by Adam Hartung | Jan 15, 2006 | Disruptions, General, In the Rapids, Lifecycle, Lock-in, Openness
I’m a boomer, and for my generation going to the movies was a primary pastime. With only 3 channels of TV, we looked forward to the movies as an alternative. We also enjoyed the big screens, the color, and the immersion experience that the theatre provided. And all of it was available for as little as $.25 for a matinee or just a dollar or two for a weekend feature with your date.
My how times have changed. As demonstrated at the recent Consumer Electronics Show, one of the hottest items is home theatre. We now have huge screens, crystal sharp images, bone jarring audio systems and even the ability to put in place theatre seating to give viewers the "movie experience" right in our homes.
Yet, most movie producers still release movies to the theatres. Maybe that’s why movie viewership, revenues and profits were down in 2005. They are still following an outdated distribution model. For many of us, going to the movies means a trip to our family room. And the movie itself might come from the video store, or from the video showing up in our mail, or via a download from the cable or satellite TV company – or maybe even a download to our PC.
USA Today ran an article about changes in the wind. Small producers are starting to distribute their films straight to video (on-demand or on DVD) the same day they go to theatres. Why fight (and pay big bucks) for distribution to theatres if the majority of viewers are waiting for home release? While the big studios aren’t doing this yet, the appeal to most consumers is clear.
This is the way markets shift. Slowly, but following definitely, in an evolutionary road toward the needs of customers. Who fights this? Those most invested in the old ways and are Locked-in to them. Just like the music industry largely missed the shift from CD to MP3, the theatre operators and the large studios run the risk of missing this shift in movie viewership. The studios’ largest customers are the theatre operators, and they will trumpet their superior environments and the rare viewer that will watch a movie multiple times there. The risk to studios is they listen to these customers, who are ignoring the Challenges, and they too miss the shift until its too late.
The opportunity exists for the small player. The companies that can move quickly to meet customer needs with equipment (hardware and software) to augment the trend, and the new producers who aren’t vested in the old system of distribution.
For investors, the threats are real. Investing in theatres is very risky going forward. And investing in studios that don’t recognize the shift, and take advantage of it, has risks as well. The opportunity, likewise, exists for investing in those who will be leading this shift by offering the products that consumers want when they want them.
Today each of my 3 teenage sons has a home theatre audio systems, with those thumping subwoofers, that make the house shake. Their auto systems rival the ones in their rooms – and we have video in at least one car. They are acquiring better monitors all the time. They still like an occasional movie on a date, but 90%+ of their movie viewership is at home. What do you think movie viewership will be like in 10 years when they are in their own homes and starting their own families? Are you positioned for the shift – or are you planning on an extension of the past?
When markets shift, you can’t Defend and Extend your old Success Formula. And you can’t count on participants in your distribution channel to point out the shifts of end users – because they are busy defending their own business. You have to be very wary of emerging new competitors. And it is critical to create White Space to explore and learn about new ways to compete. The Challenge today is very real for Disney and other large existing players. Look for effective White Space in those companies – or find the new players who offer better opportunities for growth.
by Adam Hartung | Jan 8, 2006 | General, In the Rapids, Innovation, Leadership, Lifecycle, Openness
Motorola has done it again. As reported by every news agency that attended the Consumer Electronics Show, Motorola has joined up with Google, Yahoo and Kodak to improve its products and make new products. This is, of course, after partnering with Apple months ago.
What’s really important about this news is it shows the ongoing effort to create White Space in Motorola. As I blogged a year ago, Motorola’s efforts to create White Space where new innovation can flourish is a key success factor for turning around the struggling behemoth. Now, it’s ventures not only are opening the product development doors for licensing and creation, but in fact the Kodak venture will co-locate people from both companies into a joint development facility.
Many people have pointed out that several new products, including the RAZR, were mostly developed prior to Zander showing up. So why am I such a fan of Zander? Why so eager to talk about these projects? Because Zander Disrupted Motorola and unleashed the creativity which was there. The sparks already existed, but previous leaders did not know how to Disrupt the environment, attack the Lock-ins that held Motorola hostage to its worn out Success Formula, and create White Space to migrate the company into a new Success Formula. What’s happening in Motorola’s turn-around isn’t just a product story. It’s a story about how to overcome Lock-in to the past and launch yourself forward. And for that a lot of credit does go to Mr. Zander.
A lot has happened at Motorola since Ed Zander took over. Most of it, from raising cash by selling automotive businesses to aggressively promoting DVRs to putting real pizzaz into the phone marketing and creating new ventures has all been good. This is a company to watch, and probably a stock to own.
by Adam Hartung | Jan 4, 2006 | General, Leadership, Lifecycle, Lock-in, Openness
2006 has started with the completion of Viacom’s spin-off of CBS. Since these two entities merged, their value has about shrunk in half. What was to be an integrated media company is trying to increase its value by dis-integrating. Even Sumner Redstone, the legendary investor, said on CNBC Tuesday January 2 (when interviewed by Bob Pisani) that "Synergy is dead."
For at least 4 decades business leaders have believed that getting larger, especially by acquisition, was a good thing. If you couldn’t generate growth, fake out investors by buying it. But now we’re seeing companies face the opposite. Carl Icahn is after Time Warner to break up its business. And Knight Ridder is being forced to bust up its newspaper empire. All in order to "unleash the value" hidden in these merged organizations.
Congratulations! This is a great move to help these companies reinvigorate themselves. Not because of "focus", but because they can now quit focusing inward, trying to optimize their business models, and get back to the job of pleasing customers and adjusting to market requirements. The era of conglomeration was built on false assumptions that large companies could control their destiny and through optimization generating ever larger returns. Not! Instead, these companies lost touch with customers, became out of phase with their markets and prey for more nimble competitors while destroying shareholder value (not to mention the economic impact of thousands of lost jobs from downsizing, needless outsourcing and considerable "economic dislocation" for suppliers.)
Now, CBS and Viacom each needs to get about the job of creating a new Success Formula that aligns with customer needs. If they use this split as a Disruption, and put in place some White Space for new ideas to emerge, they have a great opportunity to catch up lost ground on emerging competitors and regain lost customers. They’ve moved the batter to first base – it’s time to see if they can move him around the bases to score.
by Adam Hartung | Dec 23, 2005 | Disruptions, General, Innovation, Leadership, Lifecycle, Lock-in, Openness
This week before Christmas, 2005 I had a great lunch. I was in L.A. and I called an old acquaintance to join me for lunch. He’s a great guy, somewhat trapped in an "old-line" American manufacturing company that’s been Locked-in for several years. They’ve not done their shareholders, nor their employees, much good for a decade. Executive turnover hasn’t helped as new leaders just follow worn-out strategies that have eroded their pricing and competitiveness.
"How about some Sushi?" I asked. Now, this buddy was a "meat and potatoes" guy, so my question was intended as a ribbing. I was surprised when he said, "Sure. Whatever you like." "You must be kidding" I said, "since when do you eat so adventurously?" "Over lunch" he said, leading me to wait for a juicy answer.
During the last year, he had taken on a new role helping develop a company strategy. In that role, he had made a half dozen trips to China. "You know" he said to me "I never really understood just how dramatic the globalization changes were going to be to our business until I went to China. They do work entirely differently than us. It’s beyond culture and how smart we versus they are. The Chinese are using resources we ignore, and approaching the opportunities differently. If our company doesn’t change – fundamentally change – we won’t survive another 10 years. The decision, the opportunity, is up to us. If I can get our top management to see what I’ve seen, and we step up to the Challenges, we can get out of our Lock-in and create a future that exceeds everyone’s expectations. But, if we sit doing what we’ve done – well, we’re a gonner."
My friend got outside the box. When he changed roles and entered strategy he Disrupted his thinking about the business. He visited foreign companies, and he saw opportunities for sales, marketing, product development, and manufacturing that he believes obsolete the existing Success Formula and create opportunities for a new one. And, while doing this, he changed himself. His personal Lock-ins to "the way this business is done" for the last 20 years disappeared and he sees a new industry competition developing.
Now he eats Sushi. And he eats all kinds of Chinese food I’ve never had the opportunity. He also eats Indian, or whatever food is served. He got outside the box, he started thinking, and the old barriers fell away as he moved toward a new definition of success
I hope everyone enjoys their Christmas, Hanukah or Kwanzaa meals in joy and peace this year. Whether it’s roast beef, turkey, goose, lamb — or Sushi.
by Adam Hartung | Dec 7, 2005 | In the Rapids, Innovation, Leadership, Openness
Marketwatch has named Ed Zander of Motorola as it’s CEO of the Year. What a well deserved compliment. Motorola’s revenues are up an eye-popping 59% since before Zander joined, and the stock price has doubled. The culture has changed from moribund and stifling to open and aggressive as they chase new opportunities in not only cell phones, but set top boxes and MP3 players.
We blogged Motorola’s success story in early September. The story has been a classic Phoenix Principle implementation as Zander first Disrupted the organization and then implemented several White Space projects. As early as mid-2004 we predicted the success of Motorola (and recommended buying the stock) due to the classic Phoenix Principle steps being taken (see case study here.)
Extremely few turnarounds ever actually regain any sustainable growth – and less than 7% achieve the success of Motorola. It is great that the company should be noted for what’s been accomplished.
by Adam Hartung | Oct 28, 2005 | Quotes
[We] "have a surplus of similar companies, employing similar people, with similar educational backgrounds, coming up with similar ideas producing similar things with similar prices and similar quality."
— Kjell Nordstrom and Jonas Ridderstrale in Funky Business
by Adam Hartung | Oct 17, 2005 | General, In the Swamp, Leadership, Lifecycle, Lock-in, Openness
To do something truly new and innovative requires operating in White Space. You have to get outside the box of the traditional business in order to develop a new Success Formula. And for White Space to have breakthrough results it must have Permission (as well as resources) to be breakthrough.
I spoke to a colleague recently who is head of change for a very, very large oil company. As you can imagine, profits are exceptional there these days. And he’s been very eager to make some big changes in a behemoth. But, even though top management puts out lots of words about their desire to make breakthroughs, his role is constantly being pushed to "manage" incremental improvements to existing processes.
He doesn’t really have permission, nor committed resources, to make breakthroughs. In this environment, he’s worked hard for two years to get leadership to accept the use of virtual teams for process analysis. He’s had to nudge and cajole to gain acceptance for experimenting with process changes that have saved millions of dollars while greatly improving customer and supplier relationships.
Is he failing? Not at all. His company does not perceive a serious external Challenge to their business – profits are greater than ever. Without a threat, there isn’t the passion for an internal Disruption. And they haven’t established White Space. If he were to try and drive breakthroughs he would be on a suicide mission that would do him, and his company, no good. So, in the current environment he’s actually doing quite well. He’s realized that until a Challenge promotes a Disruption his success comes from helping the organization further Defend & Extend its Success Formula. While the sledding has been slow, and sometimes frustrating, he’s in fact made some great contributions.
Success requires understanding what you can do, not just what you want to do. If you’re organization isn’t ready for White Space then recognizing your role is to help promote D&E practices is critical. Kamikaze’s have short life expectancies – and they don’t do much for helping the organization succeed.
by Adam Hartung | Sep 15, 2005 | Defend & Extend, General, Leadership, Lifecycle, Lock-in, Quotes
"The slide into bankruptcy protection of two of the USA’s largest airlines is more a result of the carriers’ bad assumptions and slowness to act than the recent rise in fuel prices or the devastating terror attacks four years ago." USAToday 9/15/05 page B1.
Woe are many of the airline companies. They’ve been challenged to find a new, profitable business model. And instead they’ve blamed their employees (too expensive), their customers (disloyal and cheap) and commodity traders (rising fuel prices) for their failures. The leadership of these companies has done everything it can to continue Defending and Extending their broken Success Formula. But not even post 9/11 federal government bailouts were enough.
When companies don’t step up to their market challenges by disrupting their operations and finding new solutions then their future is easy to predict. Too bad for America that nearly half of the industry capacity is now in bankruptcy (and thousands of jobs at risk, not to mention the strain on the federal government’s Pension Benefit Guarantee system) simply because management would not stop trying to do more of what it had been doing (more, better, faster, cheaper) – an impossible plan for saving these companies.
by Adam Hartung | Aug 30, 2005 | General, In the Swamp, Leadership, Lifecycle, Openness
Last Christmas we were horrified by videos of people who went out to pick up shells on the beach in Thailand only to be overwhelmed by the tsunami which rushed in and created total devastation. Some people (most) thought the situation was a mere outgoing tide (larger than usual, to be sure). A few, however, recognized this was no mere tide, but a tsunami about to unleash. Instead of going to the beach, they ran as fast as possible the other way. These few saved themselves.
How do business leaders know when a problem in their business is merely the tide going out, and when it will be a tsunami challenging (possibly wrecking) their business model? This question is critical for leaders and investors. When the business is in the Rapids, and short-term problems can be fixed, then staying the course is the right thing to do. But, if the problems are actually signals of much deeper challenges then a lot more is needed before the business is dumped into the swamp and returns become elusive.
Wal-Mart stock has been dumped lately. Due to concerns about hurricane Katrina’s impact driving gas prices higher, investor’s have driven Wal-Mart’s value down to levels similar to the market collapse after terror on 9/11/01. Is the tide going out on Wal-Mart, sure to come back in and raise Wal-Mart to greater value, or should we be more worried about the future?
The key is to move beyond short-term concerns and look at longer-term trends. Wal-Mart has been struggling to maintain its value since peaking in the dot.com boom. Since 2000, the stock has gone sideways. Why? There have been a series of problems for Wal-Mart: Union problems/threats, store failures in Europe, lost customers to more trendy Target and Kohl’s, rising costs from energy prices, employee lawsuits over discrimination, government investigation for hiring illegal immigrants, and top executives fired for misappropriation of expense monies to wage illegal union-busting activities. Problems with customers losing discretionary spending dollars to high gas prices is merely the most recent in a series of concerns about Wal-Mart’s ability to re-invigorate growth and its profits.
One reason we review quarter-to-quarter results is it helps us determine if a company is in the Rapids, or not. When in the Rapids businesses can tweak their operations to recover from problems. But, when in they move into the Swamp we see recurring problems that aren’t easily overcome. Results are always promised to improve – and historical glory regained. Improvement is always just around the corner from China expansion, investments in lower-cost distribution, and store extensions. And internal problems are diminished by explaining away lawsuits and executive misdeeds as "one off" occurences. In the Swamp, there are so many alligators and mosquitos nipping at the operations we wonder if management has time to focus on how to get back into the Rapids!
Everyone wants large and successful institutions to regain their glory. But that is rare. Smart leaders have to know how to recognize when the market is changing, and they are looking at a tsunami – not just the outgoing tide. Long-term success requires honestly seeing the recurring problems as the symptoms of something much worse – and not always doing what was done (picking up the fish on the beach) but instead taking much more drastic action to address fundamental challenges.
by Adam Hartung | Apr 18, 2005 | Disruptions, General, In the Rapids, Innovation, Leadership, Lifecycle, Openness
Far too often we see companies merge in an effort to save an old Success Formula. The goal of the acquistion is to Defend & Extend an outdated business model by bringing together two less than stellar competitors. Because this is so common, it’s easy for analysts and pundits to become very jaded regarding acquisitions and mergers.
Today, however, just the opposite happened. Two good, high growth companies decided to merge in order to create new growth opportunities. Rather than merging to find cost synergies, they are merging in order to find new markets, develop new products and further grow.
The two companies are Adobe and Macromedia. According to MarketWatch "Both companies said the long-rumored acquisition was not to consolidate and cut costs but to help Adobe expand into new markets, particularly in the area of providing content to mobile phones and other handheld devices….This is not a consolidation play. This is all about growth," said Bruce Chizen, Adobe’s chief executive."
Because most acquisitions are about D&E, the stock market punished Adobe upon the announcement – sending it’s stock down about 10%. However, acquisitions and mergers can be very effective tools for creating white space and developing new growth opportunities. We should keep our eyes on Adobe, and consider it for a long term investment, since this could be the move that spurs its growth for another decade.
