by Adam Hartung | Jun 23, 2008 | Defend & Extend, General, In the Swamp, In the Whirlpool, Leadership, Lock-in, Quotes
Do you have any doubt that the viability of traditional newspapers is at risk? Every newspaper in America is printing fewer pages today than a year ago (and most fewer than 2 years ago). Young people (meaning under 35 – if that’s really young) never got hooked on newspapers, and older readers are abandoning subscriptions, causing advertisers to abandon newspaper advertising – leaving the newspapers with big revenue shortfalls. As ad spending on the internet keeps growing at 100%/year, and Google explodes with revenue and higher valuations as a result, is there any doubt that the typical morning newspaper will have to undergo fundamental restructuring?
Readers of this blog probably don’t have much doubt. But read this quote from the CEO of a major Chicago newspaper – the Sun Times Media Group. "The fallout of this forced downsizing of the nation’s newsrooms is not being replaced elsewhere in our society, nor is it likely to be. Hence, with our most important asset, the newsroom, we will continue to have little competition. When the economy rebounds 12 to 18 months from now, as we believe it will, the newspapers will not only survive but somehow and in some form thrive again." (Read quote in Chicago Tribune article here.)
Give me a break. Talk about putting your head in the sand. Mr. Freidham is really saying "Hey, I’m Locked-in to what I’ve always done and I don’t want to change. Just give me some time, and probably more money, and I’m sure somehow my old Success Formula will make money again. Trust me." Effectively, he’s saying investors should ignore all market information and simply hope, literally, that somehow they will again make money.
That’s probably what the CEOs of Montgomery Wards, Polaroid, Fannie Mae, Brach’s Candy and Wicke’s Furniture were saying a few months before Chapter 11 wiped away their company existence.
Meanwhile, the Huffington Post is opening an office in Chicago. Now, traditionalists might not care about this. But truthfully Ms. Huffington and a few of her 40-odd employees represent a new kind of competitor that is far less expensive, and makes a pretty good, competitive product. Rather than newspaper journalists from the New York Times or Washington Post, who told us about Vietnam 40 years ago, we have Ms. Huffington and her cadre on television almost nightly. Especially when it comes to politics, they are considered closer to the news sources than many leading newspapers, and their reporting is considerably more timely. If you want to know John McCain or Barack Obama’s next move on a vice presidential selection keep your browser on Huffington Post rather than waiting for what the Sun Times will print tomorrow. The Huffington Post may not yet be the L.A. Times, but at a fraction of the cost they are rapidly making improvement, growing readership and advertisers, and making money in the process.
All the major newspapers could have opened web sites and become the Huffington Post. Marketwatch.com, had no advantage over the Wall Street Journal. But the newspaper leaders didn’t try to embrace the web and find a new Success Formula. Instead of opening web bureaus and giving them lots of cash to figure out how to be the next CNNMoney.com they under-invested in the web environment. They tried to make the web sites just some sort of mirror of the newspaper – without knowing how to get ad revenues for the effort. And to this day, the major newspapers are still not internally Disrupting and opening White Space to redefine themselves on the web. Successful web sites are not anything like newspapers – yet they distribute news rather effectively.
I like to read a newspaper. But I don’t read every word. I like the paper because I can scan it. If I like the headline, I grab a few words. If I like the article, I go online and find the article to read later digitally. So why don’t newspapers just print the headlines, an article abstract and on-line addresses? That’s just one idea out of probably a hundred to change how newspapers operate. Why don’t they try them? Because they don’t know how to make the on-line business profitable! No major newspaper today sells on-line ads at the same time as print ads – and they don’t know how to sell on-line advertising effectively. The publishers never Disrupted their operations, realized there is real risk in avoiding change, nor created White Space in which to learn. Now the market shift to on-line is so far advanced they are without the resources and time to learn.
Newspapers need to take action, and fast. Misplaced optimism about the future is simply dreaming – yearning for the past to return. There are things newspapers do well, and digging up stories is one of them. But in a declining print readership market, they’ll lose that capability if they don’t quickly learn how to profitably monetize it. With the Sun Times near bankruptcy due to years of mismanagement and fraud, and now Tribune Corporation sailing toward the brink due to its incredible debt load, it’s possible Chicago readers and advertisers could be without an effective local news source in just a few years! It would behoove these companies to realize the newspaper of old will never return, and pour their resources into discovering a new way to compete – Pronto! Or we won’t have anybody left doing the hard work of journalism and it will be the consumers of news that suffer most.
by Adam Hartung | Jun 13, 2008 | General, Leadership, Quotes
After 30 years with Tribune company, the current publisher of The Chicago Tribune is leaving. It’s his second time in the job. Now the company is beleaguered by too much debt in the face of declining traditional readers and revenue – and without a plan to transition with market needs. He feels he’s changed all he can. But as he departs, his statement was well put (read quote here):
"If there’s one thing I’ve learned in 30 years," he said, "it’s success is determined by great people far more than great plans because plans need to change, but great people change with the times."
by Adam Hartung | Jun 12, 2008 | Disruptions, General, Innovation, Lifecycle, Openness
Yesterday the news services all reported that America’s National Center for Health Statistics now has determined the average person born this year will live to over 78 years old (read article here.) White women will live to 81, and white men to 76, while black women to 77 and black men to 70. Did you haar about this on the television, radio or see in the newspaper? What are you going to do about it?
We’ve known across our liftetimes that people are living longer. Substantially longer. So, hearing this sort of information becomes like the weather – we see it but we don’t really pay any attention. Unless there is a pending calamity (such as a thunderstorm) we pretty much ignore the information. But this really has some big implications. And for businesspeople, failing to plan for those implications could be deadly.
The most obvious implication is retirement. President Franklin Roosevelt declared the retirement age would be 65 when he established Social Security. Where did 65 come from? It was the life expectancy at the time. In other words, the program wouldn’t be too costly because at least half of Americans weren’t expected to survive to ever get a check. That’s no longer true. So can we continue to expect retirement at 65? If not, what does that mean for your business? When was the last time you hired someone knew who was over 55? If she can work until 75, is a 20 year potential loyalty too short? Maybe the company that seeks out people over 55 to hire will have an advantage? Will these older workers be more dedicated, harder working, less distracted by children at home and school, quicker to complete tasks due to more experience, make fewer mistakes due to better judgement, require fewer benefits (like child care or education subsidies), be more punctual and possibly even work for less pay?
Oh yes, but there’s the cost of health care. We all know health care costs are going up. Of course, 20 years ago people with strokes, heart attacks and cancer died. Now we know not only how to save their lives, but keep them alive for a very long time with medication, rehabilitation services and assisted living. Of course there’s a cost to this. How will we pay for this? Will health care jobs become less valuable? Will we import health care workers? Will we export health care work to foreign countries – asking people to go to India on vacation and replace a hip while there (medical tourism is one of India’s fastest growing businesses)? Will we change our lews and care standards so that health care is more automated and cheaper but with an allowable error rate? Who will benefit from changes in health care?
We used to accept health insurance companies saying that once you had one of these illnesses your insurance forever after would be extremely expensive – if you could obtain coverage at all. But should employers accept this? We now know cancer, heart attack and stroke survivors live decades without recurrences – so does it make sense to charge more for insuring these folks. If we keep adding up more and more people who are survivors of illness will we end up with the government the "insurer of last resort"? If we want to employ these people but we don’t because of heath care costs can we expect governmental intervention? Will we begin charging penalties for smoking, drinking, poor exercise habits? Will we lose our civil liberties as we strive to lower health care costs (no one thinks its a bad thing that we force everyone to wear a seat belt today – a clear loss of the civil liberty to choose whether to wear one)? What insurance practices will be necessary to compete? What insurance practices should employers seek out?
How about immigration? As we live longer the average age is going up as well. Where will the younger people come from to do all the manual work the retirees don’t do? Should we expect an impact on immigration reform that might involve allowing more workers into the country to offset the aging? Will that lead to an increase in demand for education and skills training? Will it change our use of English as the only language? Will it change the foods sold in grocery stores? Demand for housing, and the type of housing desired?
What about television programming? Will it remain totally focused on younger people in the "coveted advertiser age groups" below 54? Will it make sense to run movies at 7:00pm rather than 11:30 or midnight? What about retail stores, should they make changes for an older average population? Do huge shopping malls make sense if people are less interested in spending the day roaming this indoor paladium?
Average life expectancy is just a simple projection, made by the government every year. Easy to ignore while we run our business every day. But it has significant implications on many businesses – implications that could have an impact in as little as 5 years. Add onto that other easy projections – like urgan sprawl is causing water use to increase, and growing economies in China and India means exponential growth in demand for fuel, and increasing education in foreign countries means the standard of living is going up faster outside the U.S. than inside – and what do these mean for your business in 5 years? If you’re a homebuilder, should you be in the USA or India? If you run a college should you be opening a new campus in the U.S. or China? If you’re in health care, should your next hospital be in Chicago, or Thailand? If you’re a recruiter, should you be putting your management through foreign language school? If you make TV programs, should you expand your studio in Burbank, or open one in Bollywood? You don’t need a crystal ball. It’s not about having a highly accurate forecast. It’s just, are you really planning for a future that will most likely be different than the past? If you’re not, you’re sure putting a lot of faith in luck.
by Adam Hartung | May 17, 2008 | General, Leadership, Openness
It’s been 32 years since Network emerged from Hollywood to win 4 academy awards be nominated for 6 more. At the time, CBS was #1 in broadcast news, and Walter Cronkite was a fixture on the American landscape. All Americans watched as Walter told us about the shooting of President Kennedy, and as a man first put his foot on the moon. In the late 1970s we all scoffed when Network projected a future in which news would become entertainment, when a "newscaster" could become a ranting lunatic like Howard Beal the "mad profit of the airwaves" (anyone watch Jim Cramer on CNBC lately, or Bill O’Reilly on Fox News), and ratings would be so critical that people would live or die by them.
How little did we know the predictiveness of this film. It wasn’t long before Lawrence Tisch took over CBS, drastically slashed costs in news and put the network focus on ratings over content. What that set in motion is now almost hard to recognize, as 3 decades later U.S. network news is struggling to survive in the internet age. Seperating news from comment, and fact giving from entertainment, has not only allowed "The Daly Show" to be considered news (on The Comedy Channel) but thousands of websites to get into the "news" business. Increasingly, tens of millions of Americans rely on the internet for their news – abandoning newspapers and televion as well.
And now CBS has purchased Cnet (read article here). Paying 4.5 times revenue, and over 100 times earnings. But this may well be a survival issue for modern news reporting. We will never again return to the family all watching an anchor, or even depending upon television to report an election victory or breaking item (as I write this I’ve been updated via the web that within the last 3 hours Senator Kennedy of Massachusetts appears to have suffered a stroke – something network news watchers won’t learn about for another 6 hours). CBS must find a way to evolve or watch as its ability to maintain "news" shrinks into oblivian. The price CBS paid appears high – but what is the right price for survival?
Will this work? History has warned us to be skeptical. When Time Warner of HBO, CNN and other cable TV fame bought AOL it was heralded as a change in the media landscape. But the acquisition made no difference on Time Warner’s future as AOL stopped evolving and both companies found themselves struggling to survive.
For CBS to avoid this fate it must be careful how it treats this acquisition. Firstly, CBS MUST Disrupt the existing CBS organization. Make clear that not only news, but traditional entertainment (such as prime time dramas and sitcoms) is losing audience to the web. More people watch top YouTube flicks than watch most network television programs. The people at CBS from the top all the way to the bottom have to see their Lock-ins to traditional business attacked, and made clear that the future will be very different (much as Mr. Tisch did when he took over the powerful but struggling enterprise so long ago.)
Secondly, CBS must make sure Cnet is managed in White Space. Cnet must be challenged to LEAD CBS by setting high goals and then accomplishing them. CBS must resource Cnet to succeed, operated in White Space, and then work very hard to make sure EVERYONE becomes as familiar with Cnet as we now know about Google (a lofty goal – but the one to shoot for). Traditional CBS must be guided to watch and learn from Cnet. To rapidly adopt what works in this White Space project. CBS must migrate toward the internet-enabled media future, and Cnet must be the guiding group providing insight to what will work. This is a big challenge for Cnet – but it must take on this challenge and be held accountable for results.
CBS is facing big Challenges as media goes through this wrenching change. No longer do newspapers "own" a city and therby its advertisers. No longer do networks – broadcast or cable – have a grip on viewers that virtually forces them to watch ads as well as programming. The web has changed what we can do to be informed and entertained. Google is leading this market change today, followed by Yahoo! and News Corp. Will CBS make it through the challenges? Will CBS remain a viable competitor in the media landscape of 2020? Or will it disappear like a dinosaur overtaken by a shifting environment? It depends on what CBS does with Cnet. Managed right, this could be the most powerful decision the company makes this decade. Managed wrong, and CBS could be something we have to teach in high school history as students discuss the "golden age of TV."
by Adam Hartung | May 15, 2008 | Disruptions, In the Rapids, Innovation, Leadership, Lifecycle, Openness
General Electric (see chart here) announced today it is looking at ways to sell its appliance business (see article here). Great move! Too many companies hold onto a business for all the wrong reasons, and refuse to take action to keep themselves in the Rapids.
GE needs to Disrupt. The old CEO, Jack Welch, was famous for taking Disruptions. That’s how he got the nickname Neutron Jack. Keeping his eyes on the future, he kept GE focused on new opportunities and he used White Space to develop new Success Formulas. And while he had the top job GE performed admirably, growing multi-fold. If a business didn’t meet goals, Mr. Welch sold the business and invested his management talent and money in better opportunities.
Now GE finds itself nearing the Flats. Last quarter saw a profit decline. Two in a row, and the company falls into Growth Stall from which it has only a 7% chance of returning to consistent growth exceeding 2%. So that blip in a century-old record was a very big deal. And the good news is that the current CEO seems not to be ignoring it. He looked around, and found one of the long-legacy businesses of GE with little innovation and limited growth. While competitors were re-introducing front-loading washers, low energy and low water washers, and scads of various innovations in large appliances his team was #1 in share but far from #1 in market leadership. Management was happy to blame poor performance on the bad U.S. economy, and the stagnation in U.S. new home sales, planning on a recovery some time in the future. So sell it! That’s what Mr. Welch would have done, and that’s what Mr. Immelt is now doing. There are always opportunities for innovators in all markets, and keeping around Locked-in management teams that think they are doing OK because their markets turn south only breeds ongoing poor results.
Yes, GE was in appliances for 100 years. But so what? Today appliances are only 4% of this $178billion revenue behemoth. And GE needs to maintain its growth goal of 10%. The CEO can’t accept excuses. Millions of houses are being built in India and China and South America – and with enough innovation current homeowners will replace old appliances. Insufficient growth is a management issue – not a market issue. Markets are how you define them, and if your defined market isn’t growing go into another one! GE needs to stay in the growth Rapids, and having been around a long time is no reason to coddle a management team that doesn’t know how to maintain growth. GE is in a lot of businesses, and it has gotten out of a lot of businesses, and it can get into a lot of new businesses. Congratulations to the top executives for not letting history put the company at risk of going into the Flats and then the Swamp of low returns.
Too many leaders are unwilling to Disrupt. They let ties to Lock-ins keep them trying to "fix" a business. Doing more of the same, trying to be faster or cheaper, when what’s needed is a new Success Formula. GE is showing us that if you keep your eyes on the future, and hold tight to meeting your growth goals, you can’t afford to let Status Quo Police keep you focused on Lock-ins. You can’t try to succeed by merely Defending & Extending what you always did. You have to be willing to Disrupt and do entirely new things. You have to Take Action before it’s too late. Good job GE.
by Adam Hartung | Apr 22, 2008 | Defend & Extend, General, Lock-in, Openness
Educational systems get a lot of attention all over the world. For years Americans thought their educational system was the world standard. America was early in offering an education free to all citizens. And Americans quickly got to the top of world charts with its percentage of high school graduates. But that was all long ago – back in the 1950s.
Since then almost every developed country has exceeded America’s educational system. Today America is known for its graduate schools. There is little doubt that if you want a master’s or Ph.D. you will get a good program at a good price in America. Same is true for professional degrees, like law, medicine or an MBA. But below that? But from kindergarten through high school, we are no longer even competitive with other countries like Japan, Taiwan, Germany and the U.K. (just a short starter list).
Most Americans know this. It is the lead every year once or twice in the major newspapers. So Americans usually step up to vote bonds for more school buildings and equipment. And they pay the highest property taxes on the globe to cover operating costs like teacher salaries. While not the best, America’s is BY FAR the most expensive educational system on the planet. Yet, year after year America’s basic educational system falls farther behind competitively.
Today many of America’s best college admits are home schooled – they don’t go to a public school at all! Long considered an approach only used by religious extremists, home schooling the last 20 years has started to show dramatic results. This week the top high school applicant in Illinois (which includes the huge Chicago area) was a home schooled girl (read article here). She was accepted to Harvard, Yale, Princeton, Stanford, Northwester, etc.,etc. And in the last winter Olympics we learned America’s best shot at medaling was from a home schooled young male.
Again and again we are seeing people who do better on exams, are more emotionally balanced, have better self-images and are better equipped for life are home schooled. Heaven help me for saying this. My past-on father was a lifetime educator, as was his sister, as was my oldest sister and her husband. I’ve lived around educators all my life – and we all believed in public education. But today, students are increasingly miserable and under-educated in the American system. Drug use is high, absenteeism is high, extra-curricular participation is down, students are losing all their liberties to draconian security measures, and yet shootings are surprisingly common.
The problem lies in management. It’s hard to find a more Locked-in administrator than the one in your local school. Years ago we turned over the reigns of our schools to these administrators in the belief that professional management would be better than all the involvement which used to come from parents. And those professionals rapidly Locked-in a system for education, from curriculum to hours of teaching to accreditation for schools and teachers, that has served the administration well – and no one else.
I’ve had many discussions with the leaders at the nationally ranked and 4,000 student high school my sons attend. And the one thing that has always been consistent is they don’t care what I, or any other parent, or anyone else has to say. These administrators have no White Space in these schools to practice alternative educational techniques. And they don’t want any. NO DISRUPTIONS could be printed on a banner in the main hallway, since these managers have no tolerance for anyone doing anything that isn’t a defense or extension of the existing system. Results are immaterial to these administrators – all that matters is remaining Locked-in to past practices.
Talking to many school administrators the last 20 years, my impression is they have more in common with Korean dictator Kim Sung Il than early educational founders Plato, Socrates or Aristotle (those philosophers who were threatened with stoning for being teachers, yet laid the foundation for the inquisitive system of education we most value in graduate schools today). Their schools are dispassionate corridors of non-thinking supplication. Students, teachers and parents are not listened to, only disparaged if they disagree with these administrative stalwarts clearly happy to be Status Quo Police. The road to more money in education is via administration or seniority, and that route is only followed by pledging to never experiment, never do anything new and never actually open the doors to inquisitive thought and open-minded discussion.
It is hard for most parents to think that they could educate their children at home as well as they are taught at school. Yet, fledgling data (often anecdotal, admittedly) is that home schooling and alternative education is proving to be far more productive and valuable than the near-prison like conditions run by the modern wardens of thought we call principles, vice-principles and deans in the vast majority of our public schools. And we should not be surprised, because it is in these alternative and home schools that the educational process is Disruptive – like Socrates asking impossible questions of his students – and White Space is allowed where THINKING is more important than FOLLOWING RULES.
For young parents today, it should not be an automatic action to enroll their children in the local public or parochial (accredited but not public) school. If you want your child to be the next leader, someone needs to bring out the best in that child – and use the best available educational tools in new and possibly unique ways. And that is not going to happen in these Locked-in environments. American children are being set-up to fail when competing with better educated children from foreign countires once they enter universities which are increasingly filled with students from these other lands. It’s time parents get outside their box of traditional behavior and think about how their children can actually become competitive with children globally. There is no more important decision worthy of White Space than the education of our country’s youth.
by Adam Hartung | Apr 16, 2008 | Disruptions, In the Swamp, Innovation, Leadership, Lifecycle, Openness
It’s hard to turn around a Locked-In company. But it sure is exciting to see a CEO try. And that’s what is happening at Allstate (see chart here.) I blogged previously about this historically staid company that has begun Disrupting and using White Space to chart a new course.
Taking a page from Neutron Jack Welch’s book about how to be a Disruptive leader, the CEO recently decided to implement the "80/20 Management Principle" which he picked up from Illinois Tool Works (read full article here). ITW, by the way, happens to be one of the most long-term successful companies in the U.S., with decades of experience Disrupting and implementing White Space to grow. So the Allstate CEO said "let’s implement this policy, and see if we can be a better company." It doesn’t matter if 80/20 is a great idea or not – the point is that it is Disrupting the old approaches and making people change they way they work. Mr. Welch used rules like "Be #1 or #2 in your business or get out" and created DestroyYourBusiness.com teams to Disrupt people at GE – and open White Space for new growth. For us as investors, suppliers and employees what’s critical is that the CEO is Disrupting people, and causing them to look for new ways to manage the business.
The Allstate CEO is also on a path to use White Space to "reinvent" Allstate (read article here.) Yes, he’s implementing product extensions intended to defend the historical business. But he’s being clear to call these "horizontal" products and he says they really aren’t "new." Meanwhile, he is simultaneously setting up teams to develop entirely new "vertical" products that he intends to use for changing what Allstate develops and sells. These White Space teams range from new insurance products, to new investment vehicles (like mutual funds) to hybrid products that offer both insurance and investment – but different from the old-fashioned "whole life" policies sold our parents and grandparents.
Kudo’s to CEO Wilson, the management team, Chairman and Board of Directors at Allstate. After reeling from the hurricanes, they could have attempted to persevere with business as usual. But even Warren Buffet has said that the old insurance business will see costs rise faster than revenues. At Allstate leadership is using Disruptions and White Space to create a new future that will reposition the company for customer needs in 2015 and beyond. Good for them. They are on the way to becoming a Phoenix Principle company with long-term above average returns!
by Adam Hartung | Apr 9, 2008 | General, In the Rapids, Innovation, Leadership, Openness
Great companies don’t only get into new businesses, they know when to get out. Look at GE – a company that sells almost as many businesses as it buys every year. Another company following this practice is Philips (see chart here). In the U.S. few people know much about Philips – although it is a global company with many successful products in multiple businesses.
Philips sells consumer products, like radios, telephones, monitors, DVD players, cameras, webcams, Sonicare toothbrushes, Norelco razors, MP3 players and televisions. It also sells medical systems – like CT scanners, ultrasound machines and heart defibrilators. It sells lighting systems which includes everything from home light bulbs to interior designs to products for lighting the exterior of office skyscrapers or religious temples. Philips was a pioneer in developing compact disc technology and optical storage devices and is a leader in high tech plastics and printed circuit board technology. (Read about Philips at its company web site here.)
Philips generated 2007 revenues of $39billion. Founded and run out of the Netherlands, this is pretty remarkable. The Netherlands has only 16.5million people! The whole country’s population is about 2x the five buroughs of New York City – or the same as the New York metropolitan area. Yet this company is bigger than DuPont, Intel, 3M and Merck – all members of the Dow Jones Industrial Average. Founded in 1891, Philips has met the test of time, entering new markets, and growing both revenues and profits, for several decades. Well resourced, Philips has created and implemented White Space to grow for longer than almost any company in the U.S.A.
Yet, today Philips announced it was going to quit making televisions for North America (read article here). A pioneer, and leader, in flat panel televisions – a high growth product line in the consumer-centric U.S. market – Philips is abandoning manufacturing this $1.7Billion product line, shutting its Althanta headquarters. Manufacturing for the Philips and Magnavox brands will transfer to Tokyo based Funai (which makes Emerson brand as well.)
Phoenix Principle companies not only are quick to Disrupt and implement White Space, they are quick to get out as well. And here we see a large company, with big resources, walk away from manufacturing a product line that is huge WHILE GROWTH IS GOOD. Long before the business slips into the Swamp Philips is looking ahead and changing course. Rather than get trapped in a low-profit business as growth slows, they are getting out on the way up to maximize the value – while focusing precious resources on other opportunities.
All companies of all sizes can be fleet of foot. Even large and aged ones. It requires the discipline to be forward-focused on markets and opportunities rather than history focused. It requires not getting blinded to think big businesses need Defend & Extend behavior – but rather the flexibility to move fast as markets move. It requires a willingness to not rely on your own internal focus – and your own resource pool – when making decisions about future investments. It requires the skill to realize that not all White Space is worth additional investment, and there are times to get out.
Long term success requires overcoming Lock-in. Not only by consistently setting up new White Space, but knowing when to get out of White Space rather than Lock-in on its efforts. Constantly getting into new opportunities means, by definition, that not all are worth pursuing. Some get out early, and others later. It takes discipline to overcome Lock-in – and Philips has shown the knack for 10 decades.
by Adam Hartung | Mar 25, 2008 | Disruptions, Leadership, Lock-in, Openness
Whenever we want change too often we can’t. Everyone will agree to change, but we are so Locked-in that we we can’t seem to behave differently, even though we realize poor performance requires change and we agree we have to do things differently. That’s why Disruptions are so critical. Disruptions cause us to stop – and realize other options are possible.
As we ended the 1970s the U.S. was struggling with a host of problems, and some pretty poor performance. The 1970s had seen a huge jump in petroleum prices, runaway inflation with interest rates nearly 20% on everything including corporate debt and mortgages, job stagnation with high unemployment, and tense international relations as American diplomats were trapped in a multi-month hostage situation in Iran. The decade’s last President (Jimmy Carter) referred to America as being in a "malaise". American GDP was going nowhere as Japanese producers looked like they were quickly taking over global manufacturing as well as demonstrating superior quality in a wide range of products.
So what happened in the 1980s to turn this around? President Ronald Reagan implemented a Disruption that changed the way almost everyone thought about many issues. Unlike any other President, early in his presidency Mr. Reagan fired all the striking air traffic controllers. This was unprecedented. He risked the recently deregulated airline industry, the image of government paid jobs (air traffic controllers were FAA employees) as "untouchable", his reputation and decades of labor/management relations by simply refusing to negotiate with the striking controllers and setting up a program to replace them all. In days, everyone in America knew something very different was happening. Whether they agreed with Mr. Reagan or not, everyone knew that this was not going to be "business as usual." Right in the core of American employment, the federal government, a leader had said he was going to do things very differently. And everyone saw he meant business.
This was an enormous Disruption. Not just to airlines and the flying public. This Disrupted how the federal government worked, and how employees and legislators thought about how government would lead. The Disruption was so dramatic that it caused people to say "what else could be different? If we don’t have to negotiate with unions, what else could be changed?" Within months Mr. Reagan took to Congress, and the American public, a radical idea popularized by a fairly obscure economist named Arthur Laffer saying that lowering taxes would actually increase government revenue. To all traditionalists, and most people, this seemed absurd. But in the Disrupted environment post strike-firings Mr. Reagan said "why don’t we give this a try. What we’ve been doing hasn’t worked. Maybe this will. We need to give this a try." And Congress passed the most extensive income-tax rate reduction in American history – literally halving the rates on top taxpayers and cutting rates for everyone else.
The Disruption opened the door to White Space. And once he had White Space, Mr. Reagan used it. He offered as experiments new programs to cut taxes, new user fees to fund parks and other government facilities, and the increased use of outsourcers to cut the cost of government operations. All of these had an impact on rapidly changing what was happening in America – and all were made possible by first Disrupting and then creating White Space to try new approaches. Helped by a release of the hostages on his first day in office, dramatically falling oil prices, and a much more effective federal reserve run by monetarists that had finally gotten control of the money supply leading to much lower interest rates and inflation, Mr. Reagan was able to try a lot of new things which changed the direction of America. But without Disrupting, none of his ideas would have been tried and who knows what the outcome would have been.
America’s Labor movement has never recovered from the Disruption Mr. Reagan implemented. As the attached chart shows, strikes have almost disappeared. And average incomes in America have not kept up with basic inflation, much less core costs like health care, for 25 years. But no one can doubt that Mr. Reagan changed things. And it all started by firing the air traffic controllers – a Disruption that caused people to stop, altered how everyone thought, and created the opportunity for White Space.
by Adam Hartung | Mar 19, 2008 | General, In the Rapids, Innovation, Openness
We all are surrounded by so much Lock-in and Defend & Extend Management that sometimes it can be hard to find White Space.
On 3/19 the Chicago Tribune reported the creation of some White Space that could be very valuable (read article here.) Microsoft and Intel each invested $10million to open research centers at the University of Illinois in Champaign, and a like amount at the University of California in Berkeley. These centers have the openness to pursue new approaches to parallel computing which could improve everything from solving complex problems to identifying your most important text messages.
The key attributes of this White Space include: (1) permission to pursue any solution likely to succeed. Located at universitites, these projects are not hide-bound to previous company technology investments. University based research gives the profs and grad students the lattitude to seek out solutions which could well be overlooked in a traditional R&D organization. (2) Resources to actually make a difference. Regularly I hear about small companies trying to raise $200,000 or $500,000 for research. Today, that money goes only a short distance. $10million provides enough funds to really seek out a solution. And, (3) not all the eggs are in one basket. Investors selected 2 different locations to pursue the objectives, allowing failure while not completely jeapardizing results. Investing in 2 universities demonstrates recognition that no one can predict where success will occur, so it’s smart to have multiple approaches.
You could challenge these investments as perhaps lacking sufficient Return on Investment justification. But, recall that Internet Explorer was a product developed as a direct result of Mosaic, developed at the University of Illinois, and eventually licensed to Microsoft through a company called Spyglass. And IE had an extremely favorable ROI for Microsoft. White Space should not be a "throw away your money" pursuit. But it is OK to invest in areas where you cannot fully predict the result – and rather just the direction. If the outcome from this $20million (which was matched by $16million of state funding) is even 1/20th as successful as IE the value will be HUGE.
