by Adam Hartung | Jun 3, 2011 | Current Affairs, Defend & Extend, In the Rapids, In the Swamp, In the Whirlpool, Leadership, Lock-in, Web/Tech
Were you ever told “pretty is as pretty does?” This homily means “don’t just look at the surface, it’s the underlying qualities that matter.” When I read analyst reviews of companies I’m often struck by how fascinated they are with the surface, and how weakly they seem to understand the underlying markets. Financials are a RESULT of management’s ability to provide competitive solutions, and no study of financials will give investors a true picture of management or the company’s future prospects.
The good:
Everyone should own Apple. The list of its market successes are clear, and well detailed at SeekingAlpha.com “Apple: The Most Undervalued Equity in Techdom.” The reason you should own Apple isn’t its past performance, but rather that the company has built a management team completely focused on the future. Apple is using scenario planning to create solutions that fit the way people want to work and live – not how they did things in the past.
And Apple managers are obsessive about staying ahead of competitors with better solutions that introduce new technologies, and higher levels of user productivity. By constantly being willing to disrupt the old ways of doing things, Apple keeps bringing better solutions to market via its ongoing investment in teams dedicated to developing new solutions and figuring out how they will adapt to fit unmet needs. And this isn’t just a “Steve Jobs thing” as the company’s entire success formula is built on the ability to plan for the future, and outperform competitors. We are seeing this now with the impending launch of iCloud (Marketwatch.com “Could Apple Still Surprise at Its Conference?“)
For nearly inexplicable reasons, many investors (and analysts) have not been optimistic about Apple’s future price. The company’s earnings have grown so fast that a mere fear of a slow-down has caused investors to retrench, expecting some sort of inexplicable collapse. Analysts look for creative negatives, like a recent financial analyst told me “Apple is second in value only to ExxonMobile, and I’m just not sure how to get my mind around that. Is it possible growth could be worth that much? I thought value was tied to assets.”
Uh, yes, growth is worth that much! Apple’s been growing at 100%. Perhaps it won’t continue to grow at that breakneck pace (or perhaps it will, there’s no competitor right now blocking its path), but even if it slows by 75% we’re still talking 25% growth – and that creates enormous value (compounded, 25% growth doubles your investment in 3 years.) When you find profitable growth from a company designed to repeat itself with new market introductions, you have a beautiful thing! And that’s a good investment.
Similarly, investors should really like Netflix. Netflix did what almost nobody does. It overcame fears of cannibalizing its base business (renting DVDs via mail-order) and introduced a streaming download service. Analysts decried this move, fearing that “digital sales would be far lower than physical sales.” But Netflix, with its focus firmly on the future and not the past, recognized that emerging competitors (like Hulu) were quickly changing the game. Their objective had to be to go where the market was heading, rather than trying to preserve an historical market destined to shrink. That sort of management thinking is a beautiful thing, and it has paid off enormously for Netflix.
Of course, those who look only at the surface worry about the pricing model at Netflix. They mostly worry that competitors will gore the Netflix digital ox. But what we can see is that the big competitors these analysts trot out for fear mongering – Wal-Mart, Amazon.com and Comcast – are locked-in to historical approaches, and not aggressively taking on Netflix. When you look at who has the #1 market position, the eyes and ears of customers, the subscriber/customer base and the delivery solution customers love you have to be excited about Netflix. After all, they are the leaders in a market that we know is going to shift their way – downloads. Sort of reminds you of Apple when they brought out the iPod and iTunes, doesn’t it?
The bad:
Google has been a great company. The internet wouldn’t be the internet if we didn’t have Google, the search engine that made the web easy and fast to use, plus gave us the ads making all of that search (and lots of content) free. But, the company has failed to deliver on its own innovations. Android is a huge market success, but unfortunately lock-in to its old mindset led Google to give the product away – just a tad underpriced. Other products, like Wave were great, but there hasn’t been enough White Space available for the products to develop into commercial successes. And we’ve all recently read how it happened that Google missed the emergence of social media, now positioning Facebook as a threaten to their long-term viability (AllThingsD.com “Schmidt Says Google’s Social Networking Problem is His Fault.“)
Chrome, Chromebooks and Google Wallet could be big winners. And there’s a new CEO in place who promises to move Google beyond its past glory. But these are highly competitive markets, Google isn’t first, it’s technology advantages aren’t as clear cut as in the old search days (PCWorld.com “Google Wallet Isn’t the Only Mobile POS Tool.”) Whether Google will regain its past glory depends on whether the company can overcome its dedication to its old success formula and actually disrupt its internal processes enough to take the lead with disruptive marketplace products.
Cisco is in a similar situation. A great innovator who’s products put us all on the web, and made us wi-fi addicted. But markets are shifting as people change their needs for costly internal networks, moving to the cloud, and other competitors (like NetApp) are the game changers in the new market. Cisco’s efforts to enter new markets have been fragmented, poorly managed, and largely ineffective as it spent too much energy focused on historical markets. Emblematic was the abandoned effort to enter consumer markets with the Flip camera, where its inability to connect with fast shifting market needs led to the product line shutdown and a loss of the entire investment (BusinessInsider.com “Cisco Kills the Flip Camera.”)
Cisco’s value is tied not to its historical market, but its ability to develop new ones. Even when they likely cannibalize old products. HIstorically Cisco did this well. But as customers move to the cloud it’s still not clear what Cisco will do to remain an industry leader. Whether Google and Cisco will ever be good investments again doesn’t look too good, today. Maybe. But only if they realign their investments and put in place teams dedicated to new, growth markets.
The ugly:
Another homily goes “beauty may be on the surface, but ugly goes clear to the bone.” Meaning? For something to be ugly, it has to be deeply flawed inside. And that’s the situation at Research in Motion and Microsoft. Optimistic investors describe both of these companies as potential “value stocks” that will find a way to “protect the installed base as an economic recovery develops” and “sell their products cheaply in developing countries that can’t afford new solutions” eventually leading to high dividend payouts as they milk old businesses. Right. That won’t happen, because these companies are on a self-destructive course to preserve lost markets which will eat up resources and leave them shells of their former selves.
Both companies were wildly successful. Both once had near-monopolies in their markets. But in both cases, the organizations became obsessed with defending and extending sales to their “core” or “base” customers using “core” technologies and products. This internal focus, and desire to follow best practices, led them to overspending on what worked in the past, while the market shifted away from them.
At RIMM the market has moved from enterprise servers and secure enterprise applications to local apps that access data via the cloud. People have moved from PCs to smartphones (and tablets) that allow them to do even more than they could do on old devices, and RIM’s devotion to its historical business base caused the company to miss the shift. Blackberry and Playbook have 1/10th the apps of leaders Apple and Android (at best) and are rapidly being competitively outrun.
Likewise, Microsoft has offered the market nothing new when it comes to emerging markets and unmet user needs as it has invested billions of dollars trying to preserve its traditional PC marketplace. Vista, Windows 7 and Office 2010 all missed the fact that users were going off the PC, and toward new solutions for personal productivity. Now the company is trying to play catch-up with its Skype acquisition, Nokia partnership (where sales are in a record, multi-year slide; SeekingAlpha.com “Nokia Deluged with Downgrades“) and a planned launch of Windows 8. Only they are against ferocious competition that has developed an enormous market lead, using lower cost technologies, and keep offering innovations that are driving additional market shift.
Companies that plan for the future, keep their eyes firmly focused on unmet needs and alternative competitors, and that accept and implement disruptions via internal teams with permission to be game-changers are the winners. They are good investments.
Big winners that keep seeking new opportunities, but fall into over-reliance (and focus) on historical markets and customers can move from being good investments to bad ones. They have to change their planning and competitive analysis, and start attacking old notions about their business to free up resources for doing new things. They can return to greatness, but only if they recognize market shifts and move aggressively to develop solutions for emerging needs in new markets.
It gets ugly when companies lose their ability to see external market shifts because they are inwardly focused (inside their organizations, and inside their historical customer base or supply chain.) Their market sensing disappears, and their investments become committed on trying to defend old businesses in the face of changes far beyond their control. Their internal biases cause reduction of shareholder value as they spend money on acquisitions and new products that have negative rates of return in their overly-optimistic effort to regain past glory. Those situations almost never return to former beauty, as ugly internal processes lock them into repeating past behaviors even when its clear they need an entirely new approach to succeed.
by Adam Hartung | Mar 30, 2011 | Current Affairs, In the Swamp, Innovation, Leadership
Summary:
- Too many leaders spend too much effort minimizing uncertainty
- Stock buybacks reflect fear of uncertainty, but are a losing investment
- Good performing organizations invest in new markets, products and services
- Success comes from not only investing, but in learning quickly what works (or doesn’t) and rapidly adapting
“If you don’t ever do anything, you can never screw up” my boss said.
I was 20 years old working in the blazing Oklahoma July sun at a grain elevator. I had asked the maintenance lead to modify a tool, thinking I could work faster. Unfortunately, my idea failed and my production started lagging. Offload production was slowing. I had to ask that the tool be put back to original condition, and I apologized to the elevator manager for my mistake.
That’s when he used my opening line, and went on to say “Don’t ever quit trying to do better. You’re a clever kid. Sometimes ideas work, sometimes they don’t, but if we dont’ try them we’ll never know. That’s why I agreed to your idea originally. I’ll accept a few well-intentioned ‘mistakes’ as long as you learn from them. Now go back to work and try to make up that production before end of day.”
Far too few leaders today give, or follow, such advice. The Economist recently waxed eloquently about how much today’s leaders dislike any kind of uncertainty (see “From Tsunami’s to Typhoons“). Most very consciously make decisions intended to reduce uncertainty – regardless of the impact on results! Rather than take advantage of events and trends, doing something new and different, they intentionally downplay market changes and diligently seek ways to make it appear as if things are not changing – amidst massive change! The mere fact that there is uncertainty seems to be the most troubling issue, as leaders don’t want to deal with it, nor know how.
This fear of uncertainty manifest itself in decisions to buy back stock, rather than invest in new products, services and markets. 24/7 Wall Street reported $34B in announced share buybacks in early February (2011 Stock Buybacks on Fire), only to update that to $40B by end of the month. Literally dozens of companies choosing to spend money on buying their own shares, which creates no economic value at all, rather than invest in something that could create growth! And these aren’t just companies with limited prospects, but include what have been considered growth entities like Pfizer, Astra-Zeneca, Electronic Arts, MedcoHealth, Verizon, Semantec, Yum! Brands, Quest, Kohl’s, Varian and Gamestop to name just a few.
All of these companies have opportunities to grow – heck, all companies have the opportunity to grow. But there is inherent uncertainty in spending money on something that might not work out. So, instead, they are taking hard earned cash flow and spending it on buying back the company stock. The real certainty, from this investment, is that it limits growth — and eventually will lead to a smaller company that’s worth less. Don’t forget, the only investment Sara Lee made under Brenda Barnes the last 5 years was buying back stock – and now the company has shriveled up to less than half its former size while the equity value has disintegrated. Nobody wins from share buybacks – with the possible exception of senior executives who have compensation tied to stock price.
At the Harvard Business Review Umar Haque admonishes leaders today “Fail Bigger Cheaper: A Three Word Manifesto.” Silicon valley investors, deep into understanding our change to an information economy, are far less interested in “scale” and more interested in how leaders, and their companies, are learning faster – so they see where they might fail faster – and then being nimble enough to adjust based upon what they learned. And not just to do more of the same better, but in order to identify bigger targets – larger opportunities – than originally imagined. Often the “failure” can direct the business into grander opportunities which have even higher payoffs.
That’s why we don’t see companies like Google, Apple, Netflix, Virgin, or Cisco buying back their own stock. They see opportunities, and they invest. They don’t all work out. Remember Google Wave? Looked great – didn’t make it – but so what? Google learns from what works, and what doesn’t, and uses that information to help it develop newer, more powerful growth markets.
Long ago Apple let its lack of success with the Newton PDA cause it to retrench into strictly Mac development – which took the company to the brink of disaster by 2000. Since then, by investing in new markets and new products, Apple has grown revenues and profits like crazy, making it more valuable than arch-rival Microsoft and close to being the most valuable publicly traded company.
Source: Silicon Alley Insider of BusinessInsider.com
Virgin used its success in music retailing to enter the trans-atlantic airline business (Virgin Atlantic). Since then it has launched dozens of businesses. Some didn’t work out – like Virgin Bridal – but many more have, such as Virgin Money, Virgin Mobil, Virgin Connect – to name just a handful of the many Virgin businesses that contribute to company growth and value creation.
Nobody wants to screw up. But, unless you do nothing, it is inevitable. No leader, or company, can create high value if they don’t overcome their fear of uncertainty and invest in innovation. But, hand-in-glove with such investing is the requirement to learn fast whether an innovation is working, or not. And to adapt. Some things need time for the market to develop, others need technology advances, and others need a change in direction toward different customers. It’s the ability to invest in uncertain situations, then pay attention to market feedback in order to recognize how well the idea is working, and constantly adapt to market learning that sets apart those companies creating wealth today.
Update 4/1/2011 – AOLSmallBusiness.com reminds us of another great adaptation story, based upon entering an unknown market and learning, in “Yes, Even Apple Screws Up Sometimes.” When personal computers were all text-based machines Apple introduced the Lisa as the first commercial computer to utilize on-screen icons, and a mouse for navigation, as well as other key productivity enhancers like the trash can. But the Lisa failed. Apple studied the market, kept what was desirable and modified what wasn’t, re-introducing the product as the Macintosh in 1984. The Mac was a huge success, creating enormous value for Apple which was undeterred by both the uncertainty of the fledgling PC market and its initial failure at various changes in the user interface.
by Adam Hartung | Feb 3, 2011 | Defend & Extend, eBooks, In the Rapids, In the Swamp, Innovation, Leadership, Lock-in, Openness
Summary:
- Company size is irrelevant to job creation
- New jobs are created by starting new businesses that create new demand
- Most leaders behave defensively, trying to preserve the old business
- But success comes from acting like a start-up and creating new opportunities
- Companies need to do more future-based planning that can change the competitive landscape and generate more growth, jobs and higher rates of return
A trio of economists just published "Who Creates Jobs? Small vs. Large vs. Young" at the National Bureau of Economic Research. For years businesspeople have said that the majority of jobs were created by small companies, therefore we should provide loans and other incentives for small business. At the same time, we all know that large companies employee millions of people, and therefore they have received benefits to keep their companies going even in tough times – like the recent bailouts of GM and Chrysler. But what these researchers discovered was that size was immaterial to job creation – and this ages-old debate is really irrelevant!
Digging deeper into the data, they discovered as reported in the New York Times, "To Create Jobs, Nurture Start-Ups." Regardless of size, most businesses over time get stuck defending their original success formula. What helped them initially grow becomes locked-in by behavioral norms, structural decision-making processes and a business model cost structure that may be tweaked, but rarely changed. Best practices serve to focus management on defending that business, even as market shifts lower the industry growth rate and profits. It doesn't take long before defensive tactics dominate, and as the leaders attempt to preserve historical practices there are no new jobs created. Usually quite the opposite happens as cost cutting dominates, leading to outsourcing and lay-offs reducing the workforce.
Look no further than most members of the Dow Jones Industrial Average to witness the lack of jobs created by older companies desperately trying to defend their historical business model. But what we've failed to realize is how the same management practices dominate small business as well! Most plumbing suppliers, window installers, insurance agencies, restaurants, car dealers, nurseries, tool rental shops, hair cutters and pet sitters spend all their time just trying to keep the business going. They look no further than what they did yesterday when making business decisions. Few think about growth, preferring instead to just keep the business the same – maybe by the owner/operator's father 3 decades ago! They don't create any new jobs, and are probably struggling to maintain existing employment as computers and other business aids reduce the need for labor – while competition keeps whacking away at historical margins.
So if you want to create jobs, throwing incentives at General Electric, General Motors or General Dynamics is not likely to get you very far. And asking the leaders of those companies what it takes to get them to create jobs is a wasted conversation. They don't know, and haven't really thought about the question. Leaders of almost all big organizations are just trying to make next quarter's profit projection any way they can – and that doesn't involve new hiring. After a lifetime of cutting costs and preservation behavior, how is Jeffrey Immelt of GE supposed to know anything about creating new businesses which leads to job creation?
Nor is offering loans or grants to the millions of existing small businesses who are just trying to keep the joint running going to make any difference. Their psychology is not about offering new products or services, and banks sure don't want to take the risk of investing in new experimental behaviors. They have little, if any, interest in figuring out how to grow when most of their attention is trying to preserve the storefront in the face of new competitors on-line, or from India, China or Vietnam!
To create jobs you have to focus on growth – not defense. And that takes an entirely different way of thinking. Instead of thinking about the past you have to be obsessive about the future, and how you can do things differently! Most of the time, business leaders don't think this way until their backs are up against the wall, looking at potential failure! For example, how Mr. Gerstner turned around IBM when he moved the company away from mainframe obsession and pointed the company toward services. Or when Steve Jobs redirected Apple away from its Mac obsession and pushed the company into new markets for music/entertainment and smartphones. Unfortunately, these stories are so rare that we tend to use them for a decade (or even 2 decades)!
For years Cisco said it would obsolete its own products, and by implementing that direction Cisco has grown year after year in the tech world, where flame-outs abound (just look at what happened to Sun Microsystems, Silicon Graphics, AOL and rapidly Yahoo!) Look at how Netflix has pushed Blockbuster aside by expanding its business from snail-mail to downloads. Or how Amazon.com has found explosive growth by changing the way we read books, now selling more Kindle products than printed. Rather than thinking about how each could do more of what they always did, fearing cannibalization of the "core business," they are aiding destruction of their historical business by implementing the newest technology and solution before some start-up beats them to the punch!
As you enter 2011 and prepare for 2012, is your planning based upon doing more of what your business has always done? A start up has no last year, so its planning is based entirely on views of the future. Are you fixated on improving your operations? A start up has no operations, so it is fixated on competitors to figure out how it can meet market needs better, and use "fringe" solutions in new ways that competitors have not yet adopted. Are you hoping that market shifts slow, or stop, so revenue, market share and profit slides abate? A start up is looking for ways to disrupt the marketplace to it can grab high growth from existing solutions while generating new demand by meeting unmet needs. Are you trying to preserve resources in order to defend your business from competitors? A start up is looking for places to experiment with new solutions and figure out how to change the competitive landscape while growing revenues and profits.
If you want to thrive you have to grow. To grow, you have to think young! Be willing to plan for the future, like Apple did when it moved into new markets for music downloads. Be willing to find competitive holes and fill them with new technology, like Netflix. Don't fear market changes – create them like Cisco does with new solutions that obsolete previous generations. And keep testing new ways to expand the market, even as you see intense competition in historical markets being attacked by new competitors. That is the only way to create value, and generate new jobs!
by Adam Hartung | Jan 27, 2011 | Current Affairs, Innovation, Leadership, Lock-in, Science, Web/Tech
Summary:
- The President has called for more innovation in America
- But American business management doesn’t know how to be innovative
- Business leaders focus on efficiency, not innovation
- America has no inherent advantage in innovation
- To increase innovation we need a change in incentives, to favor innovation over efficiency and traditional brick-and-mortar investments
- We need to highlight leaders that have demonstrated the ability to create jobs in the information economy, not the “old guard” just because they run big, but floundering, companies
It was good to hear the U.S. President call for more innovation in his State of the Union address this week. And it sounded like he wants most of that to come from business, rather than government. But I’m reminded the President is a lawyer and politician. As a businessman, well, let’s say he’s a bit naive. Most businesses don’t have a clue how to be innovative, as Forbes pointed out in November, 2009 in “Why the Pursuit of Innovation Usually Fails.”
Businesses by and large are not designed to be innovative. Modern management theory, going back to the days of Frederick Taylor, has been dominated by efficiency. For the last decade businesses have reacted to global competitive forces by seeking additional efficiency. Thus the offshoring movement for information technology and manufacturing eliminated millions of American jobs driving unemployment to double digits, and undermines new job creation keeping unemployment stubbornly high.
It is not surprising business leaders avoid innovation, when the august Wall Street Journal headlines on January 20 “In Race to Market, It Pays to Be Latecomer.” Citing a number of innovator failures, including automobiles, browsers and small computers, the journal concludes that it is smarter business to not innovate. Rather leaders should wait, let someone else innovate and then hope they can take the idea and make something of it down the road. Not a ringing pledge for how good management supports the innovation agenda!
The professors cited in the Journal article take a fairly common point of view. Because innovators fail, don’t be one. Lower your risk, come in later, hope you can catch the market at a future time. It’s easy to see in hindsight how innovators fail, so why take the risk? Keep your eyes on being efficient – and innovation is anything but efficient! Because most businesspeople don’t understand how to manage innovation, don’t try.
As discussed in my last blog, about Sara Lee, executives, managers and investors have come to believe that cost cutting, and striving for more efficiency, is the solution for most business problems. According to the Washington Post, “Immelt To Head New Advisory Board on Job Creation.” The President appointed the GE Chairman to this highly visible position, yet Mr. Immelt has spent most of the last decade shrinking GE, and pushing jobs offshore, rather than growing the company – especially domestically. Gone are several GE businesses created in the 1990s – including the recent spin out of NBC to Comcast. It’s ironic that the President would appoint someone who has overseen downsizings and offshoring to this position, instead of someone who has demonstrated the ability to create jobs over the last decade.
As one can easily imagine, efficiency is not the handmaiden of innovation. To the contrary, as we build organizations the desire for efficiency and “professional management” impedes innovation. According to Portfolio.com in “Can Google Be Entrepreneurial” even Google, a leading technology company with such exciting new products as Android and Chrome, has replaced its CEO Eric Schmidt with founder Larry Page in order to more effectively manage innovation. The contention is that the 55 year old professional manager Schmidt created innovation barriers. If a company as young and successful as Google struggles to innovate, one can only imagine the difficulties at traditional, aged American businesses!
While many will trumpet America’s leadership in all business categories, Forbes‘ Fred Allen is correct to challenge our thinking in “The Myth of American Superiority at Innovation.” For decades America’s “Myth of Efficiency” has pushed organizations to streamline, cutting anything that is not totally necessary to do what it historically did better, faster or cheaper. Innovation inside businesses was designed to improve existing processes, usually cutting cost and jobs, not create new markets with high growth that creates jobs and economic growth. Most executives would 10x rather see a plan to cut costs saving “hard dollars” in the supply chain, or sales and marketing, than something involving new product introduction into new markets where they have to deal with “unknowns.” Where our superiority in innovation originates, if at all, is unclear.
Lawyers are not historically known for their creativity. Hours spent studying precedent doesn’t often free the mind to “think outside the box.” Business folks have their own “precedent managers” – internal experts who set themselves up intentionally to block experimentation and innovation in the name of lowering risk, being conservative and carefully managing the core business. To innovate most organizations will be forced to “Fire the Status Quo Police” as I called for last September here in Forbes. But that isn’t easy.
America can be very innovative. Just look at the leadership America exerts in all things “social media” – from Facebook to Groupon! And look at how adroitly Apple has turned around by moving beyond its roots in personal computing to success in music (iPod and iTunes), mobile telephony and data (iPhone) and mobile computing (iPad). Netflix has used a couple of rounds of innovation to unseat old leader Blockbuster! But Apple and Netflix are still the rarities – innovators amongst the hoards of myopic organizations still focused on optimization. Look no further than the problems Microsoft – a tech company – has had balancing its desire to maintain PC domination while ineffectively attempting to market innovation.
What America needs is less bully pulpit, and more action if you really want innovation Mr. President:
- Increase tax credits for R&D
- Increase tax deductions and credits for new product launches by expanding the definition of what constitutes R&D in the tax code
- Implement penalties on offshore outsourcing to discourage the efficiency focus and the chronic push to low-cost global resources
- Lower capital gains taxes to encourage wealth creation through new business creation
- Manage the deficit by implementing VAT (value added taxes) which add cost to supply chain transactions, thus lowering the value of “efficiency” moves
- Make it much easier for foreign graduate students in America to receive their green cards so we can keep them here and quit exporting some of the brightest innovators we develop to foreign countries
- Create more tax incentives for investing in high tech – from nanotech to biotech to infotech – and quit wasting money trying to favor investments in manufacturing. Provide accelerated or double deductions for buying lab equipment, and stretch out deductions for brick-and-mortar spending. Better yet, quit spending so much on road construction and simply give credits to people who buy lab equipment and other innovation tools.
- Propose regulations on executive compensation so leaders aren’t encouraged to undertake short-term cost cutting measures merely to prop up short-term profits at the expense of long-term viability
- Quit putting “old guard” leaders who have seen their companies do poorly in highly placed positions. Reach out to those who really understand the information economy to fill such positions – like Eric Schmidt from Google, or John Chambers at Cisco Systems.
- Reform the FDA so new bio-engineered solutions do not follow regulations based on 50 year old pharma technology and instead streamline go-to-market processes for new innovations
- Quit spending so much money on border fences, DEA crack-downs on marijuana users and giant defense projects. Put the money into grants for universities and entrepreneurs to create and implement innovation.
Mr. President,, don’t expect traditional business to do what it has not done for over a decade. If you want innovation, take actions that will create innovation. American business can do it, but it will take more than asking for it. it will take a change in incentives and management.
by Adam Hartung | Aug 16, 2010 | Current Affairs, Defend & Extend, In the Rapids, In the Swamp, Leadership, Web/Tech
Summary:
- Dell has remained focused on its core market, and as a result growth has stalled for 5 years.
- Cisco has aggressively developed entirely new markets, and it has grown 60% the last 5 years.
- To keep growing, and maintain your business value, you must CONSTANTLY keep developing new markets
Dell helped create the PC revolution. It’s simplification of the PC business into a limited set of technologies, no R&D, then putting its energy into lowering costs by focusing on supply chain made PCs very, very cheap. it was an idea never before attempted, and this Success Formula allowed Dell to become a household name around the world.
Unfortunately, the demand for PCs has flattened. And competitors have learned how to match (maybe beat?) Dell’s “core capabilities.” When markets shift, a company has to develop new markets, or risk hitting a growth stall.
Source: Silicon Alley Insider
And that’s happened to Dell. Revenues have not continued to grow, Dell has remained focused on its “core markets” and “core capabilities” but without growth in those “core” areas the company has been severely hampered. Revenues are still 72% in “core” but there’s little reason to own the stock because company revenues are at best flat (despite volatility) the last 5 years. Dell is going nowhere – except following the problems at Microsoft. Since it’s now so late to mobile phones, any sort of tablet, or other markets with growth its unlikely Dell will be able to profitably develop any new businesses to replace the deteriorating PC market. Dell is stuck in the Swamp, so busy fighting alligators and mosquitoes that it’s no longer growing. It’s stuck in a low-no growth “core” market.
To remain a healthy business you have to constantly enter new markets.
Source: Silicon Alley Insider
You may want to think of Cisco as a router, or router and switch company. That was certainly the company’s early Success Formula. But unlike Dell, Cisco has invested heavily in other businesses. Now Cisco revenue is 60% bigger than it was five years ago, while its percent of revenue in routers and switches has actually declined! By aggressively moving into new markets for “advanced technology” and services Cisco has improved its overall revenue, and kept the company very healthy. It has growth precisely because it moved away from its “core” to develop new markets, new products, new solutions and new revenues. Cisco keeps maneuvering itself back into the Rapids of growth before the current slows, and thus it avoids the growth stall eating up Dell’s value.
It is so easy to be lured into focusing on your “core”. Especially if you listen to your existing big customers. But markets shift, and you inevitably must move into new markets. And market shifts don’t care what your market share or your industry view. It’s up to all leaders to stay ahead of shifts by constantly developing scenarios for new markets, studying competitors for new insights, disrupting the old Success Formula Lock-ins and setting up White Space teams to develop new revenues and keep the business growing!
