by Adam Hartung | Nov 22, 2006 | Disruptions, In the Rapids, Innovation, Leadership, Openness
When asked about companies that are great examples of Phoenix Principle companies I like to discuss Virgin. For years Virgin was considered a small company, but it is a great example of a small company that has become very, very big by following The Phoenix Principle. There is no doubt that the company founder, Richard Branson, had a lot to do with the company’s enormous success (just as Steve Jobs has had a huge impact on the success of Apple and Pixar). But we can look beyond the flamboyance of Branson to see that the success has had everything to do with avoiding Lock-in to a particular Success Formula and instead accepting Disruptions to constantly create and then manage White Space.
Virgin was founded as a "publishing" company, putting out its first magazine in 1968. In 1970 I guess you could say it became a "media" company as that’s when it entered mail-order music sales. By 1971 Virgin expanced into hard assets by opening its first retail record store, and then in 1972 opening its own studio to actually produce its own content, leading to the Virgin label introduction in 1973. In 1976, Success Formula expansion continued with the opening of a nightclub in 1977. In 1979 Virgin ignored the thinking of everyone else in the "music" industry by signing on The Sex Pistols – an outrageous band which made Virgin a well known label and very wealthy. By 1980, Virgin was pretty well established as a publishing/media/music company with enormous profits and great success. This could easily have Locked-in Virgin.
Then, in 1984 the company realized it had to expand or stagnate. But it didn’t select just one project. The company opened a potpouri of new White Space. Virgin Atlantic Airways was opened to haul passengers, and Virgin Cargo to haul goods. A hotel was opened in Deya, Mallorca. And Virgin Vision opened shop with a 24 hour satellite music channel. What do these have in common? Nothing more than each was a new opportunity to expand the company into high growth industries. The businesses did not even share the goodness of being in high margin businesses – as practically all were markets where profits were extremely rare to nonexistent. Thus, the second great Phoenix Principle axiom was applied. Virgin did not dictate how these projects would succeed. Rather, they were each given resources and permission to find a new Success Formula in markets where Locked-in competitors did poorly.
In 1994 Virgin Cola was launched as a company to compete with Coke and Pepsi. In 1996 Virgin opened Virgin Bridal, the first mass-retail approach to the formerly cottage industry of bridal shop goods. Virgin also partnered with a company winning the contract to build the Channel Tunnel rail link between the UK and Europe. In 1997 the company got into the rail business full bore with 15 lines in England and plans to expand. That year the company also launched Virgin Vie – a cosmetics company. And Virgin Direct banking was opened in the U.K. Why do I mention these? Because they were just some of the projects launched in the 1980s and 1990s that did not become wildly well known successes. Part of creating and managing White Space is trying things that don’t work out. Portfolio management says that we need a mix of projects, yet most organizations cannot stand the thought of investing in something that does not succeed. At Virgin, managing White Space does not just mean starting new things – it also means knowing when to sell or otherwise get out.
This all got my attention recently because Virgin America will be going into service soon, carrying air passengers across the U.S. (See full article in CIO Magazine here.) The project is a marvel at how to manage White Space, culled from decades of doing it well. Simplification is a cornerstone, as the new enterprise is ignoring long-held "beliefs" about what works with airlines – an industry in which 160 air carriers have gone bankrupt since the deregulation in 1978. Virgin relies heavily on vendors and contractors/consultants to get things done in the early days. Rather than use "industry standard" software packages for critical applications like bookings/reservations and scheduling they are literally building their own; and using Linux open source code rather than proprietary source from companies like Oracle or Microsoft. And much of the work is being done in India by companies that has never worked previously for an airline. Virgin is demonstrating that competing means doing what your competitors don’t – in order to be more flexible and develop a new competitive advantage.
Great companies are no accident. What they have in common is a willingness to Disrupt their Lock-in and use White Space to create new Success Formulas. Long-term, success does not come from understanding your "core competency" and optimizing it (if that were true Virgin would likely have followed the path of Playboy magazine or Sun records – the fabled company that launched Elvis but is now gone), but rather from overcoming market Challenges and developing new solutions to compete. To this day Virgin follows this path, fearing no new markets and entering with their own unique Success Formula developed in White Space. And anyone can participate, on the company web site is a link where you an submit your own Big Idea for consideration – always on the lookout for Disruptions and opportunities.
by Adam Hartung | Nov 10, 2006 | General, In the Rapids, Innovation, Leadership, Lifecycle, Openness
I’ve long said that any company can innovate and grow. ANY company. This week we saw an example of a stodgy company, in one of the stodgiest industries, explain how it’s possible to take the steps toward improving its long term success. That company is Allstate – best known for it’s insurance business and its decades old tag line "your in good hands with Allstate." (See complete Chicago Tribune article here.)
I’m optimistic about Allstate, and do think it shows a high likelihood of outperforming its peers. And not because I think they have better underwriters, better risk managers and better agents. Nor because they are looking at all kinds of new products like pet insurance and identity theft insurance, as well as others. Nor because they are planning to roll out new "hipper" office decor.
I’m optimistic because the fellow who’s taking over as CEO shows the willingness to create and manage White Space within Allstate. Starting in 1999, Thomas Wilson took a look at Allstate Financial and wondered why it only sold unregistered products like life insurance and annuities rather than a larger suite of products including mutual funds. He could have studied on this question, pondered the potential market, hired consultants and generally analyzed the question unendingly. But, instead, in his own words he said to the unit leaders "Here’s $10million. Talk to me every two weeks."
With this small act ($10million is relatively small in a $33billion company) and short directive he created White Space in Allstate. He gave the unit permission to try new things, and the funds to execute. He also had the unit report to him, not somewhere down in the company where potential product line conflicts would eventually destroy the innovations. And he started his experiments in an important business, but not the legacy business, so that this unit could demonstrate success without contradicting too rapidly or strongly existing Lock-in.
He did it again in 2003. After decades of advertising, Mr. Wilson felt the advertising was insufficient and ineffective. So he tripled the budget, and told the ad agency to put in place a new team to develop a new program. Not an incremental act, but instead the granting of permission to try something new and plenty of budget to make it work. And again, he took responsibility.
Mr. Wilson wasn’t "born and raised" in Allstate. He worked in accounting, venture capital, investment banking and even the oil business (Amoco – later bought by British Petroleum [BP]) before joining this venerable company. That may have helped him to see the need for White Space, and to take actions to create it at this huge, analytically-driven company. Whatever has driven his actions, like a cross town fellow CEO Ed Zander at Motorola, Thomas Wilson is imbuing Allstate with White Space, and that portends very good things for investors, employees and customers.
by Adam Hartung | Oct 28, 2006 | In the Rapids, Leadership, Lifecycle, Openness
A week ago Motorola missed analyst’s expectations for third quarter revenues and profits, and the stock fell (see story here). Given that the stock price has had a great run the last year, investors might well be tempted to sell the stock, fearing a stumble in the long run of growth.
While that was page one news on the business section, on the same day Motorola made an even more interesting announcement that made page 2. They hired a new Chief Marketing Officer (see full article here). And the person they selected, Casey Keller from Heinz, should put bullishness back into investors.
While at Heinz, 45 year old Keller was responsible for launching the EZ Squirt line of ketchup products, which came out in green, purple and even blue. Needless to say, a new bottle shape, and funny colors, does not drive me to buy more ketchup. But what these launches demonstrate is that Mr. Keller knows how to get permission and funding to try new things – even in a company as staunchly boring as Heinz. He has demonstrated he knows how to get White Space created, and he knows how to manage it for innovation. Innovation that drove brand protection, price support and incremental revenues in an extremely "mature" product line.
Motorola actually saw its 2006 revenues grow 17% versus 2005 in the third quarter, as cell phone market share has risen from 14% to 22% since 2004. That is not a growth stall. But it missed estimates. What does the company need to do now? Why continue the development and implementation of more White Space – leading to more innovation – just as Ed Zander has done since taking the helm of the company.
Looking around Motorola, there aren’t many people with the skills for creating and managing White Space. That was not the winning personal Success Formula before Mr. Zander. So to find a leader that understood how to identify Challenges, and then create and manage White Space Mr. Zander and the Board had to go outside. There they found someone with the right skills – White Space management skills – that should be able to produce even more robust results in the dynamic Motorola of today.
Investors should think twice before jumping out of Motorola. If he’s as good as his past, Mr. Keller just might help Motorola keep their double digit revenue growth going.
by Adam Hartung | Oct 2, 2006 | Disruptions, In the Swamp, Leadership, Lifecycle, Openness
Two very unlikely companies demonstrated this week that anyone can Disrupt and create White Space to develop a new Success Formula. IBM and General Motors both showed signs of what any company can do.
Last spring the leaders of IBM Disrupted their product development process when they opened it up to all employees, suppliers and their family members (read article here). As a result, they involved 53,000 people and generated 37,000 ideas. How, by simply asking for their input. CEO Palmisano attacked hierarchy and sacred notions of product development in high-tech, and as a result he achieved a breakthrough in the potential to redefine IBM’s Success Formula. Now IBM is creating White Space to develop those ideas, committing (in advance!) $100million for operation InnovationJam to see what can work. When Louis Gerstner wrote "Who Says Elephants Can’t Dance" about IBM’s turnaround he demonstrated that size does not preclude innovation and growth. And now that legacy is living on in a tremendous example of just what any company can do.
Even more surprising is what is happening at GM – a company I have unabashadly beat up on the last year. Yet, within the confines of a horribly Locked-in organization we now can see the use of White Space in product design (see complete article here.) As recently as 2001 the hierarchy gave vehicle line executives the say on a car’s appearance – the kind of analytical, cost saving process that produced such great autos as the Pontiac Aztek (don’t remember it? – that’s the point!). "Design had been relegated to putting a wrapper on something that everyone else had decided what the dimensions, the proportions and the interior package were going to be", according to design head Bob Lutz.
What’s different now? "Tom Peters, a GM designer for 22 years called Lutz a ‘breath of fresh air’ because he lets designers start with a fresh sheet of paper." Lutz was brought in, at almost age 70 mind you, by CEO Waggoner as a Disruption to the old hierarchy. As head of design, he reports outside the old hierarchy and directly to the CEO. And his dedicated budget was carved out of the old product groupls. Thus permission and resources were both granted up front, and Lutz has made the most of it.
Many people accept the notion that older companies are unable to change. Like somehow organizations are destined to Lock-in and eventually fail. Unfortunately there is no data to support that notion. The ability to Lock-in and fail is just as apparent in start-ups as in behemoths. And, behemoths can Disrupt and use White Space just as well as a start-up. IBM has shown it’s ability to do so, and we can hope they will keep up their efforts to again be reborn – continuously, like a Phoenix. GM has a much longer and tougher road, but it can be done. If they can just get the rest of the company to behave like Bob Lutz and his design group!
by Adam Hartung | Sep 29, 2006 | General, In the Rapids, Innovation, Openness
As I talk with various groups many tell me that they simply can’t see any White Space opportunities in their area. I tell them the opportunity is always there, you just have to see it. Their problem is too many people try to "think outside the box." What they need to do is "Get outside the box, now think."
A great recent example comes to us from education. For all our uproar about education in America, and expressions of concern, little has changed in the last 50 years. Lock-in still dominates, and most of us see our children going through the same steps as we did. Meanwhile, we know that other countries, India in particular, are finding ways to educate more people to higher levels faster and cheaper than we are. But, when our education professionals get into meetings they mostly come up with minor improvements to the existing system.
Reuters reported today (see article here) that Americans can get tutoring now for as little as $2.50/hour. By going on-line, and using a combination of web tools and internet phone service, our children can receive quality 1-on-1 tutoring, by professionals with master’s degrees in the subject area, every single day for only $100/month. This is about what one hour of traditional face-to-face tutoring costs. And those students who are using the resource are findng huge value.
Of course, these tutors are in India.
Our education professionals are trying to solve problems by "thinking outside the box." Their obvious problem is that when you’re in the box it’s really impossible to think outside. At best, you can push on the sides a little and consider small improvements. But everything about the box keeps you Locked-in to the old Success Formula.
The founders of these offshore services used the approach of "Get outside the Box, now think!". By going offshore, by viewing the capabilities of new technologies without focusing on limitations, and by omitting the concerns created by traditional Lock-in, they identified a new Success Formula. And then, they didn’t try to launch this in the U.S, or with traditional education suppliers. Instead, they developed their own approaches for marketing, distribution and sales. Removed from the Lock-ins (removed from "the box") they were able to develop new solutions.
We all can benefit from getting outside the box. Existing industry conferences and trade shows are primarily focused on Defending & Extending the existing Success Formula. To see new ideas, to identify White Space opportunities, you need to move beyond those forums. You have to find some new terrain for the conversation. Take a trip to India, China or the Phillipines, and visit with companies that have a whole different approach to what you’ve done. And instead of looking for why it won’t work, see if you can create some White Space to try and make it work.
You won’t find White Space if you stay inside "the box." Get outside the box, go to nontraditional sources, and then start thinking about how to make it work. There’ll you find your opportunities for White Space.
by Adam Hartung | Sep 21, 2006 | Defend & Extend, General, In the Rapids, In the Swamp, Innovation, Lifecycle, Lock-in, Openness
On my web site I have a case study comparing Motorola and McDonald’s (download paper here.) As a reader of this BLOG, it won’t surprise you to guess that I think Motorola is a company for the future, and one into which you should consider investing, while McDonald’s is so horribly Locked-in to its past that I see precious little chance it will remain a great company.
Just look at today’s newspaper for further verification. Motorola has announced the launch of a new vending machine to sell mobile phones and accessories (see article here.) Now this might seem pretty bizarre. Who would buy a mobile phone from a vending machine? Honestly, I don’t know who and I know it won’t be me. But, I am impressed. It takes organizational flexibility, a willingness to see market challenges to conventional distribution, an openness to Disrupting old behaviors and the capability to experiment with changes to the Success Formula to try this. The idea had to be created, it had to move through the organization, receive permission for testing and get funding to make it to market. These are all traits of a company trying to stay in the Rapids, trying to maintain its growth, and organized to create and use White Space. While not all projects in such companies succeed, long term the companies do generate higher growth and long-term above average rates of returns.
Meanwhile, today McDonald’s announced their next big idea was to start selling Egg McMuffins all day (see article here.) Now there’s a big dash of creativity! The epitome of Defend & Extend Management, the company is so Locked-in to its old Success Formula it actually considers it exciting, newsworthy and innovative to simply consider expanding the hours it sells an existing, and decades old, product. I doubt Starbucks is quaking with worries about this change impacting their growth. Even by a consultant’s best estimate this will be considered a success if it adds a mere 3% to 5% to the bottom line. What tremendous ambition!
Motorola is Disruptive, willing to create White Space and test new ideas. Who knows what the value of alternative distribution for mobile phones is – such as a point of purchase vending machine. But they are willing to test the idea and see. Maybe it will turn out to be something that young people, or travelers, or some segment really wants. Meanwhile, McDonald’s is doing more of the same, and bragging about how hard it is to actually pull off this simple time-of-day extension for an existing product.
by Adam Hartung | Sep 20, 2006 | Disruptions, General, In the Rapids, Innovation, Leadership, Lifecycle, Openness
I recently blogged about the way Honda managed to be in so many markets, from lawn mowers to airplanes. Maybe not focused, just consistently growing revenues and profits. A very good thing for employees, suppliers, investors and customers.
In that vein, I was delighted yesterday to hear that Motorola is buying Symbol Technologies. Most analysts thought the acquisition "ho-hum" (see Chicago Tribune article here). But they should be excited, because in fact it demonstrates another clear move into White Space.
Most people would think of Motorola as a cell phone manufacturer. And there is no doubt that is their largest business. So, analysts get excited when Motorola talks about cell phones. But there is so much more to Motorola. Their last big acquisition was General Instrument in 2000 (before Ed Zander took over), growing their dominant business in set-top boxes and helping them grow their DVR business. Remember a fast-growing gadget called TiVo? That’s a DVR.
Now, Symbol gets Motorola into bar code readers, mobile computers and enterprise software for inventory management and retail. Included in this business is RFID systems, a new market that lots of people are trying to develop. You could challenge this kind of acquisition as being "off focus", but then you wouldn’t understand the importance of White Space. Here Motorola has just bought itself a nice business, at a good price, that it can use to explore expanding technologies and solutions for people on trucks, in warehouses, using all kinds of wireless technology. New markets, new technologies, new solutions – and even more important new customers.
This is not one of those "restructuring" acquisitions intended to drive up revenue through industry consolidation. This is bona fide expansion into new markets, and creation of more White Space. An effort that can create Disruption opportunities and help define a new Success Formula. All hallmarks of what has been turning Motorola around the last few months. Bravo to management for doing the right thing again!
by Adam Hartung | Sep 17, 2006 | Defend & Extend, Disruptions, General, Lock-in, Openness
I am not terribly mechanically inclined. Yes, I do work on lots of things I own, but I do not consider myself a skilled professional.
I was surprised recently when my 18 year old son told me he was going to buy an old Jeep. "But you already have an old Jeep I bought you" I said. "Yes," he told me "but I want the transmission out of this other one because it is much better for my V-8 than the original one installed. I can switch these transmissions and it will be better for both vehicles, and I should make some money on the situation."
I immediately recognized that this was not a simple job. Heck, he was talking about switching transmissions in two vehicles from different years with different engines and other configuration issues. What if things didn’t line up? What if they didn’t fit? "Son," I said "this is no simple job. I’m afraid it is beyond my skills these days. Do you know what you’re doing?"
To which I got a tremendous answer. "No dad," he said "I’m not sure what it will take. But I have enough money to pull off the job, even if things go really wrong and I have to change the clutch and many other parts. I have lined up a consultant (a professional mechanic) who will advise me on problems. And even though I’m not sure what to do, I’m confident I can figure it out. And, when I’m done, the Jeep I buy will be worth at least what I paid for it and my Jeep will be worth a lot more. I just need permission to tear into it."
Voila! White Space was requested. He didn’t have all the answers, but he was certain he could figure it out. And he had prepared all the resources. Not only to do the job, but what he would do for transportation while his machine was under repair. He had created personal White Space, and all he needed was to Disrupt my Lock-in – my Lock-in that said such a job required a "professional."
Now the transmissions are switched, and things are better all around. Why? Because he created some personal White Space – and I accepted the need for a little Disruption.
by Adam Hartung | Sep 3, 2006 | General, In the Rapids, Innovation, Leadership, Lifecycle, Openness
When I was young the word Google meant a very large number in math class. Today, Google means "to search" – or even more importantly Google represents the latest meteoric growth company. The interesting question, is Google just lucky (right company in the right market at the right time), or is there something more systematic going on?
It shouldn’t surprise you to hear that I think it is systematic. Let’s just take a look at Google’s IT department, and you can compare it to the typical department. Or possibly your own. (For specifics, go to Information Week article here.) Look for the White Space to innovate growth, and compare to most IT departments.
Firstly, despite spending 50% of revenues on IT, the company has no CIO or CTO. Instead, IT responsibility is distributed amongst several Vice Presidents. The closest thing to a CIO they have is a 36 year old with an undergraduate degree in social and political organizations, then a Ph.D. in Psychology. So much for the "tech bent" requirement in the role – or in Google. The fact is, that having distributed responsibility is a Disruptive design element which keeps projects, and people, from getting Locked in.
When it comes to managing technology he says "What we put on each desktop is not as important as how we think about what to put on each desktop…choice is always better than control…control gets in the way of innovation….sees a distinction between tools that tell you something and tools that stop you from doing something….I try to control as little as possible."
Google manages engineers with a matrix system. Employees have mutliple managers, and projects typically last as little as 3 months. Rather than a "good old boy referral" system for placing people, the project assignment system is automated with AI. Every person and every project is reviewed, and input is put in a database, and the information is completely available to EVERYONE to see. That’s right, performance reviews are public knowledge. Another design element that creates Disruptions and avoids Lock-in.
To encourage collaboration, people stay on projects for only a short time. And, to keep people talking lunch is free in the cafeteria. Most people would say that free lunch is simply wasted money. But then again, most people have never come close to Google’s growth rate.
The fact is, Google is loaded with White Space. Its organizational structure is designed to constantly Disrupt the way people work and think, by moving them frequently and rapidly across projects. Feedback is public, so that everyone knows what is working and what isn’t. AI creates job assignments, rather than people, forcing new collaboration and new insights. And R&D is not budgeted separately from IT, engineering or product development, in order to keep work and people moving freely and focused upon results rather than myopic projects or budgets.
There is very little "Focus" at Google. Just dramatic growth, fantastic new product development and introduction, and superb rates of return.
by Adam Hartung | Aug 28, 2006 | Defend & Extend, General, In the Swamp, Leadership, Lifecycle, Lock-in, Quotes
I need to thank one of my readers for bringing to my attention a recent BusinessWeek article on Dell (see article here.) As he pointed out, this article comes almost exactly 3 months after I talked about how Dell’s Lock-in was disastrous. There are some great quotes worthy of sharing:
Regarding Lock-in:
- "Dell remained slavishly loyal to its core idea of ultra-efficient supply-chain management and direct sales to consumers, even as rivals have stepped up their game and markets have shifted to take away some of Dell’s key advantages. Instead of adapting, critics say, Dell cut costs in ways that compromised customer service and, possibly, product quality."
Some readers may recall on April 16, 2006 when I pointed out Wal-Mart’s problems and discussed the risk of being a 1-Trick Pony:
- "They’re a one-trick pony. It was a great trick for over 10 years, but the rest of us have figured it out and Dell hasn’t plowed any of its profits into creating a new trick."
Regarding identifying Telltales of big problems that indicate a company is moving into the Swamp – or Whirlpool:
- "Dell’s culture is not inspirational or aspirational," says Geoffrey Moore, a tech consultant and author of Dealing with Darwin: How Great Companies Innovate at Every Phase of Their Evolution. "This is when they need to be imaginative, but [Dell’s] culture only wants to talk about execution."
Of course, in an execution focused company there is no room for White Space, and you don’t get innovation:
- "They don’t feel they’re part of something at Dell, and they generally leave because they feel frustrated," says Snyder. "Dell is not a fun place to work, and it’s less fun now than it used to be."
- "Even the CEO admitted so in 2003 – "There are some organizations where people think they’re a hero if they invent a new thing," he said. "Being a hero at Dell means saving money."
- "Inside Dell, ideas that break from the model are discouraged, say former Dell managers. Notes one: "You had to be very confident and thick-skinned to stay on an issue that wasn’t popular. A lot of red flags got waved—but only once."
Lock-in makes you an easy target for competitors:
- "But it was clear some time ago that Dell’s model was not keeping pace and was not going to be such a big advantage in the future… And while experts believe Dell got the best prices on components when it was outgrowing all of its rivals, these days newly ascendant HP and Asian rivals Lenovo Group (LNVYG) and Acer are offering plenty of growth themselves."
Once a company commits to a Defend & Extend strategy, it becomes so structurally Locked-in it becomes almost powerless to change:
- "So why hasn’t Michael Dell—clearly a brilliant guy—changed tactics? For starters, say rivals and Dell alums, shifting gears would upset investors who expect hyper-profitability from Dell’s hyper-efficiency. And having stuck to his guns in the past, he can’t risk letting customers think that "Direct from Dell" is no longer the cheapest, smartest way to go."
By following the Siren’s song of "operational excellence" Dell adopted a Defend & Extend strategy that has placed it at great risk. Now it lacks the tools for innovation that could help the company to have a longer, more successful future. Without a serious Disruption, and new leadership that can implement and manage White Space Dell’s future is easy to predict.
