by Adam Hartung | Aug 29, 2012 | Current Affairs, Innovation, Leadership, Transparency, Travel, Web/Tech
Neil Armstrong, the first man to step on the moon died last Saturday. Overall, I was surprised at just how little attention this received. The Republican convention, Hurrican Isaac and many other issues dominated the news, even though Neil Armstrong represents something that had far more impact on our lives than this hurricane, or anyone attending this convention.
Neil Armstrong represents the adventurous spirit of an innovator willing to lead from the front. The advances in flight, and space travel, might have happened without him – or maybe not. Neil Armstrong was willing to see what could be done, willing to experiment and take chances, without being overly concerned about failure. Rather than worrying about what could go wrong, he was willing to see what could go right!
Most of us forget that it has been only 110 years since the Wright brothers made their 12 second, 120 foot flight at Kitty Hawk, North Carolina. Before that, flight had been impossible. Now, in such a short time, we have globalized travel. My father, born in 1912, lived in a world with no planes – or much need for one. I now live in Chicago largely because of O'Hare airport and its gateway (almost always in one leg) to any city. Flight has transformed everything about life, and the world owes a lot to Neil Armstrong for that change.
Neil Armstrong became a pilot at 15 and spent a lifetime pushing the envelope of flight. He not only flew planes, but he obtained an aeronautical engineering degree and used his experiences to help design better, more capable planes. His history of try, fail, test, improve, try, succeed is an example for all leaders:
- Firstly, know what you are talking about. Have the right education, obtain data and apply good analysis to everything you do. Don't operate just "from your gut," or on intuition, but rather know what you're talking about, and lead with knowledge.
- Second, don't be afraid to experiment, learn, improve and grow. Don't rest on what people have done, and proven, before. Don't accept limits just because that's how it was previously done. Constantly build upon the past to reach new heights. Just because it has not been done before does not mean it cannot be done.
Beyond his own leadership, Neil Armstrong is – for much of the world – the face of space travel. The first man on the moon. And that was only possible by being part of, and a leader in, NASA. And we could desperately use NASA today. It was, without a doubt, the most successful economic stimulus program in American history – even though politicians have been moving in the opposite direction for nearly 2 decades!
NASA offered Americans, and in fact the world, the opportunity to invest in science to see what could be done. By setting wildly unrealistic goals the organization was forced to constantly innovate. As a result NASA created and spun off more inventions creating more jobs than Eisenhower's interstate highway program and all other giant government programs combined.
NASA's heyday was from the John Kennedy challenge of 1961 through the lunar landing in 1969. Yet since 1976 alone there have been over 1,400 documented NASA inventions benefiting industry!! Not only did NASA's experiments in flight aid physical globalization, but it was NASA that developed wireless (satellite based) long-distance communications – which now gives us nearly free global voice and data connectivity. And the need to solve complex engineering problems pushed the computer race exponentially, giving us the digital technology now embedded in almost everything we do.
Consider these other NASA innovations that have driven economic growth:
- The microwave oven, and tasty, desirable frozen food used not only in homes but in countless restaurants
- Water filtration for cities and even your refrigerator reducing disease and illness
- High powered batteries – for everything from laptops to cordless tools to electric cars
- Cordless phones, which led to cell phones
- Ear thermometers (for those of us who remember using anal thermometers on sick babies this is a BIG deal)
- Non-destructive testing of rockets and other devices led to what are now medical CAT scanners and MRI machines
- Scratch resistant lenses now used in glasses, and invisible, easy to adjust braces at prices, adjusted for inflation, considered impossible 30 years ago
- Superior coatings for cookware, paints and just about everything
As the American economy sputters, southern Europe looks to drag down economic growth across the continent, and growth slows in China the need for economic stimulus has never been greater. But far too often politicians reach for outdated programs like highways, dams or other construction projects. And monetary stimulus, in the form of lower interest rates and easier money, almost always goes into asset intensive projects like factories – at a time when capacity utilization remains far from any peak. We keep spending, and making money cheap, but it doesn't matter.
We have transitioned from an industrial to an information economy. Effective economic stimulus in 2012 cannot happen by creating labor-intensive, or asset-intensive, programs. Rather it must create jobs built upon the kind of value-added work in today's economy – and that means knowledge-intensive work. Exactly the kind of work created by NASA, and all the subsidiary businesses born of the NASA innovations.
Nobody seems to care about going to space any more. And I must admit, it is not my dream. But in one of his last efforts to help America grow Neil Armstrong told a Congressional committee "It would be as if 16th century Monarchs proclaimed we need not go to the New World, we have already been there." He was so right. We have barely begun understanding the implications of growth created by exploring space. Only our imaginations are limited, not the opportunity.
What Neil Armstrong told us all, and practiced with his actions, was to never stop setting crazy goals. Even when the immediate benefit may be unclear. The journey of discovery unleashes opportunities which create their own benefits – for society, and for our economy. Losing Neil Armstrong is an enormous loss, because we need leaders like him now more than ever.
by Adam Hartung | Aug 15, 2012 | Current Affairs, In the Rapids, Leadership, Web/Tech
Forbes magazine labeled Groupon the world's fastest growing corporation. And that didn't hurt the company's valuation when it went public in November, 2011.
But after trading up for a couple of months, at the beginning of March Groupon turned down and has since lost 75% of its market capitalization. Groupon is now valued at about $3.6B – approaching half of what Google offered to pay for the company in 2011 before leadership decided to go public.
And nobody, absolutely nobody, can be happy about that.
Groupon pioneered the use of digital coupons in a way that created an explosive new market for local business. Paper coupon use had been declining for years. But when Groupon made it possible for on-line individuals to achieve deep discounts on products in local stores using emailed coupons masses of people started buying. From nothing in June, 2009, by June, 2010 revenues grew to an astonishing $100M. Then, between June, 2010 and June, 2011 revenues exploded 10-fold, reaching the magical $1B. Forbes was not wrong – as this was an astonishing growth accomplishment.
Google, Yahoo, Amazon and other suitors quickly recognized that this was not a fad – but a true growth market:
- People like deals, and coupons could be successful when updated to modern technology
- Local programs were extremely hard for internet-wide companies like Google, and Groupon had "cracked the code" for acquiring local-market customers
- Some Groupon programs had simply astounding results – far exceeding the offerer's expectations. The downside was the businessess complained about how much the discounts cost them as success exceeded expectations. The upside was it demonstrated the business had remarkable reach and success.
- As mobile use grows Groupon can interact with location apps like Foursquare to allow local merchants to target local customers for rapid sales. Combine that with Twitter distribution and you could have extremely effective local store targeted marketing programs – previously unavailable on the web.
- Groupon reached a scale allowing it to potentially work with national consumer goods companies like PepsiCo or P&G and their local retailers on new product launches or market specific sales programs, something not previously done via digital networks.
Ah, but problems have emerged at Groupon. Although none of them really change the above items:
Source: Business Insider August 13, 2012 Permission to reproduce: Jay Yarrow, Silicon Alley Insider Editor
This last point is extremely deadly. Groupon's growth rate has fallen from 1,000% to about 35%! Further, Groupon is dangerously close to a growth stall, which is 2 consecutive quarters of declining revenue. Only 7% of companies that incur a growth stall maintain a consistent growth rate of even 2%!! Groupon's value is completely based upon maintaining high growth. So regardless of anything else – including profitability – unless Groupon can find its growth mojo then investors are screwed!
Has the market for daily deals declined? Not according to Yelp and Amazon, which continue growing their markets. Consumers are still smarting from a bad economy, and love digital coupons. The problems at Groupon do not appear to be that the market is disappearing – but rather that management simply does not know what to do next.
Groupon was a rocket ship of growth, and founding CEO Andrew Mason deserves a lot of credit for building the sales machine that outperformed everyone else – including Google and Amazon. But the other side of his performance was complete inexperience in how to manage finances, operations or any other part of a large publicly traded corporation. Unprofessional analyst presentations, executive turnover, disrespectful comments to investors and chronic unprofitability all were acceptable if – and only if – he kept up that torrid growth pace. If he can't drive sales, what's the benefit of keeping him in the top job?
Groupon is a remarkable company, in a remarkable market. But it has incredibly tough competition. Seasoned tech investors know that as fast as Groupon sales went up, they can go down. With smart, well managed competitors in their markets there is no room for error – and no time. Groupon has to keep the growth going, or it will quickly be overwhelmed by bigger, smarter companies – remember Palm? RIM?
It's not too late for Groupon. It is #1 in its market. Groupon has the most users, the most customers and by far the most salespeople. Groupon has other products in the pipeline which solve new needs and can extend sales into other emerging market opportunities. But Groupon will not survive if it does not recapture growth – and it's time for a CEO with the experience to do just that. Mr. Mason does not appear to be the next Jeff Bezos or Steve Jobs, so Groupon's Board better go find one!
by Adam Hartung | Aug 9, 2012 | Current Affairs, Disruptions, In the Rapids, Innovation, Leadership, Web/Tech
Mark Zuckerberg was Time magazine's Person of the Year in December, 2010. He was given that honor because Facebook dominated the emerging social media marketplace, and social media had clearly begun changing how people do things. Despite his young age, Mr. Zuckerberg had created a phenomenon demonstrated by the hundreds of million new Facebook users.
But things have turned pretty rough for the young Mr. Zuckerberg.
- Facebook was pretty much forced, legally, to go public because it had accumulated so many shareholders. The stock hit the NASDAQ with much fanfare in May, 2012 – only to have gone pretty much straight down since. It now trades at about 50% of IPO pricing, and is under constant pressure from analysts who say it may still be overpriced.
- Facebook discovered perhaps 83million accounts were fake (about 9%) unleashing a torrent of discussion that perhaps the fake accounts was a much, much larger number.
- User growth has fallen to some 35% – which is much slower than initial investors hoped. Combined with concerns about fake accounts, there are people wondering if Facebook growth is stalling.
- Facebook has not grown revenues commensurate with user growth, and people are screaming that despite its widespread use Facebook doesn't know how to "monetize" its base into revenues and profits.
- Mobile use is growing much faster than laptop/PC use, and Facebook has not revealed any method to monetize its use on mobile devices – causing concerns that it has no plan to monetize all those users on smartphones and tablets and thus future revenues may decline.
- Zynga, a major web games supplier, announced weak earnings and said its growth was slowing – which affects Facebook because people play Zinga games on Facebook.
- GM, one of the 10 largest U.S. advertisers, publicly announced it was dropping Facebook advertising because executives believed it had insufficient return on investment. Investors now fret Facebook won't bring in major advertisers.
- Google keeps plugging away at competitive product Google+. And while Facebook disappointed investors with its earnings, much smaller competitor Linked-in announced revenues and earnings which exceeded expectations. Investors now worry about competitors dicing up the market and minimalizing Facebook's future growth.
Wow, this is enough to make 50-something CEOs of low-growth, non-tech companies jump with joy at the upending of the hoody-wearing 28 year old Facebook CEO. Zynga booted its Chief Operating Officer and has shaken up management, and not suprisingly, there are analysts now calling for Mr. Zuckerberg to step aside and install a new CEO.
Yet, Mr. Zuckerberg has been wildly successful. Much more than almost anyone else in American business today. He may well feel he needs no advice. But…. what do you suppose Steve Jobs would tell him to do?
Recall that Mr. Jobs was once the young head of Apple, only to be displaced by former Pepsi exec John Sculley — and run out of Apple. As everyone now famously knows, after a string of Apple CEOs led the company to the brink of disaster Mr. Jobs agreed to return and completely turned around Apple making it the most successful tech company of the last decade. Given what we've observed of Mr. Jobs career, and read in his biography, what advice might he give Mr. Zuckerberg?
- Don't give up your job. Not even partly. If you create a "shadow" or "co" CEO you'll be gone soon enough. Lead, quit or make the Board fire you. If you had the vision to take the company this far, why would you quit?
- Nothing is more important than product. Make Facebook's the best in the world. Nothing less will allow a tech company to survive, much less thrive. Don't become so involved with financials and analysts that you lose sight of your #1 job, which is to make the very, very best social media product in the world. Never stop improving and perfecting. If your product isn't obviously superior to other solutions you haven't accomplished your #1 priority.
- Be unique. Make sure your products fulfill needs no one else fulfills – at least not well. Meet unserved and underserved needs so that people talk about your product and what it does – not how much it costs. Make sure that Facebook has devoted, diehard customers that believe your products meet their needs so well they would not consider your competition.
- Don't ask customers what they want – give them what they need. Understand the trends and create future scenarios so you are constantly striving to create a better future, not just improve on history. Never look backward at what you've done, but instead always look forward at creating what noone else has ever done. Push your staff to create solutions that meet user needs so well that you can tell customers why they need your product in ways they never before considered.
- Turn your product releases into a show. Don't just run out new products willy-nilly, or on a random timeline. Make sure you bundle products together and make a big show of each release so you can describe the upgrades, benefits and superiority of what you offer for customers. People need to understand the trends you are meeting, and need to see the future scenario you are creating, and you have to tell them that story or they won't "get it."
- Price for profit. You run a business, not a hobby or not-for-profit society. If you do the product right you shouldn't even be talking about price – so price to make ridiculous margins by industry standards. At Apple, Next and Pixar the products were never the cheapest, but they accomplished what customers needed so well that we could price high enough to make margins that supported additional product development. And you can't remain the best solution if you don't have enough margin to keep developing future products.
- Don't expect products to sell themselves. Be the #1 passionate spokesperson for the elegance and superiority of your products. Never stop beating the drum for the unique capability and superiority of your product, in every meeting, all the time, never ending. People like to "revert to the mean" so you have to keep telling them that isn't good enough – and you have something far superior that will greatly improve their success.
- Never miss an opportunity to compare your products to competition and tell everyone why your products are far better. Don't disparage the competition, but constantly reinforce that you are first, you are ahead of everyone else, you are far better — and the best is yet to come! Competition is everywhere, and listen to the Andy Groves advice "only the paranoid survive." You aren't satisfied with what the competition offers, and customers should not be satisfied either. Every once in a while give people a small glimpse as to the radically different world you see in 3-5 years so they buy what you are selling in order to prepare for that future world.
- Identify key customers that need your solution and SELL THEM. Disney needed Pixar, so we made sure they knew it. Identify the customers who can gain the most from doing business with you and SELL THEM. Turn them into lead customers, obtain their testimonials and spread the word. If GM isn't your target, who is? Find them and sell them, then tell us all how you will build on those early accounts to eventually dominate the market – even displacing current solutions that are more popular. If GM is your target then make the changes you need to make so you can SELL THEM. Everyone wants to do business with a winner, so you must show you are a winner.
- Identify 5 of your competition's biggest customers (at Google, Yahoo, Linked-in, etc.) and make them yours. Demonstrate your solutions are superior with competitive wins.
- Hire someone who can talk to the financial community for you – and do it incredibly well. While you focus on future markets and solutions someone has to tell this story to the financial analysts in their lingo so they don't lose faith (and they are a sacrilegious lot who have no faith.) Keep Facebook out of the forecasting game, but you MUST create and maintain good communication with analysts so you need someone who can tell the story not only with products and case studies but numbers. Facebook is a disruptive innovation company, so someone has to explain why this will work. You blew the IPO road show horribly by showing up at meetings in a hoodie – so now you need to make amends by hiring someone who will give them faith that you know what you're doing and can make it happen.
These are my ideas for what Steve Jobs would tell Mark Zuckerberg. What are yours? What do you think the #1 CEO of the last decade would say to the young, embattled CEO as he faces his first test under fire leading a public company?
by Adam Hartung | Jun 18, 2012 | Current Affairs, Defend & Extend, In the Whirlpool, Innovation, Leadership, Web/Tech
While there is an appropriately high interest in the Win8 Tablet announcement from Microsoft today, there is no way it is going to be a game changer. Simply because it was never intended to be.
Game changers meet newly emerging, unmet needs, in new ways. People are usually happy enough, until they see the new product/solution and realize "hey, this helps me do something I couldn't do before" or "this helps me solve my problem a lot better." Game changers aren't a simple improvement, they allow customers to do something radically different. And although at first they may well appear to not work too well, or appear too expensive, they meet needs so uniquely, and better, that they cause people to change their behavior.
Motorola invented the smart phone. But Motorola thought it was too expensive to be a cell phone, and not powerful enough to be a PC. Believing it didn't fit existing markets well, Motorola shelved the product.
Apple realized people wanted to be mobile. Cell phones did talk and text OK – and RIM had pretty good email. But it was limited use. Laptops had great use, but were too big, heavy and cumbersome to be really mobile. So Apple figured out how to add apps to the phone, and use cloud services support, in order to make the smart phone fill some pretty useful needs – like navigation, being a flashlight, picking up tweets – and a few hundred thousand other things – like doctors checking x-rays or MRI results. Not as good as a PC, and somewhat on the expensive side for the device and the AT&T connection, but a whole lot more convenient. And that was a game changer.
From the beginning, Windows 8 has been – by design – intended to defend and extend the Windows product line. Rather than designed to resolve unmet needs, or do things nobody else could do, or dramatically improve productivity over all other possible solutions, Windows 8 was designed to simply extend Windows so (hopefully) people would not shift to the game changer technology offered by Apple and later Google.
The problem with trying to extend old products into new markets is it rarely works. Take for example Windows 7. It was designed to replace Windows Vista, which was quite unpopular as an upgrade from Windows XP. By most accounts, Windows 7 is a lot better. But, it didn't offer users anything that that made them excited to buy Windows 7. It didn't solve any unmet needs, or offer any radically better solutions. It was just Windows better and faster (some just said "fixed.")
Nothing wrong with that, except Windows 7 did not address the most critical issue in the personal technology marketplace. Windows 7 did not stop the transition from using PCs to using mobile devices. As a result, while sales of app-enabled smartphones and tablets exploded, sales of PCs stalled:
Chart reproduced with permission of Business Insider Intelligence 6/12/12 courtesy of Alex Cocotas
People are moving to the mobility provided by apps, cloud services and the really easy to use interface on modern mobile devices. Market leading cell phone maker, Nokia, decided it needed to enter smartphones, and did so by wholesale committing to Windows7. But now the CEO, Mr. Elop (formerly a Microsoft executive,) is admitting Windows phones simply don't sell well. Nobody cares about Microsoft, or Windows, now that the game has changed to mobility – and Windows 7 simply doesn't offer the solutions that Apple and Android does. Not even Nokia's massive brand image, distribution or ad spending can help when a product is late, and doesn't greatly exceed the market leader's performance. Just last week Nokia announced it was laying off another 10,000 employees.
Reviews of Win8 have been mixed. And that should not be surprising. Microsoft has made the mistake of trying to make Win8 something nobody really wants. On the one hand it has a new interface called Metro that is supposed to be more iOS/Android "like" by using tiles, touch screen, etc. But it's not a breakthrough, just an effort to be like the existing competition. Maybe a little better, but everyone believes the leaders will be better still with new updates soon. By definition, that is not game changing.
Simultaneously, with Win8 users can find their way into a more historical Windows inteface. But this is not obvious, or intuitive. And it has some pretty "clunky" features for those who like Windows. So it's not a "great" Windows solution that would attract developers today focused on other platforms.
Win8 tries to be the old, and the new, without being great at either, and without offering anything that solves new problems, or creates breakthroughs in simplicity or performance.
Do you know the story about the Ford Edsel?
By focusing on playing catch up, and trying to defend & extend the Windows history, Microsoft missed what was most important about mobility – and that is the thousands of apps. The product line is years late to market, short on apps, short on app developers and short on giving anyone a reason to really create apps for Win8.
Some think it is good if Microsoft makes its own tablet – like it has done with xBox. But that really doesn't matter. What matters is whether Microsoft gives users and developers something that causes them to really, really want a new platform that is late and doesn't have the app base, or the app store, or the interfaces to social media or all the other great thinks they already have come to expect and like about their tablet (or smartphone.)
When iOS came out it was new, unique and had people flocking to buy it. Developers could only be mobile by joining with Apple, and users could only be mobile by buying Apple. That made it a game changer by leading the trend toward mobility.
Google soon joined the competition, built a very large, respectable following by chasing Apple and offering manufacturers an option for competing with Apple.
But Microsoft's new entry gives nobody a reason to develop for, or buy, a Win8 tablet – regardless of who manufactures it. Microsoft does not deliver a huge, untapped market. Microsoft doesn't solve some large, unmet need. Microsoft doesn't promise to change the game to some new, major trend that would drive early adopters to change platforms and bring along the rest of the market.
And making a deal so a dying company, on the edge of bankruptcy – Barnes & Noble – uses your technology is not a "big win." Amazon is killing Barnes & Noble, and Microsoft Windows 8 won't change that. No more than the Nook is going to take out Kindle, Kindle Fire, Galaxy Tab or the iPad. Microsoft can throw away $300million trying to convince people Win8 has value, but spending investor money on a dying businesses as a PR ploy is just stupid.
Microsoft is playing catch up. Catch up with the user interface. Catch up with the format. Catch up with the device size and portability. Catch up with the usability (apps). Just catch up.
Microsoft's problem is that it did not accept the PC market was going to stall back in 2008 or 2009. When it should have seen that mobility was a game changing trend, and required retooling the Microsoft solution suite. Microsoft dabbled with music mobility with Zune, but quickly dropped the effort as it refocused on its "core" Windows. Microsoft dabbled with mobile phones across different solutions including Kin – which it dropped along with Microsoft Mobility. Back again to focusing on operating systems. By maintaining its focus on Windows Microsoft hoped it could stop the trend, and refused to accept the market shift that was destined to stall its sales.
Microsoft stock has been flat for a decade. It's recent value improvement as Win8 approaches launch indicates that hope beats eternally in some investors' breasts for a return of Microsoft software dominance. But those days are long past. PC sales have stalled, and Windows is a product headed toward obsolescence as competitors make ever better, more powerful mobile platforms and ecosystems. If you haven't sold Microsoft yet, this may well be your last chance above $30. Ever.
by Adam Hartung | Jun 1, 2012 | Current Affairs, In the Rapids, Innovation, Leadership, Television, Web/Tech
On May 18 Facebook went public with an opening price of $38/share. Now, after just 2 weeks, it's more like $28. Ouch – a 25%+ drop in such a short time makes nobody happy. Except buyers. And if you are interested in capturing a high rate of return with little risk, this is your lucky break!
The values of publicly traded companies change, often dramatically, based upon changes in performance and investor expectations about the future. Trying to profit off fast price changes is the world of traders – and the vast majority of them lose fortunes rather than create them. Knowing how to ignore whipsaw events, and invest in good companies when they are out of favor is important to long-term wealth creation.
Investors make money by understanding product markets and the companies supplying them, then investing in companies that build upon trends to create revenue growth with high rates of return over several years. In the forgettable 1999 movie "Blast from the Past" (Brendan Fraser, Christopher Walken, Sissy Spacek) a family moves into its nuclear blast shelter in 1960 during a panic, and doesn't come out for 35 years. Fortunately, the father had bought shares of AT&T and other companies aligned with 1960 trends, and the family discovers upon re-emergence it is quite wealthy.
Creating investment wealth means acting like them, buying shares in companies building on trends so you can hold shares for years without much worry.
If ever there was a company aligned with trends, it is Facebook. The company did not create 900million users in 8 years by being lucky. Facebook is the ultimate information era company. Facebook is not a fad – any more than television or telephones were fads in 1960. Just like they provided fundamental new ways of acquiring and disseminating information Facebook is the newest, most efficient and effective way for connecting and communicating in 2012.
When television appeared the mass population said "why?" There was radio, which was cheap, and older users said TV reduced the use of imagination. And television was not available many hours per day. But it didn't take long for CBS and its brethren to prove it could attract eyeballs, and soon Proctor & Gamble started paying for programming so it could promote its soaps (remember "soap operas?") Soon other companies developed programs strictly so they could promote their products. The "Ted Mack Amateur Hour" was sponsored by Geritol, and viewers were reminded of that over and over for 30 minutes every week. Eventually the TV ad model changed, but the lesson is clear - when you can attract eyeballs it has value and there will be businesses creative enough to take advantage.
Now television watching is declining. Instead, people are spending more time on the internet – including via mobile devices. And the location attracting the most people, and by far for the most minutes per day, is Facebook. Facebook's access to so many people, so often, creates an audience many businesses and non-profits want to tap.
Further, in the networked world Facebook not only has eyeballs, it delivers up to those eyeballs some 9 million apps, and knows what everyone wants, where they come from and where they go next. Beyond the industrial-era business of selling ads (like Google,) Facebook's information business has significant value for anyone trying to promote or sell a solution. Facebook is a repository of information about people, and their behavior, never before seen, understood or developed for use.
Around the IPO, General Motors decided to drop its Facebook advertising. That freaked some investors. Cries arose that social media is somehow broken, and unable to develop a business model.
Let's keep in mind who we're talking about here – GM. Not the most innovative, forward thinking company, to put it mildly. GM, like a lot of other plodding, but big spending, large companies has approached social media like it is just television on the web – and would prefer to simply put up a television ad on a Facebook like link. Whoa! That would be akin to a 1960s TV ad that was simply the text from a newspaper ad. Nobody would read it, and it simply wouldn't work.
Television required a new kind of communication to reach customers – and social media does as well. TV required the ad be entertaining, with movement, product use demonstrations, and video plus audio to go with the words. Connecting with users was harder, but the message (and connection) could be far more robust. And that is what advertisers are being forced to learn about Facebook/Social. It has new requirements, but once understood companies can be remarkably successful at connecting with potential customers – far more than the traditional one-way approach of historical advertising.
Paid promotion on Facebook is just the tip of the iceberg – a one-way approach to advertising sure to create short-term revenue but not terribly robust. Beyond that, social media changes everything. Retail, for example, is fast shifting from pushing inventory to being all about understanding the customer and offering them what they need in an anticipatory way (think Amazon rather than Best Buy.) And nowhere can you better understand customer needs than by social media participation. By being an information company, rather than an industrial company, FB is remarkably well positioned to create growth – for everybody that figures out how to use this remarkable platform.
As Facebook's shares kept falling this week, more attention was paid to whether traditional advertisers would buy FB. And much was made about whether the "metrics" were there to justify social media investments. This micro-management approach clearly misses the main point. People are already on Facebook, their numbers are growing, their uses are growing, their time on the site is growing, and the benefits of using Facebook are growing. Trying to measure Facebook use the way you would measure a print ad – or even a Google Adword buy – is simply using the wrong tool.
When P&G first started producing television "soaps" their competition sat back and said "look at what television advertising costs, compared to print and compared to pushing products into the local stores. What is the return for each of those television shows? Can it be justified? I think it is smarter to keep doing what we've done while P&G throws money at ads you can't measure." By moving beyond the historically myopic view of trying to find returns at the micro level P&G quickly became (at the time) the world's largest consumer goods company. Early TV advertisers followed the trend, knowing their participation would create returns far in excess of doing more of the old thing. And that is the direction of social media.
There was a lot of anticipatory excitement for the Facebook IPO. Lots of people wanted shares, and couldn't buy them in advance. The public, and the Morgan Stanley investment bankers, clearly thought the shares would go up. Oops. But that's a lucky thing for investors. Especially small investors, usually unable to participate in a "hot" IPO. Now anybody can buy FB shares at a 25% discount to the offering price – a better deal than the institutional buyers that usually get the "sweet" deal little guys never see.
If you are an employee, short term you might be unhappy. But if you are an investor, be happy that worries about Greece, the Euro's future, domestic politics, a lousy jobs report and simple myths like "sell in May and go away" have been a drag on equities this month – and diminished interest in Facebook.
Buy FB shares, then forget about them for a while. What you care about isn't the value of FB shares in 4 days, 4 weeks or 4 months – you care about 4 years. If you missed the chance to buy Microsoft in 1986, or Amazon in 1997, or Apple in 2000, or Google in 2004 then don't miss this one. There will be volatility, but the trends are all in your favor.
by Adam Hartung | May 25, 2012 | Defend & Extend, In the Whirlpool, Leadership, Web/Tech
Things are bad at HP these days. CEO and Board changes have confused the management team and investors alike. Despite a heritage based on innovation, the company is now mired in low-growth PC markets with little differentiation. Investors have dumped the stock, dropping company value some 60% over two years, from $52/share to $22 – a loss of about $60billion.
Reacting to the lousy revenue growth prospects as customers shift from PCs to tablets and smartphones, CEO Meg Whitman announced plans to eliminate 27,000 jobs; about 8% of the workforce. This is supposedly the first step in a turnaround of the company that has flailed ever since buying Compaq and changing the company course into head-to-head PC competition a decade ago. But, will it work?
Not a chance.
Fixing HP requires understanding what went wrong at HP. Simply, Carly Fiorina took a company long on innovation and new product development and turned it into the most industrial-era sort of company. Rather than having HP pursue new technologies and products in the development of new markets, like the company had done since its founding creating the market for electronic testing equipment, she plunged HP into a generic manufacturing war.
Pursuing the PC business Ms. Fiorina gave up R&D in favor of adopting the R&D of Microsoft, Intel and others while spending management resources, and money, on cost management. PCs offered no differentiation, and HP was plunged into a gladiator war with Dell, Lenovo and others to make ever cheaper, undifferentiated machines. The strategy was entirely based upon obtaining volume to make money, at a time when anyone could buy manufacturing scale with a phone call to a plethora of Asian suppliers.
Quickly the Board realized this was a cutthroat business primarily requiring supply chain skills, so they dumped Ms. Fiorina in favor of Mr. Hurd. He was relentless in his ability to apply industrial-era tactics at HP, drastically cutting R&D, new product development, marketing and sales as well as fixating on matching the supply chain savings of companies like Dell in manufacturing, and WalMart in retail distribution.
Unfortunately, this strategy was out of date before Ms. Fiorina ever set it in motion. And all Mr. Hurd accomplished was short-term cuts that shored up immediate earnings while sacrificing any opportunities for creating long-term profitable new market development. By the time he was forced out HP had no growth direction. It's PC business fortunes are controlled by its suppliers, and the PC-based printer business is dying. Both primary markets are the victim of a major market shift away from PC use toward mobile devices, where HP has nothing.
HPs commitment to an outdated industrial era supply-side manufacturing strategy can be seen in its acquisitions. What was once the world's leading IT services company, EDS, was bought in 2008 after falling into financial disarray as that market shifted offshore. After HP spent nearly $14B on the purchase, HP used that business to try defending and extending PC product sales, but to little avail. The services group has been downsized regularly as growth evaporated in the face of global trends toward services offshoring and mobile use.
In 2009 HP spent almost $3B on networking gear manufacturer 3Com. But this was after the market had already started shifting to mobile devices and common carriers, leaving a very tough business that even market-leading Cisco has struggled to maintain. Growth again stagnated, and profits evaporated as HP was unable to bring any innovation to the solution set and unable to create any new markets.
In 2010 HP spent $1B on the company that created the hand-held PDA (personal digital assistant) market – the forerunner of our wirelessly connected smartphones – Palm. But that became an enormous fiasco as its WebOS products were late to market, didn't work well and were wholly uncompetitive with superior solutions from Apple and Android suppliers. Again, the industrial-era strategy left HP short on innovation, long on supply chain, and resulted in big write-offs.
Clearly what HP needs is a new strategy. One aligned with the information era in which we live. Think like Apple, which instead of chasing Macs a decade ago shifted into new markets. By creating new products that enhanced mobility Apple came back from the brink of complete failure to spectacular highs. HP needs to learn from this, and pursue an entirely new direction.
But, Meg Whitman is certainly no Steve Jobs. Her career at eBay was far from that of an innovator. eBay rode the growth of internet retailing, but was not Amazon. Rather, instead of focusing on buyers, and what they want, eBay focused on sellers – a classic industrial-era approach. eBay has not been a leader in launching any new technologies (such as Kindle or Fire at Amazon) and has not even been a leader in mobile applications or mobile retail.
While CEO at eBay Ms. Whitman purchased PayPal. But rather than build that platform into the next generation transaction system for web or mobile use, Paypal was used to defend and extend the eBay seller platform. Even though PayPal was the first leader in on-line payments, the market is now crowded with solutions like Google Wallets (Google,) Square (from a Twitter co-founder,) GoPayment (Intuit) and Isis (collection of mobile companies.)
Had Ms. Whitman applied an information-era strategy Paypal could have been a global platform changing the way payment processing is handled. Instead its use and growth has been limited to supporting an historical on-line retail platform. This does not bode well for the future of HP.
HP cannot save its way to prosperity. That never works. Try to think of one turnaround where it did – GM? Tribune Corp? Circuit City? Sears? Best Buy? Kodak? To successfully turn around HP must move – FAST – to innovate new solutions and enter new markets. It must change its strategy to behave a lot more like the company that created the oscilliscope and usher in the electronics age, and a lot less like the industrial-era company it has become – destroying shareholder value along the way.
Is HP so cheap that it's a safe bet. Not hardly. HP is on the same road as DEC, Wang, Lanier, Gateway Computers, Sun Microsystems and Silicon Graphics right now. And that's lousy for investors and employees alike.
by Adam Hartung | May 12, 2012 | Current Affairs, Defend & Extend, In the Swamp, In the Whirlpool, Leadership, Web/Tech
This has been quite the week for CEO mistakes. First was all the hubbub about Scott Thompson, CEO of Yahoo, inflating his resume to include a computer science degree he did not actually receive. According to Mr. Thompson someone at a recruiting firm added that degree claim in 2005, he didn't know it and he's never read his bio since. A simple oversight, if you can believe he hasn't once read his bio in 7 years, and he didn't think it was ever important to correct someone who introduced him or mentioned it. OOPS – the easy answer for someone making several million dollars per year, and trying to guide a very troubled company from the brink of failure. Hopefully he is more persistent about checking company facts.
But luckily for him, his errors were trumped on Thursday when Jamie Dimon, CEO of J.P.MorganChase notified the world that the bank's hedging operation messed up and lost $2B!! OOPS! According to Mr. Dimon this is really no big deal. Which reminded me of the apocryphal Senator Everett Dirksen statement "a billion here, a billion there and pretty soon it all adds up to real money!"
Interesting "little" mistake from a guy who paid himself some $50M a few years ago, and benefitted greatly from the government TARP program. He said this would be "fodder for pundits," as if we all should simply overlook losing $2B? He also said this was "unfortunate timing." As if there's a good time to lose $2B?
But neither of these problems will likely result in the CEOs losing their jobs. As obviously damaging as both mistakes are, which would naturally have caused us mere employees to instantly lose our jobs – and potentially be prosecuted – CEOs are a rare breed who are allowed wide lattitude in their behavior. These are "one off" events that gain a lot of attention, but the media will have forgotten within a few days, and everyone else within a few months.
By comparison, there are at least 5 CEOs that make these 2 mistakes appear pretty small. For these 5, frequently honored for their position, control of resources and personal wealth, they are doing horrific damage to their companies, hurting investors, employees, suppliers and the communities that rely on their organizations. They should have been fired long before this week.
#5 – John Chambers, Cisco Systems. Mr. Chambers is the longest serving CEO on this list, having led Cisco since 1995 and championed much of its rapid growth as corporations around the world began installing networks. Cisco's stock reached $70/share in 2001. But since then a combination of recessions that cut corporate IT budgets and a market shift to cloud computing has left Cisco scrambling for a strategy, and growth.
Mr. Chambers appears to have been great at operating Cisco as long as he was in a growth market. But since customers turned to cloud computing and greater use of mobile telephony networks Cisco has been unable to innovate, launch and grow new markets for cloud storage, services or applications. Mr. Chambers has reorganized the company 3 times – but it has been much like rearranging the deck chairs on the Titanic. Lots of confusion, but no improvement in results.
Between 2001 and 2007 the stock lost half its value, falling to $35. Continuing its slide, since 2007 the stock has halved again, now trading around $17. And there is no sign of new life for Cisco – as each earnings call reinforces a company lacking a strategy in a shifting market. If ever there was a need for replacing a stayed-in-the-job too long CEO it would be Cisco.
#4 – Jeffrey Immelt, General Electric (GE). GE has only had 9 CEOs in its 100+ year life. But this last one has been a doozy. After more than a decade of rapid growth in revenue, profits and valuation under the disruptive "neutron" Jack Welch, GE stock reached $60 in 2000. Which turns out to have been the peak, as GE's value has gone nowhere but down since Mr. Immelt took the top job.
GE was once known for entering and changing markets, unafraid to disrupt how the market performed with innovation in products, supply chain and operations. There was no market too distant, or too locked-in for GE to not find a way to change to its advantage – and profit. But what was the last market we saw GE develop? What has Mr. Immelt, in his decade at the top of GE, done to keep GE as one of the world's most innovative, high growth companies? He has steered the ship away from trouble, but it's only gone in circles as it's used up fuel.
From that high in 2001, GE fell to a low of $8 in 2009 as the financial crisis revealed that under Mr. Immelt GE had largely transitioned from a manufacturing and products company into a financial house. He had taken what was then the easy road to managing money, rather than managing a products and services company. Saved from bankruptcy by a lucrative Berkshire Hathaway, GE lived on. But it's stock is still only $19, down 2/3 from when Mr. Immelt took the CEO position.
"Stewardship" is insufficient leadership in 2012. Today markets shift rapidly, incur intensive global competition and require constant innovation. Mr. Immelt has no vision to propel GE's growth, and should have been gone by 2010, rather than allowed to muddle along with middling performance.
#3 – Mike Duke, WalMart. Mr. Duke has been CEO since 2009, but prior to that he was head of WalMart International. We now know Mr. Duke's business unit saw no problems with bribing foreign officials to grow its business. Just on the basis of knowing about illegal activity, not doing anything about it (and probably condoning and recommending more,) and then trying to change U.S. law to diminish the legal repurcussions, Mr. Duke should have long ago been fired.
It's clear that internally the company and its Board new Mr. Duke was willing to do anything to try and grow WalMart, even if unethical and potentially illegal. Recollections of Enron's Jeff Skilling, Worldcom's Bernie Ebbers and Hollinger's Conrdad Black should be in our heads. How far do we allow leaders to go before holding them accountable?
But worse, not even bribes will save WalMart as Mr. Duke follows a worn-out strategy unfit for competition in 2012. The entire retail market is shifting, with much lower cost on-line companies offering more selection at lower prices. And increasingly these companies are pioneering new technologies to accelerate on-line shopping with easy to use mobile devices, and new apps that make shopping, paying and tracking deliveries easier all the time. But WalMart has largely eschewed the on-line world as its CEO has doggedly sticks with WalMart doing more of the same. That pursuit has limited WalMart's growth, and margins, while the company files further behind competitively.
Unfortunately, WalMart peaked at about $70 in 2000, and has been flat ever since. Investors have gained nothing from this strategy, while employees often work for wages that leave them on the poverty line and without benefits. Scandals across all management layers are embarrassing. Communities find Walmart a mixed bag, initially lowering prices on some goods, but inevitably gutting the local retailers and leaving the community with no local market suppliers. WalMart needs an entirely new strategy to remain viable – and that will not come from Mr. Duke. He should have been gone long before the recent scandal, and surely now.
#2 Edward Lampert, Sears Holdings. OK, Mr. Lampert is the Chairman and not the CEO – but there is no doubt who calls the shots at Sears. And as Mr. Lampert has called the shots, nobody has gained.
Once the most critical force in retailing, since Mr. Lampert took over Sears has become wholly irrelevant. Hoping that Mr. Lampert could make hay out of the vast real estate holdings, and once glorious brands Craftsman, Kenmore and Diehard to turn around the struggling giant, the stock initially took off rising from $30 in 2004 to $170 in 2007 as Jim Cramer of "Mad Money" fame flogged the stock over and over on his rant-a-thon show. But when it was clear results were constantly worsening, as revenues and same-store-sales kept declining, the stock fell out of bed dropping into the $30s in 2009 and again in 2012.
Hope springs eternal in the micro-managing Mr. Lampert. Everyone knows of his personal fortune (#367 on Forbes list of billionaires.) But Mr. Lampert has destroyed Sears. The company may already be so far gone as to be unsavable. The stock price is based upon speculation of asset sales. Mr. Lampert had no idea, from the beginning, how to create value from Sears and he surely should have been gone many months ago as the hyped expectations demonstrably never happened.
#1 – Steve Ballmer, Microsoft. Without a doubt, Mr. Ballmer is the worst CEO of a large publicly traded American company. Not only has he singlehandedly steered Microsoft out of some of the fastest growing and most lucrative tech markets (mobile music, handsets and tablets) but in the process he has sacrificed the growth and profits of not only his company but "ecosystem" companies such as Dell, Hewlett Packard and even Nokia. The reach of his bad leadership has extended far beyond Microsoft when it comes to destroying shareholder value – and jobs.
Microsoft peaked at $60/share in 2000, just as Mr. Ballmer took the reigns. By 2002 it had fallen into the $20s, and has only rarely made it back to its current low $30s value. And no wonder, since execution of new rollouts were constantly delayed, and ended up with products so lacking in any enhanced value that they left customers scrambling to find ways to avoid upgrades. By Mr. Ballmer's own admission Vista had over 200 man-years too much cost, and its launch still, years late, has users avoiding upgrades. Microsoft 7 and Office 2012 did nothing to excite tech users, in corporations or at home, as Apple took the leadership position in personal technology.
So today Microsoft, after dumping Zune, dumping its tablet, dumping Windows CE and other mobile products, is still the same company Mr. Ballmer took control over a decade ago. Microsoft is PC company, nothing more, as demand for PCs shifts to mobile. Years late to market, he has bet the company on Windows 8 – as well as the future of Dell, HP, Nokia and others. An insane bet for any CEO – and one that would have been avoided entirely had the Microsoft Board replaced Mr. Ballmer years ago with a CEO that understands the fast pace of technology shifts and would have kept Microsoft current with market trends.
Although he's #19 on Forbes list of billionaires, Mr. Ballmer should not be allowed to take such incredible risks with investor money and employee jobs. Best he be retired to enjoy his fortune rather than deprive investors and employees of building theirs.
There were a lot of notable CEO changes already in 2012. Research in Motion, Best Buy and American Airlines are just three examples. But the 5 CEOs in this column are well on the way to leading their companies into the kind of problems those 3 have already discovered. Hopefully the Boards will start to pay closer attention, and take action before things worsen.
by Adam Hartung | May 3, 2012 | Current Affairs, Defend & Extend, In the Swamp, Innovation, Leadership, Web/Tech
With revenues up 39% last quarter, it's far too soon to declare the death of Google. Even in techville, where things happen quickly, the multi-year string of double-digit higher revenues insures survival – at least for a while.
However, there are a lot of problems at Google which indicate it is not a good long-term hold for investors. For traders there is probably money to be made, as this long-term chart indicates:
Source: Yahoo Finance May 3, 2012
While there has been enormous volatility, Google has yet to return to its 2007 highs and struggles to climb out of the low $600/share price range. And there's good reason, because Google management has done more to circle the wagons in self-defense than it has done to create new product markets.
What was the last exciting product you can think of from Google? Something that was truly new, innovative and being developed into a market changer? Most likely, whatever you named is something that has recently been killed, or receiving precious little management attention. For a company that prided itself on innovation – even reportedly giving all employees 20% of their time to do whatever they wanted – we see management actions that are decidedly not about promoting innovation into the market, or making sustainable efforts to create new markets:
- killed Google Powermeter, a project that could have redefined how we buy and use electricity
- killed Google Wave, a product that offered considerable group productivity improvement
- killed Google Flu Vaccine Finder offering new insights for health care from data analysis
- killed Google Related which could have helped all of us search beyond keywords
- killed Google synch for Blackberry as it focuses on selling Android
- killed Google Talk mobile app
- killed the OnePass Google payment platform for publishers
- killed Google Labs – once its innovation engine
- and there are rumors it is going to kill Google Finance
All of these had opportunities to redefine markets. So what did Google do with these redeployed resources:
- Bought Motorola for $12.5billion, which it hopes to take toe-to-toe with Apple's market leading iPhone, and possibly the iPad. And in the process has aggravated all the companies who licensed Android and developed products which will now compete with Google's own products. Like the #1 global handset manufacturer Samsung. And which offers no clear advantage to the Apple products, but is being offered at a lower price.
- Google+, which has become an internal obsession – and according to employees consumes far more resources than anyone outside Google knows. Google+ is a product going toe-to-toe with Facebook, only with no clear advantages. Despite all the investment, Google continues refusing to publish any statistics indicating that Google+ is growing substantially, or producing any profits, in its catch-up competition with Facebook.
In both markets, mobile phones and social media, Google has acted very unlike the Google of 2000 that innovated its way to the top of web revenues, and profits. Instead of developing new markets, Google has chosen to undertaking 2 Goliath battles with enormously successful market leaders, but without any real advantage.
Google has actually proven, since peaking in 2007, that its leadership is remarkably old-fashioned, in the worst kind of way. Instead of focusing on developing new markets and opportunities, management keeps focusing on defending and extending its traditional search business – and has proven completely inept at developing any new revenue streams. Google bought both YouTube and Blogger, which have enormous user bases and attract incredible volumes of page views – but has yet to figure out how to monetize either, after several years.
For its new market innovations, rather than setting up teams dedicated to turning its innovations into profitable revenue growth engines Google leadership keeps making binary decisions. Messrs. Page and Brin either decide the product and market aren't self-developing, and kill the products, or simply ignore the business opportunity and lets it drift. Much like Microsoft – which has remained focused on Windows and Office while letting its Zune, mobile and other products drift into oblivion – or lose huge amounts of money like Bing and for years XBox.
I personalized that last comment onto the Google founders intentionally. The biggest news out of Google lately has been a pure financial machination done for purely political reasons. Announcing a stock dividend that effectively creates a 2-for-1 split, only creating a new class of non-voting "C" stock to make sure the founders never lose voting control. This was adding belt to suspenders, because the founders already own the Class B stock giving them 66% voting control. The purpose was purely to make sure nobody every tries to buy, or otherwise take over Google, because the founders will always have enough votes to make such an action impossible.
The founders explained this as necessary so they could retain control and make "big bets." If "big bets" means dumping billions into also-ran products as late entrants, then they have good reason to fear losing company control. Making big bets isn't how you win in the information technology industry. You win by creating new markets, with new solutions, before the competition does it.
Apple's huge wins in iPod, iTouch, iTunes, iPhone and iPad weren't "big bets." The Apple R&D budget is 1/8 Microsoft's. It's not big bets that win, its developing innovation, putting it into the market, shepharding it through a series of learning cycles to make it better and better and meeting previously unmet – often unidentified – needs. And that's not what the enormous investments in mobile handsets and Google+ are about.
Although this stock split has no real impact on Google today, it is a signal. A signal of a leadership team more obsessed with their own control than doing good for investors. It is clearly a diversion from creating new products, and opening new markets. But it was the centerpiece of communication at the last earnings call. And that is a avery bad signal for investors. A signal that the leaders see things likely to become much worse, with cash going out and revenue struggling, before too long. So they are acting now to protect themselves.
Meanwhile, even as revenues grew 39% last quarter, there are signs of problems in Google's "core" market leadership is so fixated on defending. As this chart shows, while volume of paid ads is going up, the price is now going down. 
Source: Silicon Alley Insider
Prices go down when your product loses value. You have to chase revenue. Remember Proctor & Gamble's "Basics" product line launch? Chasing revenue by cutting price. In the short-term it can be helpful, but long-term it is not in your best interest. Google isn't just cutting price on its incremental sales, but on all sales. Increasingly advertisers are becoming savvy about what they can expect from search ads, and what they can expect from other venues – like Facebook – and the prices are reflecting expectations. In a recent Strata survey the top 2 focus for ad executives were "social" (69%) and "display" (71%) – categories where Facebook leads – and both are ahead of "search."
At Facebook, we know the user base is around 800million. We also know it's now the #1 site on the internet – more hits than Google. And Facebook has much longer average user times on site. All things attractive to advertisers. Facebook is acquiring Instagram, which positions it much stronger on mobile devices, thus growing its market. And while Google was talking about share splits, Facebook recently announced it was making Facebook email integrated into the Facebook platform much easier to use (which is a threat to Gmail) and it was adding a new analytics suite to help advertisers understand ad performance – like they are accustomed to at Google. All of which increases Facebook's competitiveness with Google, as customers shift increasingly to social platforms.
As said at the top of this article, Google won't be gone soon. But all signs point to a rough road for investors. The company is ditching its game changing products and dumping enormous sums into me-too efforts trying to catch well healed and well managed market leaders. The company has not created an ability to take new innovations to market, and remains stuck defending and extending its existing business lines. And the top leaders just signaled that they weren't comfortable they could lead the company successfully, so they implemented new programs to make sure nobody could challenge their leadership.
There are big fires burning at Google. Unfortunately, burning those resources is producing a lot of heat – but not much light on a successful future. It's time to sell Google.
by Adam Hartung | May 2, 2012 | Defend & Extend, Lock-in, Web/Tech
My latest bi-monthly column for CIO magazine came out in print this week. In it I challenge CIOs to think hard about what made the role successful in the 1970s – then in the 1990s – and how it is transitioning today. Far too many CIOs are locked in on old notions about what made them successful – usually controlling both hardware and software and forcing managers to behave in ways acceptable to IT. But today cloud computing, mobile devices and apps make it possible for many "users" to obviate the IT department entirely – skip the enterprise applications – and find an easy route for their information needs.
I encourage you to click through to the article on CIO.com, or ComputerWorld.com – if you're in IT it should give you something to think about regarding your role. If you are an investor it should give you some new thoughts about what IT companies are worth your money (time to rethink Oracle and SAP, for example.) And if you're a manager it just might embolden you to focus on your needs and fight back on IT solutions that don't work for you.
CIO Mag – http://www.cio.com/article/704934/CIOs_Will_You_Be_Relevant_in_2017_
ComputerWorld – http://www.computerworld.com/s/article/9226722/CIOs_Will_You_Be_Relevant_in_2017_
by Adam Hartung | Apr 20, 2012 | Current Affairs, In the Swamp, Lifecycle, Lock-in, Television, Web/Tech
Who can forget what a great company Sony was, and the enormous impact it had on our lives? With its heritage, it is hard to believe that Sony hasn't made a profit in 4 consecutive years, just recently announced it will double its expected loss for this year to $6.4 billion, has only 15% of its capital left as equity (debt/equity ration of 5.67x) and is only worth 1/4 of its value 10 years ago!
After World War II Sony was the company that took the transistor technology invented by Texas Instruments (TI) and made the popular, soon to become ubiquitous, transistor radio. Under co-founder Akio Morita Sony kept looking for advances in technology, and its leadership spent countless hours innovatively thinking about how to apply these advances to improve lives. With a passion for creating new markets, Sony was an early creator, and dominator, of what we now call "consumer electronics:"
- Sony improved solid state transistor radios until they surpassed the quality of tubes, making good quality sound available very reliably, and inexpensively
- Sony developed the solid state television, replacing tubes to make TVs more reliable, better working and use less energy
- Sony developed the Triniton television tube, which dramatically improved the quality of color (yes Virginia, once TV was all in black & white) and enticed an entire generation to switch. Sony also expanded the size of Trinitron to make larger sets that better fit larger homes.
- Sony was an early developer of videotape technology, pioneering the market with Betamax before losing a battle with JVC to be the standard (yes Virginia, we once watched movies on tape)
- Sony pioneered the development of camcorders, for the first time turning parents – and everyone – into home movie creators
- Sony pioneered the development of independent mobile entertainment by creating the Walkman, which allowed – for the first time – people to take their own recorded music with them, via cassette tapes
- Sony pioneered the development of compact discs for music, and developed the Walkman CD for portable use
- Sony gave us the Playstation, which went far beyond Nintendo in creating the products that excited users and made "home gaming" a market.
Very few companies could ever boast a string of such successful products. Stories about Sony management meetings revealed a company where executives spent 85% of their time on technology, products and new applications/markets, 10% on human resource issues and 5% on finance. To Mr. Morita financial results were just that – results – of doing a good job developing new products and markets. If Sony did the first part right, the results would be good. And they were.
By the middle 1980s, America was panicked over the absolute domination of companies like Sony in product manufacturing. Not only consumer electronics, but automobiles, motorcycles, kitchen electronics and a growing number of markets. Politicians referred to Japanese competitors, like the wildly successful Sony, as "Japan Inc." – and discussed how the powerful Japanese Ministry of Trade and Industry (MITI) effectively shuttled resources around to "beat" American manufacturers. Even as rising petroleum costs seemed to cripple U.S. companies, Japanese manufacturers were able to turn innovations (often American) into very successful low-cost products growing sales and profits.
So what went wrong for Sony?
Firstly was the national obsession with industrial economics. W. Edward Deming in 1950s Japan institutionalized manufacturing quality and optimization. Using a combination of process improvements and arithmetic, Deming convinced Japanese leaders to focus, focus, focus on making things better, faster and cheaper. Taking advantage of Japanese post war dependence on foreign capital, and foreign markets, this U.S. citizen directed Japanese industry into an obsession with industrialization as practiced in the 1940s — and was credited for creating the rapid massive military equipment build-up that allowed the U.S. to defeat Japan.
Unfortunately, this narrow obsession left Japanese business leaders, buy and large, with little skill set for developing and implementing R&D, or innovation, in any other area. As time passed, Sony fell victim to developing products for manufacturing, rather than pioneering new markets.
The Vaio, as good as it was, had little technology for which Sony could take credit. Sony ended up in a cost/price/manufacturing war with Dell, HP, Lenovo and others to make cheap PCs – rather than exciting products. Sony's evolved a distinctly Industrial strategy, focused on manufacturing and volume, rather than trying to develop uniquely new products that were head-and-shoulders better than competitors.
In mobile phones Sony hooked up with, and eventually acquired, Ericsson. Again, no new technology or effort to make a wildly superior mobile device (like Apple did.) Instead Sony sought to build volume in order to manufacture more phones and compete on price/features/functions against Nokia, Motorola and Samsung. Lacking any product or technology advantage, Samsung clobbered Sony's Industrial strategy with lower cost via non-Japanese manufacturing.
When Sony updated its competition in home movies by introducing Blue Ray, the strategy was again an Industrial one – about how to sell Blue Ray recorders and players. Sony didn't sell the Blue Ray software technology in hopes people would use it. Instead it kept it proprietary so only Sony could make and sell Blue Ray products (hardware). Just as it did in MP3, creating a proprietary version usable only on Sony devices. In an information economy, this approach didn't fly with consumers, and Blue Ray was a money loser largely irrelevant to the market – as is the now-gone Sony MP3 product line.
We see this across practically all the Sony businesses. In televisions, for example, Sony has lost the technological advantage it had with Trinitron cathode ray tubes. In flat screens Sony has applied a predictable, but money losing Industrial strategy trying to compete on volume and cost. Up against competitors sourcing from lower cost labor, and capital, countries Sony has now lost over $10B over the last 8 years in televisions. Yet, Sony won't give up and intends to stay with its Industrial strategy even as it loses more money.
Why did Sony's management go along with this? As mentioned, Akio Morita was an innovator and new market creator. But, Mr. Morita lived through WWII, and developed his business approach before Deming. Under Mr. Morita, Sony used the industrial knowledge Deming and his American peers offered to make Sony's products highly competitive against older technologies. The products led, with industrial-era tactics used to lower cost.
But after Mr. Morita other leaders were trained, like American-minted MBAs, to implement Industrial strategies. Their minds put products, and new markets, second. First was a commitment to volume and production – regardless of the products or the technology. The fundamental belief was that if you had enough volume, and you cut costs low enough, you would eventually succeed.
By 2005 Sony reached the pinnacle of this strategic approach by installing a non-Japanese to run the company. Sir Howard Stringer made his fame running Sony's American business, where he exemplified Industrial strategy by cutting 9,000 of 30,000 U.S. jobs (almost a full third.) To Mr. Stringer, strategy was not about innovation, technology, products or new markets.
Mr. Stringer's Industrial strategy was to be obsessive about costs. Where Mr. Morita's meetings were 85% about innovation and market application, Mr. Stringer brought a "modern" MBA approach to the Sony business, where numbers – especially financial projections – came first. The leadership, and management, at Sony became a model of MBA training post-1960. Focus on a narrow product set to increase volume, eschew costly development of new technologies in favor of seeking high-volume manufacturing of someone else's technology, reduce product introductions in order to extend product life, tooling amortization and run lengths, and constantly look for new ways to cut costs. Be zealous about cost cutting, and reward it in meetings and with bonuses.
Thus, during his brief tenure running Sony Mr. Stringer will not be known for new products. Rather, he will be remembered for initiating 2 waves of layoffs in what was historically a lifetime employment company (and country.) And now, in a nod to Chairman Stringer the new CEO at Sony has indicated he will react to ongoing losses by – you guessed it – another round of layoffs. This time it is estimated to be another 10,000 workers, or 6% of the employment. The new CEO, Mr. Hirai, trained at the hand of Mr. Stringer, demonstrates as he announces ever greater losses that Sony hopes to – somehow – save its way to prosperity with an Industrial strategy.
Japanese equity laws are very different that the USA. Companies often have much higher debt levels. And companies can even operate with negative equity values – which would be technical bankruptcy almost everywhere else. So it is not likely Sony will fill bankruptcy any time soon.
But should you invest in Sony? After 4 years of losses, and entrenched Industrial strategy with MBA-style leadership focused on "numbers" rather than markets, there is no reason to think the trajectory of sales or profits will change any time soon.
As an employee, facing ongoing layoffs why would you wish to work at Sony? A "me too" product strategy with little technical innovation that puts all attention on cost reduction would not be a fun place. And offers little promotional growth.
And for suppliers, it is assured that each and every meeting will be about how to lower price – over, and over, and over.
Every company today can learn from the Sony experience. Sony was once a company to watch. It was an innovative leader, that pioneered new markets. Not unlike Apple today. But with its Industrial strategy and MBA numbers- focused leadership it is now time to say, sayonara. Sell Sony, there are more interesting companies to watch and more profitable places to invest.
