I was in Junior High when I learned about isotopes.  By measuring the amount of radium in an object you could measure its age.  Thus, knowing the speed at which radium degenerated gave us a "half life" of the isotopes – and with that we could judge the age of things like rocks and bones and other very interesting items.

Businesses don’t have isotopes, but their Success Formulas definitely have a half-life.  New ideas develop into new Success Formulas which earn above average rates of return while growing.  But, unfortunately, competitors can rapidly copy your Success Formula and the value drops amazingly fast, surprisingly far.  And while the Success Formula remains, the returns don’t justify reinvestment and growth slows.  Lock-in keeps the business running the old Success Formula even after its value has started declining.  Great companies can fall victim to their own good management if they let the Success Formula age.

Target (see chart here) is just in the beginnings of this phase.  Make no doubt about it, Target has been very well run.  By introducing new ideas to discount retailing, Target took on Wal-Mart very successfully.  Target grew, and it made good money growing.  It was innovative, and it made innovation in housewares and clothing – at a low price – a new Success Formula within an industry long focused merely on price.  Kudos to its great success, and its ability to slow the giant WalMart.

But being innovative and cheap – what’s called "cheap chic" – has been easily copied (read more here on Target and its competitors.)  Lots of other very well run retailers, such as J.C. Penney’s and Kohl’s, have brought out their own innovative merchandise.  Now Target is running hard-up against these companies, slowing growth and profits.  Target has made product innovation it’s own Defend & Extend.  Today, doing more handbags, lamps, dresses and shoes that knock off very expensive designers has become their Success Formula to which they have behaviorally, structurally and with their cost model Locked-in.  It may sound surprising, but what is hurting Target today is focusing on making more of these innovations – because that is the Success Formula they are trying to Defend by Extending into more products, and their competitors are successfully copying.  And there simply isn’t the same profit in that game there was a decade ago.

Some analysts are noting this, and ranking Target’s equity a "sell".  I don’t blame them.  Target has become internally focused on "execution" of its Success Formula.  It doesn’t appear to have any White Space looking for the next retailing wave that will have above average profits.  Target is squeezed between the low-cost (and completely Locked-in, do it until they die) WalMart and copycats.  Unless Target quickly Disrupts, recognizing its Lock-in, and gets some White Space going the next round of handbags and red TV ads isn’t likely to do much for revenues or profits.

All Success Formulas, even great ones, have a half-life.  The length of time they can earn above average returns is not dictated by the company.  Rather, returns are dictated by competitors with their abilty to copy and even one-up the original good idea.  And of course substitutes (like all those pesky on-line retailers that keep popping up stealing Target sales) come into the market slowing growth and hampering margins.  That’s why everyone has to constantly maintain Disruptions and White Space.  Otherwise, they keep optimizing their orginal good idea too long – and become too Locked-in – until even their own innovation skills become passe.  You’ll never known you stayed too late at the dance until you look around and notice the band breaking set.  It’s far better to keep open the White Space looking for the next party so you don’t get stuck – and watch your profits get mopped up.