by Adam Hartung | Aug 9, 2006 | Defend & Extend, General, In the Rapids, In the Swamp, Innovation, Leadership, Lock-in, Openness
Once again we have the opportunity to view the tale of two companies. Both troubled, yet capable of success if they do the right things.
Motorola was struggling a few years ago. Then, a new leader came on board and started Disrupting the old Success Formula. Simultaneously, he opened up White Space all around the company. Sales went up, and so did innovation. While everyone knows about the success of RAZR, Motorola also built its business in digital video recorders and networks. Now, today, we learn that Motorola has further grown its success, winning a $3billion deal to build out a wireless data network for Sprint/Nextel. (See full article here.)
Sara Lee found itself also struggling a few years ago. They also hired a new leader. But this leader chose to disturb the organization without really changing the Success Formula – focusing on cost cutting and selling businesses without creating any new White Space. Now, today, we find out that the leader is conceding she won’t meet her margin goals (even as the business shrinks more than 50%), and isn’t really sure when the company will be growing again. (See full article here.)
Motorola is up over 30% in market value. Sara Lee is down more than 30% in market value. Those who read this blog know that I was a very early fan of Motorola’s turnaround, and recommended it as an investment. They also know I’ve been a longstanding pessimist of Sara Lee. Why? It’s as simple as White Space. At Motorola you could observe a leader attacking the Lock-in and implementing White Space. At Sara Lee there was no attack on company, or industry, Lock-in to old formulas and there was absolutely no White Space.
A successful turnaround absolutely requires fast action to Disrupt and implement White Space. It is the single best predictor of whether a company will overcome its growth stall, or not. Any time you need to decide whether to invest in, join, or supply a troubled company follow one simple rule – Follow the White Space.
by Adam Hartung | Jul 30, 2006 | General, In the Rapids, Innovation, Leadership, Lifecycle, Openness
When I was young (40 years ago) GM and Ford made cars and trucks. Harley Davidson made big, loud motorcycles. Boeing and Cessna made airplanes. Briggs and Straton made the engines for lawn mowers and other yard equipment. Today, you pretty much can make those same statements.
In the 1960s a company named Honda came to America with a little 50cc motorcycle. No one knew much about this company or what it did. But today, Honda does a lot. Motorcycles, all terrain vehicles, personal watercraft (jet skis), automobiles, full size pick-up trucks, electric generators, lawn mowers and garden tractors, outboard boat motors, water pumps, scooters, snowblowers, robots and airplanes. So, what market are they in?
Honda eschewed the commonly held notions of "core market" and "core customer". They don’t try to be #1 or #2 in their markets (they are the #3 Japanese auto company, for example). You can’t define them in any easy way. Just that they keep growing well above the market average, they keep making money, and they keep providing a doubling our tripling of value for their investors every 7 years or so (quite better than the market average.)
So what drives this success? A focus on innovation as a tool to avoid Lock-in. Let’s look at their recent move into jet airplanes (could you imagine GM, Ford, Harley Davidson or Briggs & Stratton announcing they intend to make and sell airplanes?) The project is led by the V.P. of North American R&D – not the Marketing or Strategy head. His approach has been to apply innovation. Honda is using unique engine mounting (top of wing instead of on the fuselage), building with composite material instead of aluminum and implementing a unique wing shape which achieves a larger interior cabin, higher cruising speed and greater fuel efficiency.
Of course, the competition is belittling this new Honda entry with statements like "It’s a brand new territory for Honda… It’s very different than the consumer market." OK. Sounds a lot like what the original players said when Honda entered the motorcycle market, the auto market, the lawn/garden market, the full-size pickup market and then the outboard motor market. Yet, in each, the innovations Honda brought to market allowed them to attract customers for their products at a good price and a great margin.
Honda does not fixate upon its "core markets", it’s "core capabilities" or even its "core customers". Instead, it constantly looks for new opportunities to innovate and add value. It does not fear new markets, but rather sees each new market as an opportunity to Disrupt itself and create White Space for a new solution. Then, they are merciless in their efforts to do what no previous competitor has done to create value for customers. And now, they are far more successful than #1 or #2 in almost every market they compete.
by Adam Hartung | Jul 22, 2006 | Disruptions, General, In the Swamp, Innovation, Leadership, Openness
Everyone wants an evergreen company – one that is constantly growing and self-renewing, generating more revenues and profits year over year. One such company is Illinois Tool Works. Have you heard of it? Do you know what they do?
One of the most important things ITW does is avoid Lock-in. ITW has no fixation with core markets, core customers, core products nor core competencies. In fact, the company is a collection of over 600 small businesses around the world, in a wide range of businesses. They don’t seek imagined synergy and push for consolidations and mergers, instead allowing each business to each maximally develop their customer opportunities and markets. Headquarters does not dictate the strategy or markets for these businesses. ITW doesn’t even try to limit its businesses to being in similar markets, functions, technologies or product lines.
What ITW does is consistently grow, and consistently make more money. For 90 years. Revenues grow at about 10%/year, earnings at about 15%/year and earnings per share about 14%/year.
How? Like I said, the company first and foremost avoids Lock-in. Leadership isn’t trying to follow fad definitions of new markets, or catch the latest wave of analyst hot buttons. They disrupt themselves by constantly looking into new markets, new technologies and new product opportunities. They don’t focus their acquisitions on cutting products or quickly generating more money with cost reduction, instead relying upon customers to help define how they can improve market performance leading to financial performance. By not seeking "optimization" of their acquisitions (like Tyco), they remain constantly in a disruptive state of enquiry. And each and every business is allowed to operate in its own White Space – free of dictates from a hierarchy or home office about how to succeed. Results are what matter at ITW – not slavish response to structural or behavioral Lock-ins.
And the company lauds innovation. Innovators are sought out, and rewarded. ITW is one of American’s largest patent filers, and patent holders, and it works hard to maintain that position – even if you’ve never heard of them. They want White Space projects in their businesses, and they reward the efforts as well as the results.
ITW defies all the rules of best management practice. They don’t optimize. They don’t "focus on the core." Instead they live without Lock-in, constantly innovate and Disrupt, and allow White Space to flourish all over the company. And for that they achieve innovation on the scale of an IBM, and returns like an old-fashioned (Jack Welch era) GE. And the result is an Evergreen Company that grows beyond average and makes above average rates of return.
by Adam Hartung | Jul 16, 2006 | Defend & Extend, General, Lock-in, Quotes
On July 12, McDonald’s announced it was cancelling its Hot ‘n Spicy McChicken sandwich. "It’s not that it didn’t do well. It just didn’t do well enough," according to McDonald’s spokesperson Bill Whitman (see Chicago Tribune article). After 18 months of development, the product was pulled after just 6 months on the market.
On July 13, Wendy’s announced it was going to test market a new fiery, red-hot chicken sandwich even hotter than its Spicy Chicken sandwich – which it has been selling for decade. "We have defended our Spicy Chicken successfully against competitive intrusion…now we see an opportunity to build on this effort…giving our customers additional options," said Wendy’s Chief Marketing Officer Ian Rowden (see article here).
Could it be that McDonald’s customers just don’t like spicy sandwiches? Unlikely in the notoriously fickle fast food marektplace. Practically every competitor (except McDonald’s) has a spicy product line today as the sales of chili peppers has doubled in just the last 4 years. What’s at play here is good old Lock-in, once again. We’d like to think that as the #1 fast food company McDonald’s would listen to customers and bring the very best talent to rolling out a product widely desired. But, more likely, all new products in McDonald’s are vetted over and over until the challenge becomes distinguishing it from what is already on the menu!
The more adaptable Wendy’s has demonstrated its ability to one-up McDonald’s for years. Wendy’s brought us fast food chili, the baked potato with fixins’ bar, the fast-food salad bar, and Frosty’s. By using disruptions to find new products, Wendy’s keeps the edge over McDonald’s in practically all categories but absolute size.
Wendy’s keeps growing its stores and customers, while McDonald’s remains almost flat on both counts. By overcoming Lock-in, Wendy’s keeps doing what McDonald’s can’t – and that’s where Wendy’s creates competitive value.
by Adam Hartung | Jun 21, 2006 | General, In the Rapids, Leadership, Openness
I recently attended a great event. A marketing company offered $3,000 to the start-up with the best idea – an idea they had only 3 minutes to explain. This was a competition for companies looking for angel or venture funding.
As the dozen companies put out their ideas, which ones do you think the 100+ event attendees most backed? Quite simply, they were the ideas that allowed the audience to imagine doing something currently well known better, faster and cheaper. The audience members had a fast, positive, visceral favorable reaction to the ideas that Defended & Extended existing behavior. When it came to thinking about giving away money, they were most ready to support an idea that took the least effort to develop.
The fact is that upon further discussion, the Defend & Extend ideas looked to have a fairly short half-life. Many of the other ideas showed greater long-term value, but they would require finding early angel customers, and white space to actually test the idea and develop a valid implementation. Many audience members could not see past the development problems, and were unwilling to fund White Space for these ideas to possibly flourish.
We all are susceptible to More, Better, Faster. We all have our Lock-ins, and we quickly recognize and accept things which Defend & Extend existing behavior. If we don’t Disrupt ourselves, we’ll never really think about new solutions – and never grow the way we all can. And we’re very susceptible to favoring ideas we see as easy – rather than the ones with greatest potential value.
by Adam Hartung | May 12, 2006 | Disruptions, General, In the Rapids, Leadership, Openness
Last week Starbucks beat analyst estimates as profit rose 27%. Same store sales were up 10%, the 57th consecutive quarter of sales increases in stores open a year or more. Starbucks now has over 11,000 stores. It has opened 900 so far this year, and will open 900 more before year ends. This is definitely one heck of a growth story, and the company stock has soared 7-fold in the last 5 years.
No company can achieve that kind of growth without significant Disruptions, and lots of White Space. Starbucks has no end to the many flavor varieties of coffee it offers. But, it also offers tea and has seen tremendous growth from Green Tea of late. And to keep promoting itself, the company did an advertising first as it gave away (as in free) 500,000 beverages on March 14 just to remind people it’s spring and time to get out and enjoy the Starbucks stores. And in Chicago, they are starting to sell hot sandwiches – a new test for growth.
Starbucks is not just a coffee shop, of course. Their coffee (as beans and ground) is available in grocery stores, and they are the #1 market player in prepared coffee with their Frappucino, Iced Coffee and DoubleShot drinks, bottled and distributed by Pepsi. You also can get Starbucks Ice Cream and Frappucino bars in most markets. And for the late night adult crowd there’s now Starbucks Coffee Liqueur at the liquor store.
But, the Starbucks White Space goes far beyond the beverages for which they are famous. Starbucks has emerged as a major player in the music business. In 2005, they demonstrated their growth skills as they launched and were the #1 distributor for Ray Charles final release Genius Loves Company. Unbeknownst to many, Starbucks has a music division. Of course it creates all its own in-store music – and offers that on CD. But it also is a major force behind bringing new acts to market and distributing major artists such as Alanis Morissette, ColdPlay and the Dave Mathews Band. Starbucks has even inked an agreement with the famed William Morris Agency to find new talent for them to release.
And Starbucks just co-produced the LionsGate movie Akeelah and the Bee. Although it has gotten off to a sluggish start, the mere fact that Starbucks is into movie production demonstrates the lattitude with which the company will use White Space to drive new business opportunities. Look for tie-ins and promotions in your local store.
Could you imagine CD’s or movies made and distributed by McDonald’s? Or purchasing a frozen Pizza Hut pizza at your grocer? Why not? Any company can keep itself constantly Disrupted and filled with White Space. And for that, you will be rewarded with growth, and a high P/E multiple for investors. And you can provide ALL of your employees with benefits, even health benefits for part-timers (hear that Wal-Mart?). Everyone wins when you avoid the tendency to Lock-in on your first Success Formula and instead focus on White Space.
by Adam Hartung | Apr 25, 2006 | General, In the Rapids, Innovation, Leadership, Lifecycle, Openness
Would you get into the wireless phone business today? Can you think of a more cutthroat competitive marketplace than cell phones? Can you think of a market that has more disappointed investors than mobile communications – voice or data? If I told you a company was getting into mobile communications, you’d probably say "good luck." And then you’d make sure you don’t have that stock in your portfolio.
Unless the company is Apple. Last week the reporters started talking about Apple’s potential jump into cellular phone service (see article). For most companies you’d laugh. But, for Apple, you probably believe it. And you likely think they just might pull it off. After all, why not a cell phone iPod?
Why change your opinion when you hear the company name? White Space. Apple has demonstrated it is willing to Disrupt its Success Formula to open up White Space and develop new markets. By demonstrating that skill, Apple is now able to keep competitors off balance. Even competitors in industries where Apple formerly did not participate. Apple creates possibilities for investors and employees, and concern (if not fear) in competitors just because it has shown that by using White Space it can tackle and win in new markets.
Virgin is like Apple in this regard as well. From a recording company Virgin is now an airline, a retailer, and a cell phone company. What is Virgin’s great skill? It is willing to Disrupt itself and create White Space for launching new businesses and entering new markets. By doing this Virgin, like Apple, has demonstrated an ability to remain evergreen. And create concern and doubt amongst its competition.
The Power of White Space. It keeps your company fresh, and long lived. And in the short term, it keeps you competitors off balance. You don’t have to do everything you announce, nor even succeed at all you try. Merely by demonstrating you will do it you create competitive fear – and an advantage for yourself.
by Adam Hartung | Apr 21, 2006 | General, In the Rapids, In the Swamp, Leadership, Lifecycle, Lock-in, Openness
Wow, have you seen the share price of Google? Google’s value has more than doubled the last 12 months, and risen about 5-fold since going public some 21 months ago. Why is this happening? Simply because revenues are more than doubling annually, and profits keep exceeding everyone’s expectations; including management! Google is into the Rapids. After fighting to create a viable business model, it is now exploiting its advantages in traditional, and new markets, every month. It is winning share versus competitors (such as Yahoo! and Microsoft), while it is entering new markets and launching new products. Google is living in White Space, and exploiting its advantages.
Yahoo‘s valuation has remained flat over this period. And Microsoft has also failed to gain value. Why? Aren’t these great high-tech companies? Yes they are. But unfortunately, for the last two years they have been trying to Defend & Extend their old Success Formulas. Their management has fallen into the "me-too" category with its products, and has failed to find new markets. These companies have been great companies, but they are Locked-in to what first gave them market dominance, and they are missing the opportunities Google is finding.
Lock-in can affect any company, causing it to lose sight of the prime objective – growth leading to enhanced results. Poor Kraft has been stuck for 5 years, and despite owning some of the greatest names in consumer products managed by some of the industry’s most talented people, it can’t find a way to overcome focus on its past. Thus, its sales don’t grow and its value remains – stuck.
As we can see, this phenomenon is not limited to older companies, like Kraft. Even worse than Yahoo! and Microsoft has been Sun Microsystems. An early pioneer in developing servers for corporate and internet use, Sun got so locked into its formula of selling boxes loaded with their own software that the company almost went bust. Sun’s value is only about 7.5% of what it was a mere 6 years ago. Despite being the dominant hardware supplier at the time, and one of the most important companies for launching the internet.
Creating success has the same requirements, no matter what industry you’re in. Disrupt your Lock-in, maintain White Space to explore new opportunities, and above all – fight the urge to focus upon Defend & Extend.
PS – Eric Schmidt is the CEO at Google. Did you know that when Sun Microsystem peaked, he was the company Chief Technology Officer? When all looked good at Sun he went to Novell where he led a turnaround of what many thought was a dead networking company. Oh, and before Sun Eric had been an academic – not in business but in computer science. And an R&D geek at Xerox PARC, Bell Labs and Zilog. Eric is a great example of a person who avoids Lock-in, Disrupts himself and keeps looking for White Space where he can grow. The Phoenix Principle is as important for individuals as it is for work teams and businesses.
by Adam Hartung | Apr 10, 2006 | General, In the Rapids, Innovation, Leadership, Lifecycle, Openness
Do you remember 1-800-Flowers.com? You probably think that was one of those dot-coms that dot.bombed since 2000. After going public in 1999 the stock shot to $22, only to fall to about $2 the next year. The company is still around, but it gets very little attention – why even a search on Forbes.com search shows that the last time someone featured this company in a newsleter was way back in September, 2004.
If ever a name would Lock-in a company, this one should have done it. Yet, 1-800-Flowers.com, which was certainly Challenged by the bust, has done a lot to open up White Space and find a new future. Only about half today’s revenues come from flowers and plants. It sells home and garden merchandise under Plow & Hearth, popcorn from The Popcorn Factory, cookies from Cheryl & Co., gourmet foods form Greatfood.com, children’s gifts from HearthSong and Magic Cabin and wine gifts through the Winetasting Network. And last week they announced the acquisition of Fannie Mae candies – a brand that had fallen into bankruptcy under old management.
There’s a reason we use the term "dot.bomb." Lots of companies were Locked-in to their initial business plan (remember pets.com?) and they failed. But 1-800-Flowers.com is still growing. By avoiding Lock-in they are finding new White Space opportunities for growth and value creation.
The stock still sells for under $8/share, so it is warranted to to say that there is ample risk in this as an investment. Yet, with so much White Space, 1-800-Flowers.com is a company to keep watching. They are avoiding the traps that have killed so many other companies, and show considerable opportunity to become a break-out success story.
by Adam Hartung | Mar 20, 2006 | Defend & Extend, Innovation, Leadership, Lock-in, Openness
Success Formulas are nested. We have personal Success Formulas, which interact with Work Team Success Formulas, which connect with Functional and B.U. Success Formulas, which tie to Industry Success Formulas those are impacted by Success Formulas within the larger economy. Whew! That’s a lot of Success Formulas. But, in fact, achieving superior results mean these Success Formulas all line up. When they are misaligned, resources are spent ineffectively and results suffer.
We frequently focus on the Success Formulas at the top of the pyramid. But, big Challenges occur when changes happen deep. At the deepest are changes in the economy – which we tend to ignore – and yet they create the biggest Challenges.
Just a decade ago the emergence of all the linked PCs across the world wide web created a change in the economy. It challenged Success Formulas throughout the pyramid to align with the new capabilities. We all had to learn how to move faster, and more effectively to keep pace competitively. And it opened the door for international trade on a previous unheard of scale, as we discovered we could use the web to manage work anywhere, from Indiana to India (as detailed in the book The World is Flat).
Now, there’s a new Challenge emerging. And we need to find White Space to identify new solutions.
Any business watcher knows that complaints are high about the cost of health care. Estimates are that $1,500 of every car’s cost is worker health care. And the auto companies are fighting with their unions to cut this cost. The same has happened with health care cost in the airlines, steel, and most other industries. For those of us working in America, we’ve all seen our employers raise our contribution to the insurance premiums, while watching the dreaded co-pays go up and the services offered go down. According to a 2004 Harris poll, a majority of Americans actually favor price controls!
U.S. employers are learning that in a new, no-barriers world they have to compete with companies that effectively have no health care cost. In most other countries, the cost of health care is handled dramatically differently – with the result that employers do not pay for their worker’s plans. As a result, a manufacturer in the U.S. finds the marginal cost of health care actually causes him to lose sales against a global competitor – such as China. And the same with a U.S. services vendor competing with Indian companies.
What’s happening is that we no longer can look just to how we manage the American economy when we compete. We’re now on a world stage. We have to compete with countries which standardize health care, recover much of the cost through various taxing systems, and leave the employer largely out of the equation. The Challenge to American employers – and thus to all of us who work – is very real.
The issue is no longer becoming "what’s the right answer." Instead, we have to realize that Americans are Locked-in to a system that is globally unique. It is affecting our competitiveness – on a company-by-company basis. This system of employer funded private insurers worked well when constructed as part of our Success Formula post Depression. But now it’s hurting our competitiveness. The world has changed.
So far, we’ve been pretty unwilling to recognize this Challenge. We’ve remained Locked-in. Governmental programs to change have been met with attacks from not only insurers, but by most Americans. What’s needed is White Space for us to test some new approaches. Americans are unlikely to change just because they see merits (and deficits) to programs in Canada or the U.K. Instead, we have to develop our own solution. And that will require us giving ourselves permission, and dedicated resources, to experiment with different solutions.
We compete now globally. Thus the requirement becomes aligning our industries, companies and ourselves with changes in the economy. EVen where such alignment can be wrenching. Where will this White Space occur? Probably not in government, that’s not our way. But rather through some form of private approach where we can experiment and learn. The sooner we create this White Space, fund it and put talented people in it the better. And the businesses that pioneer these solutions have the opportunity to generate enormous value, and wealth for investors.
