by Adam Hartung | Sep 29, 2009 | Current Affairs, Defend & Extend, Disruptions, General, In the Swamp, Leadership, Lock-in, Web/Tech
Last week was big news for technology. Hewlett Packard announced it was killing the EDS brand name, pushing to make HP more of an integrated solutions company (like IBM). And Dell bought Perot Systems to launch itsfirst push into services. According to Washington Technology "HP, Dell Know They Have to Change or Die." The article talks about the dramatically shifting marketplace (love that language!), and how these two hardware oriented companies are trying to avoid the Sun Microsystems finality by getting into services. The author says the companies must "adapt or die," and "there's no sitting still." He goes on to say "it may take years," but he thinks they will transition and eventually be successful. His success forecast hinges on his belief that they must change to survive – and that will be sufficient motivation.
I love the awareness of shifting markets, and the recognition that shifts are demanding changes in these former leaders. But I don't agree with the conclusion that future success is highly likely. Because even with big acquisitions and name changes – HP and Dell haven't laid the groundwork to change. They have taken some rifle shots, but they haven't followed The Phoenix Principle and that means the odds are less than 10% they will successfully transition.
Lots of companies have tried to transition via acquisition. Heck, GM once bought EDS (and Hughes Electronics) – and look what it did for them. Just because a company buys something doesn't mean they'll change. McDonald's bought Chipotle, and then sold it despite double digit growth to fund acquisition of additional McDonald's. Just because a company needs to change its Success Formula to succeed – or even survive – is a long way from proving they will do it.
Neither HP or Dell show they are building a company for the future. Unfortunately, they look to be chasing a model built by IBM in the 1990s. Taking action in 2009 to recreate "best practices" of 15 – 20 years ago is far from creating a company positioned for success. There is no discussion of future scenario planning from either company – about technology use or changing business practices. No description of their scenarios for 2015 and 2020 – scenarios that would demonstrate very high growth and payoff from their action. To the contrary, all the discussion seems to be defensive. They are getting into services – finally – because they realize their growth has slowed and profits are declining. It's not really about the future, it's action taken by studying the rear view mirror.
Additionally, there is no discussion of any Disruptions at either company. To change organizations must attack old Lock-ins. Embedded processes – from hiring and reviews to product development and resource allocation – all exist to Defend & Extend past behavior. If these aren't attacked head-on then organizations quickly conform any potential change into something like the past. In the case of these companies, lacking a clear view of what future markets should look like, they have opted to forgo Disruptions. Mr. Gerstner attacked the sacred cows around IBM viciously in his effort to transition the company into more services. But the CEOs at HP and Dell are far less courageous.
And there's no White Space here for developing a new Success Formula aligned with market needs as they are emerging. Instead of creating an environment in which new leaders can compete in new ways, these businesses are being instructed on how to behave – according to some plan designed by someone who clearly thinks they are smarter than the marketplace. Without White Space, "the plan" is going to struggle to meet with markets that will continue to shift every bit as fast the next 2 years as they did the last year.
I have very limited expectations that these actions will increase the performance of either company. I predict organic growth will slow, as "integration" issues mount and "synergy" activities take more time than growth initiatives. They will not see a big improvement in profits, because competition is extremely severe and there is no sign these companies are introducing any kind of innovation that will leapfrog existing competitors – remember, mere size is not enough to succeed in today's marketplace. They will largely be somewhat bigger, but no more successful.
It's easy to get excited when a company makes an acquisition off the beaten path. But you must look closely at their actions and plans before setting expectations. These companies could make big changes. But that would require a lot more scenario planning, a lot more focus on emerging competitors (not the existing, well known behemoths), much more Disruption to knock back the Lock-in and White Space for building a new Success Formula. Without those actions this is going to be another acquisition followed by missed expectations, cost cutting and discussions about size that cover up declining organic growth.
by Adam Hartung | Sep 28, 2009 | Current Affairs, Defend & Extend, General, Leadership, Lock-in, Television, Web/Tech, Weblogs
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
themselves.
- 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.
by Adam Hartung | Sep 18, 2009 | Current Affairs, Disruptions, In the Rapids, Innovation, Leadership, Lifecycle, Openness, Web/Tech
This week The Economist reviewed the innovation processes at Google. In "Google's Corporate Culture – Creative Tension" the magazine overviews several recent innovations, and actions senior leaders are taking regarding innovation management.
While Mr. Anthony recently chastised Google for its "immature" innovation management in a Harvard Business School blog post, and somewhat The Economist does as well, for not producing more revenue from its innovations – nobody can refute that the company released yet 3 more very important innovations this week – an updated Chrome web brower, new software that allows viewing on-line newspapers in a more natural way (Fast Flip) and Google Wave for collaborative project development. For most companies any one of these would be vaunted to market on piles of ad and PR sending. Products less significant cause Microsoft to throw their Marketing/PR machine into overdrive. But innovative launches are frequent enough at Google that you can completely miss some of them. Even when they continue to change whole industries – like Google has been doing to newspaper publishers and continues.
The best line in the article says that senior Google leadership is very actively trying to counter "the conservatism that can set in as companies mature." The good news is that even though it has 20,000 employees, Google is not "mature." Thankfully, it remains in the Rapids of growth. Size does not equal "maturity." That word is more applicable to companies that begin truncating ideas and activities to optimize their existing business. This is the direction Scott Anthony recently proposed on his HBS blog. And it gets companies into serious trouble.
Instead, Google is working hard to keep ideas from being truncated by hierarchy or people who are focused on narrow opportunities. Senior leaders are making themselves available to everyone in order to make sure ideas get attention – rather than vetted. Through this they are giving permission for ideas to be developed, even when many in the company aren't supportive. This top-level focus on granting permission to new ideas which are unconventional is a CRITICAL component of innovation success. Second, they aren't relying on a priority process for funding (something Mr. Anthony recommends). Instead they are making ample dollars available for ideas to push them to market quickly – and see if the innovation is accepted by the market or needs more work.
By personally engaging at the top levels in this process, Mr. Schmidt and his team are being Disruptive. They aren't allowing structural impediments like strategy formulation, hiring practices, tight IT systems, large historical investments or internal "experts" to Lock-in Google to its past. This is demonstrably exceptional behavior that pushes Google into new markets and growth. Then, by focusing on granting permission – even for things the "organization" may not initially support – and adding resources from outside normal resource allocation systems they are doing the 2 things necessary to keep White Space alive and thriving at Google.
Google has been growing, even in this very tough economy. More importantly, it has not slowed down its releases of innovation on the marketplace that can generate future growth. Mobile phones using its Android software are just now getting to market, and offer (along with other innovations) potentially very large revenue gains in new areas. With smart phones and Kindle-like e-readers to outsell PCs in late 2010 Google is squarely positioned to be part of the "next wave" of personal digital productivity (along with Apple.) And this can be explained by the company's willingness to remain Disruptive and push White Space projects — even with 20,000 employees.
by Adam Hartung | Aug 17, 2009 | Current Affairs, Defend & Extend, In the Rapids, In the Whirlpool, Leadership, Lock-in, Web/Tech
For almost 3 years this blog has discussed how newspapers, and most traditional media, have ignored the changes being created by shifting markets for news readers and advertisers. Unfortunately, not a lot has changed in how newspapers, magazines and traditional media companies operate. They still don't put enough energy into using the web, for distribution or revenue generation. They keep trying to Defend & Extend their old models – and these companies keep going bankrupt. So much the worse for investors, employees and suppliers.
Today the Chicago Sun Times reported "Everyblock acquired by MSNBC.com." The sort of short article you could easily miss. Because the Sun Times, and most traditional media, still don't like to talk about the web. But this is a pretty big deal.
Everyblock was started 2 years ago by a 28 year old in Naperville, Il. He acquired $1M on a Knight Foundation grant to see if he could build a reporting engine that would supply information at the local level to web sites. An ambitious undertaking. Something you would think every major newspaper would try to do. But they didn't. They were so Locked-in to their old business model that they kept crying about the decline in subscriptions and print ads – but didn't do anything beyond cost cutting. That's what Lock-in will do to you – leave you crying about the past but taking no affirmative action to deal with shifting markets. They left the market for on-line local reporting available for someone more ambitious. Someone age 28 who really wanted to see if he could make it work.
After Everyblock hired some folks and figured out this would work you'd think Tribune Corporation would be all over how to apply this in order to build its on-line business. Guess again. Mr. Zell is so Locked-in to his big debt deal that he's too busy trying to sell the Cubs and otherwise raise money. He doesn't have a dime to invest in building the future. Same at the Sun-Times where leadership is still realing from the old owner's plundering of traditional assets with no game plan for how to succeed long-term. Both companies are well into the Whirlpool. So close to failure they've lost track of any plan to grow. So they ignored the local talent, cutting costs to prolong the ride instead of investing smartly.
Now MSNBC.com is going where the newspapers wouldn't go. It's acquiring the Everyblock business, one that's desperate for cash to grow, in order to expand its footprint. MSNBC.com is ready to develop a new model for local news coverage. Good for them. We all know the day will come when we can get local news from the web, and it's good to see MSNBC set up the White Space to explore how to make it happen. MSNBC.com is in the Rapids of growth, building on growth of its cable TV partner. It's good news for GE shareholders, who could benefit from the next big thing since Google or Twitter. All for the mere investment of a few million dollars. Less than Mr. Zell spends on personal jets every year.
The world keeps changing. Too many businesses are simply trying to do the same thing, only cheaper or faster or somehow better. They aren't reacting to shifts by actually Disrupting their approach and setting up White Space to learn. At the media companies the impact is sevee as fewer and fewer magazines get printed, and newspapers get thinner, and more companies file for bankruptcy. But the smart ones do something – like MSNBC. And MSNBC could just end up being the one taking it to the bank!
by Adam Hartung | Aug 6, 2009 | Current Affairs, Disruptions, In the Rapids, Innovation, Openness, Web/Tech
Today a colleague emailed me an article on Cisco. He used the Wall Street Journal "send this article" function. The email had his name, the article title, the link to the article and then this:
"The Wall Street Journal Mobile Reader for iPhoneTM
delivers the latest global news, financial events, market insights and
information to keep you ahead of the curve. Get the information you depend on
plus entertainment, culture, and sports coverage when, where, and how you want
it from the most credible source for news and information. Click below to
download the WSJ Mobile Reader for free from the iTunes App Store."
Another indicator of the trend – the shift – that is affecting publishers. And increasingly affects everyone. If you want to be "in the know" you'll be using different technology than ink on paper, or a laptop. And if you want to be competitively advantaged today you are thinking about how you can use this to grow your business:
- ads for the WSJ articles delivered to iPhone?
- developing an app for your technical materials to be read on an ereader like iPhone?
- creating a way for your customers to get updates on ereaders?
- using ereaders to update your salesforce? service force?
What ideas can you think of where this really cheap, real-time technology can help you beat the competition? How can you put ereaders (iPhone, Kindle, Sony, etc.) into your scenarios about the future? What are the leading edge competitors (like Pizza Hut's iPhone app) doing? How can you Disrupt your old business model to start using this lower cost information dissemination technology? How can you Disrupt the market to deliver higher value? What White Space do you have for testing the use of ereaders, learning about their benefits and getting closer to emerging market needs?
by Adam Hartung | Aug 5, 2009 | Current Affairs, Disruptions, eBooks, General, Innovation, Leadership, Openness, Web/Tech
"Sony Unveils Pocket Size Electronic Book Reader" is the Los Angeles Times headline. According to Silican Alley Insider the new Apple tablet is a GREAT book reader. Although Steve Jobs thinks book publishers are incredibly screwed up and he's less optimistic about book sales than he was music sales when he launched iTunes. And Amazon has sold out its Kindle e-readers since they started manufacturing them two years ago.
With all these announcements, you'd think everyone knows about e-readers and the market shift happening in publishing – from books to magazines to newspapers. Even I've blogged about this for months – and the positive impact this has had on book sales as well as Amazon's revenues and profits. But:
(Link to chart and Forrester Discussion here)
Half of all people surveyed in 2Q 2009 still haven't seen or heard about e-readers.
This is important. Imagine it's 1983, and you weren't aware about personal computers and their benefits – even though the IBM PC was Time magazine's "Man of the Year" in 1982. We now know that early adopters of PCs developed new solutions for many problems – from analysis to word processing to advertising development to commercial graphics to in-house publishing to communicating via email — on and on and on. Those who understood this technology early, recognized the shift it demonstrated, had early advantages on competitors. You didn't have to compete in technology, or be a technology officianado, to take advantage of this computing shift for your advantage.
Today, ereaders are another serious market shift that early adopters can leverage. Soon newspapers and magazines will be hard to come by, or so thin (due to printing and distribution cost) that their content will be much less than desired. But ereaders allow you to keep up with journals you've come to trust. And advertisers need to be prepared to follow them onto this platform – to reach people they otherwise would miss.
If you've quit reading books because you don't have the money to spend (at $20+ apiece), desire to carry them, or the time to read them, ereaders allow you to buy and carry 350 or more books at a fraction of previous prices. You even can buy pieces of books (chapters for example) that give you what you want. Think of the shift from long-play albums/CDs to iTunes sales of single songs as an analogy. You can get the benefits of books without many of the reasons you may have quit reading them.
Would you like a repository of information you can call upon for your daily work? With e-readers you can carry an entire library, something you'll not do in paper. Or on your laptop.
Speaking of laptops – this will all be on a laptop you say – so forget ereaders. Do you really think we'll all be carrying these 7 pound monsters around in 5 years? Look at college kids today. How many do almost all their work on a phone? They use the computer only when forced to – for typing papers or building spreadsheets. Laptops are increasingly becoming much more than people want – too big, too heavy, too hot, too power hungry, too short battery life, too complicated, too much software, too many bugs, too many viruses, too expensive. Laptops will soon be like mainframes. Look at the trend. Sales of big screen laptops have cratered as netbooks, with tiny screens, have taken off. People are moving away from laptops to smaller and easier to use products – like ereaders.
Why make your salesforce, or customers, or training techs carry a laptop when an ereader will give them everything they need? They cost less, are easier to keep working, and don't get hindered with personal apps like MS Money that you didn't put on the laptop in the first place but couldn't stop. Given ereader prices, you might be able to consider an ereader disposable in 5 years. Literally, you could give a customer an ereader with all the training, specs, history, design elements, etc. of your product the way we now use a brochure. It literally might be cheaper than a 10 page glossy brochure costs to print and distribute – but with everything they need to design in your product, or operate it, or service it. Imagine an ereader in your car glove box rather than the owner's manual you never use – but the info will be catalogued, searchable, and linked to the internet so it's always current with service information.
Market shifts affect us all. Too often we say "oh that shift is obvious, and I'm surprised the current competitors aren't jumping on that." Then we ignore the shift ourselves. Competitors that make higher rates of return, and prolong those rates of return, observe these market shifts and immediately build them into future scenarios. They think about how to use these shifts to improve their competitive position, and create White Space to test the opportunities – even when they represent Disruptive change. These are Phoenix Principle companies – and the kind you want to be – because they grow more, make more money and have longer lives.
Learn how to spot market shifts and leverge them for your advantage. Don't end up like GM – out of touch and into bankruptcy. Read the new, free ebook "The Fall of GM: What Went Wrong and How To Avoid Its Mistakes."
by Adam Hartung | Jul 5, 2009 | Web/Tech
“Burns Succeeds Mulcahy at Xerox in First Big Woman-to-Woman CEO Transition” is the Forbes headline. It’s only too bad that this headline took until 2009 to happen. It’s also too bad that gender issues, such as women CEOs, are worth headlines. But the truth is that the CEO job is still dramatically dominated by men, even though women are half the workforce and been in managerial positions for at least 30 years. Just goes to show it takes a long time for to change old Success Formulas – and its been true that Boards of Directors, and CEOs, tend to replace an outgoing executive with one much like themselves.
“Ursula Burns: An Historic Succession at Xerox” was the Businessweek headline. And not just because the new CEO is a woman. She’s also African American. African Americans have achieved much in the USA, including prominent political positions – such as America’s Presidency. But even though African Americans comprise about 10-15% of the U.S. population, it’s been a very long and arduous climb from the depths of slavery to the CEO suite. Again, old Success Formulas are repeated again and again and again – and for decades that blocked many women and African Americans from achieving the top job in America’s biggest companies.
So kudos to Xerox for building a culture that achieves parity in reviews. They’ve allowed the best and brightest in their organization to rise to the top, unencumbered by old notions about gender and race. And that is a fantastic accomplishment. We should deservedly praise the executives and Board at Xerox for adapting their human resource policies so that promotions are both gender and color blind.
But that doesn’t fix the problem at Xerox. And unfortunately, promoting another insider is likely to be the end of this once great company.
Xerox almost single-handedly killed the small offset lithography business. In the 1960s every major company had several printing presses in the basement. And print shops were everywhere to support the need for duplicate documents. Small offset press manufacturers, and support products like plates, were a huge growth industry. Until Xerox came along with a better technology, and a better pricing scheme. Xerox sold “clicks”, or paper passes through the machine, rather than the machine itself. And this allowed companies to buy far more copiers than they ever imagined. In the 1970s Xerox was THE model sales organization; itself duplicated wherever companies wanted to achieve tremendous growth.
But desktop printing spelled the end of growth for large copiers. Xerox actually had a major impact on the invention of desktop printing, with researchers at Xerox’s Palo Alto Research Center (PARC) creating many of the pieces critical for product viability. But Xerox Locked-in on its copier business, and in the 1980s when the market started shifting Xerox didn’t. By the 1990s, instead of selling millions of small printers, Xerox turned to selling complex copy centers that cost over $100,000 each and took training to operate. While personal printers popped up in offices like popcorn, the large copiers were replaced by smaller and simpler machines on each hall, or went away entirely. Xerox sales started slipping, and by century’s end Xerox was in real danger of disappearing.
The 30 year employee that stopped a complete failure was Ms. Mulcahy. She stopped the cash bleeding, and dealt with the huge debt. Xerox did not go into bankruptcy, but the company saw its revenue drop dramatically and new product launches shriveled up – or were ignored by customers looking for different solutions. Ms. Mulcahy was like the captain on a damaged submarine. She was able to plug the leaks and batten down the hatches so some of the crew survived. But in doing so the submarine kept falling further and further toward the bottom of the ocean. Xerox may be “settled in” on the ocean floor, but how is it supposed to survive? How is it supposed to grow? How is it supposed to accomplish its mission of generating high rates of return year after year?
The market for copiers is not growing, and competition in that marketplace is intense – with machines from Japanese manufacturers such as IBM, Canon and Sharp dominating the market today. Xerox cannot consider its lack of collapse a big win, because in the process it watched the market shift to a raft of new products in both desktop printing and copying where Xerox does not even compete. Competitors have launched machines that are more cost effective to use, and often have better capability. While Xerox was cutting cost, these competitors were gaining share and developing new products. These shifts have left Xerox far removed from competitive viability, even if it is less in debt and cash flow is better.
We commonly see this sort of behavior in companies after a growth stall. They appear on the brink of collapse. But then a smart leader takes dramatic action to stop the bloodletting and “firm up the balance sheet.” The company goes from huge losses to small profits, aided by financial engineering that brings forward costs to pad later P&Ls. Employees and investors breath a sigh of relief, figuring the badness is behind them and everyone can return to the good old days of making money. But these respites are short-lived. Fast enough the company comes face-to-face with customers that demand the new technology and more productive solutions. Rapidly managers realize competitors have made inroads to previously loyal customers, and price erosion is a constant fact of life. In short order, profits again turn to losses and more cutbacks happen as insufficient resources are available for funding new product development and new product launches. What looked for a bit like a big improvement in the business is quickly forgotten as the company falters again.
Americans are an optimistic lot, but there’s nothing in this executive transition that should lead us to be optimistic about the future of Xerox. Ms. Mulcahy was a long-term company veteran who did not change, or even Disrupt, the Xerox Success Formula at all during her tenure. She followed traditional practices of a company in the Swamp, taking draconian actions to delay failure. But she didn’t “fix” the revenue or new product problems. The new CEO is also a 30 year company veteran, and one even less likely to attack the old Success Formula. Where Ms. Mulcahy was from sales, and we might have expected her to undertake a market-focused set of actions, Ms. Burns is from operations and gained her success as someone who looks internally for improvement rather than toward the marketplace.
Again, congratulations to Xerox for being gender and race neutral in selecting its CEOs. But don’t expect a dramatic improvement in the fortunes at Xerox. Xerox is in big, big trouble. It needs to be in new markets it has long ignored, and it needs products the company has long eschewed. The brand has become tainted due to expensive pricing and declining sales. Xerox is so far into the Whirlpool that it is almost infeasible to think of the company becoming “great” again. It would take incredible Disruption and results from very rapid White Space. But Xerox is not skilled in these capabilities, and it doesn’t show the depth of market savvy or product innovation that would be required to make the company a leading competitor. Unfortunately, even though Xerox has successfully changed captains, it is highly unlikely the new CEO will save the ship.
by Adam Hartung | Jun 30, 2009 | Current Affairs, Defend & Extend, In the Swamp, In the Whirlpool, Leadership, Lock-in, Web/Tech
With all due respect to the great guitar playing songwriter Jerry Reed, today Starbucks and Dell continue to look like copies that were once hot – but now couldn't warm a nose in a blizzard.
"Starbucks continues food push with overhauled menu items" is the Advertising Age headline. Starbucks closed hundreds of stores last year, saw sales in stores open a year fall 8%, and profits dropped 77%. But they aren't bringing anything new to their business. They are revamping the food to make it more healthy. There's nothing wrong with introducing healthier food, but how does Chairman Schultze think this will turn around Starbucks? The company's "return to basics" program has made it overly sensitive to retail coffee prices, while robbing the company of its highly desired cache. An enhanced instant coffee did nothing for revenues. And now this overhauled menu doesn't really offer anything new to excite customers. It's still a ton of calories – even if they are healthy calories – offered at a high price.
Starbucks has given rejuvenated life to McDonald's. Nobody expected the McCafe to be a huge success. But Starbucks has played right into McDonald's sites by shutting down most of its "non coffee" operations and repositioning itself not as a destination but as a fast food outlet. McDonald's reminds me of the hunter who spends all day tramping the forest in search of a deer, only to get back to his pick-up and have a big buck walk within 20 yards of his vehicle. When he least expected to get his kill, it walked up on him. And that's what Starbucks has done. It's made McCafe much more viable than it appeared likely, simply because Starbucks chose to move into direct competition with McDonald's rather than continue on the new business programs it created earlier in the decade.
Starbucks has gifted McDonald's by choosing to fight them head-on right at McDonald's strengths – operational consistency and low price. And now Starbucks is showing complete foolishness by entering into traditional advertising – an area where McDonald's is a powerhouse (the inventor of Ronald McDonald is an expert at ad content and spending). Even worse, Starbucks, which eschewed advertising for years, has decided to promote its new food menu by placing ads in (drumroll please) newspapers! At a time when readership is dropping like a stone, and during summer months when seasonal readership is lowest, Starbucks is choosing to promote with the least effective ad medium available today. Even billboards would be a better choice! We have to ask, wouldn't the previous, much savvier, leadership have launched a wickedly intensive web marketing program to lure customers back into the stores? Some viral videos, lots of social media chat – that sort of thing which appeals to their target buyer? Why would anyone choose to fight a giant – like McD's – on their court, using their rules, against their resource strength? That's not savvy competition, it's suicide.
Simultaneously the once high-flying Dell has been in the doldrums for several years. Decades ago Dell built a Success Formula that ignored product developed, placing its energy into supply chain advantages. Competitors have matched those operational advances, and now Dell gives consumers little reason to make you prefer their product. Not to mention forays into service cost reductions like offshore customer support that absolutely turned off customers and sent them back into retail stores.
Now "Dell is working on a pocket web gadget" according to the Wall Street Journal headline. Not a phone, not a netbook, not a laptop the new device is an assemblage of acquired technology into a handheld internet device. How it will be used, and why, is completely unclear. That it will give you internet access seems to be the big selling point – but when you can accomplish that with your iPhone or Pre, or netbook should you choose a larger format, why would anyone want this device?
Dell seems to forget that it has to compete if it wants to succeed. It's products have to offer customers something new, something better. That's what made the iPHone so successful – it gave users a lot more than a traditional phone. And the same is true for Pre. And these devices now have dozens and dozens of applications available – everything from playing video games to ordering pizza at the closest delivery joint to reading MRI screens (if you happen to be a neurologist). Yet, this new Dell device has no new apps, and it's unclear it is in any way superior to your phone or netbook. Dell keeps trying to think it has distribution superiority, and thus can sell anything by forcing it upon customers. Even products that have no clear application. Dell is Locked-in to its old Success Formula, all about operational excellence, but that model has no advantage now that people with new technology – superior technology – can match their operational excellence.
When companies remain Locked-in too long they become obsolete. And it can happen surprisingly fast. Every reader of this blog can remember when Starbucks seemed invincible. And when Dell was the information technology darling. But both companies remain stuck trying to Defend & Extend their Success Formulas after the market has shifted – and their results are most likely going to end up similar to GM.
Don't forget to download my new ebook "The Fall of GM" and send it (or the link) along to your friends and social network pals. http://tinyurl.com/nap8w8
by Adam Hartung | Jun 22, 2009 | Current Affairs, Defend & Extend, Disruptions, In the Rapids, In the Swamp, In the Whirlpool, Leadership, Lifecycle, Web/Tech
For years business leaders have sought advice which would allow their organizations to become "evergreen." Evergreen businesses constantly renew themselves, remaining healthy and growing constantly without even appearing to turn dormant. Of course, as I often discuss, most companies never achieve this status. Today investors, employees and vendors of Apple should be very pleased. Apple is showing the signs of becoming evergreen.
For the last few years Apple has done quite well. Resurgent from a near collapse as an also-ran producer of niche computers, Apple became much more as it succeeded with the iPod, iTunes and iPhone. But many analysts, business news pundits and investors wanted all the credit to go to CEO Steve Jobs. It's popular to use the "CEO as hero" thinking, and say Steve Jobs singlehandedly saved Apple. But, as talented as Steve Jobs is, we all know that there are a lot of very talented people at Apple and it was Mr. Jobs willingness to Disrupt the old Success Formula and implement White Space which let that talent come out that really turned around Apple. The question remained, however, whether Disruptions and White Space were embedded, or only happening as long as Mr. Jobs ran the show. And largely due to this question, the stock price tumbled and people grew anxious when he took medical leave (chart here).
This weekend we learned that yes, Mr. Jobs has been very sick. The Wall Street Journal today reported "Jobs had liver transplant". With this confirmation, we know that the company has been run by the COO Tim Cook and not a "shadow" Mr. Jobs. Simultaneously, first report on the Silicon Valley/San Jose Business Journal is "Apple Claims 1M iPhone Sales" last weekend in the launch of its new 3G S mobile phone and operating system. This is a huge number by the measure of any company, exceeded analysts expectations by 33-50%, and equals the last weekend launch of a new model – despite the currently horrible economy. This performance indicates that Apple is building a company that can survive Mr. Jobs.
On the other side of the coin, "Walgreen's profit drops as costs hit income" is the Crain's Chicago Business report. Walgreen's is struggling because it's old Success Formula, which relied very heavily on opening several new stores a week, no longer produces the old rates of return. Changes in financing, coupled with saturation, means that Walgreen's has to change its Success Formula to make money a different way, and that has been tough for them to find. The retail market shifted. Although Walgreen's opened White Space projects the last few years, there have been no Disruptions and thus none of the new ideas "stuck." Growth has slowed, profits have fallen and Walgreen's has gone into a Growth Stall. Now all projects are geared at inventory reduction and cost cutting, as described at Marketwatch.com in "Higher Costs Hurt Walgreen's Profits."
Now the company is saying it wants to take out $1B in costs in 2011. No statement about how to regain growth, just a cost reduction — one of the first, and most critical, signs of Defend & Extend Management doing the wrong things when the company hits the Flats. And now management is saying that costs will be higher in 2009/2010 in order to allow it to cut costs in 2011. If you're asking yourself "say what?" you aren't alone. This is pure financial machination. Raise costs today, declare a lower profit, in order to try padding the opportunity to declare a ferocious improvement in future year(s). This has nothing to do with growth, and never helps a company. To the contrary, it's the second most critical sign of D&E Management doing the wrong thing at the most critical time in the company's history. When in the Flats, instead of Disrupting and using White Space to regain growth these actions push the company into the Swamp of low growth and horrible profit performance.
We now can predict performance at Walgreen's pretty accurately. They will do more of the same, trying to do it better, faster and cheaper. They will have little or no revenue growth. They may sell stores and use that to justify a flat to down revenue line. The use of accounting tricks will help management to "engineer" short-term profit reporting. But the business has slid into a Growth Stall from which it has only a 7% chance of ever again growing consistently at a mere 2%. This is exactly the kind of behavior that got GM into bankruptcy – see "The Fall of GM."
The right stuff seems to be happening at Apple. But keep your eyes open, a new iPhone is primarily Extend behavior – not requiring a Disruption or necessarily even White Space. We need to see Apple exhibit more Disruptions and White Space to make us true believers. On the other hand, it's definitely time to throw in the towel on Walgreen's. Management is resorting to financial machinations to engineer profits, and that's always a bad sign. When management attention is on accounting rather than Disruptions and White Space to grow the future is sure to be grim.
by Adam Hartung | May 18, 2009 | Current Affairs, Defend & Extend, In the Whirlpool, Leadership, Lifecycle, Lock-in, Web/Tech
"Newspapers face pressure in selling online advertising" is today's headline about newspapers. Seems even when the papers realize they must sell more online ads they can't do it. Instead of selling what people want, the way they want it, the newspapers are trying to sell online ads the way they sold paper ads – with poor results.
We all know that newspaper ad spending is down some 20-30%. But even in this soft economy internet ad spending is up 13% versus a year ago. Except for newspaper sites. At Gannett, NYT and McClatchy internet ad sales are down versus a year ago!
People don't treat internet news like they do a newspaper. The whole process of looking for news, retrieving it, reading it, and going to the next thing is nothing like a newspaper. Yet, daily newspapers keep trying to think of internet publishing like it's as simple as putting a paper on the web! What works much better, we know, are sites focused on specific issues – like Marketwatch.com for financial info, or FoodNetwork.com. Also, nobody wants to hunt for an on-line classified ad at a newspaper site – not when it's easier to go to cars.com or vehix.com to look for cars, or monster.com to look for jobs. Web searching means that you aren't looking to browse across whatever a newspaper editor wants to feed you. Instead you want to look into a topic, often bouncing across sites for relevant or newer information. But a look at ChicagoTribune.com or USAToday.com quickly shows these sites are still trying to be a newspaper.
Likewise, online advertisers have far different expectations than print advertisers. Newspapers simply said "we have xxxx subscribers" and expected buyers to pay. But on the web advertisers know they can pay for placement against specific topics, and they can expect a specific number of page views for their money. As the article says "if newspapers want to get their online revenue growing again, once the economy recovers, they have to tie ad rates more closely to results, charge less for ads and provide web content that readers can't get at every news aggregation site."
When markets shift, it's not enough to try applying your old Success Formula to the new market. That kind of Defend & Extend practice won't work. You're trying to put a square (or at least oblong) peg into a round hole. Shifted markets require new solutions that meet the new needs. You have to study those needs, and project what customers will pay for. And you have to give them product that's superior to competitors in some key way. Old customers aren't trying to buy from you. Loyalty doesn't go far in a well greased internet enabled world. You have to substantiate the reason customers need to remain loyal. You have to offer them solutions that meet their emerging needs, not the old ones.
Years ago IBM almost went bust trying to be a mainframe company when people found hardware prices plummeting and off-the-shelf software good enough for their needs. IBM had to develop new scenarios, which showed customers needed services to implement technology. Then IBM had to demonstrate they could deliver those services competitively. Only by Disrupting their old Success Formula, tied to very large hardware sales, and implementing White Space where they developed an entirely new Success Formula were they able to migrate forward and save the company from failure.
Unfortunately, most newspaper companies haven't figured this out yet. They don't realize that bloggers and other on-line content generators are frequently scooping their news bureaus, getting to news fans faster and with more insight. They don't realize that on-line delivery is not about a centralized aggregation of news, but rather the freshness and insight. And they haven't figured out that advertisers take advantage of enhanced metrics to demand better results from their spending. The New York Times, Gannett and other big newspaper companies better study the IBM turnaround before it's too late.
