by Adam Hartung | Apr 19, 2009 | Uncategorized
"McDonald's CEO's compensation rose 44%" was the Crain's Chicago Business headline. In this era of focus on CEO pay, the question should be whether this is pay for performance? Yes, McDonald's has seen its business do relatively well the last year – but was that really due to the CEO? Or did an incoming tide simply raise the McDonald's boat?
The last year has generally been tough on restaurants. But McDonald's competes in a narrow part of the market focused on cheap. Like Wal-Mart, McDonald's is a huge corporation but its sales are closely tied to the performance of markets driven by low price. It wasn't long ago (less than 8 years) that McDonald's was shutting stores around the globe because performance was so poor. The company felt it had too many McDonald's. So it sold Chipotle and other assets to raise the money for closings and buying back equity shares to hold off a corporate attack. And it spent money to improve the marketing in stores, including refocusing on quality. As a result, when the economy fell apart (globally) McDonald's was in the right place at the right time.
There was nothing prescient about the decision-making at McDonald's. Quite to the contrary, the decisions taken were all about Defending the old Success Formula regardless of where the marketplace was headed. In fact, the toughest decision made during the last 18 months was whether to keep 2 pieces of cheese on the double cheeseburger or not. And its decision to raise the price on the 2-slice burger while launching another 1-slice burger to remain priced at $1 was considered a big innovation by home town newspaper Chicago Tribune ("Launch time at McDonald's"). Fortunately, the biggest recession in 70 years has encouraged people to go down-market, to McDonald's, and thus helped the company maintain sales and profits. Whether McDonald's will hold onto these gains or see them go back out with the receding tide when the economy improves is entirely unclear.
On the other hand, PepsiCo has taken a much more aggressive approach to growth in its soft drink business. Chairman and CEO Indra Nooyi has never been the kind of executive to back off from pushing for change. As a Boston Consulting Group Manager she ruffled many feathers amongst the conservative leadership in her efforts to make partner – to the point they recommended she find a career elsewhere. And, never looking back, she went on to greatly exceed the expectations of her former bosses by rocketing through Motorola and later PepsiCo all the way to the top position. Her willingness to Disrupt and implement White Space has created significant growth for the companies where she worked.
Now she's brought in Massimo D'Amori as the new head for Pepsi's soft drink business, and he's shown no hesitancy to follow her lead in Disrupting the moribund brands as detailed in the BusinessWeek article "Blowing up Pepsi." Rather than waiting for the recession to recover, he's dived into the brands changing everything from packaging to logos. He's personally been involved in the Disruptions, making sure people know that he sees now, while Coke is moving slowly and sales should be soft, to reposition Pepsi's beverage products in order to attract new customers and grow! As the new head of brands said, it's time to "rejuvenate, reengineer, rethink, reparticipate." When the economy caused weak performance quarters the anwer became "retool and reteam;" including changing more people on the senior team.
Will all this Disruption work? We know that White Space has flourished, so Disruption has taken hold. Will the White space provide a faster growing and more profitable Pepsi beverage division? We know that everything from logo design to bottles have been tested, tried and are being improved upon. The early results look good, but it's still too early to tell if Pepsi has caught Coke flat footed. But what we can be sure about is that Pepsi is doing everything it can to take advantage of the changing environment in order to be #1 in beverages – including vitamin water, sports drinks and juices as well as traditional soft drinks.
When talking about McDonald's and Pepsi it might all seem like much 'ado about nothing. What's the big deal? But reality is that size alone does not make either company immune to failure. All businesses, no matter size or age, have to adapt to changing markets or risk becoming obsolete. Polaroid invented instant photography, but has become nothing more than an historical name. Last week the Wall Street Journal reported how "Vultures vie in auction for remains of Polaroid." From 21,000 workers at its peak in 1978, the company has fallen to a mere 70 – and to a brand value of only $80million. This sort of failure can happen to any company.
When we look into 2035, which, if either, McDonald's or PepsiCo is likely to be the next Polaroid? We'd like to think neither. Yet, history indicates that McDonald's constant unwillingness to move from Defending & Extending its hamburger business puts it at risk. Of what? Maybe the next Mad Cow disease. Or the next diet craze. Or the next economic shift that leads customers out of their stores and somewhere else to eat. Or perhaps a "perfect storm" of all 3. McDonald's D&E management depends upon the future looking much like the recent past for the company to succeed. It is not really preparing for a different future. And that cannot be said for PepsiCo – where under Ms. Nooyi's leadership we see a company obsessing about competition while working passionately to position itself for future markets and future customers needs. Pepsi's willingness to Disrupt and use White Space bodes very well for the likelihood of turning around the recent growth stall, and creating longevity for the company, its investors, employees and vendors.
by Adam Hartung | Apr 17, 2009 | Uncategorized
Thanks to one of this blog's readers who emailed me about high speed rail lines and the proposed project to improve and expand them in the USA. According to today's St. Louis Business Journal "Fed to invest $13B in U.S. high speed rail." The Associated Press says states are lining up for funding in "8 states seek stimulus money for high speed rail." And many people support the plan, as noted in an August, 2008 USAToday column "The case for high speed rail in America." Is this a good investment?
There is no doubt that the least-energy, lowest carbon footprint, and thereby lowest cost way to transport anything is via rail. Prior to the Reagan administration's deregulation of truck rates in the early 1980s shipping prices between all interstante points had to be registered with the U.S. Department of Transportation (DOT), and in-state with the state departments. These departments regulated pricing, and tended to price all shipping based on cost. As a result, there was a clear and major difference in the price of rail vs. truck vs. air. But deregulation changed that. Truck capacity exploded when truckers were allowed to lower prices to razor thin margins. Most businesses preferred trucks to rail because it was easier to schedule, scheduled in smaller lot sizes, was usually faster, and you could queu up the trucks down to a specific hour which was impossible with rail (a lot more flexible and suddenly not that much more expensive.) The flexibility, along with lower pricing brought about by hyper-competition, meant rail growth went nowhere while truck traffic skyrocketed (as did use of air shipping). The same reason passenger trains of old were replaced with car and plane travel.
So, there is no doubt that from a public policy standpoint rail traffic is a great move. It will be more energy efficient and less costly to the economy if people move by rail than car or air. But just because it's good public policy doesn't mean it will work. Remember the Susan B. Anthony dollar coin? How many readers have one in your pocket today? This coin was good public policy because it meant there would be far lower cost of printing the easily worn out paper dollar. Every major country from Canada (the Loonie) to the Euro have eliminated low value paper currency for the much more durable coin. So the Treasury department spent quite a bit on advertising to relaunch the dollar coin (which was dropped in the 1950s) and promote its use. Yet, within just a few months the product faltered and has found limited interest as currency (although still valid legal tender and held by numismatists). Just because the economics are favorable (for both users and the government) and the public policy is good does not mean the effort will succeed.
In open markets, it takes more than low cost and good idea to succeed. People are Locked-in to current solutions. In the case of the dollar, it couldn't be used in vending machines. Cash drawers had no slot for it. Many men had women had stopped carrying coins in the USA, and had no inclination to start. People were plenty pleased with things they way they were. To get people to change means you have to overcome that Lock-in to the current solution. And getting people to return to personal rail rather than cars or planes will have to overcome at least as much Lock-in as relaunching the dollar coin. Let's not forget that in the 1970s the feds started pouring money into a northeast corridor passenger train system connecting Boston, New York, Philadelphia, Baltimore and Washington – one of the most compact and populated areas of America. But in it's 30 year history Amtrak (as its called) has never been able to turn a profit, remaining subsidized to keep running.
So, to succeed high speed rail will need to apply The Phoenix Principle:
- The product must meet future customer needs. What scenarios of the future make high speed rail valuable? Increased urban density, high fuel costs, increased auto congestion, and higher airport inconvenience would all support the use. But some of these are incompatible (such as fuel cost and congestion). So we need to be very careful about the scenario planning to identify the individual user/market needs that high speed rail fulfills. Exactly which scenarios make this option a big winner with users? And what would cause those scenarios to develop? Markets are fickle, hard to guess, and impossible to "manage" as customers wander between options and trade-offs. Given that people are getting along pretty well with today's cars, busses, planes and standard trains a Phoenix Principle supporter would demand identifying the scenarios that make high-speed rail successful.
- The developers have to obsess about competition. As mentioned, people have a lot of options. How convenient will be these trains? Will they operate hourly, or once per day? How do I get from office or home to the departure terminal, and to my final destination on the other end? Will there be ample and affordable parking? Will there be rental cars? Easy drop-off and pick-up? Food? What are the economics of the whole transit from door-to-door? What is the comparison with each of the other travel options on not only cost but convenience, security, reliability, flexibility, user experience, seasonality, and any other factor that determines how people travel. And don't forget to compare the very need with other high-tech options, like webinars and fast developing enhancements to videoconferencing – competitors on the fringe.
- Why would somebody stop their old behavior and suddenly change? What Disruption is planned that will cause people to say "hey, this new high-speed rail is the think I need to try"? (As opposed to saying "that's nice – have you tried that yet? Maybe you should use that new train.") Will the government support this launch with a new tax of say 50% on short-hop air travel? Or a $1.50/gallon increase in gasoline taxes? Or a nationwide toll system to tax driving on interstate highways? Or even more inconvenient restrictions boarding airplanes? People don't change behavior for no reason – and encouraging a big change like shifting travel patterns requires some kind of Disruption that really gets their attention.
- You can't expect to change everyone – or even large numbers quickly. High speed rail needs to be implemented in White Space areas where it is most likely to succeed, and then watched and tested. Like mentioned, travel is more than just the train. Everything from schedules to prices to seats to feeder systems — there are a lot of variables here that need to be checked and tested. And regardless of early plans (assuming done by the very best planners and marketers) things will have to be adjusted. To succeed the owner/operator of these lines will have to convert an early group of users that become disciples for the product – like Howard Hughes created in the early days of air travel, or Apple does for its iPod and iPhone. These early adopters who have the earliest and greatest need will be the ones who can convince others about the efficacy of these new train lines and thereby reduce their risk, encouraging the others to migrate into this new solution.
Like I said, high speed rail is great public policy. But so is mass transit for Los Angeles or Houston. For it to be a success – meaning return a profit that covers the cost of capital and earns an above market rate of return – requires the introduction be managed like all Phoenix Projects. It must meet future user/market needs, it must be better than competitive options, there must be a Disruption to get people to consider using it, and it must be launched in White Space where the bugs can be worked out and a loyal following of users created. It takes a lot more than just laying down a bunch of new track and building new locomotives.
by Adam Hartung | Apr 17, 2009 | Uncategorized
Adam Hartung helps companies innovate to achieve real growth. He began his career as an entrepreneur, selling the first general-purpose computing platform to use the 8080 microprocessor when he was an undergraduate. Today, he has 20 years of practical experience in developing and implementing strategies to take advantage of emerging technologies and new business models. He writes, consults and speaks worldwide.
His recently published book, Create Marketplace Disruption: How to Stay Ahead of the Competition (Financial Times Press, 2008), helps leaders and managers create evergreen organizations that produce above-average returns.
Adam is currently Managing Partner of Spark Partners, a strategy and transformation consultancy. Previously, he spent eight years as a Partner in the consulting arm of Computer Sciences Corporation (CSC) where he led their efforts in Intellectual Capital Development and e-business. Adam has also been a strategist with The Boston Consulting Group, and an executive with PepsiCo and DuPont in the areas of strategic planning and business development.
At DuPont Adam built a new division from nothing to over $600 million revenue in less than 3 years, opening subsidiaries on every populated continent and implementing new product development across both Europe and Asia.
At Pepsi, Adam led the initiative to start Pizza Hut Home Delivery. He opened over 200 stores in under 2 years and also led the global expansion M&A initiative acquiring several hundred additional sites. He also played a lead role in the Kentucky Fried Chicken acquisition.
Adam has helped redefine the strategy of companies such as General Dynamics, Deutsche Telecom, Air Canada, Honeywell, BancOne, Subaru of America, Safeway, Kraft, 3M, and P&G. He received his MBA from Harvard Business School with Distinction.
by Adam Hartung | Apr 12, 2009 | Uncategorized
At Buckley Brinkman's Blog he asks the question "Can the auto industry be saved?" His posting gives a great overview of the complexities. I like his overview that "there are no safe, and few reasonable investments in this space."
Today a lot of people are asking, "how GM could be leading an industry that fell so far? How could all those managers, over all those years, end up doing so poorly? How could the collective wisdom of the last 30 years brought to the industry, including not only management but the union leadership and all the vendors seemingly let an entire industry, with companies the world's largest, end up in such a soup?"
A key to understanding the answer is offered by the recent Newsweek article "Saturn was supposed to save GM. Instead GM Crushed Saturn." This article underscores the dramatic actions taken by GM Chairman Roger Smith in the early 1980s to transform a floundering General Motors – including buying EDS and Hughes aircraft. And the unprecendented creation of a new auto division with a new union agreement to change the direction of American auto manufacturing.
Over the next few years, Saturn came onto the market as a successful division. It had unprecedented employee satisfaction, unprecedented loyalty for an American car brand, and unprecedented support by its new dealers. But what Saturn did NOT have was the support of GM. Nor even the union that helped create it. As the Newsweek article further details, inside GM there was no support for Saturn outside the Chairman's office. Management continually pushed the corporation to rob Saturn of resources, and even shut down the new division. Meanwhile, a new union leader took over the UAW, and he pushed for changing work rules back to the previous, contentious and frustrating relationship. To which GM quickly agreed preferring consistency over something that worked better.
Although Chairman Smith was dramatic in creating Saturn, he did not Disrupt GM. He never challenged the other division heads to recognize that they could not succeed with old practices. Chairman Smith never moved to place an EDS leader in a top position. In fact, to the contrary, he went along with special action to repurchase the GM shares traded to Ross Perot and remove him from the Board, on the basis that Mr. Perot was too Disruptive to GM. The very benefits Mr. Smith desired was epitomized in Mr. Perot, who pushed hard for big changes in GM management practices. But Mr. Smith was unwilling to actually Disrupt the history and hierarchy of GM. And the same was true for Hughes leadership. Instead of taking action to put a Hughes executive in charge of GM, to lead the way for change, GM leaders were backwatered and ignored in the halls of Detroit.
When you are unwilling to Disrupt, desired changes never "stick." Even with all the resources of the GM Chairman's office, without Disruption the Locked-In GM organization was more powerful and even better resourced. What was supposed to be White Space which would change GM made no difference, because GM was not Disrupted. So the organization kept Defending & Extending its Success Formula created in the 1940s. It didn't take long for the un-disrupted GM leaders to sell of both EDS and Hughes, using the profits to subsize the car business. And they converted Saturn into nothing more than another faceplate on just another GM car – nothing special at all – and widely despised by leaders who always felt Saturn had operated outside the Success Formula so needed to be closed.
Now the Chairman of GM that asked for billions of taxpayer money to save the company, Mr. Wagoner, has been fired. His approach continued to be pushing the same old Success Formula that is so obviously out of step with current market needs. So the banker of last resort asked for him to leave. Which is not so out of the ordinary. Any executive that would ask for investment in the dire straights of GM would expect the investors to make changes in the executive suite. It happens all the time. But the problem seems to be that after pushing Mr. Wagoner out, the U.S. government representatives as bankers haven't proposed a new slate.
The only way to "save" GM will require a wholesale restructuring of the company. Never have so many forces worked so hard to preserve an out of date Success Formula – from management to unions to vendors. It will take somebody of great will, and uncommon acumen, to kill off Chevrolet and the out-of-date parts of GM that simply have no future value. Because now, even more than in the 1980s, what GM needs is an enormous Disruption. Something that will cause the company, from the executive suite to the factory floor, to stop and say "wow, things really are going to be different around here." Only after that sort of Disruption will White Space be able to develop a new future for GM. As we've already seen, trying to do "more of the same" without an enormous Disruption will not save GM - in fact will not even substantially change it.
by Adam Hartung | Apr 6, 2009 | Uncategorized
January 7, 2010
Young President’s Organization (YPO) Annual Conference, Denver
November 10, 2009
FutureForum 2010: Competing in the New Business Landscape
In collaboration with BusinessWeek, sponsored by Menttium
Lake Forest Graduate School of Management, Chicago
October 29, 2009
Vertical Systems Reseller Conference – magazine sponsored event, Philadelphia
October 9-11, 2009
IIT Alumni 2009 Global Conference: Entrepreneurship and Innovation in a Global Economy, Chicago
October 6, 2009
Keynote address for Chicago Business Innovation Conference, Wheaton, IL
October 6, 2009
Marketing Executives Networking Group International virtual conference webinar
September 25, 2009
Growth & Innovation Forum, Consumer Goods Magazine conference
September 22, 2009
National Association of Service Management Conference
September 22, 2009
Association for Corporate Growth Leadership event
September 17, 2009
Vistage CEO presentation, Minneapolis, MN
July 16, 2009
Complimentary Webcast, Never Stand Still
May 20, 2009
The Massachusetts Institute of Technology (MIT) Enterprise Forum, Chicago
May 14, 2009
Young President’s Organization (YPO), Omaha
May 12, 2009
2009 Scanlon Annual Conference, Kalamazoo, MI
May 5, 2009
Association for Strategic Planning (ASP), Chicago
April 30, 2009
Fluid Sealing Association Global Conference, Savannah, GA
April 24, 2009
Keller Graduate School of Management Open House, Elgin, IL campus
April 22, 2009
Nationwide Webinar sponsored by The Synergy Company
April 16, 2009
Blue Cross Blue Shield Management Book Club, Chicago
April 8, 2009
The President’s Forum, Chicago
March 17, 2009
Marketing Executives Network Group Global Webinar
March 13, 2009
Institute of Management Consultants
February 24, 2009
Kemper Leadership Meeting
February 23, 2009
Hydraulic Institute of America
February 2, 2009
The Association for Corporate Growth
January 2009
Vistage International: Winning in all Lifecycle Phases 2009
January 19, 2009
University of Chicago Graduate School of Business Entrepreneurs
January 14, 2009
Illinois Technology Association Presentation
by Adam Hartung | Apr 5, 2009 | Uncategorized
Michael Porter wrote a famous book in 1980 on strategy called, befittingly, Competitive Strategy. His doctoral work at Harvard had shown him that in an industrial market, you could map out the power a company has – and from that imply its future profitability. Famous from this book was his "5 Forces" model in which companies could compare the relative strength of customers, suppliers, substitutes and potential entrants with traditional competitor rivalry to ascertain attractiveness. An outcome of his late 1970s analysis was that if you are really strong, you can control the behavior of the other forces to dictate your profitability. This was all pre-internet, pre-information economy.
Today (Sunday) my wife was fit to be tied (an old midwestern phrase) when she opened the Chicago Tribune and couldn't find a television schedule. She's not much of a newspaper reader, primarily just the Sunday ads and the TV schedule. When she couldn't find the TV schedule, she called the newspaper to ask for another copy. But the automated response at the Trib said not to leave a message if you're calling about the TV schedule, because it was now being printed in the Saturday edition. As you might guess, we don't take Saturday because we don't have time to read newspapers any more. Her reaction was simple "I get most of these ads delivered in the mailbox now during the week. If we don't get the TV schedule, we might as well cancel the paper altogether."
This, of course, is not the reaction Sam Zell and his management team at Tribune Corporation are expecting. They think their last remaining competitor, Sun Times Corp., is most likely going to fold now that it's filed bankruptcy and seems drowned in red ink. Following Porter's nearly 30 year old approach, they think they have little competition and no threat of new newspaper entrant – so they'll simply "force" readers to buy Saturday if they want the TV schedule.
But they are wrong, of course. Just like every other action they've taken since Zell overleveraged the corporation in his buy-out, they continue to ignore that the internet exists. As I pointed out to my wife, we can easily bookmark several locations to identify our local programming – including a nice layout at USAToday.com.
In an industrial economy, many leaders came to believe that they could erect entry barriers which allowed them great power to run their business for high profits. At newspapers, many felt that by being the only (or largest) local paper they had a "moat" around their business guaranteeing profits. They felt comfortable they could raise rates on advertising, and classified ads for those looking to find new hires or sell a used car. But of course they missed the fact that advertisers could go to the web to find customers. And that it was a lot cheaper to use Monster.com, Vehix.com or Craig's List than a local classified ad. So now Zell's team is trying to use his "relative strength" to push his subscribers into behavior they have avoided – buying a Saturday paper. And, again, the team has forgotten that in an internet-connected world customers have lots of options, and given a push they'll go look for other solutions.
The folks at Tribune Corporation made a big mistake by over-leveraging their acquisition. And they worsened that mistake by trying to use 1980s strategy post-2000. I recently emailed books editor Julia Keller with a recommendation for promoting book reading more strongly in her Sunday "Lit Life" column. She responded by upbraiding me for having the temerity to offer an idea to her – and concluded by challenging not only my intelligence but my own reading ability – then telling me to subscribe to the Saturday edition so I'd stop being such a luddite. My son wrote to the Trib's Sunday auto reviewer Jim Mateja with some insights he had about hybrids as a 21 year old, and Mr. Mateja responded that since he was only 21 he wasn't old enough to have common sense, and certainly no insights a serious auto reviewer or auto executive should consider. Bullying customers seems to have become commonplace around The Chicago Tribune.
When business conditions turn poorly it's very easy to focus on Defending & Extending what worked in the past. It's natural to turn against those who complain, and seek out your most loyal customers for reinforcement that you're Success Formula need not change. It's not uncommon to "write off" customers that walk away from you, saying they are no longer in your market target or niche. It's likely you'll turn to management practices that might have worked 3 decades ago (think about GM as well as newspapers). It's comfortable to turn to your "hedgehog concept" and try to do more of what you know how to do, primarily because you know how to do it and are good at it.
But you can't bully customers. Today, more than ever, substitutes and new entrants are no further than a Google search. Markets aren't as neatly and tightly defined as they were in 1980. When you see results slip, you can't try to force them back up by bullying vendors either. You have to align with market needs – with the direction markets are headed. You have to look into the future to see what customers will value, and do the Google search yourself to identify alternative competitors you need to beat. The Chicago Tribune could do a lot more to make its business valuable to people in Chicago and beyond. A little White Space could go a long way. Unfortunately, management appears intent on being the first major market newspaper to really fail – and folks in Chicago as well as L.A. (Tribune Corp. also owns The Los Angeles Times) may find themselves first on the curve to using web media exclusively.
by Adam Hartung | Apr 2, 2009 | Uncategorized
Create Marketplace Disruption:
How to stay ahead of the competition
Some companies can’t change in response to market disruptions. Those companies die. Other companies do respond … eventually. They survive, but they see their profits squeezed, their growth flattened. Then there are the long-term winners; companies that create their own disruptions and thrive on change. In Create Marketplace Disruption, Adam Hartung shows how to become one of those rare companies, creating lasting growth and profits.
This book reveals why so many companies behave in ways that are utterly incompatible with long-term success… and why even “good to great” companies are struggling for air. You’ll discover how to reposition your organization away from the Flats and Swamps of traditional Defend and Extend Management and back into the Rapids of accelerated growth. Hartung demonstrates how to attack competitors’ Lock-ins, make their Success Formulas obsolete, and create the White Space needed to invent your own new formulas for success.
Create Marketplace Disruption shows how disrupting yourself is critical to reaping the benefits of market changes, and part of a process that executive and strategies can reproduce over and over again for improved results.
How we got into the mess and how to get out of it
The myth of perpetuity and the dark side of success.
Reinventing success: no more Defend and Extend
Creating your new Success Formulas and keeping the competitively advantaged.
Why “thinking outside the box” doesn’t work
First, get outside the box. Then, think!
Maintaining “The Phoenix Principle” for long-term success
Practicing Disruption until comes naturally.
Book Reviews
Praise for Create Marketplace Disruption:
How to stay ahead of the competition
History of the Book
Twelve years in the making
As professional business consultant with almost 30 years experience, Adam Hartung is all too familiar with a common malady among today’s businesses. Regardless of how much the leaders and organizations are struggling to grow revenues and profits they cannot seem to break out of below-expectation performance. Even when hiring top advisors, consultants and employees, results do not respond as expected. They seem stuck, and unable to make changes which will lead to superb performance.
Why? This question which sparked a more than 12 year analysis to determine the root of—and the solution to—the problem. Geoffrey Moore encouraged Adam to put his findings into a book, which he now endorses on the cover. The principles now covered in Create Marketplace Disruption have been affirmed as “fresh and much needed” by Tom Peters, and “a revolutionary message” by Malcolm Gladwell. Bill Gates’ co-author, Collins Hemingway, considers Create Marketplace Disruption a must read, as he details in the Foreword.
Order Now
by Adam Hartung | Mar 22, 2009 | Uncategorized
The Chris Mathews Show (you can download/view the show at the link) today lamented the failure of newspapers, citing this week's shift to on-line only for the Seattle Post Intelligencer (check my earlier blog on this company for more details.) Mr. Mathews even went so far as to demonstrate how he, as a boy, folded newspapers to throw them on stoops when growing up in Philadelphia. The show made a valiant, if completely unsuccessful, effort to Defend the newspaper business. Maybe because he feels the not breath of on-line competitors himself!
As 2 print journalists and 2 television journalists discussed what was happening with news, the group was notably absent an advocate for on-line news. While they discussed the change in behavior of young news readers, all of the panelists were (like me) well over 40. They talked about how they used a newspaper, but they had no one there to discuss how other news seekers use networking sites or blogs. There was no blogger on the panel, nor a representative of any notable on-line news sites like Marketwatch.com or HuffingtonPost.com, nor a representative of Google or Yahoo! or any other organization leading the development of on-line content sites.
Mr. Mathews and his guests reminded me of an executive group in a company talking about a new competitor on the scene. All of them love the existing product, and have processes closely linked to using the current product (they like to get up and read a morning newspaper – but then, they don't have to fulfill an 8:00 to 6:00 job with high productivity requirements). They talked about "the good old days" when print journalists were the kings. They discussed how print news used to break stories like the Watergate cover-up (which was 35 years ago). They guessed at how newspapers might continue to survive, such as by consolidating through mergers and acquisitions, which would allow fewer to survive, but probably thrive – at least that was their hope. And they confirmed to themselves that if newspapers disappeared it had to be a bad thing – and even threatening to democracy!! Overall, it was a segment fully dedicated to Defending newspapers, without even the hint of someone who could explain the alternative as a product or a better business model!
By talking to themselves, and their customers, these folks showed their woeful ignorance on the state of on-line news. Mr. Mathews definitely needs to get more in touch with his (and newspapers') competition. His panel talked as if those who write about events on-line today don't have or take the time to research their topics — showing his ignorance about how important topics like the delays in producing the Boeing 787 jetliner were ferreted out by bloggers – not traditional media! And he said that without newspapers you lose "peripheral vision" about the news. Which ignoredthe role of news consolidation sites and, again, bloggers, and social networks at bringing forward interesting things happening around us to groups with similar interests — things often missed by traditional newspapers with their locked-in reporting methods.
If Mr. Mathews wants to do the topic of failing newspapers justice he should bring on his show people that work in non-traditional news. Bloggers and on-line site editors. His competition. Instead of dismissing them as somehow unqualified (because they aren't like him), he better pay attention to what they do, how they do it, and why they are often able to do his job better than him! Instead of focusing on his "base" he had better start obsessing about competition.
And he better start opening some White Space to keep himself and his show relevant – like opening a Twitter account, and creating a web site that's interactive with those in and reading the news (rather than his current vanity site) and blogging himself. Because if he keeps Defending his current show and position, and the newspapers that are finding themselves too slow and out-of-date in today's market, he's likely to find his show struggling for advertisers faster than he realizes! His show can fall to the perils of Defend & Extend Management just like any product that pays too little attention to competition and doesn't deploy White Space to evolve its Success Formula.
by Adam Hartung | Mar 15, 2009 | Uncategorized
It was less than a decade ago when Time Warner bought AOL. Time Warner was going gangbusters. It had grown out of the old magazine business to be a leader in television cable programming – even buying the business run by the #1 cable entrepreneur Ted Turner. Simultaneously, AOL had become the #1 company providing internet access. At the time, people didn't just buy access to the highway (the web) in form of a communication line, in the world of dial-up and early broadband they bought into a web provider. AOL offered everything from the dial-in number to the home page and a series of tools to make web access easier for neophyte users. In all the hoopla about how Time Warner had content, and AOL had "eyeballs" (meaning people going on-line at computer screens), the merger of AOL and Time Warner was born. A very, very high priced Time Warner used stock to by a remarkably high priced AOL.
But this marriage soon became a nightmare, with fingers pointing at everyone – from the CEOs to the Boards of Directors and many people in management. AOL and Time Warner could not maintain the growth rate. Worse, people showed the first signs of moving from TV viewership to internet use, and AOL was losing share of market quickly as broadband became available. Infighting and bickering took over. Both companies, virtually all of management, was trying to build an industrial company out of what they had. Management kept talking about how it wanted to "control" customer access, "control" internet behavior, while focus remained on "scale" as they wanted to become the "largest" internet provider and the "largest" content provider. The leadership had built both companies, and raised money, using an industrial model that expected the companies to somehow use size and scale and market share to reduce industry rivalry, control vendor costs, and allow for much higher pricing to justify the equity multiple.
Oops. By 2000 we already were well into the information economy. Scale had almost no meaning – even for telecom companies that crashed as people realized even big infrastructure suppliers couldn't avoid intense competition and low prices. And as the web expanded access 100 fold, early expectations that there would be insufficient content thus making the Time Warner content priceless (news, broadcast programs, cable programs, etc.) quickly gave way to the knowledge that content could expand 1,000 fold (or 10,000 fold) when everyone had access to viewers/readers. The industrial model upon which AOL/Time Warner had been built simply would not work. And as the stock went into freefall, executives started rotating around the top offices.
Now, a new CEO has been hired. He's from Google according to Marketwatch.com in its article "With new chief in place, will AOL stand on its own?" And as the headline implies, many industry analysts are banking on a spin-out of AOL. But you have to ask, "why bother to spin out AOL now?" The notion of combining the capabilities of both has a lot of appeal – if you understand how to build an information based Success Formula.
AOL is one of the 4 top companies at reaching people on the web. AOL gets about 60% of the monthly users as Google. That's a pretty high number. The obvious issues should be: Are the current web sites the right ones to appeal to customers? Do they have competitive differentiation? Looking forward, what web sites would excite viewers and attract them? What sites would change competition? At this stage, it's really hard to imagine that we're anywhere close to identifying the maximum value web sites. With good scenario planning and competitior analysis, AOL has the resources, access and content to reposition itself as a leader for users. As Yahoo! fortunes keep declining, AOL can build content-based reasons to grow. Additionally, AOL can identify opportunities which are not already fortresses for Google, and work to build out those opportunities before Google gets there. It's an unlimited world, and AOL/Time Warner has the right resources to be a major competitor for customers and revenues.
We need to watch closely what the new CEO (Tim Armstrong) does in his first few weeks. The analysts would like for him to talk about a spin-off. That reinforces their outdated views of industrial business models and would make them feel better about themselves and their long-term calls for changing the company. But the smarter action would be for Mr. Armstrong to Disrupt the Lock-ins at AOL/Time Warner that have kept the company doing many of the wrong things for 8 years. The leaders at AOL/Time Warner have been ineffective, and the existing decision-making processes are inhibiting value creation. He must break the behavioral and structural Lock-ins that have allowed AOL/Time Warner to be a perennially bad performer.
Next he should use his experience at Google to make AOL/Time Warner start acting like Google. He needs to take advantage of his customer reach to find out what those customers want, and then open White Space projects to deliver it to them. He needs to quit focusing on the "internal assets" and refocus on the marketplace. AOL isn't going to win or lose by acting like AOL. He needs to move AOL into position to recognize the next YouTube or Twitter and get out there! Just like News Corp. was able to buy MySpace, AOL has the resources to make a difference in the market. A spin-off would leave 2 companies with outdated Success Formulas that could easily become obsolete. But by implementing White Space focused on the market AOL could create an entirely new Success Formula based on information content and information value that would have a high rate of return for the beleagured investors.
AOL CAN have a great future. It is one of the leading companies at reaching people on the web and via TV. What AOL needs to do now is figure out how you make money off the value of all the information that customer contact gives you. Google has captured every single search ever done on its engine, and never stops milking those searches to figure out how to grow and make money. AOL needs to do the same thing - figuring out how to build the right information-based model that makes serving its customers profitable.
by Adam Hartung | Mar 5, 2009 | Investing, Trends, Uncategorized
I've never met anyone who says they speculate in the stock market. My colleagues always say they are investors; people who know what they were doing and savvy about the market. But, reality is that most people speculate. Because they don't invest on underlying business value. Instead, they rely on words from "gurus" and follow trends. That, unfortunately, is speculating.
Back on 12/21/08 (just a couple of months ago) the DJIA was at 8960, the S&P 918. Looking at The Chicago Tribune for that day, the primary recommendation by analysts for 2009 was "Keep an eye on long-term horizons" and "weather out the storm". The markets were down, but don't panic. Famed investment maven Elaine Garzarelli recommended if you had $10k in cash to invest $2k in tech stocks, $2k in Citigroup Preferred, $2k in GE and $2k in an income-oriented fund. Then put $2k into a short fund to hedge your risks! She couldn't have been more dead wrong on the only two named companies – GE and C. Both are at modern, or all time, lows. Don Phillip, managing director at Morningstar, recommended investing all $10K in equities because "they've taken an unprecedented hit and are very cheap."
When you hear investment gurus, on TV or elsewhere, tell you to "stay the course, the market always recovers" they are basing their opinions on history – not the future. This isn't last year, or the last recession, or the last economy. Will all economies eventually recover? Maybe not. Will the U.S. economy recover in your lifetime? Not assured – Japan has been in a recession for over a decade! Does that mean American companies will be the ones to lead the world in the next upmarket? Not assured. These "gurus" have been dead wrong for almost a year – and at the most important time in your investment history. If they were so wrong for the last year, why are they still on TV? Why are you listening?
In the short term, stock markets are driven by momentum. When most people are buying, the markets keep going up. Even for individual stocks. Sears had no reason to go up in value after being acquired by Ed Lampert's KMart corporation. Sears and Kmart were overleveraged, earning below-market rates of return, and with assets that had long lost their luster. But because Jim Cramer of CNBC Mad Money fame knew and liked Mr. Lampert he kept talking up the stock. Other hedge fund operators thought Mr. Lampert had been clever in the past, so they guessed he knew something they didn't and they speculated in his investment. The value went up 10x – and then came down 90%. Wild ride – but in the history of markets unless you are a speculator, you should never have invested in Sears. When you hear "don't be a market timer" remember that the only way to make money in Sears was to be a market timer – you had to buy and sell at the right time because the company wasn't able to increase its value. Sears' Success Formula was out of date, and there was no sign of a plan for the future, nor obsession about market changes and competitors, nor willingness to Disrupt old behaviors nor White Space. From the beginning this was a bad investment, and it has remained that way.
Today the market remains driven by momentum. Who wants to say they are buying stocks when the major averages keep falling? What CEO wants to say he's optimistic when it's popular to present "caution"? Who wants to discuss opportunities for markets in 2015 being 3x bigger when right now demand for industrial products like cars is down 20-40%? When momentum is up, you can't find a pessimistic CEO. Nor a pessimistic investor. So the likewise is equally true.
Reality is that there are good investments today, and bad. If a business is firmly locked into the industrial economy, such as GM and Ford, making the same products in much the same way to sell to pretty much the same customers, but with new competitors entering from all around - those companies are not good investments. Regardless of the rate of economic growth or debt availability. Their Lock-in to outdated Success Formulas means that their rates of return will not improve, even if overall economic growth does. Markets have shifted, and keep shifting. Businesses that were not profitable in the old market aren't going to suddenly be better competitors in a future market. Just the opposite is more likely. Even if they survive in a foxhole for a year or two, when they come out the market will be filled with new competitors just as vicious as the old ones.
But there are businesses positioning themselves for the markets of tomorrow. Apple with its iPod, iTunes, iPhone is an example. Google with its near monopoly on internet ad placement and management as well as search. And companies that are moving toward new markets rather than remaining frozen in the old model and exacerbating weaknesses with cost cutting. Like Domino's pizza.
GM will never again be a great car company. So what's new? That was clear in 1980 when Chairman Roger Smith said the company had a limited future in autos operating as it always had. That doesn't mean GM couldn't again be a growing, healthy company if new management sent the company in search of new markets with growth opportunities. Like Singer getting out of sewing machines to be a defense contractor in the 1980s. By purchasing an old-fashioned mortgage bank, and an old fashioned investment bank/retail brokerage, Bank of America is not strengthening its position for future markets. Instead, it is fighting the last war. But any company can change its competitive position if it chooses to focus on, and invest in, new markets. And those who do it NOW will be first into the new markets and able to change competitive position. When markets shift, those who move to the new competitiveness first gain the advantage. And their position is reinforced by competitors who dive for cover through cost cuts not tied to business repositioning.
Why is GM still on the DJIA? They should have been removed years ago. That's how the Dow intelligentsia keeps the average always going up – by taking off companies like Sears and replacing them with companies that are more closely linked to where markets are going (at the time, Home Depot). If we swapped out GM for Google, and Kraft for Apple, the numbers on the DJIA would be considerably better than we see today. And if you want to make money as an investor, you have to do the same thing. You have to dump companies that are unwilling to break out of Lock-in to outdated business models and invest in companies who are heading full force into future markets. In all markets there are good investments. But you have to find the companies that plan for the future, not the past – obsess about competitors – are not afraid to Disrupt themselves and markets – and utilize White Space to test new products and services that can create growth no matter what the economy.
