing it better, faster and cheaper can make the company successful again. But he completely ignores the fact, which he actually makes in his article, that there are a lot of other auto companies competing with GM, Ford and Chrysler — and they are better at running these complexities than GM, because they are able to make autos that customers purchase at a higher profit. Mr. Dvorak ignores the obvious fact that it is very likely the structural and behavioral Lock-ins which he thinks impossible for a new leader to manage that are causing the horrible results in the U.S. auto companies. He ignores the notion that it is the very heart of the GM Success Formula that is competitively outdated, and thus causing these horrible results.
Successful turnarounds are rarely accomplished by people who are part of the industry. Because those in the companies are Locked-in to the Success Formula which is producing the poor results. Existing leders and mangers accept those Lock-ins, and that old Success Formula, thus trying marginal changes – or more of the same but with less resource. What really works is when a new leader implements significant Disruptions that cause people to approach the work with a very different frame of mind, and then implement White Space projects (usually several, and with lots of resources and visibility) which allow the company to develop a very different Success Formula to which the company can migrate. Example – consumer products leader Lou Gerstner's turnaround of tech giant IBM.
While Steve Jobs likely could make a significant difference in GM, I don't think it has to be Steve Jobs. We so love our heros we start thinking only they can make a difference. What GM needs is new leadership that works like Steve Jobs. Leadership that (a) focuses on future needs rather than current problems (b) obsesses about competition rather than thinking all solutions lie within the company (c) is not only willing to be Disruptive – but enjoys creating Disruptions to the Lock-ins which overwhelm the Status Quo Police and (d) set up White Space projects where leaders are given permission to do things very differently, and the resources to achieve significant goals.
It can happen in the auto industry. About 25 years ago much maligned Chairman Roger Smith took cost savings from closing outdated plants in places like Flint, Michigan (the reason for Michael Moore's first docu-story Roger and Me) and invested them in a start-up company called Saturn. Saturn was White Space where the leaders were not forced to follow old G.M. Success Formula tactics – like keeping the same union contracts, or using the same components, or using the same dealers, or using the same customer pricing mechanisms. Saturn came on the scene with great fanfare. With only 3 vehicles in their initial line-up, the company's brand became "Apple-like" with its near-cult status. People loved the smaller cars, the focus on safety and consistency, the no-negotiating price method and the low-pressure dealerships. This was a great example of White Space that produced a very significant change in customer opinions about American cars - and car companies – and in just a few years.
Unfortunately, Roger Smith retired and over the years GM's management has dismantled what made Saturn great. Rather than migrate GM in the direction of what made Saturn a winner, they slowly pulled Saturn into the old Success Formula of GM, killing its advantages. Away went all the uniqueness of Saturn as it was turned into just another division GM. Similarly, the acquisition of Hummer from American General offered an opportunity for GM to move in unique directions – but quickly Hummer became just another division which focused on a narrow product range and eliminated much of its uniqueness homogenizing the brand into something far less desirable. GM spent billions on developing an electric car, more than a decade before the hybrids were launched by Toyota and Honda. But management's Lock-in to preset ideas about what that car needed to do caused them to kill the project — and go so far as to sue test customers to retrieve the electric autos they LOVED.
GM desperately needs leaders willing to Disrupt. And willing to implement White Space to develop a new Success Formula. Leaders willing to let the company migrate toward new ways of operating – who believe it is essential. People like Steve Jobs. People the auto companies weeded out long ago when forcing those who move up to slavishly accept the failing Success Formula and focus on Defending & Extending it – despite the declining results. It will take people from outside GM, Ford and Chrysler to turn them around. It can be done.
by Adam Hartung | Oct 27, 2008 | Disruptions, General, Quotes
You never know when interviewed exactly what the writer is looking for, what the article is, or how your comments will be used. But I was delighted to be interviewed by the acclaimed weekly newspaper Investor's Business Daily a couple of weeks ago. (The article can be found on Yahoo! business here.)
"Get Through It With Grit – by Sonja Carberry
Pust the envelope. Adam Hartung, author of "Create Marketplace Disruption," points out that winning companies aren't afraid to shake things up, especially during a downcycle. He said Cisco — instead of aiming to sell more products — has the "Disruptive" goal of making its offerings obsolete by creating new solutions. "This kind of approach keeps you from riding the tail (of a trend) too long."
Tap rabble-rousers. Hartung cited Apple's CEO as a prime example. "Steve Jobs is a very dsruptive kind of guy," Hartung said. So much so, Apple and Jobs parted ways in 1985. When Jobs was coaxed back to Apple 15 years later, he championed such out-there ideas as the now-mainstream iPod."
What's great in this article is some information from the Managing Director of one of the world's top management consulting companies, Bain & Company. Steve Ellis divulged from a recent Bain study that 24% more firms rose from the bottom to the top of their industries during the 2001 receission than the following sunnier economic period.
What great support for the fact that when markets shift the opportunity is created for changing competitive position. Those companies that build detailed future scenarios, obsess about competitors, Disrupt their internal Lock-ins and implement White Space can come out big winners during market shifts. So if you're a leader, now's a good time to be more Steve Jobs like and not fear Disruption. It's time to push your company to the top by taking advantage of competitor Lock-ins!!
by Adam Hartung | Oct 26, 2008 | Defend & Extend, General, Quotes
(Read the following quote in Forbes, October 5, 1998, written by Peter Drucker) “As we advance deeper into the knowledge economy, the basic assumptions underlying much of what is taught and practiced in the name of management are hopelessly out of date… most of our assumptions about business, technology and organization are at least 50 years old. They have outlived their time… Get the assumptions wrong and everything that follows from them is wrong.”
Last week, former Reserve Board Chairman Alan Greenspan admitted to Congress that his assumptions about financial services and the products being offered, including credit default swaps (CDS), were wrong (read article here). As a result, what he thought would happen in the financial markets – from interest rates to equity prices to currency values – turned out to be wrong. Unfortunately, this helped create the opportunity for runaway leverage and the banking meltdown which has affected world trade since early September. When leaders operate with wrong assumptions, the price paid by everyone can be pretty hefty.
The reality is that pretty much all leaders work with assumptions about business that are very country specific. The impact of global knowledge transfer – of worldwide information at a moment’s notice – of labor arbitrate happening in hours – and the immediacy of financing and financial reactions – is still not well understood by leaders trained in an earlier era. Thus leaders under-recognized the speed with which manufacturing jobs could move around the world – as well as the speed with which IT services could move to lower cost markets. Even though the current Federal Reserve Chairman (Dr. Bernanke) is a student of America’s Great Depression, what he doesn’t understand is that Depression happened in an isolated way to the USA. Today, globalization means that problems with U.S. banks becomes a problem globally. For all his studies of history – things in financial services have fundamentally shifted. His assumptions are, well, often wrong.
In November there will be an economic summit. Some are referring to it as the next “Bretton Woods” – a reference to the meeting in upstate New York which determined how foreign currency exchange rates would be set and how banks would interact between countries (read about the summit here). Yet, there are others who say no changes are needed. But let’s get real. Of course we need to rethink how our country-based banking system works in a world where insurance companies and hedge funds often move faster and have more ability to affect markets than traditional banks. In the 1800s banks in the USA issued their own currency – and then states issued their own currency. Eventually this disappeared to federal currency. So, do we now need a global currency? With the change to the Euro in Eurpope the need for individual country currencies took a step toward unnecessary. Should that trend continue? You see, it’s easy to think about the world using old assumptions – like a U.S. dollar as independent of other countries – but does it make sense in a world where products and services are supplied globally and governments (such as India and China notably) now manipulate their currencies to maintain price advantages?
On Friday evening a “guru” on ABC’s Nightline was talking about the wild swings on the New York Stock Exchange and the NASDAQ. He commented “the only way to get hurt on a roller coaster is to get off. So hold onto your equities and keep buying.” Give me a break. A roller coaster is a closed system. Even though it goes up and down, you know where it will end and the result. WE DON’T KNOW THAT ABOUT EQUITIES TODAY. Many, many companies we’ve known for decades could disappear (GM, Ford, Chrysler are prime examples). Just like Lehman Brothers disappeared, and AIG practically so. If you were an investor in common or preferred equities of Freddie Mac or Fannie Mae, your “roller coaster ride” did not have a happy ending – and you would obviously have been a whole lot smarter to have jumped off. You may get bruised, but that would have been better than the disaster that loomed.
It is critically important to check assumptions. This is not easy. We don’t think about assumptions, they just are part of how we operate. That’s why now, more than ever, it is incredibly important to do scenario planning which will challenge assumptions by opening our eyes to what really might happen. Because you can never assume tomorrow will be like yesterday – not in business. To survive you have to constantly be planning for a future that can be very, very different. Doing more of what you always did will not produce the same results in a shifting world. Planning for future shifts is one of the most important things managers can do.
by Adam Hartung | Oct 21, 2008 | Disruptions, In the Rapids, Leadership, Openness
Yesterday I talked about how Lock-in to an old Success Formula kept Sun Microsystems from undertaking Disruptions in the 1990s that would have helped the company keep from floundering. One could get the point that with this weak economy, the die has been cast and there’s little we can do. "Oh Contrare little one".
Let’s look at Apple (see chart here) – the company Sun passed up to focus on its core server business in the 1990s. Today Apple announced profits are up 26% this year – despite the soft economy (read article here). We all know about the iPod, iTunes, iTouch and now iPhone. Apple has demonstrated that it is willing to bring out new products in new markets without regard for "market conditions", and as a result drive new revenues and profits. It would be easy to delay new investments and new launches in this economy to drive up profits, but the company CEO maintains commitment to internal Disruptions and ongoing White Space to drive growth – especially while competitors are retrenching.
Another recent example is Coach (see chart here) the maker of high-end luggage, leather goods and fashion accesories. Most high-end goods are seeing sales plummet. But Coach used its scenarios about the future to invest in its 103 factory outlets and many discount outlets. Instead of running to the high end and doing more of the same, while cutting costs, Coach has put new products into the market and offered new discount programs – in addition to its growth of outlets beyond the traditional Coach stores (read article about Coach here.)
Any company can take action at any time to grow. All it takes are plans based on future scenarios, rather than based on just doing "more of the same." Being obsessive about competitors allows for launching new products before anyone else, and gaining share. And using Disruptions to create White Space for successful new business development. This can happen at any time – not just when times are good. In fact, when times are bad (like now) it can be the very best time to focus on growth. When competitors are trying to retrench it creates the opportunity to change how customers view you, and grow. This might well be the best time ever to not only Disrupt your own thinking – but Disrupt competitors by changing your Success Formula and doing what’s not expected!
by Adam Hartung | Oct 17, 2008 | General, Innovation, Leadership, Openness
Ever heard of "confirmation bias"? It’s a term that refers to how our behavior changes due to Lock-in. As we develop Lock-in we don’t see all the information around us. Instead, we start filtering information according to our Lock-ins – focusing on the things related to what we know and mostly ignoring things not related. As a result we often start missing things that could be really important. Consider someone who makes hammers (or pheumatic hammers) and nails. They can easily ignore glues, or super-powerful adhesive tape, when those solutoins might well be a greater long-term profit threat than offshore hammer and nail manufacturers!
Another example. A recent headline in The Chicago Tribune read "Abbott Absorbed with new Stent Therapy" (read article here). (See Abbott chart here) The article talks about how newly engineered dissolvable stents have been working extremely well in trials. If you aren’t in the health care industry, or being treated for a possible heart attack, or an investor in Abbott, you might well completely ignore the article. But, that would be a mistake.
Bio-engineering is going to be as important to our future as air travel and computers became. It was easy for people in 1928 riding horses, or driving a Model A, to think air travel was something exotic and only interesting for people obsessed with flight. But, we all know that by the end of WWII airplanes had changed the world, and the way we travel. Likewise, it would have been easy for people with slide rules and adding machines in 1968 to ignore computer discussions when they were mostly about mainframes in air conditioned basements. Yet, by the 1980s computers were everywhere and businesses that were early adopters figured out how to gain significant advantages. And that’s the truth about bio-engineering today. It will make a huge difference in all aspects of our lives.
Fistly, simple things. Like we’re more likely to live longer. But beyond that, injuries will be less onerous. As we learn how to engineer products that are somewhere between inanimate and living, we are able to come closer to the bionic man/woman. We’ll be able to repair major injuries in a fraction of the time. We’ll be able to regrow damaged organs – from skin to livers. We’ll regrow nerves – making paralyzation a temporary phenomenon and dramatically lowering the impact of strokes. Injured soldiers will return to the battlefield within days – instead of going home badly hurt. Senior citizens will regrow damaged or arthritic joints, instead of replacing them with major surgery making it possible for them to work much longer. Athletes will be able to increase performance in ways we’ve never before imagined – and the line between "natural" and "performance enhanced" will become impossible to define.
But think bigger. There is no computer in our bodies, yet we do amazingly complex analytics in record speed. Even a 2 year old can recognize the difference between a bird and a plane in a fraction of a second. Ask a computer to do that simple task! So we can expect a wave of bio-computers to be developed. Devices that use chemical reactions to process information rather than electrons acting in logic gates. How will we apply this technology to our lives and work? Cars that drive themselves? Super-secure baby walkers? Pens that never misspell words? Foods that never overcook? Foods that never spoil? Clothes that change to dissipate or hold-in heat depending on ambient temperature? Floors that purge themselves of dirt – pushing it to the surface for automatic removal?
When we are able to make chemicals – even cells – smart, what happens to the world around us? Do we ever need to go to a dentist if we can have smart toothpaste that eats away tarter and placque, applying flouride, without going into the enamel? Can we eat anything we want if we take products that absorb poison – or possibly fats – and discharge it through the system? Do cosmetics become obsolete if we all have skin creams that repair damage and keep skin forever young? What happens at companies like Procter & Gamble?
As you go to work and do your job, it’s easy to get focused on the industry in which you compete – and the traditional way that industry worked. You stop looking sideways at technologies in other fields not related to what you do today. And that can be a huge mistake. Because it’s often someone that takes a technology you ignored and apply it to your customers’ needs who makes you less valuable. Microsoft singlehandedly, and without much thought, destroyed the encyclopedia business by giving away what was considered a third-rate product (Encarta – for more on this story read Blown to Bits by Evans & Wurster). Encyclopedia Britannica never saw it coming as they kept trying to print a better product.
Spend some time reading ALL the headlines – and keep your eyes open for opportunities that you previously never considered.
by Adam Hartung | Oct 16, 2008 | General, In the Rapids, In the Swamp, Leadership, Lock-in, Openness
Traders help markets function. Because they take short-term positions, sometimes hours, a day or a few days, they are constantly buying and selling. This means that for the rest of us, investors who want to have returns over months and years, there is always a ready market of buyers and sellers out there allowing us to open, increase, decrease or close a position. Traders are important to having a constantly available market for most equity stocks. But, what we know most about traders is that over the long term more than 95% don’t make money. Despite all the transaction volume, their rates of return don’t come close to the Dow Jones Industrial Average – in fact most of them have negative rates of return. Only a few make money.
For investors it’s not important what the daily prices are of a stock, but rather what markets the company is in, and whether the markets and the company are profitably growing. On days like today, which saw the DJIA down triple digits and up triple digits in the same day (read article here), it’s really important we keep in mind that the value of any company in the short term, on any given day, can fluctuate wildly. But honestly, that’s not important. What’s important is whether the company can exp[ect to grow over months and years. Because if it can, it’s value will go up.
Let’s take a look at a couple of companies in the news today. First there’s Google (see chart here). Despite the recession, despite the financial sector meltdown and despite the wild volatility of the financial markets, the number of internet ads continued to go up. Paid clicks actually went up 18% versus a year ago. (read article about Google results here). Gee, imagine that. Do you suppose that given the election interest, the market interest during this financial crisis and the desire to learn at low cost more people than ever might be turning to the internet? Does anyone really think internet use is going to decline – even in this global recession? Google is positioned with a near-monopoly in internet ad placement (Yahoo! is fast becoming obsolete – and is trying to arrange to use Google technology to save itself see Yahoo! chart here]). By competing in a high growth market – and constantly keeping White Space alive developing new products in this and other high-growth markets – Google can look out 3, 5, 10 years and be reasonably assured of growing revenues and profits. And that’s irrespective of the Dow Jones Industrial Average (where Google might well replace GM someday) or whether Microsoft buys the bumbling Yahoo! brand (read about possible acquisition here).
On the other hand, there’s Harley Davidson (see chart here). Motorcycles use considerably less gasoline than autos, so you would think that people would be buying them this past summer as gasoline hit record high $4.00/gallon plus prices. Yet, Harley saw it’s sales tumble 15.5% (much worse than the heavyweight cycle overall market drop of 3%) (read article about Harley Davidson’s results here.) The problem is that Harley is an icon – for folks over 50! The whole "Rebel Without a Cause" and "Easy Rider" image was part of the 1940s post war rebellion, and then the 1960s anti-war rebellion. Both not relevant for the vast majority of motorcycle buyers who are under 35 years old! Additionally, long a company to Defend & Extend its brand, Harley Davidson has raised the average price of its motorcycles to well over $25,000 – a sum greater than most small cars! Comparably sized, and technologicially superior, motorcycles made by Japanese manufacturers sell for $10,000 and less! Worse, the really fast growing part of the market is small motorcycles and scooters that can achieve 45 to 90 miles per gallon – compared to the 30 mile per gallon Harley Davidsons – and Harley has no product at all in that high growth segment! Harley Davidson is a dying technology and a dying brand in an overall growing market. No wonder the company is selling at multi-year lows (down 50% this year and 67% over 2 years) . Even though the stock market may be down, Harley Davidson is unlikely to be a good investment even when the market eventually goes back up (if Harley survives that long without bankruptcy!)
Watching the Dow Jones Industrial Average, or the daily stock price of any company, isn’t very helpful. Daily, prices are controlled by the activity of traders – who come and go incredibly fast and mostly lose money. What’s important is whether the company is keeping itself in the Rapids of Growth. Google is doing a great job at this. Harley Davidson is Locked-in to its old image and thoroughly entrenched in trying to Defend & Extend its Lock-in – completely ignoring for the past decade the more rapid growth in sport bikes, smaller bikes and scooters. As investors, customers, employees and suppliers what we care about is the ability of management to Disrupt their Lockins and use White Space to stay in the Rapids of growth.
