Big Challenges – a little time off – stay with me

by | Sep 23, 2009 | Uncategorized

To my readers:

On Sunday evening my oldest son, age 21, was killed in an automobile accident.  Life has created one very big challenge.  Things have shifted.  I'm reaching hard to think through what the next stage of my growth will be like.  How I will change.  I'll be back to everyone with normal comments probably next week.

Thank you for enjoying my blog.  Please stick with me.  I'll be back soon.

Alex Hartung – Age 21 – died just prior to midnight September 20 at St. Mary's hospital in Duluth, MN.  A mechanical engineering senior at Northern Illinois University, he was participating in a golf tournament in Hayward, WI when the accident happened, then airlifted to Duluth.  Services will be Saturday, September 26 at Anderson Funeral Home, DeKalb, IL.  Viewing/talking at 11:00am, funeral at 2:00pm, burial to immediately follow about 10 miles east of the funeral home.

Read more about Alex Hartung, including memories from his friends at: his facebook page here

Read additional memories at the Facebook group RIP Alex Hartung

Microsoft – Another GM in the Making?

by | Jul 26, 2009 | Uncategorized

"Is the Party Over for Microsoft?" is the headline at Marketwatch.com.  In case you missed it, last week Microsoft reported sales and earnings, and "Microsoft declines on disappointing results" was the most appropriate headline.  Sales dropped 17%.  Let's see, the last  time we heard about a mega-corporation with double-digit revenue declines that would have been – oh yes – GM – and Chrysler.

This blog has been brutally negative on Microsoft for over 3 years.  A quick look at the long-term chart and you'll note that the stock has not come near its 2000 high this decade.  It's been mired in a go-nowhere range, and has recently broken down to prices last seen in the late 1990s.  For investors, Microsoft has been only a disappointment. 

But that's because the company has been equally disappointing for customers.  Microsoft has been very consistent about trying to "milk" it's near-monopoly in desktop operating systems and office software.  Even though the market has moved, Microsoft has done little to move with it.  It's applications are "more of the same."  It's operating systems have become bloated, and new versions have offered practically no advantages to switch.  Meanwhile, customers are learning to enjoy Linux – and Macs again – as well as Unix for servers.  There's literally been nothing for customers, investors — or suppliers to get excited about.  Ask Dell, itself stuck in the doldrums as a Microsoft devotee.

It's not due to a lack of opportunities in the dynamic IT world.  Since 2000 we've seen the emergence of Google, which simply cleaned Microsoft's clock in search and ad placement.  The world of digital music became dominant, but that was claimed by Apple.  Hot websites for information became valuable – but Marketwatch and HuffingtonPost (examples) are laying claim to attracting lots of readers.  Microsoft simply missed these markets.  Always late, and never really in step with shifting market requirements.  The company tried, failed, and just kept "clipping coupons" from its near- monopoly.

It hasn't been hard to see the market shifting.  Customers were put off by Microsoft's disregard for their needs in the 1990s.  They searched for better solutions, and found them.  Microsoft kept being Microsoft, but the world moved.  Now, Microsoft is stuck.  And what are they going to do to get out of their rut? 

When a company is large, has a lot of cash, and has strong market share analysts are reluctant to predict it will do poorly.  But Microsoft has been so Locked-in, for so long, it has been quietly letting all new markets go to new competitors.  There have been NO Disruptions to the Success Formula.  Windows and Office have dominated the investments.  "Taking care of the franchise" has been the mantra.  That meant doing more of the same.  Which got us Vista – an operating system that was over a year late to market, and very easy to ignore.  There hasn't been any White Space to develop new solutions.  And as a result whenever Microsoft has tried to do anything new it has been late, with inferior product, a significant lack of knowledge about what the market really wanted, and out of step with new requirements for performance and price.

Microsoft won't declare bankruptcy in 2009 – or 2010.  But it's acting just like GM.  It's spending all its time trying to Defend & Extend its past.  But in fast changing markets, that's not enough to remain viable.  In markets moving as fast as IT, it's deadly.  Remember DEC?  Wang?  Lanier?  Burroughs?  Univac?  IBM mainframes?  Cray supercomputers?  Microsoft is more like GM than it's like Google.  Thus, it's future isn't hard to predict.  If you're an employee, time to brush up the resume.  If you're an investor, time to look for the exit.

Do'nt miss the new ebook "The Fall of GM:  What Went Wrong and How To Avoid It's Mistakes"

Innovation or change in Federal regulations? Not yet President Obama

by | Jun 18, 2009 | Uncategorized

Yesterday we heard announcements about reforming the federal regulators and the systems they use to manage money and banking, and now the Treasury Secretary is out selling the program to Congress "Geithner Fields Revamp Queries" Marketwatch.com.  It's touched off a big debate, as some people think the project has gone too far – and others think it hasn't gone far enough.  That's interesting, because most people think something needs to be done so the events of last summer — a near melt-down in the banking system and a near collapse of the monetary system — are not repeated.  So we might want to think about what was announced through the lens of The Phoenix Principle to see if we can expect much change.

Bruce Nussbaum is billed as "the innovation guru" on Businessweek.com.  He reports "President Obama Failed At Redesigning the Financial System."  Interestingly, his biggest complaint is that the President "didn't do what FDR did in the 1930s" and then attributes FDR with significantly Disrupting the government apparatus at the time.

I would agree with that assessment.  FDR attacked a bevy of Lock-ins currently then in place.  His attacks caused people to reconsider the approach then being used, which had remarkably high unemployment and long bread lines, and opened White Space to try all kinds of programs broadly referred to as "The New Deal."  Ronald Reagan 50 years later was similar.  He attacked what had become the conventional wisdom of the time, and his Disruption opened White Space which led to the greatest tax code reform ever, as well as significant changes in labor relations and government deregulation of industry.  Both are examples of Presidents that first Disrupted, and then used White Space to develop new solutions. 

President Obama has not Disrupted.  He's definitely whacked the chicken coop a bit, ruffling a lot of feathers, by doing things such as pushing for the firing of GM's Chairman/CEO.  But so far, even though he espouses change, his administration hasn't attacked any old Lock-ins.  He keeps talking about changes "within the system."  As The Phoenix Principle would predict, this sort of approach to change usually aggravates everybody – even your own supporters – and results in little significant change.  Perhaps some marginal adjustments, but since the underlying Success Formula is not attacked all the recommendations lie within it – and the Status Quo is largely preserved.

Mr. Nussbaum, in an interview on BusinessWeek.com entitled "What Should A.G. Lafley Do Next?", recommends the President appoint the former head of Proctor & Gamble to be the nations Chief Innovation Officer.  Although a novel idea, it won't make any difference.  Mr. Nussbaum's consultant-style recommendation is the kind that gets a lot of executives in trouble who end up with lofty goals, but no chance of success.  Such a move would put an embarrassing end on Mr. Lafley's career, and be an embarrassment for the President.

The federal government is a series of silo fiefdoms controlled by individual secretaries.  Mr. Nussbaum would like Mr. Lafley to use "design theory" to cut across fiefdoms in order to innovate.  Mr. Nussbaum gives Mr. Lafley credit for reorganizing P&G this way to success.  But, how exactly is someone who works for the President supposed to re-organize the administrative branch of the federal government?  Fiefdoms with their own individual mandates, leaders, staff and budgets.  Especially without a dramatic Disruption that forces everyone to agree on such a massive reorganization.  No commitment from the President will matter when the silo kings are allowed their silos.  Probably a lot of recommendations – long the domain of Presidential commissions – that say there should be more cross-departmental work.  But without a Disruption, something that rocks the apparatus to its core, there's no hope of this happening.

Despite the President's lofty goals and ambitions, he risks becoming somebody who talks about change – but doesn't accomplish much.  This may upset you, or you may be happy, depending upon your point of view.  But as a practical matter, should we expect that health care reform will be something radical – like social security and medicare were – or something much less dramatic?  The answer is now clear.  Lacking Disruptions, and when we look at the financial services reform proposed yesterday, we should expect something that will be an extension of the current system.  A bit of tweaking to how things are currently done, but largely the same.  Financial system reform left 95% of the players and their products untouched – and focused on small changes to a few institutions and a few products that are identified as central to the problems last summer.  We should expect that health care reform would leave 95% of the system and products unchanged as well.  Despite whatever rhetoric is extolled from politicians and pundits of either party.

This is not to say that the federal government does not adapt.  When attempting to do more of what it has always done better, faster, or cheaper we regularly see that such sustaining innovations are picked up quickly and used effectively.  And this was demonstrated this week when we learned that the State Department and other federal agencies were relying substantially on Twitter to receive information from Iran, and communicate with people in Iran.

For years the government apparatus relied on journalists for lots of two-way international communications.  This often created a somewhat cozy relationship between very large newspapers with feet on the street in remote and unfriendly locations with people in government.  This coziness had the really bad side effect of causing America's enemies to think most journalists were American spies working for the CIA, etc.  So what worked for journalists all too often got them jailed and sometimes killed.  But this system completely broke down the last 2 years as traditional journalism, and the newspapers, started going broke.  The journalists were laid off in droves, and the government lost its primary info feed from offshore.

What's replaced journalists for readers has been a market shift to the internet.  People have turned to bloggers, media sites and social networking for information.  This dramatic shift has wiped out the profits at newspapers, and shut down a lot of properties.  For media companies this represents wholesale change. 

But government users quickly adapted.  In their effort to Defend & Extend their roles, they became quick users of these sites as well.  And when Iran refused to allow traditional journalists outdoors – or even to report on uprisings – the government officials turned to Twitter.  And, just like the government used to ask the newspapers for help, they had no trouble asking Twitter – as reported in "U.S. asks Twitter to stay on line because of Iran vote" on MSN.com.  And, much like how The Washington Post or The New York Times responded in the past, Twitter obliged.  It was a remarkable example of "business as usual" for the government agencies – just done a little faster, better and probably cheaper.  And this, of course, reinforced to international leaders their claims that Twitter and social media sites are "tools of the U.S. governement."  In what appears "the more things change the more they stay the same" we see how easily the status quo can be reinforced, even amidst a dramatic change for the participants.

There can be reform in any government.  There even can be innovation.  But obtaining that reform requires

  1. Someone develop very clear scenarios about the future that describe the need for change
  2. A recognition that competitors will do better and we'll do worse if we don't change
  3. A Disruption – an attack on Lock-ins that support the Status Quo
  4. Using White Space to test new solutions toward which the organization can migrate as pieces are demonstrated successful.

It works.  We see it work for individuals, work teams, functional groups, businesses, industries and even for governments – like exemplified by Franklin Roosevelt and Ronald Reagan.  FDR did a marvelous job of describing a future at risk if America didn't start working again, otherwise international competitors would take over the country.  And Ronald Reagan similarly described a future that would be entirely different (free of inflation and stagnation) if changes were made – and one at risk of its long-term enemy the USSR if changes weren't made.  But if you try to shortcut these steps you get only marginal change. 

When your market slows – MOVE – Gap, Nine West, Cache,

by | Jun 16, 2009 | Uncategorized

Let's say you've had a great business selling to auto companies.  What do you do now? Wait for the American auto industry to get better, or……

Let's say you've had a great business selling to airplane manufacturers.  What do you do now?  This week is the biggest week in the airplane business.  It's the Paris Air Show, or as many call it "La Bourget" which is the name of the suburban Paris town where the show occurs.  It's the "mother of all conventions" as manufacturers of planes (and lots of military equipment beyond things that fly) try to book orders from international governments, airlines and corporations.  This year, it's doom and gloom as Marketwatch points out in "Is Paris Burning?".  Even the President of Brazil's very successful commuter jet manufacturer Embrear is saying it's too early to call a bottom in aviation sales in his interview "Not There Yet". 

There are many American businesses selling to the aviation industry.  Aviation doesn't cycle as fast as automotive, because the prices are much higher and the product lives much longer.  So it's easier to predict market moves.  We now can predict that the business will be soft for a few additional years with high confidence.  Some will choose to "double down" and try to grow share while the recession is on.  An expensive effort to find a lower cost while volume drops.  Another option would be to cut output, lay people off and wait it out.  But, unfortunately for both these options, when sales resume you can't be sure some new suppliers won't have entered the market with new products or new technology.  Both approaches could well find prices down and competition up – or even worse the market recovers with new aviation products and you're in a pitched battle to supply the industry against new competitors against whom you have no advantage.

A better idea is to move resources.  You don't have to abandon the old business, but why keep trying to live in a worsening environment?  If the market is shrinking, isn't it smart to find new markets.

Take for example the behavior in retail.  We all know that Circuit City went out of business, and lots of other retailers like Mervyn's and Filene's Basement have filed bankruptcy.  It's tough on retailers.  Especially those who keep trying to do the same thing.  But some are taking actions to change in order to be more competitive.  Nine West and some other retailers are changing their approach as reported in, "Gap, Specialty-retail stores mixing up brands."

"Consumers are interested in the best of the best.  Not the best of what your brand has to offer.  Retailers are learning not to put all their eggs in one basket.  If it doesn't work, you just get rid of it."  Now that's some advice worth listening to, offered by Marshal Cohen of NPD Group.  When markets shift, you have to shift.  Waiting around for customers to come back to you is not a viable option. 

Retailers that are growing are using test markets to try new things.  Like Nine West partnering with New Balance on a new shoe that is attracting a lot of young shoppers.  Not everything works, at Cache the store tried some new brands but the test reinforced that people were looking for the Cache brand rather than the products Cache tested.  That's the benefit of testing, you can learn.  As you learn, you can adapt and adopt new behaviors. 

Retailing is going through a massive market shift.  Those who survive have to learn a lot more about individual stores versus malls, and on-line versus in-store.  They have to learn about brands and about store brands and what people now want.  Those who don't have ongoing White Space tests are failing.  Those who are have a much better chance of surviving. 

So, if your market is shifting, you need to MOVE.  Whether you make car parts, aviation parts, furniture, windows,
clothing, candy – anything – you will see your market shift because of
the globalization of new technology.  When markets shift, the thing you shouldn't do is "wait it out".  That is not a viable strategy.  That's putting your head in the sand.  Just because you aren't certain what to do doesn't mean you don't take action.  And that's why White Space projects are critical – because the only way you can develop a new Success Formula is by trying it in the marketplace.   You don't want to end up like all those going out of business because they keep trying to do what they always did, only cheaper, faster or better.  You have to start doing different things.  And NOW, because the market keeps shifting more every day.

Look beyond numbers to grow – Chief Marketing Officers

by | Jun 11, 2009 | Uncategorized

"The Evolving CMO" is the Brandweek headline.  According to this article, increasingly CMOs (that's Chief Marketing Officers) are becoming quite nerdly.  Whereas top marketing folks were once seen as "big idea" folks, now recruiters like Heidrick & Struggles (quoted in the article) are looking for top marketers to be analytical types who pour through on-line data to discern ad effectiveness and response rates.

It's not at all clear this is a good trend. 

Ever since marketing has been around it's been an easily derided function.  Unlike Sales, which has hands on daily contact with customers, marketers were considered more staff-like.  And much more easily let go.  Especially in companies that aren't consumer goods oriented, the first people let go in a downsizing are usually marketers.  Some companies, like Computer Sciences Corporation in services and many manufacturers of industrial products, don't have any marketers at all!  There are a lot of executives that believe marketing is a waste of money – you just need to focus on Sales.

So how should marketers deal with this lack of respect?  Increasingly, they are turning to numbers.  It appears that marketers want to overcome their Rodney Dangerfield position by being more like other parts of the company.  Product Development and engineering tend to be loaded with engineers, who like to push around numbers.  Operations folks like to analyze the plant output and quality numbers to death.  And everybody in finance tends to use numbers to make their argument.  Strategists and planners obsess over trend numbers.  Even salespeople talk about salescalls, orders, total revenues, margins – numbers.  So it seem marketers are starting to think that to gain respect they need to adopt personal, or role, Success Formulas much like others in the organization.

The problem is that numbers tend to focus you on the past, not the future.  Yes, on-line ads and click-throughs offer us a bounty of new numbers on the efficacy of ads, placements, messages, hits – all kinds of things we can run through the same analytical tools used by the rest of the company.  But does studying the recent behavior, upon which we have numbers – such as ad clicks – or of links to facebook pages – or the volume of tweets – or the respondents to a Linked-in group query — do these things tell you what big trends are emerging?  Do they tell you whether your product line could be made obsolete by a new competitor?  That is far less likely to happen. 

All this number crunching may make marketing look more scientific, but the important question is whether it helps the company grow.  Unfortunately, most trend numbers tell us what worked well in the past.  Yet knowing that still doesn't tell you what will work in the future.  Number crunching is great for execution of a designed plan.  Midway through an ad program, analysis can help you tweak it in order to catch more viewers and grab a few more sales.  Midway through a promotion, analysis can help you understand the impact of a price change, or a product pairing, or a sales blitz so you can tweak it for maximum results.  Analysis is great for understanding what to do right now.  But we have to run our business not just for right now.  We have to run businesses to position the company where the market will be in a year, two years, five years and beyond.

There's a tendency to think that the person who has the most numbers, or does the most analysis, is the better businessperson.  I don't know how this proclivity developed, but it did.  The desire to "engineer" a business so that it has no risk, and will generate ongoing growth and profits is a powerful desire.  But reality is that we live in a highly dynamic world.  We cannot predict the future.  Most 3 to 5 year forecasts aren't off by 2% or 5% – they are off by 50%!   Having all the numbers imaginable about the past won't give you much help for dealing with a market shift.  And that's the big problem in business today – dealing with these radically shifting markets and the changes they bring so quickly.  Analysis depends too much on the future being like the past, and that just isn't so.  The world keeps changing.

Lehman Brothers, Merrill Lynch, Bank of America, Chrysler and GM were/are full of peoples deeply skilled in how to "run the numbers."  Business training the last 30 years has given us thousands of skilled analysts, deeply ingrained in how to dig up and analyze vast amounts of data – using newer and more powerful computer tools every year.  Yet, for all this analytical skill we aren't producing more revenue growth, nor more profits.  Throughout the last 30 years growth rates have declined, and profit rates have dropped.  And recently we fell off a business cliff into an amazingly deep recession.  Yet, we're drowning in a sea of data and Powerpoint slides full of analysis.  The link between running numbers and improving performance appears broken – if it ever existed at all.

Marketers should be all about growth.  And growth comes from moving beyond executing static promotional programs on existing products.  To grow you have to be flexible to enter new markets, pioneer innovation and generate new solutions.  Somebody has to lead the charge to do scenario planning that opens the collective vision to doing new things – things not visible in the numbers.  Somebody has to understand the behavior of competition to recognize the holes they are unable to address because of their Lock-in to past practices.  Somebody has to reach beyond the numbers to offer Disruptions which allow the company to move from making computers to making consumer electronics (like Apple), or from making cars to making airplanes (like Honda).  Somebody has to be willing to manage market tests that teach you how to create new markets where you have fewer competitors and higher profits as growth takes off.  And all of this work is well beyond analyzing the numbers.

I advocate that all executives pull their heads out of the numbers to undertake these tasks for growth.  Many CEOs of now defunct companies  could memorize pages and pages of financial and market numbers.  They could recite market shares, product margins, product variable costs, plant fixed costs, employee costs and segment profits from the top of their heads.  Yet, the businesses are now gone (Multigraphics, AB Dick, Wang, Digital Equipment, Western Auto and TG&Y are just a few that no longer exist).  Having a deep understanding of the numbers means you know the past.  But unless you use that to be adaptive, to prepare for and launch Disruptions, all those numbers simply get in the way of being successful.  You can know all the trees, but end up unable to save the forest.

Marketers are not given their due.  Usually they see market shifts before anyone else.  They are able to generate scenarios that are possible, but often ignored because they require change.  They know the limits of a product, and they realize when the variations and derivatives are getting long in the tooth – causing margins to
slip as the cost of sales and new launches keeps rising.  They also know the company weaknesses and how they must be addressed if the company is not to become irrelevant.  They shouldn't retreat to the bastion of numbers to try and make themselves more likable.  Rather, they should lead the charge to make sure planning is about the future, not the past.  They need to keep executives paranoid about competitors.  They need to constantly bring up company shortcomings left vulnerable due to Lock-in.  And they need to champion test after test after test to keep the company growing.  In these roles, they are more important than anyone else in the company.  And vital to growth and viability.  Without marketers and the application of their skills all companies become out of step with shifting markets and inevitably fail.

Get the GM businesses growing – Sell them ALL!!

by | Jun 6, 2009 | Uncategorized

"GM reaches deal to sell Saturn to Penske" is the latest GM headline.  Although the management at GM could not figure out how to run a profitable Saturn, it has very quickly sold the business.  And within a week of selling Hummer to a Chinese company.  Sounds like a combination of low pricing, and better skills at hiring investment bankers than running a business.

The biggest lesson we can learn from this is that GM was so Locked-in to its old Success Formula that it was frozen in place, unable to take actions that would allow GM's revenue and profit to grow.  After years of doing nothing more than layoffs, GM was able to find buyers for 2 of its 3 semi-autonomous divisions almost immediately.  In other words, if GM management had to change to fix GM the team would rather fail — wiping out the shareholders, most of the bondholder value, and eliminating thousands of jobs –  and sell assets (at a significant loss) than change.  Rather than Disrupt and use White Space to create a new GM, management preferred to declare bankruptcy, beg for billions in aid (like some impoverished third world starving nation such as Bangladesh), and give away assets in an effort to preserve the Success Formula they believe in – but which failed in the market.  These leaders have shown they don't care about anyone or anything more than they care about trying to Defend & Extend the GM legacy – Cadillac, Chevrolet, Buick and GMC.  This management doesn't want GM to succeed, they want to wind back the clock, and they'll try anything possible to see if they can make it happen.

They can't.  The clock won't rewind.  And GM's management is demonstrating why they should not be allowed to run any company – much less a major auto company.  Nor should you trust them to watch your dog – much less trust them with $60billion in financing.  Trying to preserve the past will only prolong dismal results.  They will not repay this money.

So what about Saturn?  Some think this acquisition, coupled potentially with the new ownership of Hummer, marks another shift in the auto industry.  In "Putting GM's Saturn on a different orbit" the Marketwatch commentator indicates that we may be seeing a shift away from an industrial model of manufacturers pushing cars onto dealers.  Since Penske owns many dealerships, he thinks these new independent labels may let the dealerships take the lead.  Manufacturing will have to respond, through a network of manufacturers something like Nike uses, to the retailers – who will be much more in touch with the market.

From the pixels displaying these articles to God's ear, paraphrasing an old maxim.  It would be wonderful if both Saturn and Hummer, and the soon to be independent Saab, were driven by market requirements rather than internally entrenched management trying to Defend & Extend old practices.  If they are, the odds are good that they'll push the losses at the remaining GM much higher, much faster than the management team (and probably the government overseers handing them money) expect.

But it does beg the question, if it's so easy to sell these divisions why doesn't the government simply dismantle GM and sell everything?  These are supposedly the smallest, least viable parts of GM.  And they are selling incredibly fast.  Instead of these "one-off" sales, happening at distressed prices to buyers with little competition, why not create an open market to sell everything?  Obviously the only way to get rid of the terrible GM leaders is to sell the business out from under them, leaving them with nothing to do.  So, instead of handing these incompetent GM leaders another $40B, why doesn't the government turn over assets to the investment bankers and tell them to maximize the value of a sale?  Create a bunch of bidders for the various assets (less toxic than nothing-down mortgage securities), ala the intent of bankruptcy law, so that people with new ideas (like Penske) can acquire these assets and use those ideas and innovations to convert the brands, product lines, supply chains and manufacturing plants into something more valuable?

In a sale, a new buyer could purchase plants to redeploy for windmill production, for example.  A GMC buyer could attempt to converting the brand into a competitor of Caterpillar Tractor or Komatsu.  Chevrolet might have better life as a U.S. motorcycle company.  Someone might want to turn Cadillac into an airplane company.  As crazy as these ideas sound, don't forget that Honda has entered airplane production and shows every sign of succeeding.  We know that running any part of GM like it used to be run will not work.  So why not give the innovators a shot at these tangible and intangible assets on the open market?  Wouldn't you rather see someone new, like the team at Penske Enterprises, try to do something with the rest of GM – rather than leave it in the hands of the people who say they need another $40billion to keep it alive.  Ever heard of the term "cut your losses"?

Those who listen to markets survive – even thrive.  That's what creates optimism about the future of Hummer, Saturn and Saab.  The concept that new owners will utilize new market-based scenarios with clear understanding of competitors to Disrupt these companies, then attack old Lock-ins in order to implement new behaviors, excites people.  We can imagine these new leaders using White Space to convert the design, production and distribution processes into methods that give customers what they want when they want it – achieving profits as a result.  After 3 decades of ongoing failure, we can't imagine the people running GM doing it. 

We believed in Lee Iacocca primarily because he had been fired at Ford.  He knew Chrysler was not well enough connected to customers – and that he was.  This was a guy who would cut off the top of a production car with a skill saw in order to drive it around the block as a way to test relaunching convertibles.  He wasn't afraid to develop cars people had never seen, like mini-vans, because he saw changes in customer needs.  He wasn't afraid to Disrupt the status quo and he wasn't afraid of testing new technologies, new production processes and new markets.  That's why he turned around Chrysler.  And that's what it will take to turn around Cadillac, Chevrolet, Buick and GMC.

It's too early to really know if new owners will do the right things to make these fire-sale divisions into successful businesses.  We have to look for the scenarios, Disruptions and White Space.  But we know we won't see such behavior out of GM.  If the government folks who are considering giving more money to GM really want to save jobs, grow the economy and keep the profit motive alive they need to pull back fast from funding this GM management team.  Instead, use this immediate market input (from the dividion sales) to force the courts to bust up the rest of GM and sell it to someone who just might have a truly better idea.

Competing with the Chinese

by | Jun 4, 2009 | Uncategorized

This week marks the 20th anniversary of the Chinese student uprising in Tiananmen Square, and its brutal put-down by the Chinese leadership.  Ironically, the same week GM agrees to sell its Hummer division to a Chinese company.  Quite a contrast in outcomes over 20 years.  China was then a backwater nation having very little business with the USA, and GM was still considered a dominant U.S. industrial power. 

We all know what China has accomplished in the last 20 years.  From struggling poverty, the country is now the third largest economy – and the single largest offshore holder of America's debt.  China is poised to be a superpower, and the world's largest economy within another 20 years.  How?

Within months of the Tiananmen event, in which the Chinese military slaughtered thousands of its own citizens, the Berlin Wall tumbled.  The Soviet Union evaporated, leaving behind a series of independent states poorly capitalized and ill prepared to compete internationally.  The Chinese leadership recognized this as a major market shift, and wasted no time taking action.

Step 1 was recognizing that future scenarios no longer required investing massive funds defending the world's longest contested border.  More tanks were on the Chinese/Soviet border than all the rest of the world combined – and the replacement of those tanks suddenly became non-essential. And the Chinese recognized this, and changed.  With speed exceeding anything anybody imagined, the Chinese changed all their scenarios about the future.  Instead of spending massive funds on military works, those funds could be spent elsewhere.  By reworking their future scenarios, they realized they could undertake different opportunities.  No longer were they required to do "more of the same" as they'd done for several decades.

Step 2 was recognizing the new competition.  Instead of fighting a traditional war, the Chinese would be in an economic war with the smaller eastern European nations, and India.  Dissolving  the USSR meant the Indians, who had long sparred with the Soviets while also taking aid, suddenly knew they had to rely completely on the USA – and trade.  And that meant the Chinese had a new #1 competitor, but in the new battle for trade rather than old fashioned aid.  Where before China wanted money for armaments, now they needed to invest money in production to pull dollars from U.S. business.  The new objective became competing with India, rather than the Russians.

Thirdly, they Disrupted their approach to world diplomacy.  Instead of a closed country, they became open.  Instead of investing in guns, they invested in power plants, roads and infrastructure.  On the world stage, China wanted to become the biggest winner of foreign exchange.  And the road to that win came through participating with American capitalists.  The leadership realized it needed to totally change the country's  investment patterns in order to make the country's low cost labor available, and it did so.  Almost overnight.  How, by recognizing and undertaking a Disruption in their investment patterns.

Fourth, China implemented White Space for job creation.  Suddenly, almost every city had a development zone.  They didn't need to figure out what infrastructure to buy.  All they had to do was invite the Americans in and we'd tell them what we wanted.  We'd describe the airports, power plants, telecom systems, roadways – everything we wanted to give them the work (and foreign exchange).  All they had to do was listen and do it. 

China is an example in doing things differently, changing how you
compete to be very efffective, without really changing values. 
People often tell me they worry that The Phoenix Principle means you
have to give up your ideals.  I disagree.  Being a Phoenix organization
means you're willing to adapt to market requirements, and doing so does
not mean you have to change your "ethos," religion or personal values. 
You merely have to adapt.  If you want to be "green" or "sustainable" or "ethical" or even "religious" you can do so.  You just have to make sure you are connected to the marketplace in ways that allows you to develop a Success Formula which creates growth.

Compared to India, the Chinese have been wildly successful.  And that's saying lot, given how incredibly successful India has been.  There is no doubt that India, too, has used outsourcing to raise foreign exchange, create jobs and grow.  But compared to China, well there's no comparison.  The Indian government is still trying to figure out how to build a highway, expand major (overcrowded) airports and provide consistent electricity to business parks in major cities.  The Indian leaders don't suffer from a lack of smart – no way – but the government keeps trying to operate the way it always has.  And that has held them back from making the investments and taking the actions which have catapulted the Chinese into the lead.  While India had a head start in 1989 (largely English speaking leadership and a strong investment in education for the elite), China has eclipsed their growth and is chasing Japan and the USA.

Through all of this, China never changed its politics.  Some people who go to China return talking about how "capitalistic" the country is.  They forget the lessons of Tiananmen Square.  China has been and remains a tightly controlled, Communist, centrally-planned country.  "China scholars see little chance for political reform" is the headline describing how the politics of China are unchanged since the days when they shot thousands of their own students, and imprisoned thousands more.  Several students taken prisoner have never been heard from again. Those that fled the country are not allowed to return – and their families were subsequently required to consider them bad Chinese. Many were held in prisons for years, and others are still in remote work camps.  China is still China, deep inside.  No more a market/capitalistic country than it ever was.  It just learned to adapt to a changing world.  (Something Chairman Mao tried to avoid – almost destroying the country.)

Coincidentally, my 21 year old son returned from a month in China yesterday evening.  He was visiting manufacturing plants and engineering schools.  We talked, and will talk more, about what the Chinese businesses and schools are doing.  Why, and exactly HOW do these schools and factories affect competition?  Competition to be a world-class engineer (he's a mechanical engineer prepping for his civil engineering master's degree), and competition for building things.  As he summed it up before crashing to sleep "they do things entirely differently than we do in America – and I can easily see why they get things done cheaply.  They do things in a uniquely Chinese way, but it meets the needs of American companies who want lower costs and market access.  This may have been my first trip to China, but it won't be my last.  It can't be if I want to remain competitive.  Maybe I need to learn Mandarin or Cantonese so I can go to one of their schools for a year."

We all have to learn to adapt.  The world changes.  Every year.  If we try to resist those changes, to Defend & Extend what we like to do, we grow further out of touch with market requirements and lose the ability to compete.  You don't have to "sell your soul" to adapt.  But you must adapt if you want to continue succeeding.  You have to make your investments based upon what will make you a winner in the future – not what made you a winner in the past.  You have to study competitors, and do those things that will make you a winner.  You have to accept Disruptions by attacking old Lock-ins, and use White Space to develop new solutions.  If you do that, even at the scale of the Chinese economy, you can have unbelievably successful results. Or at the level of an individual engineer.  If you don't the results aren't pretty.  Not pretty at all.  Just ask the employees at GM.

When Flat is good – News Corp. Results vs. NYT, Tribune Corp., NBC/GE

by | May 6, 2009 | Uncategorized

"In the land of the blind the one-eyed man is king."  I've heard this phrase many times, and never has it been truer than today.  With so  many companies fairing so poorly – revenues down, profits down, layoffs – doing better than most doesn't mean you have to do all that well. 

An example is News Corp.  The Tribune Company is bankrupt, casting doubts on the future of The Chicago Tribune, Los Angeles Times and its other newspapers.  The New York Times company threatened to close The Boston Globe unless it received major employee concessions.  But even these won't save either the Globe or the Times as the headline "Boston Globe's obituary already written" comes from commentator Chuck Jaffe.  Newspapers are discontinuing daily circulation, slimming down, and closing. 

So when Marketwatch.com reports "News Corp. posts flat third-quarter profit" it sounds like a monumental success compared to its competitors.  But it does beg the question, why is News Corp. doing so much better than its brethren?  The answer lies in the multi-faceted approach News Corp. took to connecting with those who want information – and then connecting to their advertisers.  While the web sites for most newspaper companies are weak products that attract few readers (or advertisers), and the writers feed only one outlet (papers) rather than multiple outlets, News Corp. stands in stark contrast with major outlets across all media internationally.

In addition to multiple newpapers News Corp. owns multiple television stations and entire networks.  It is a major player in cable programming – including the #1 ranked cable news channel in the U.S. as well as networks across the globe. It is a leader in direct broadcast satellite with SKY,  owns multiple weekly magazines (that all have web sites), is a major player in billboards, and owns several internet properties including MySpace.com 

Across News Corp. the leadership is able to share acquisition costs for programming – including news  – and the distribution – including all forms of programming outlets.  News Corp.'s leadership did an excellent job of paying attention to market shifts.  After starting as an Australian newspaper company it moved into all these different businesses in order to be part of the evolving market landscape.  It obsessed about competitors, never fearing to enter markets others avoided – such as launching a national broadcast network in the 1980s, and taking on CNN when nobody agreed there was need for more than one 24 hour news channel.  And early in the internet era it paid up to acquire MySpace in order to be a participant in the internet's growth, not just a spectator.

The leadership at News Corp. has never been shy about Disruptions – often making itself the target of many groups.  But these Disruptions allowed News Corp. to open many White Space projects, teaching the company how to compete in rapidly changing markets. 

And now, as several competitors are disappearing, News Corp. is doing the best in its class.  While competitors are hopelessly mired in Whirlpools from which escape is likely impossible, News Corp. is merely "flat".  And there's a lot to be said for "flat" results when competitors from GE (owner of NBC and several other channels) to New York Times Company are seeing their poorest results in decades – or even filing bankruptcy (like Tribune).

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by | Apr 20, 2009 | Uncategorized

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