by Adam Hartung | Oct 4, 2011 | Current Affairs, Defend & Extend, Film, In the Rapids, Innovation, Leadership, Television, Transparency, Web/Tech
Reed Hastings, the CEO of Netflix, has long been considered a pretty good CEO. In January, 2009 his approval ranking, from Glassdoor, was an astounding 93%. In January, 2010 he was still on the top 25 list, with a 75% approval rating. And it's not surprising, given that he had happy employees, happy customers, and with Netflix's successful trashing of Blockbuster the company's stock had risen dramaticall,y leading to very happy investors.
But that was before Mr. Hastings made a series of changes in July and September. First Netflix raised the price on DVD rentals, and on packages that had DVD rentals and streaming download, by about $$6/month. Not a big increase in dollar terms, but it was a 60% jump, and it caught a lot of media attention (New York Times article). Many customers were seriously upset, and in September Netflix let investors know it had lost about 4% of its streaming subscribers, and possibly as many as 5% of its DVD subscribers (Daily Mail).
No investor wants that kind of customer news from a growth company, and the stock price went into a nosedive. The decline was augmented when the CEO announced Netflix was splitting into 2 companies. Netflix would focus on streaming video, and Quikster would focus on DVDs. Nobody understood the price changes – or why the company split – and investors quickly concluded Netflix was a company out of control and likely to flame out, ruined by its own tactics in competition with Amazon, et.al.
(Source: Yahoo Finance 3 October, 2011)
This has to be about the worst company communication disaster by a market leader in a very, very long time. TVWeek.com said Netflix, and Reed Hastings, exhibited the most self-destructive behavior in 2011 – beyond even the Charlie Sheen fiasco! With everything going its way, why, oh why, did the company raise prices and split? Not even the vaunted New York Times could figure it out.
But let's take a moment to compare Netflix with another company having recent valuation troubles – Kodak.
Kodak invented home photography, leading it to tremendous wealth as amature film sales soared for seveal decades. But last week Kodak announced it was about out of cash, and was reaching into its revolving credit line for some $160million to pay bills. This latest financial machination reinforced to investors that film sales aren't what they used to be, and Kodak is in big trouble – possibly facing bankruptcy. Kodak's stock is down some 80% this year, from $6 to $1 – and quite a decline from the near $80 price it had in the late 1990s.
(Source: Yahoo Finance 10-3-2011)
Why Kodak declined was well described in Forbes. Despite its cash flow and company strengths, Kodak never succeeded beyond its original camera film business. Heck, Kodak invented digital photography, but licensed the technology to others as it rabidly pursued defending film sales. Because Kodak couldn't adapt to the market shift, it now is probably going to fail.
And that is why it is worth revisiting Netflix. Although things were poorly explained, and certainly customers were not handled well, last quarter's events are the right move for investors in the shifting at-home video entertainment business:
- DVD sales are going the direction of CD's and audio cassettes. Meaning down. It is important Netflix reap the maximum value out of its strong DVD position in order to fund growth in new markets. For the market leader to raise prices in low growth markets in order to maximize value is a classic strategic step. Netflix should be lauded for taking action to maximize value, rather than trying to defend and extend a business that will most likely disappear faster than any of us anticipate – especially as smart TVs come along.
- It is in Netflix's best interest to promote customer transition to streaming. Netflix is the current leader in streaming, and the profits are better there. Raising DVD prices helps promote customer shifting to the new technology, and is good for Netflix as long as customers don't change to a competitor.
- Although Netflix is currently the leader in streaming it has serious competition from Hulu, Amazon, Apple and others. It needs to build up its customer base rapidly, before people go to competitors, and it needs to fund its streaming business in order to obtain more content. Not only to negotiate with more movie and TV suppliers, but to keep funding its exclusive content like the new Lillyhammer series (more at GigaOm.com). Content is critical to maintaining leadership, and that requires both customers and cash.
- Netflix cannot afford to muddy up its streaming strategy by trying to defend, and protect, its DVD business. Splitting the two businesses allows leaders of each to undertake strategies to maximize sales and profits. Quikster will be able to fight Wal-Mart and Redbox as hard as possible, and Netflix can focus attention on growing streaming. Again, this is a great strategic move to make sure Netflix transitions from its old DVD business into streaming, and doesn't end up like an accelerated Kodak story.
Historically, companies that don't shift with markets end up in big trouble. AB Dick and Multigraphics owned small offset printing, but were crushed when Xerox brought out xerography. Then, afater inventing desktop publishing at Xerox PARC, Xerox was crushed by the market shift from copiers to desktop printers – a shift Xerox created. Pan Am, now receiving attention due to the much hyped TV series launch, failed when it could not make the shift to deregulation. Digital Equipment could not make the shift to PCs. Kodak missed the shift from film to digital. Most failed companies are the result of management's inability to transition with a market shift. Trying to defend and extend the old marketplace is guaranteed to fail.
Today markets shift incredibly fast. The actions at Netflix were explained poorly, and perhaps taken so fast and early that leadership's intentions were hard for anyone to understand. The resulting market cap decline is an unmitigated disaster, and the CEO should be ashamed of his performance. Yet, the actions taken were necessary – and probably the smartest moves Netflix could take to position itself for long-term success.
Perhaps Netflix will fall further. Short-term price predictions are a suckers game. But for long-term investors, now that the value has cratered, give Netflix strong consideration. It is still the leader in DVD and streaming. It has an enormous customer base, and looks like the exodus has stopped. It is now well organized to compete effectively, and seek maximum future growth and value. With a better PR firm, good advertising and ongoing content enhancements Netflix has the opportunity to pull out of this communication nightmare and produce stellar returns.
by Adam Hartung | Sep 26, 2011 | Current Affairs, Defend & Extend, Disruptions, In the Whirlpool, Innovation, Leadership, Transparency, Web/Tech
The media has enjoyed a field day last week amidst the ouster of Leo Apotheker as Hewlett Packard’s CEO and appointments of former Oracle executive Ray Lane as Executive Chairman and former eBay CEO Meg Whitman as CEO. There have been plenty of jabs at the Board, which apparently hired Mr. Apotheker without everyone even meeting him (New York Times), and plenty of complaining about HP’s deteriorating performance and stock price. But the big question is, will Meg Whitman be able to turn around HP?
Ms. Whitman is the 7th HP CEO in a mere 12 years. Of those CEOs, the only one pointed to with any attraction was Mark Hurd. He did not take any strategic actions, but merely slashed costs – which immediately improved the profit line and drove up the short-term stock price. Actions taken at the expense of R&D, new product development and creating new markets, leaving HP short on a future strategy when he was summarily let go by the Baord that hired Apotheker.
And that indicates the strategy problem at HP – which is pretty much a lack of strategy.
HP was once a highly innovative company. We all can thank HP for a world of color. Before HP brought us the low-priced ink-jet printer all office printing was black. HP unleashed the color in desktop publishing, and was critical to the growth of office and home printing, as well as faxing with their all-in-one, integrated devices.
But then someone – largely Ms. Fiorina – had the idea to expand on the HP presence in desktop publishing by expanding into PC manufacturing and sales, even though there was no HP innovation in that market. Mr. Hurd expanded that direction by buying a service organization to support field-based PCs.
This approach of expanding on HPs “core” printer business, almost all by acquisition, cost HP a lot of money. Further, supply chain and retail program investments to sell largely undifferentiated products and services in a hotly contested PC market sucked all the money out of new products development. Every year HP was spending more to grow sales of products becoming increasingly generic, while falling farther behind in any sort of new market creation.
Into that innovation void jumped Apple, Google and Amazon. They pushed new mobile solutions to market in smartphones and tablets. And now PCs, and the printers they used, are seeing declining growth. All future projections show an increase in mobile devices, and a sales cliff emerging for PCs and their supporting devices. Simultaneously as mobile devices have become more popular the trend away from printing has grown, with users in business and consumer markets finding digital devices less costly, more user friendly and more adaptable than printed material (just compare Kindle sales and printed book sales – or the volume of tablet newspaper and magazine subscriptions to printed subscriptions.) HP invested heavily in PC products, and now that market is dying.
Now HP is in big trouble. There are plenty of skeptics that think Ms. Whitman is not right for the job. What should HP under Ms. Whitman do next? Keep doubling down on investments in existing markets? That direction looks pretty dangerous. IBM jumped out years ago, selling its laptop line to Lenovo for a tidy profit before sales slackened. With all the growth in smartphones and tablets, it’s hard to imagine that strategy would work. Even Mr. Apotheker took action to deal with the market shift by redirecting HP away from PCs with his announced intention to spin off that business while buying an ERP (enterprise ressource planning) software company to take HP into a new direction. But that backfired on him, and investors.
Mr. Apotheker and Carol Bartz, recently fired CEO of Yahoo, made similar mistakes. They relied heavily on their personal past when taking leadership of a struggling enterprise. They looked to their personal success formulas – what had worked for them in the past – when setting their plans for their new companies. Unfortunately, what worked in the past rarely works in the future, because markets shift. And both of these companies suffered dramatically as the new CEO efforts took them further from market trends.
The job Ms. Whitman is entering at HP is wildly different from her job at eBay. eBay was a small company taking advantage of the internet explosion. It was an early leader in capitalizing on web networking and the capability of low-cost on-line transactions. At eBay Ms. Whitman needed to keep the company focused on investing in new solutions that transformed PC and internet connectivity into value for users. As long as the number of users on the internet, and the time they spent on the web, grew eBay could capitalize on that trend for its own growth. eBay was in the right place at the right time, and Ms. Whitman helped guide the company’s product development so that it helped users enjoy their on-line experience. The trends supported eBay’s early direction, and growth was built opon making on-line selling better, faster and easier.
The situation could not be more different at HP. It’s products are almost all out of the trend. If Ms. Whitman does what she did at eBay, trying to promote more, better and faster PCs, printers and traditional IT services things will not go well. That was Mr. Hurd’s strategy. “Been there, done that” as people like to say. That strategy ran its course, and more cost-cutting will not save HP.
In 2020 if we are to discuss HP the way we now discuss Apple’s dramatic turnaround from the brink of failure, Ms. Whitman will have to behave very differently than her past – and from what her predecessor and Ms. Bartz did. She has to refocus HP on future markets. She has to identify triggers for market change – like Steve Jobs did when he recognized that the growing trend to mobility would explode once WiFi services reached 50% of users – and push HP toward developing solutions which take advantage of those market shifts.
HP has under-invested in new market development for years. It’s acquisition of Palm was supposed to somehow rectify that problem, only Palm was a failing company with a failing platform when HP bought it. And the HP tablet launch with its own proprietary solution was far too late (years too late) in a market that requires thousands of developers and a hundred thousand apps if it is to succeed. The investment in Palm and WebOS was too late, and based on trying to be a “me too” in a market where competitors are rapidly advancing new solutions.
There are a world of market opportunities out there that HP can develop. To reach them Ms. Whitman must take some quick actions:
- Develop future scenarios that define the direction of HP. Not necessarily a “vision” of HP in 2020, but certainly an identification of the big trends that will guide HP’s future direction for product and market development. Globalization (like IBM’s “smarter planet”) or mobility are starts – but HP will have to go beyond the obvious to identify opportunities requiring the resources of a company with HP’s revenue and resources. HP desperately needs a pathway to future markets. It needs to be developing for the emerging trends.
- A recognition of how HP will compete. What is the market gap that HP will fulfill – like Apple did in mobility? And how will it fulfill it? Google and Facebook are emerging giants in software, offering a host of new capabilities every day to better network users and make them more productive. HP must find a way to compete that is not toe-to-toe with existing leaders like Apple that have more market knowledge and extensive resoureces.
- HP needs to dramatically up the ante in new product development. Innovation has been sorely lacking, and the hierarchical structure at HP needs to be changed. White Space projects designed to identify opportunities in market trends need to be created that have permission to rapidly develop new solutions and take them to market – regardless of HP historical strengths. Resources need to shift – rapidly – from supporting the aging, and growth challenged, historical product lines to new opportunities that show greater growth promise.
Apple and IBM were once given almost no chance of survival. But new leadership recognized that there were growth markets, and those leaders altered the resource allocation toward things that could grow. Investments in the old strategy were dropped as money was pushed to new solutions that built on market trends and headed toward future scenarios. HP is not doomed to failure, but Ms. Whitman has to start acting quickly to redirect resources or it could easily be the next Sun Microsystems, Digital Equipment, Wang, Lanier or Cray
by Adam Hartung | Sep 15, 2011 | Current Affairs, Defend & Extend, In the Swamp, In the Whirlpool, Innovation, Leadership, Lock-in, Science, Web/Tech, Weblogs
Carol Bartz was unceremoniously fired as CEO by Yahoo’s Board last week. Fearing their decision might leak, the Chairman called Ms. Bartz and fired her over the phone. Expeditious, but not too tactful. Ms. Bartz then informed the company employees of this action via an email from her smartphone – and the next day called the Board of Directors a bunch of doofusses in a media interview. Salacious fodder for the news media, but a distraction from fixing the real problems affecting Yahoo!
Unfortunately, the Yahoo Board seems to have no idea what to do now. A small executive committee is running the company – which assures no bold actions. And a pair of investment banks have been hired to provide advice – which can only lead to recommendations for selling all, or pieces, of the company. Most people seem to think Yahoo’s value is worth more sold off in chunks than it is as an operating company. Wow – what went so wrong? Can Yahoo not be “fixed”?
There was a time, a decade or so back, when Yahoo was the #1 home page for browsers. Yahoo! was the #1 internet location for reading news, and for doing internet searches. And, it pioneered the model of selling internet ads to support the content aggregation and search functions. Yahoo was early in the market, and was a tremendous success.
Like most companies, Yahoo kept doing more of the same as its market shifted. Alta Vista, Microsoft and others made runs at Yahoo’s business, but it was Google primarily that changed the game on Yahoo! Google invested heavily in technology to create superior searches, offered a superior user experience for visitors, gave unique content (Google Maps as an example) and created a tremendously superior engine for advertisers to place their ads on searches – or web pages.
Google was run by technologists who used technology to dramatically improve what Yahoo started – seeing a future which would take advantage of an explosion in users and advertisers as well as web pages and internet use. Yahoo had been run by advertising folks who missed the technology upgrades. Yahoo’s leadership was locked-in to what it new (advertising) and they were slow with new solutions and products, falling further behind Google every year.
In an effort to turn the tide, Yahoo hired what they thought was a technologist in Carol Bartz to run the company. She had previously led AutoCad, which famously ran companies like IBM, Intergraph, DEC (Digital Equipment) and General Electric owned CALMA out of the CAD/CAM (computer aided design and manufacturing) business. She had been the CEO of a big technology winner – so she looked to many like the salvation for Yahoo!
But Ms. Bartz really wasn’t familiar with how to turn an ad agency into a tech company – nor was she particularly skilled at new product development. Her skills were mostly in operations, and developing next generation software. AutoCad was one of the first PC-based CAD products, and over 2 decades AutoCad leveraged the increasing power of PCs to make its products better, faster and relatively cheaper. This constant improvement, and close attention to cost control, made it possible for AutoCad on a PC to come closer and closer to doing what the $250,000 workstations had done. Users switched to the cheaper AutoCad not because it suddenly changed the game, but because PC enhancements made the older, more costly technology obsolete.
Ms. Bartz was stuck on her success formula. Constantly trying to improve. At Yahoo she implemented cost controls, like at AutoCad. But she didn’t create anything significantly new. She didn’t pioneer any new platforms (software or hardware) nor any dramatically new advertising or search products. She tried to do deals, such as with Bing, to somehow partner into better competitiveness, but each year Yahoo fell further behind Google. In a real way, Ms. Bartz fell victim to Google just as DEC had fallen victim to AutoCad. Trying to Defend & Extend Yahoo was insufficient to compete with the game changing Google.
The Board was right to fire Ms. Bartz. She simply did what she knew how to do, and what she had done at AutoCad. But it was not what Yahoo needed – nor what Yahoo needs now. Cost cutting and improvements are not going to catch the ad markets now driven by Google (search and adwords) and Facebook (display ads.) Yahoo is now out of the rapidly growing market – social media – that is driving the next big advertising wave.
Breaking up Yahoo is the easy answer. If the Board can get enough money for the pieces, it fulfills its fiduciary responsibility. The stock has traded near $15/share for 3 years, and the Board can likely obtain the $18B market value for investors. But “another one bites the dust” as the song lyrics go – and Yahoo will follow DEC, Atari, Cray, Compaq, Silicon Graphics and Sun Microsystems into the technology history on Wikipedia. And those Yahoo employees will have to find jobs elsewhere (oh yeah, that pesky jobs problem leading to 9%+ U.S. unemployment comes up again.)
A better answer would be to turn around Yahoo! Yahoo isn’t in any worse condition than Apple was when Steve Jobs took over as CEO. It’s in no worse condition than IBM was when Louis Gerstner took over as its CEO. It can be done. If done, as those examples have shown, the return for shareholders could be far higher than breaking Yahoo apart.
So here’s what Yahoo needs to do now if it really wants to create shareholder value:
- Put in place a CEO that is future oriented. Yahoo doesn’t need a superb cost-cutter. It doesn’t need a hatchet wielder, like the old “Chainsaw Al Dunlap” that tore up Scott Paper. Yahoo needs a leader that can understand trends, develop future scenarios and direct resources into developing new products that people want and need. A CEO who knows that investing in innovation is critical.
- Quit trying to win the last war with Google. That one is lost, and Google isn’t going to give up its position. Specifically, the just announced Yahoo+AOL+Microsoft venture to sell ad remnants is NOT where Yahoo needs to spend its resources. Every one of these 3 companies has its own problems dealing with market shifts (AOL with content management as dial-up revenues die, Microsoft with PC market declines and mobile device growth.) None is good at competing against Google, and together its a bit like asking 3 losers in a 100 meter dash if they think by forming a relay team they could somehow suddenly become a “world class” group. This project is doomed to failure, and a diversion Yahoo cannot afford now.
- In that same vein, quit trying to figure out if AOL or Microsoft will buy Yahoo. Microsoft could probably afford it – but like I said – Microsoft has its hands full trying to deal with the shift from PCs to tablets and smartphones. Buying Yahoo would be a resource sink that could possibly kill Microsoft – and it’s assured Microsoft would end up shutting down the company piecemeal (as it does all acquisitions.) AOL has seen its value plummet because investors are unsure if it will turn the corner before it runs out of cash. While there are new signs of life since buying Huffington Post, ongoing struggles like firing the head of TechCrunch keep AOL fully occupied fighting to find its future. Any deal with either company should send investors quickly to the sell post, and probably escalate the Yahoo demise with the lowest possible value.
- Give business heads the permission to develop markets as they see fit. Ms. Bartz was far too controlling of the business units, and many good ideas were not implemented. Specifically, for example, Right Media should be given permission to really advance its technology base and go after customers unencumbered by the Yahoo brand and organization. Right Media has a chance of being really valuable – that’s why people would ostensibly buy it – so give the leaders the chance to make it successful. Maybe then the revolving door of execs at Right (and other Yahoo business units) would stop and something good would happen.
- Hold existing business units “feet to the fire” on results. Yahoo has notoriously not delivered on new ad platforms and other products – missing development targets and revenue goals. Innovation does not succeed if those in leadership are not compelled to achieve results. Being lax on performance has killed new product development – and those things that aren’t achieving results need to stop. Specifically, it’s probably time to stop the APT platform that is now years behind, and because it’s targeted against Google unlikely to ever succeed.
- Invest in new solutions. Take all that wonderful trend data that Yahoo has (maybe not as much as Google – but a lot more than most companies) and figure out what Yahoo needs to do next. Rip off a page from Apple, which flattened spending on the Mac in order to invest in the iPod. Learn from Amazon, which followed the trends in retail to new storefronts, expanded offerings, a mobile interface and Kindle launch. Yahoo needs to quit trying to gladiator fight with Google – where it can’t win – and identify new markets and solutions where it can. Yahoo must quit being a hostage to its history, and go do the next big thing! Create some white space in the company to invest in new solutions on the trends!
Of course, this is harder than just giving up and selling the company. But the potential returns are much, much higher. Yahoo’s predicament is tough, but it’s been a management failure that got it here. If management changes course, and focuses on the future, Yahoo can once again become a market leading company. Sure would like to see that kind of leadership. It’s how America creates jobs.
by Adam Hartung | May 3, 2011 | Current Affairs, Defend & Extend, In the Swamp, Leadership, Lock-in, Web/Tech
For the first time in 20 years, Apple’s quarterly profit exceeded Microsoft’s (see BusinessWeek.com “Microsoft’s Net Falls Below Apple As iPad Eats Into Sales.) Thus, on the face of things, the companies should be roughly equally valued. But they aren’t. This week Microsoft’s market capitalization is about $215B, while Apple’s is about $365B – about 70% higher. The difference is, of course, growth – and how a lack of it changes management!
According to the Conference Board, growth stalls are deadly.
When companies hit a growth stall, 93% of the time they are unable to maintain even a 2% growth rate. 75% fall into a no growth, or declining revenue environment, and 70% of them will lose at least half their market capitalization. That’s because the market has shifted, and the business is no longer selling what customers really want.
At Microsoft, we see a company that has been completely unable to deal with the market shift toward smartphones and tablets:
- Consumer PC shipments dropped 8% last quarter
- Netbook sales plunged 40%
Quite simply, when revenues stall earnings become meaningless. Even though Microsoft earnings were up, it wasn’t because they are selling what customers really want to buy. In stalled companies, executives cut costs in sales, marketing, new product development and outsource like crazy in order to prop up earnings. They can outsource many functions. And they go to the reservoir of accounting rules to restate depreciation and expenses, delaying expenses while working to accelerate revenue recognition.
Stalled company management will tout earnings growth, even though revenues are flat or declining. But smart investors know this effort to “manufacture earnings” does not create long-term value. They want “real” earnings created by selling products customers desire; that create incremental, new demand. Success doesn’t come from wringing a few coins out of a declining market – but rather from being in markets where people prefer the new solutions.
Mobile phone sales increased 20% (according to IDC), and Apple achieved 14% market share – #3 – in USA (according to MediaPost.com) last quarter. And in this business, Apple is taking the lion’s share of the profits:
Image provided by BusinessInsider.com
When companies are growing, investors like that they pump earnings (and cash) back into growth opportunities. Investors benefit because their value compounds. In a stalled company investors would be better off if the company paid out all their earnings in dividends – so investors could invest in the growth markets.
But, of course, stalled companies like Microsoft and Research in Motion, don’t do that. Because they spend their cash trying to defend the old business. Trying to fight off the market shift. At Microsoft, money is poured into trying to protect the PC business, even as the trend to new solutions is obvious. Microsoft spent 8 times as much on R&D in 2009 as Apple – and all investors received was updates to the old operating system and office automation products. That generated almost no incremental demand. While revenue is stalling, costs are rising.
At Gurufocus.com the argument is made “Microsoft Q3 2011: Priced for Failure“. Author Alex Morris contends that because Microsoft is unlikely to fail this year, it is underpriced. Actually, all we need to know is that Microsoft is unlikely to grow. Its cost to defend the old business is too high in the face of market shifts, and the money being spent to defend Microsoft will not go to investors – will not yield a positive rate of return – so investors are smart to get out now!
Additionally, Microsoft’s cost to extend its business into other markets where it enters far too late is wildly unprofitable. Take for example search and other on-line products: 
Chart source BusinessInsider.com
While much has been made of the ballyhooed relationship between Nokia and Microsoft to help the latter enter the smartphone and tablet businesses, it is really far too late. Customer solutions are now in the market, and the early leaders – Apple and Google Android – are far, far in front. The costs to “catch up” – like in on-line – are impossibly huge. Especially since both Apple and Google are going to keep advancing their solutions and raising the competitive challenge. What we’ll see are more huge losses, bleeding out the remaining cash from Microsoft as its “core” PC business continues declining.
Many analysts will examine a company’s earnings and make the case for a “value play” after growth slows. Only, that’s a mythical bet. When a leader misses a market shift, by investing too long trying to defend its historical business, the late-stage earnings often contain a goodly measure of “adjustments” and other machinations. To the extent earnings do exist, they are wasted away in defensive efforts to pretend the market shift will not make the company obsolete. Late investments to catch the market shift cost far too much, and are impossibly late to catch the leading new market players. The company is well on its way to failure, even if on the surface it looks reasonably healthy. It’s a sucker’s bet to buy these stocks.
Rarely do we see such a stark example as the shift Apple has created, and the defend & extend management that has completely obsessed Microsoft. But it has happened several times. Small printing press manufacturers went bankrupt as customers shifted to xerography, and Xerox waned as customers shifted on to desktop publishing. Kodak declined as customers moved on to film-less digital photography. CALMA and DEC disappeared as CAD/CAM customers shifted to PC-based Autocad. Woolworths was crushed by discount retailers like KMart and WalMart. B.Dalton and other booksellers disappeared in the market shift to Amazon.com. And even mighty GM faltered and went bankrupt after decades of defend behavior, as customers shifted to different products from new competitors.
Not all earnings are equal. A dollar of earnings in a growth company is worth a multiple. Earnings in a declining company are, well, often worthless. Those who see this early get out while they can – before the company collapses.
Update 5/10/11 – Regarding announced Skype acquisition by Microsoft
That Microsoft has apparently agreed to buy Skype does not change the above article. It just proves Microsoft has a lot of cash, and can find places to spend it. It doesn’t mean Microsoft is changing its business approach.
Skype provides PC-to-PC video conferencing. In other words, a product that defends and extends the PC product. Exactly what I predicted Microsoft would do. Spend money on outdated products and efforts to (hopefully) keep people buying PCs.
But smartphones and tablets will soon support video chat from the device; built in. And these devices are already connected to networks – telecom and wifi – when sold. The future for Skype does not look rosy. To the contrary, we can expect Skype to become one of those features we recall, but don’t need, in about 24 to 36 months. Why boot up a PC to do a video chat you can do right from your hand-held, always-on, device?
The Skype acquisition is a predictable Defend & Extend management move. It gives the illusion of excitement and growth, when it’s really “so much ado about nothing.” And now there are $8.5B fewer dollars to pay investors to invest in REAL growth opportunities in growth markets. The ongoing wasting of cash resources in an effort to defend & extend, when the market trends are in another direction.
by Adam Hartung | Sep 9, 2010 | Defend & Extend, Leadership, Lock-in
Leadership
Fire The Status Quo Police
Adam Hartung, 09.08.10, 06:00 PM EDT
Their power to prevent innovation can devastate your business.
“That’s not how we do things around here.” How often have you heard that? And what does it really mean? It is said to stop someone from doing something new. It is no way to promote innovation, is it?”
That’s the lead paragraph to my latest column on Forbes.com, published yesterday evening. Forbes launched a new editorial page covering Change Management, and gave my column’s link the premier placement!
All companies want to grow. But early in the lifecycle they Lock-in on what works, and then implement Status Quo Police that intentionally do not allow anything to change. Their belief is that if nothing changes, the business will always grow. So conformance to historical norms is more important than results to them. To Status Quo Police results will return when conformance to old norms is returned!
Of course, this completely ignores the marketplace. Market shifts, created by competitors launching new technologies, new pricing models, new delivery models or other new solutions cause the value of old solutions to decline. No matter how well you do what you always did, you can’t achieve historical results. The market has shifted!
To keep any company growing you must know who the Status Quo Police are in your organization. They can be in HR, controlling hiring, promotions and pay. In Finance controlling what projects receive resources. In Marketing, tightly controlling branding, product development or distribution. The Status Quo Police are committed to keeping things tightly controlled, and saving the organization from change that could send the company in the wrong direction! No matter what the marketplace may require.
But it’s not enough to know who the Status Quo Police are, its up to leaders to eliminate them! If you want to have a vibrant, profitably growing organization you have to constantly adjust to market shifts. You have to sense what the market wants, and move to deliver it. You have to be very wary of the Status Quo, and instead be open to making changes in order to grow. To do that, you have to hold those who would be the Status Quo Police in check. Otherwise, you’ll find the obstacles to innovation and growth overwhelming!
Please read the article at Forbes, review it and comment! Let me know what you think!
