10 Ways to Stay Ahead of the Competition – Guy Kawasaki

Guy Kawasaki contacted me a couple of weeks ago, asking me to write a short piece for him.  I was happy to do so, and he published it at the BusinessInsider.com War Room as "10 Ways to Stay Ahead of the Competition."  Fortunately for me, the article was also picked up at IBMOpenForum.com with the alternate title "How to Stay Ahead of the Competition."  Full explanations of each bullet are at both locations (although the graphics are outstanding at Business Insider so I prefer it.)

  1. Develop future scenarios
  2. Obsess about competitors
  3. Study fringe competitors
  4. Attack your Lock-ins
  5. Seek Disruptions
  6. Don't ask customers for insight
  7. Avoid Cost Cutting
  8. Do lots of testing
  9. Acquire outside input
  10. Target competitors

Blog followers know that this program has now worked for many companies who want to grow in this recession.  The reason it works is because

  • You focus on the market, not yourself
  • You avoid Lock-in blindness by avoiding an over-focus on existing products, services and customers
  • You use outside input, from advisers and competitors to identify market shifts that can really hurt you
  • You put a competitive edge into everything you do.  Competitors kill your returns, not yourself.
  • You use market feedback rather than internal analysis guide resource allocation

Of course this works.  How can it not?  When you are obsessed about markets and competitors and you let it direct your flow of money and talent you'll constantly be positioned to do what the market values.  You'll have your eyes on the horizon, and not the rear view mirror.

The biggest objection is always my comment about "don't ask customers for insight."  So many people have been indoctrinated into "always ask the customer" and "the customer is always right" that they can't imagine not asking customers what you ought to do.  Even though the evidence is overwhelming that customer feedback is usually wrong, and more likely destructive than beneficial. 

Just remember, IBMs best customers (data center managers) told them the PC was a stupid product, and IBM dropped the product line 6 years after inventing the PC business.  DEC's customers kept asking for more bells and whistles on their CAD/CAM systems, then dropped DEC altogether for AutoCad ending the company.  GM customers kept asking for bigger, faster more comfortable cars – improvements on previous models – then moved to imports with different designs, better gas mileage and better fit/finish.  Circuit City customers asked for more in-store assistance, then took the assistance across the street to buy from cheaper Best Buy stores.  The stories are legend of failed companies who delivered what the customer wanted, and ended up out of business.

Enjoy the links, and thanks to Guy for publishing this short piece.  Follow these 10 steps and any business can stay ahead of the competition.

Be Flexible, and Forward Thinking – Office Depot, Apple

"Strategic Plans Lose Favor" is a recent Wall Street Journal headline.  Seems like some big companies, and big consulting firms like Accenture, McKinsey and the Boston Consulting Group are rapidly learning what this blog has been pushing for a few years.  That flexibility trumps traditional approaches to strategic planning.

  • When Office Depot's strategic plan was leading to revenue struggles, the company set up a situation room to track key indicators and adjust to market shifts much quicker.
  • "Strategy as we know it is dead" according to Walt Shill, head of strategic planning at Accenture. "increased flexibility and accelerated decision making are much more
    important than simply predicting the future
    ."  (Do you think he's been reading this blog and my book?)
  • "business leaders will start to rely less on static five-year strategic
    plans and more on rough "adaptive" strategies that consider multiple
    "  according to Martin Reeves, Senior Partner at BCG.  (Where'd he read that – on this site?)
  • ""The rate of change and width of volatility is much wider and faster
    than what we would have assumed
    coming into this," Jeff Fettig, CEO at Whirlpool
  • McKkinsey has opened a "Center for Managing Uncertainty."  Really.

As this recession has come on, and lingered, businesses are clearly starting to realize that market shifts happen fast, and businesses cannot be slow to change.  Adaptability is one of the most important capabilities to compete in the post-2000 business world.

And the real market leaders are incorporating this kind of thinking into their organizations.  While the earlier quotes show how, caught on the defensive, organizations are finding new ways to react, the best performing organizations are taking market leadership by being Disruptive.  Like Apple.  In a Harvard Business Review blog Roberto Verganti, professor at Politecnico di Milano tells us "Apple's Secret:  It tells us what we should love." 

The good professor of design and management points out that Apple does not ask customers what they want.  Instead the company designs products which take customers to new levels of performance beyond what they imagined.  Instead of being reactive, Apple uses scenario planning to understand future market needs and create shifts with its products.  This approach leads to breakthrough performance, such as the success of Nintendo and its Wii product line.

To be successful businesses can no longer try to Defend & Extend their old strategies.  They have to be market focused, and flexible to manage through market shifts.  And to earn superior rates of return they have to be market leaders that use scenario planning and White Space to launch new solutions meeting emerging needs which attract customers and grow sales.

Planning for the future – 2010 – Facebook, Linked-in, MySpace, Pepsi

As we enter 2010, is your business expecting a very different future – and have you started planning to implement new approaches based upon a different future?  For example, how do you plan to acquire new customers, employees and vendors in 2010 and beyond?  Do you still rely on traditional advertising?  Do you use a web site?  Is most of your on-line IT budget still dedicated to web site development?  How much of your plans for 2010 are extensions of what you've been doing on 2009 – or maybe an ongoing trend from much earlier in the decade?

According to the Wall Street Journal in "Linked In Wants Users to Connect More," the number of Linked in users almost doubled in 2009, from 31.5M to 53.6M.  And to drive additional user traffic the site is working hard to add applications which can help companies with recruiting, marketing and other business functions.  With users jumping, and time on site increasing, is your company blocking access?  Or is it figuring out how to leverage this leading web site to find new customers, recruit aggressive new employees and build a stronger business? 

But Linked-in is considerably less successful than Facebook.  Do you still think of Facebook as a site for college kids to plan drinking parties?  If so, you've missed a tsunami in the making.  Facebook's user base, at 350 million, is over 6 times Linked-in.  According to ReadWriteWeb.com "It was a Facebook Christmas; Site Hits #1 in U.S. for First Time."  On 2 days Facebook actually had more site hits than search giant Google!  And Facebook was the #1 Google search in 2009.  Facebook use is exploding.  The average Facebook user spends over 3.5 hours in a sessionMany Facebook users log in daily to keep up with their network and what's happening in markets of interest to them.

Increasingly, people don't do web searches to find out about restaurants, movies, products, services – or even jobs.  They go to social media sites like Linked-In, Facebook and Twitter.  If you depend on people to use your web site to learn about your business – that may be too late.  When referred by a friend, what is the first impression a potential customer (or recruit) gets when reaching out to your LInked-in, MySpace or Facebook page?  What applications or groups do you support to demonstrate your business and your ability to grow?  How are you reaching out through these environments to meet the people who should be a customer, employee or vendor? 

Increasingly, people don't even make their first touch with your business via your web site.  iPhone users, and the soon-to-explode Android phone users, as well as all the other "smartphone" (or mobile device) users learn about your business from a very small screen that brings in small bits of information that is largely text.  They often go to a PC and search a traditional web site only every few days.  So how is your information presented?  Is it largely graphical, with embedded objects that don't show up well (or at all) on a mobile device?  Is it lengthy HTML pages that requires scrolling on a phone? 

Increasingly, people looking for you will blow off traditional web pages in favor of easier to access and read information.  You may hate the 140 character Twitter limit – but it's becoming a standard (the new "elevator pitch.") So is your on-line impression being driven by web developers, or by mobile device developers?  Is your on-line environment all about driving people to your web site – which may never happen – or are you effectively connecting with them via Facebook, et.al. and informing them without asking them to go to your environment?  Are you letting users control their access to your information, making it easy for them, or are you trying to control their behavior — and putting off many?

There are many reasons to think that in 2010 how people acquire business information will shift from traditional web sites to social media sites.  First impressions, and a lot of the decision making process, will come from Facebook, Linked-in and Twitter.  Is your business positioned for this shift?

Pepsi recently made a decision that appears forward-focused rather than following tradition.  Pepsi is abandoning Super Bowl ads in favor of spending more on-line.  MarketingDaily.com reports in "Compete:  Pepsi's On-line Push a Smart Play" that Pepsi is reaching more people at a lower cost by investing in on-line marketing.  Despite the historical role Super Bowl ads have played for big consumer products companies, Pepsi's decision is positioning the company to better connect with more users and drive more sales.  Coke's decision to remain with traditional advertising looks increasingly expensive – and out of step with how people really make purchase decisions today.

Smart companies are already making changes to reach the tidal wave of people relying on social media.  They are building a strong impression, and business applications, that help them grow using environments like Linked-in, MySpace and Facebook.  And they employ people to keep their Twitter communications clear and strong. 

So is your business taking actions – making implementations – that will support where the market is headed in 2010?  Are you putting yourself where the customers and recruiting targets are?  Or are you trying to do more of the same better, faster and cheaper? 

Management illusions – Brand management and MIT

"The Illusion of Brand Control" is a great article at Harvard Business Publishing. Andrew McAfee, who is a research scientist at the MIT Sloan school Center for Digital Business, offers the insight that in today's market it's not possible for a business to "control" its brand.  "New media" like the internet and Facebook are bi-directional.  People no longer just absorb a crafted message, they are able to push back.  Bloggers and internet commenters can have more influence on a brand than traditional advertising and PR.  As a result, a business's brand becomes the result of what others say about it – not just what the owner says.

And this mirrors what is happening across business today.  As we've moved from the industrial to the information economy, success is no longer about amassing and controlling assets.  Scale advantages have disappeared, with scale accessible to anyone who has a browser and a credit card.  Where the business leader of 1965 likely felt success required controlling everything from employees and facilities to the brand message, in 2015 success is about adapting to rapidly shifting market requirements.

If you want your brand, and your business, to grow and be profitable, you have to realize the dramatic limits of "command and control. That approach works in very static, clearly defined environments.  Like the military.  Businesses today no longer operate in slow moving static environments with high levels of regulation and rigid business limits and significant entry barriers.  Businesses today operate in complex, highly adaptive systems.  Competitors can move fluidly, quickly, globally to offer new solutions and react to changes. 

Today's leaders have to recognize that many of the most important impacts on their business (or brand) come from outside their organization.  Completely out of management's control.  Being Locked-in on what you know how to do has less and less value when you might well have to react very quickly to an external event in an entirely new way in order to maintain product position and growth.  Just ask the leaders at Circuity City, who could not adapt quickly enough and saw their company fail.  Adaptability to shifting market requirements becomes key to sustaining growth.  Competitive advantage is not created by seeking entry barriers.  Rather, competitive advantage now comes from understanding market shifts, and moving rapidly to position yourself in the right place – over and over and over.

Executives who feel like they have "control" of their business are under an illusion in 2009.  And that has been demonstrated time and time again as this recession has driven home a plethora of market shifts.  There are many things managers can control.  But many of the most important things to success are completely out of management's hands.  Thus, the ones who succeed aren't trying to control their brand, or business.  Instead they are building organizations that have great market sensing and are quick to react.  Just compare GM to Google and you'll see the gap between what worked in 1965, and what works 45 years later.

Letting the Bogeyman hurt your business – Facebook, Twitter, Linked-in, Plaxo

"Companies Say No to Friending or Tweeting at Work" is the headline in The National Law Journal.  According to the article, somewhere between 54% (according to a Robert Half survey) and 76% (according to a ScanSafe survey) of companies block employees from connecting to social networking sites like Facebook, Twitter, Linked-In, Plaxo, etc.  The reasons sound so traditional – starting with lost productivity and moving on to fear of data theft.

And of course, there's the bogeyman to worry about too.

In the 1940s and 1950s success was all about mass production.  Show up for work on time, don't be late, don't be absent, and do your job.  We had assembly lines to operate.  Making stuff meant we needed to get people into the plant, and have them do their job.  The more efficient people were, the more things a plant could make – be it cars or washers or televisions.  So control everything the employee did on the job to make sure each minute is spent welding, typing, adding, inspecting or whatever their task.  Fredrick Taylor became a business guru, running around with stopwatches calculating how to get more work out the door by controlling everything workers did.

Have people noticed that its 2009?  Today, there are places where such focus on task implementation is important.  But most of those places aren't in the USA.  Those kinds of jobs have moved elsewhere.  Even in America's manufacturing plants (and in most plants in the developed world) it is more important that an employee be thinking about their workMore gains are made by intelligent application – new ideas for processes or activities – than from Tayler-ist style efforts to whip people into working harder and more efficiently.  Would you rather have a drone employee (a human robot) or a smart employee thinking about how to be more productive and successful?  Sweat shop behavior doesn't make more money in a world where intelligence and insight are worth a lot more than hours in the chair.

Yet Lock-in to old efficiency notions still remain.  In the 1930s there was a movement to ban adding machines for fear the tapes (the old white tape that ran out the top) would be stolen by employees.  Better to stick with humans doing the adding – less risky.  When PCs came along practically all IT departments wanted to ban them – saying that they posed an inherent risk to productivity (people might use them for things besides work) and employees would capture data on them and leak it to competitors.  When the internet emerged in the 1990s huge numbers of employers banned access because they didn't know what people would do on the web and they feared everyone would be shopping all day, or emailing their friends.  And who knew what kind of information they would leak about the company!  In each instance, a tool that dramatically improved business performance was met with "this will hurt productivity.  And don't you think this poses a serious risk?"

For those who aren't looking for the bogeyman, this presents an opportunity.  Those who first adopted adding machines quickly improved performance – and those who adopted PCs improved productivity (spreadsheets and word processing gave early adopters huge advantages) – and those who adopted the internet rapidly sold more to new customers while finding more low cost suppliers and automated lots of business processes in their supply chain taking down operating costs.  These innovations created Challenges to old ways of doing things, but they also created huge opportunities for those willing to Disrupt old patterns and use White Space to see how they could improve their business.

Every day millions of people are starting to use – and millions more are increasing their use of – social networks. You can get an incredible sense of the pulse of many communities.  You find out what's going on with customers, potential customers and colleagues incredibly fast.  These networks help sift through billions of megabytes of data and bring critical items of importance to you (and your business) remarkably fast.  They act as a new distribution system for information – think of them as a water cooler on steroids taken to the "nth" power.  These are not on-line solitaire environments, these are places where people exchange information and learn.  Really fast.

Today, having informed employees who can take action separates winners from losers.  Those who want to be in the forefront of competition are already thinking about how these environments connect them with critical information.  Help them connect to customer and vendor communities.  Help them improve productivity by increasing the pace of information exchange.  If you aren't afraid of the bogeyman then you have an opportunity to get a leg up on the fearful by not only accepting, but encouraging the use of social networks.  The faster you "get it" the better off you'll be.  It's likely to introduce ideas for Disrupting your business during this downturn and opening White Space to get you growing again!

Postscript –

An article in the recent New Yorker Magazine "Not So Fast" takes a deep look at Fredrick Taylor and the history of "scientific management."  According to the article, Taylor and his colleagues often made up their data, and their conclusions, and the results they promised were almost never achieved.  Interesting reading on how the myth was created, and became legend.  Perhaps sending most of what was taught for decades as "business best practice" at leading business schools in a seriously misguided direction.  Well worth a read for those with time to pick up a little history – and some insights to how business myths are developed and promulgated. 

“I don’t get it” is no excuse – Facebook, Linked-in, Twitter, MySpace, Plaxo

Lock-in causes us to keep moving in the same direction, to continue behaving the same way, even when competition and market shifts makes it a surety that the direction we're heading will produce poorer returns.  Blacksmiths who ignore the shift to automobiles.  Printers who ignore the shift to photocopiers.  As I often point out, unless something attacks the Lock-in, we are amazingly able to keep right on going the same direction – blithely ignoring the inevitable problems.

"I read Playboy for the articles" is a Harvard Business School Working Knowledge article which outlines just how far we all will go to avoid dealing with internal conflicts caused by undertaking behavior we know is unjustifiable. (Download full pdf text of White Paper here.)  According to the article:

  • Because people do not want to be perceived as (or feel) unethical or
    immoral, they make excuses for their behavior—even to
  • People cope with their own questionable actions in a number of ways by rationalizing, justifying, and
    forgetting—a remarkable range of strategies allowing them to maintain a
    clear conscience even under dubious circumstances.

Which leads me to the #1 excuse I hear.  "I don't get it."  I bring up to people – especially those who are over 35 – the power of modern technology tools.  For example, ask a 40 year old why two 20 year old girls sitting across a table will text each other and the answer is "I don't get it."  Tell them you know teenagers who spend more time at the computer monitor on-line than watching TV and the answer is "I don't get it."  Hear someone say "my cell phone is more important than my car" and you hear "I don't get it.'  And the biggest one of all, tell this person they need to open up accounts and go everyday to Facebook, Linked-in, Twitter, MySpace and Plaxo and you hear "you're kidding – right?  Why anyone spends time on those – I don't get it." 

Every time I hear "I don't get it" I wince.  Because that person just admitted "I'm willing to get out of step with the market, and risk having my skills become obsolete.  I'm happy doing what I do, and I don't see why I need to doing something new and different.  I'm sure the world is not evolving away from me, and I've chosen to remain Locked-in to where I've been rather than learn what's going on with these new solutions."  See what I mean?  When you read my interpretation makes you wince, doesn't it?

Our parents used to tell us when we talked on the telephone "Why don't you just go to their house, I don't get it." When we listened to rock-and-roll "Your music makes no sense, I don't get it."  When we thought everybody needed a car they'd say "We always walked, why do you need a car?  I don't get it." 

"I don't get it" is the proverbial excuse justifying Lock-in.  It allows us to walk away from a shift that's right in front of us, and remain stuck.  It allows us to feel like we're OK to remain – well — ignorant

So, the next time you hear yourself saying "I don't get it" it's time to stop, Disrupt yourself, and find some time to get it.  It's time to review your willingness to remain Locked-in, and invest some resources in trying new stuff instead of Defending & Extending.  Because if you do create some White Space you can learn – and the first who "get it" will be the ones who do best in the market, getting the best results.

PART 2 – a personal extension for those with time to read.

When my son died last week, at age 21, he left a brother age 20 and a brother age 18.  He also left hundreds of friends his own age.  These people shared what all of us shared at that age – a deep desire to talk to each other, to communicate, to cry in groups, to grieve, to find things in the past that made them happy.  To capture time in a bottle by reflecting on Alex's life.  And they also shared the simple fact that they have almost no money, precious little time, and a host of responsibilities to school, family and work.

30 years ago my generation would have made a few phone calls.  Maybe a few of us gotten together for an hour.  But our talks would have been mostly a small group, and for a short time.

The last week I've been living on Facebook, Linked-in, Twitter, et.al.  I have used all these tools for at least several months, and in some cases years.  But I used these through the filters of my history.  I saw them as extensions (D&E) of old ways I communicated.  Finally, now, I get it.  These communities are an entirely different way of communicating.  I different way of building a community.  And in many ways, it is MORE vibrant and more honest than anything ever before.  LIkewise, it is real time.  And it is open to everyone. It is extraordinarily effective.  And it is unbelievably healthy.

For those who question their child's life on-line, you are looking from your historical reference.  What happens in this environment is incredibly open – thus very informative.  It is remarkably honest – in ways everyone finds very hard to be face-to-face.  And it is very fast.  There are no boundaries – no race, no origin questions, no location questions, no income questions.  It is the most egalitarian, comprehensive method of creating a self-forming community to accomplish a goal I've ever seen.  Way beyond anything I've ever seen my generation accomplish by developing plans and subsequently focusing on execution. 

Within hours, my son's friends found out he had died 500 miles away – and his Facebook page exploded.  It became a central hub to exchange information of all kinds about his accident, his life, his funeral.  Within hours almost his entire world new what happened – far faster than any "family call chains" we ever created.  As they searched to learn more, within a day someone found a video of the accident scene and the helicopter whisking him away —- something that would have taken my generation weeks to find (if at all) and share.  And the videographer was put in contact with me, able to give me first-hand info about the accident scene. 

His brother created a new Facebook site dedicated to honoring Alex the next day.  Within hours 200 people were hooked up.  Before week end the number went to 400.  This became universe central for this topic.  There was no CEO.  No Director of communications.  Just a self-organizing activity that brought together hundreds of people who wanted to talk about Alex.  Very effective discussion.

Since Alex's 22nd birthday is 9/30 – some spontenous person said a birthday party should be thrown.  Within hours an event had been created, and hundreds were talking about whether they could attend or not (by the way, it's going to be on 10/2 in Chicago.)  All kinds of talk about who had to work, who could come, what to bring.  Again, self-organizing and spontaneous and remarkably effective.

By the time the newspaper published an article on the accident, and my son's obituary, it was so old news I don't think anybody cared.  And certainly the only people who learned this way were those who were – over 40. 

If you aren't using these tools – if you don't "get it" – this is one place I would recommend some personal White Space investment.  If you do, the payoff is extremely high.  If you don't, you're likely to find yourself as out of date as cobblers and blacksmiths faster than you think.

GM and Why Size No Longer Matters – @ Forbes.com

GM. Those two letters call up a lot of emotion these days. People ask,
"What went wrong?" "How could a company that large, that successful, go
bankrupt?" The less polite say: "General Motors' leadership is
corrupt." "They ignored customers." "The union killed them."
"Government interference." "Idiots."

This is the first paragraph of my new column on Forbes.com.  You can read it, and future articles, in the Leadership section – Link Here.

I'm very excited to find new audiences for discussing what's caused the latest round of business problems – and failures.  As well as spreading the message about how businesses can start growing again.  Check out the column.

Use White Space to create Social Media Value – Pizza Hut, Sony, Dell, Sears

Where the people go, advertisers will follow.  Why pay for an ad at the end of a never traveled dead-end street?  The purpose of advertising is to reach people with your message.  And now "Forrester: Interactive Marketing to grow 11% to $25.6 Billion in 2009" reports MediaPost.com.  When print advertising is dropping (direct mail down 40%, newspaper down 35% and magazines down 28%), the on-line market is growing and expected to reach over $50billion by 2014. Search ads is the biggest, with over half the market, but social media is expected to grow the fastest at over 34%/year.

Such a market shift indicates that those who buy ads need to be very savvy about what works.  Like I said, you don't want to be the fool who jumps into billboards, only to get placed on the one at the end of a dead-end road.  Success means Disrupting your assumptions about advertising, and learning what work by entering White Space with tests and measurements.

In "Mobile Marketing Won't Work Here" Bret Berhoft explains why GenY simply won't tolerate intrusive ads – especially on their mobile devices.  Social media are different conduits, with different users and different behaviors.  Where older folks (and our parents) were content to be interrupted by ads – such as on TV – the avid users of new media aren't.  And they've been known to create counter-movements attacking advertisers that don't adhere to their on-line behavior requirements.

What won't work is trying to do what Sears has done. Instead of learning how people use social media, and how you can connect with them to meet their needs, "Sears to Launch Social Networking Sites" we learn.  Where everybody is using Facebook, MySpace, Twitter, Linked-in, etc., Sears decided to open two new sites called MySears.com and MyKmart.com.  They hope people will go to these sites, register, and tell stories about their experiences in both retail chains.  Then Sears intends to flow through good comments to Sears.com and KMart.com sites.

The horribly Locked-in Sears management keeps trying to Defend & Extend its outdated model.  As people have left Sears and KMart in droves for competitors, they aren't looking for a site to "connect" with other people who are Sears centric.  People use social networks to learn, grow, exchange ideas, keep up with trends.  They don't register for a site because their parents used to shop there. 

Sears has missed the basics of Disrupting its old Success Formula, so it keeps trying to apply it in ways that don't work. It keeps doing what it always did, only trying to do it in new places. These sites aren't White Space projects trying to participate in the social networks that are growing (like everything from illness questions to home how-tos).  Rather, they are still trying to take the position that Sears is at the center of the world, and people want to be part of Sears.

Exactly how advertisers will capture the attention of participants still isn't clear.  Some ideas have gone "viral" producing mega-returns for minimal investments.  Other ideas have flopped despite big spending.  The market is shifting, and variables keep changing (Marketers Search for Social Media Metric.)  But for those who Disrupt their old Lock-ins, those who attack their assumptions, they can use White Space to learn what does work

"Pizza Hut 'Twintern' to Guide Twitter Presence" is a great example of creating White Space to study social media advertising by participating.  The new position will interact with Twitter users, and be a leader in how to interact with Facebook and other sites – even the notorious YouTube! where user content can include the very bizarre.  By participating where the customers are, these leaders can develop insights to how you can consistently advertise effectively.  Already Sony and Dell have demonstrated they can achieve high recall (Word of Mouth goes Far Beyond Social Media) beyond Social Media with their on-line efforts.  These participants, who Disrupt their assumptions and bring in others to work in White Space will be the winners because they aren't trying to Defend & Extend the old Success Formula.  They are trying to create a new one to which they can migrate the old business.

Newspaper weaknesses – Quotes for NYT, Washington Post, LATimes, Chicago Tribune

"If you don't read the newspaper you are uninformed.  If you do read the newspaper you are misinformed."  — Mark Twain

"All I know is what I read in the newspaper.  That makes me the most ignorant man alive."   —- Will Rogers

What both these great writers understood was that when you get most of your news from one source, you get only what that source chooses to tell you, and only a single interpretation of the news.  Since newspapers began there has been controversy about bias in news reporting.  Many famous newspapers were considered "conservative" or "liberal" based upon the political opinions of the owners.  The reality is that when a newspaper reporter tells you a story, what you read – down to the word choices - is affected by the opinions and feelings of the author, as well as those of the editor and perhaps even the publisher. 

The great breakthrough of the internet is you aren't restricted to a single (or possibly) two sources.  You can find articles about anything from a political speech to an automobile accident published by 5, 10 maybe hundreds or thousands of sources.  And for many news items the internet provides you not only multiple opportunities to read how the "facts" are told, but you can find multiple articles that interpret those facts.  This plethora of coverage means that internet readers have the opportunity to be as selective, or as broad, as they choose.  And it means that the ability of publishers to "control the direction" of a story is dramatically diminished.  Readers, by looking across multiple sources, can determine as a group which "facts" they find accurate, and which "interpretation" they find most genuine.  Because of the internet, news coverage is "democratized" in a way that has never before been possible.

Newspapers provided a method of informing the public for a very, very long time.  But they have an internal weakness they cannot overcome – the printing means that only one version of a story is told and it can only be economically told once per day.  The distribution method makes newspapers an "event" that occurs at "deadline", and the cost is high enough that there's only enough advertising to support the printing and distribution of one newspapers in most markets.  When you get down to the printing – the "paper" in "newspaper" – it has limits that create a weakness.

The internet is disruptive because it overcomes the limitations of printing.  It is available 24×7 not just to read, but to be updated and current with the latest information.  A person anywhere can read input from multiple sources.  The internet makes up-to-the-minute news coverage of everything available to people in rural, remote locations as quickly as it does those "on the scene", thus opening an interest in world or very local events to everyone on the planet, regardless of location.  And this means this "no cost distribution" (not no cost of fact acquistion, or interpretation, or writing – just distribution) allows the internet to do what economist Joseph Schumpeter called "creatively destroy" the old value in newspapers. 

Those who bemoan the loss of newspapers need to spend more time on the internet.  There are so many sources for so much news that we are today the best informed society in the history of mankind.  The financial problems at newspaper publishing have not diminished the quantity or quality of news coverage.  Those are higher than ever.  And the businesses that jump into this market, by developing networks to access the most/best news and interpretation at the lowest cost – while delivering it in a format that is easy for readers to find and absorb – will be successful.  And it will be harder than ever for those trying to create the news (such as politicians and political pundits) to decry "bias" in a world where all opinions are available to everyone.

Subsidies – Newspapers, automobiles, banks need new Success Formulas

"Senator proposes nonprofit status for newspapers" was the headline at Marketwatch.com today.  Senator Benjami Cardin, a democrate from Maryland, has proposed allowing newspapers to convert to 501(c)(3) status so their subscription and advertising revenue woujld be tax exempt, while contributions to run the papers would be tax deductible. This would allow some newspapers to stay afloat.

Let me share with you a response I received from a fellow reader of this blog:

"I watched Chris Mathews and had the same feeling.  As they spoke I had visions of chiefs of Bethlehem, U.S. Steel, etc. sitting around a table in the 60s going 'continuous casting, those Japanese, that's not going anywhere.'

How can they say investigative reporting is going to be dead – there are a million reporters out there working for passion and curiosity.  As a matter of fact, if I was going to be paid for a year to chase a story, seems to me a strong incentive to create a story when there really wasn't one.

I loved the way they were holding the paper and saying how people will miss the periphery articles.  People will be limited to their feeds and be exposed to the rest of what's going on.  I look at it as if I read an article in a newspaper that is just one take of the situation.  With the internet I can drill down to get additional information and opinions.  Plus get immediate commentary from experts."

Lots of people are getting "subsidy happy" these days.  Money to banks, money to car companies, money to newspapers.  What we must realize is that these short-term subsidies should be targeted at stopping a worse calamity.  Nothing more.  Sort of trading off company subsidies against even higher costs for unemployment, uninsured health care, and the costs of letting companies fail short-term.  The reality is that none of these subsidized companies are sustainable as they areThe market has shifted, and their Success Formulas no longer produce positive results.  They will burn up the subsidy money, as we've already seen happen at GM, and soon ask for more. 

When markets shift, new competitors emerge to thrive.  Provided we don't get in their way by propping up bad competitors too long with subsidies.  In banking, we saw the unregulated institutions on a global scale start doing all sorts of financial services.  While some of these are reverting back to regulated banks in the U.S. today so they can receive subsidies, globally we have seen the emergence of immense banks that are outside U.S. regulation.  These institutions can borrow and lend globally, and are creating a new approach to financial services.  We can't prop up an uncompetitive Citigroup against giant global banks making profits offshore.  Likewise, globalization of manufacturing now means that good, low cost cars can be produced in Korea, China and India – making rates of return on higher cost labor in the USA, Germany and Japan harder to obtain.  Additionally, many of these offshore competitors (in particular Japanese and Korean) have demonstrated they can deliver proifts on far lower volumes, thus requiring faster launch cycles and more niche products to succeed.  GM lacks the manufacturing cost structure (in short-term line costs as well as labor) and the new product introduction processes to survive against these competitors.   In newspapers consolidating the reporting into a daily made sense when you needed vast and costly infrastructure to print and deliver the news – no longer requirements in a web-enabled news marketplace.

Economists can make strong arguments for subsidies to help short-term dislocations.  Such as helping companies in New Orleans to get back up and running due to a hurricane.  That is a short-term problem not related to a market shift.  But arguments for subsidies offered during market shifts are strictly "public policy" efforts trading off one policy cost for another.  They cannot "save" a businessThe company and its employees must use the subsidy to change their Success Formula as fast as possible, so they can compete with some product in some market where they can grow — without need for a subsidy

TARP and its other stimulus products are intended to keep some air in some parts of the boat so it doesn't sink entirely.  But they aren't fixing the ship.  That requires new competitors emerge that are attuned to current market needs, and have Success Formulas that produce profits based upon future markets.  As the economist Schumpeter said 70 years ago, we rely upon these new entrepreneurs to give us the creative new solutions that create growth in the wake of the destruction of old businesses unable to keep up with shifting markets.  Let's hope we don't spend all our money trying to keep the old battleship afloat, because we'll need some to help the newer, faster, more agile competitors grow with solutions that meet current and future needs.