by Adam Hartung | Dec 31, 2009 | Current Affairs, Defend & Extend, General, Leadership, Openness, Web/Tech
HAPPY NEW YEAR!
We end the first decade in 2000 with another first. In ReutersBreakingViews.com "Don't Diss the Dividend" we learn 2000-2009 is the first time in modern stock markets when U.S. investors made no money for a decade. Right. Worse performance than the 1930s Great Depression. Over the last decade, the S&P 500 had a net loss of about 1%/year. After dividends a gain of 1% – less than half the average inflation rate of 2.5%.
Things have shifted. We ended the last millenium with a shift from an industrial economy to an information economy. And the tools for success in earlier times no longer work. Scale economies and entry barriers are elusive, and unable to produce "sustainable competitive advantage." Over the last decade shifts in business have bankrupted GM, Circuit City and Tribune Corporation – while gutting other major companies like Sears. Simultaneously these changes brought huge growth and success to Google, Apple, Hewlett Packard, Virgin and small companies like Louis Glunz Beer, Foulds Pasta and Tasty Catering.
Even the erudite McKinsey Quarterly is now trumpeting the new requirements for business success in "Competing through Organizational Agility." Using academic research from the London Business School, author Donald Sull points out that market turbulence increased 2 to 4 times between the 1970s and 1990s – and is continuing to increase. More market change is happening, and market changes are happening faster. Thus, creating strategies and organizations that are able to adjust to shifting market requirements creates higher revenue and improved operational efficiency. Globally agility is creating better returns than any other business approach.
A McKinsey Quarterly on-line video "Navigating the New Normal: A Conversation with 4 Chief Strategy Officers," discusses changes in business requirements for 2010 and beyond. All 4 of these big company strategists agree that success now requires far shorter planning cycles, abandoning efforts to predict markets that change too quickly, and recognizing that historically indisputable assumptions are rapidly becoming obsolete. What used to work at creating competitive advantage no longer works. Monolothic strategies developed every few years, with organizations focused on "execution," are simply uncompetitive in a rapidly shifting world.
And "the old boys club" of white men in top business leadership roles is quickly going to change dramatically. In the Economist article "We Did It" we learn that in 2010 the American workforce will shift to more than 50% women. If current leaders continue following old approaches – and generating anemic returns – they will rapidly be replaced by leaders willing to do what has to be done to succeed in today's marketplace. Like Indra Nooyi of PepsiCo, women will take on more top positions as investors and employees demand changes to improve performance. Leaders will have to be flexible and adaptive or they, and their organizations, will not survive.
Additionally, the information technology products which unleashed this new era will change, and become unavoidable. In Forbes "Using the Cloud for Business" one of the creators of modern ERP (enterprise resource planning) systems (like SAP and Oracle) Jan Baan discusses how cloud computing changes business. ERP systems were all about data, and the applications were stovepiped – like the industrial enterprises they were designed for. Unfortunately, they were expensive to buy and very expensive to install and even more expensive to maintain. Simultaneously they had all the flexibility of cement. ERP systems, which proliferate in large companies today, were control products intended to keep the organization from doing anything beyond its historical Success Formula.
But cloud computing is infinitely flexible. Compare Facebook to Lotus Notes and you start understanding the difference between cloud computing and large systems. Anyone can connect, share links, share files and even applications on Facebook at almost no cost. Lotus Notes is an expensive enterprise application that costs a lot to buy, to operate, to maintain and has significantly less flexibility. Notes is about control. Facebook is about productivity.
Cloud computing is 1/10th the cost of monolithic owned/internal IT systems. Cloud computing offers small and mid-sized companies all the computing opportunity of big companies – and big advantages to new competitors if CIOs at big companies hold onto their "investments" in IT systems too long. Businesses that use cloud architectures can rearrange their supply chain immediately – and daily. Flexibility, and adaptability, grows exponentially. And EVERYONE can use it. Where mainframes were the tool for software engineers (and untouchable by everyone else), the PC made it possible for individuals to have their own applications. Cloud computing democratizes computing so everyone with a smartphone has access and use. With practically no training.
As we leave the worst business environment in modern times, we enter a new normal. Those who try to defend & extend old business practices will continue to suffer declining returns, poor performance and failure – like the last decade. But those who embrace "the new normal" can grow and prosper. It takes a willingness to let scenarios about the future drive your behavior, a keen focus on competitors to understand market needs, a willingness to disrupt old Lock-ins and implement White Space so you can constantly test opportunities for defining new, flexible and higher returning Success Formulas.
Here's to 2010 and the new normal! Happy New Year!
by Adam Hartung | Nov 12, 2009 | Current Affairs, Defend & Extend, In the Rapids, In the Swamp, Innovation, Leadership, Openness, Television, Web/Tech
The Myth of Market Share by Richard Minitar is one of those little books, published in 2002 by Crown Business, that you probably never read – or even heard of (available on Amazon though). And that's too bad, because without spending too many words the author does a great job of describing the non-correlation between market share and returns. There are as many, or possibly more, companies with high profitability that don't lead in market share as ones that do. Even though the famous BCG Growth/Share matrix led many leaders to believe share was the key to business success. Another something that worked once (maybe) – but now doesn't.
"Moto Looks to Sell Set-Top Box Unit" is the Crain's Chicago Business headline. Motorola's television connection box business is #1 in market share. But even though Motorola paid $11B for it in 1999, they are hoping to get $4.5B today. That's a $6.5B loss (or 60%) in a decade. For a business that is the market share leader. Only, it's profitability + growth doesn't justify a higher price. Regardless of market share.
Kind of like Motorola's effort to be #1 in mobile handset market share by cutting RAZR prices. That didn't work out too well either. It almost bankrupted the company, and is causing Motorola to sell the set top box business to raise cash in its effort to spin out the unprofitable handset business.
On the other hand, there's Apple. Apple isn't #1 in PCs – by a long shot. It has about a 14% share I think. Nor is it #1 in mobile handhelds, where it has about a 2.5% market share. But Apple is more profitable than the market leaders in both markets. Today, Apple's value is almost as high as Microsoft – historically considered the undisputed king of technology companies.
Chart source Silicon Alley Insider 11/12/09
While Microsoft has been trying to Defend & Extend it's Windows franchise, its value has declined this decade. Quite the contrary for Apple.
Additionally, Apple has piled up a remarkable cash hoard with it's meager market shares in 2 of 3 businesses (Apple is #1 in digital music downloads – although not #1 in portable MP3 players).
Chart Source Silicon Alley Insider 11/11/09
"While Rivals Jockey for Market Share Apple Bathes in Profits" is the SeekingAlpha.com headline. Nokia has 35% share of the mobil handheld market. It earned $1.1B in the third quarter. With its 2.5% share Apple made $1.6B profit on the iPhone. While everyone in the PC business is busy cutting costs, Apple has innovated the Mac and its other products – proving that if you make products that customers want they will buy them and allow you to make money. While competitors behave like they can cost cut themselves to success, Apple proves the opposite is true. Innovation linked to meeting customer needs is worth a lot more money.
Bob Sutton, Stanford management professor, blogs on Work Matters "Leading Innovation: 21 Things that Great Bosses Say and Do." All are about looking to the future, listening to the market, using disruptions to keep your organization open, and giving people permission and resources to open and manage White Space projects.
If your solution to this recession is to cut costs and wait for the market to return – good luck. If you are trying to figure out how you can Defend & Extend your core – good luck. If you think size and/or market share is going to protect you – check out how well that worked for GM, Chrysler, Lehman Brothers and Circuit City. If you want to improve your business follow Apple's lead by developing thorough scenario plans you can use to understand competitors inside out, then Disrupt your old notions and use White Space to launch new products and services that meet emerging needs.
by Adam Hartung | Jun 16, 2009 | Uncategorized
Let's say you've had a great business selling to auto companies. What do you do now? Wait for the American auto industry to get better, or……
Let's say you've had a great business selling to airplane manufacturers. What do you do now? This week is the biggest week in the airplane business. It's the Paris Air Show, or as many call it "La Bourget" which is the name of the suburban Paris town where the show occurs. It's the "mother of all conventions" as manufacturers of planes (and lots of military equipment beyond things that fly) try to book orders from international governments, airlines and corporations. This year, it's doom and gloom as Marketwatch points out in "Is Paris Burning?". Even the President of Brazil's very successful commuter jet manufacturer Embrear is saying it's too early to call a bottom in aviation sales in his interview "Not There Yet".
There are many American businesses selling to the aviation industry. Aviation doesn't cycle as fast as automotive, because the prices are much higher and the product lives much longer. So it's easier to predict market moves. We now can predict that the business will be soft for a few additional years with high confidence. Some will choose to "double down" and try to grow share while the recession is on. An expensive effort to find a lower cost while volume drops. Another option would be to cut output, lay people off and wait it out. But, unfortunately for both these options, when sales resume you can't be sure some new suppliers won't have entered the market with new products or new technology. Both approaches could well find prices down and competition up – or even worse the market recovers with new aviation products and you're in a pitched battle to supply the industry against new competitors against whom you have no advantage.
A better idea is to move resources. You don't have to abandon the old business, but why keep trying to live in a worsening environment? If the market is shrinking, isn't it smart to find new markets.
Take for example the behavior in retail. We all know that Circuit City went out of business, and lots of other retailers like Mervyn's and Filene's Basement have filed bankruptcy. It's tough on retailers. Especially those who keep trying to do the same thing. But some are taking actions to change in order to be more competitive. Nine West and some other retailers are changing their approach as reported in, "Gap, Specialty-retail stores mixing up brands."
"Consumers are interested in the best of the best. Not the best of what your brand has to offer. Retailers are learning not to put all their eggs in one basket. If it doesn't work, you just get rid of it." Now that's some advice worth listening to, offered by Marshal Cohen of NPD Group. When markets shift, you have to shift. Waiting around for customers to come back to you is not a viable option.
Retailers that are growing are using test markets to try new things. Like Nine West partnering with New Balance on a new shoe that is attracting a lot of young shoppers. Not everything works, at Cache the store tried some new brands but the test reinforced that people were looking for the Cache brand rather than the products Cache tested. That's the benefit of testing, you can learn. As you learn, you can adapt and adopt new behaviors.
Retailing is going through a massive market shift. Those who survive have to learn a lot more about individual stores versus malls, and on-line versus in-store. They have to learn about brands and about store brands and what people now want. Those who don't have ongoing White Space tests are failing. Those who are have a much better chance of surviving.
So, if your market is shifting, you need to MOVE. Whether you make car parts, aviation parts, furniture, windows,
clothing, candy – anything – you will see your market shift because of
the globalization of new technology. When markets shift, the thing you shouldn't do is "wait it out". That is not a viable strategy. That's putting your head in the sand. Just because you aren't certain what to do doesn't mean you don't take action. And that's why White Space projects are critical – because the only way you can develop a new Success Formula is by trying it in the marketplace. You don't want to end up like all those going out of business because they keep trying to do what they always did, only cheaper, faster or better. You have to start doing different things. And NOW, because the market keeps shifting more every day.
