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!
by Adam Hartung | Jul 1, 2010 | Current Affairs, Defend & Extend, In the Swamp, Leadership, Lock-in, Web/Tech
"Stay the Course" is a popular phrase. It sounds all macho, and committed to a destiny, to proclaim you must "stay the course." However, as bnet.com pointed out there are times when "Stay the Course is a Recipe for Disaster." The article calls it "Stay The Course-Itis" (or STCI) for leaders that don't know when it's time to change direction. We can now see that BP simply drilled one too many deep-water holes in the Gulf – just as Exxon let one too many tipsy captains steer oil vessels before the Valdez crashed. Staying the course may sound good, but too often the course isn't right. And a bad course can lead you into disaster.
Take for example Dell. As reported by The New York Times, and picked up by CNBC.com, "in Suit Over Computers, Window into Dell's Fall," we learn that Dell went just a bit too far in its effort to be a low cost industry supplier. Hoping desperately to maintain a slight lead in lowering costs, Defending & Extending Dell's long-term Success Formula as industry supply chain leader, Dell simply bought bad parts. It then replaced bad product with more bad product. Refused to admit to itself that it had gone "too cheap" in its effort to be cheap. Things went from bad to worse as the Lock-in to keep costs low led to multiple customer disasters – even at the law firm defending Dell in court! And Michael Dell is being accused of financial irregularities in his effort to make Dell's results possibly look better than they were. Both corporately and personally leadership made some big mistakes – not unlike BP – in the effort for Dell to "Stay the Course."
Microsoft certainly isn't without it's STCI as CEO Steve Ballmer keeps dropping new projects to funnel money and other resources into old desktop/laptop products. The Wall Street Journal reported "Microsoft Kills Kin Mobile Less Than Two Months After Launch." Kin was a product targeted at the hot market for youthful cell phone users. A double-digit growth market. But Microsoft is backing out, despite its ballyhooed launch – including announcements to take the product to China very soon. Microsoft can't seem to do much but "Stay the Course" supporting old products.
Both tech companies have had no improvement in their market value the last decade. And BP has watched its value drop more than 50% since the spill started. Some now actively wonder if BP could disappear as SeekingAlpha.com discussed in "How Likely is a BP Takeover bid?" Staying the course in the Gulf, drilling for more oil in deeper water and taking on more risk, could cost BP its existence if another company buys up the discounted equity. Of course, there is still reason to think BP could get wiped out from the costs of the disaster without a takeover.
Companies can get over SCTI if they follow advice given at ABCNews.com "Reboot Your Small Business by Reinventing." The article applies to all size businesses, however. When you see your business doing poorly, especially relative to competitors, it's time to attack sacred cows and do some things differently. Instead of "doubling down" on the old Success Formula, do new things!
You don't want to end up like BP, Dell or Microsoft today. Once great companies that are floundering now – struggling to find growth as they continue spending so much energy trying to "Stay the Course." When the seas are too calm to sail, leaving you stranded with no growth, or the waves are crashing too heavily, as competition is derailing your efforts, why not set a new course? One that can lead you to better growth? There's no harm, or shame, in heading where the market is going, using Disruptions and White Space to develop new solutions. Don't let your ego, pride, or history/legacy push you to "stay the course" when better results can be found in new markets, new customers and new solutions.
PS – Yesterday SmartBrief on Leadership newsletter ran ""For Real Innovation, Pick Up the Phone" linking to the BloggingInnovation.com repost of "It's the One You Don't See That Kills You." Compliments to Braden Kelley for a great web site, and getting the word out about how important it is to apply innovation! I enjoyed how the newsletter grabbed the conclusion, that businesses need to obtain more outsider input, and ran with it as the title. better than my title, to be honest!
PPS – PRLog.org just picked up my blog on "Journalism in 2020." Great to see the media enjoying my comments about their industry, and passing them along through this communication site!
by Adam Hartung | Jun 22, 2010 | Current Affairs, Defend & Extend, In the Swamp, Leadership, Lock-in, Web/Tech
According to Reuters news service "Dell in Talks with Google over Chrome O/S." I would like to think this is a big deal for Dell, and positive, but I'm doubtful.
Eight months ago I wrote (10/20/09 – Keep an Eye on Dell – Good Things Happening) that Dell's efforts to bring a smart phone to market showed real promise for the company. Michael Dell seemed committed to shaking things up in order to launch new products. And in February I wrote (2/22/10 Looking for Winners – Dell) not to be too worried about Dell's small desktop market share losses because Dell needed to be heading into new markets – like Smart phones – seeking growth rather than over-investing in its old desktop business.
But I've since turned much more negative. The Reuter's article points out that Dell still hasn't gotten the smart phone to market in the USA. A phone was released in China last year, but sales have been minimal. There is a vague promise (no date) to release a new product in China – but none in the USA. And a potential tablet (competitor to iPad) is considered by end of 2010, but the company stresses no firm date.
Dell is moving far too slowly, and is far too uncommitted, to new businesses. The company is listening to the analysts who have traditionally followed them – the large customers who have bought Microsoft products and are still doing so – and large vendors who want to maintain the status quo. All of these folks are as locked-in as Dell.
Meanwhile Apple and Google keep selling thousands of units into these rapidly expanding new markets, growing share as well as sales at substantial profit.
This effort by Google is certainly good for its Chrome O/S. Even if Dell moves slowly, having Chrome adopted into any part of the historically monopolistic Microsoft community is a good thing. And the announcement itself shows the fragility of Microsoft in its historical market as growth slows and large distributors look to new solutions for "cloud computing" from new vendors. So this is good for Google, and another dart into the wounds of Microsoft.
The market keeps shifting toward new technology and the vendors supporting it – making the re-invention gap bigger and bigger at Dell. I don’t think Dell’s management is up to the market challenges. They had a shot at real change, but by not giving the growth projects (then or now) real permission to do what it takes to succeed, including moving much faster to market, nor sufficient resources to meet market needs, Dell is hastening its own demise. With its outdated, and now low-return, success formula firmly locked in, Dell looks likely to follow Wang, Lanier, Burroughs, DEC, Silicon Graphics and Sun Microsystems into the history books.
by Adam Hartung | May 26, 2010 | Defend & Extend, In the Swamp, Leadership, Lock-in, Web/Tech
In theory, Sustaining Innovations that help a company Defend & Extend its products are supposed to be cheap. The breakthrough is done, and the investments on variations, derivatives and enhancements are "engineering" as opposed to "science" so the development is supposedly more easily planned, the costs better understood and the returns more predictable. That's the theory, anyway, and as a result most managers constantly defend their decision to keep investing more in Defending & Extending past products rather than investing in new things which would develop new markets and new revenue streams.
But, like a lot of business myths, there's really no proof for this theory. It just sounds good. It seems "to make sense", and the big issue is that "it simply has to be less risky to spend on what you know rather than what you don't know." And "after all, this is investing in our own market and what could have a higher rate of return than defending our mother ship?" I'm sure everyone has heard these kind of comments when it comes time to allocate resources. Management supports doing more of what's been done, reinforcing Defend & Extend behavior. It just HAS to make sense to do more of what we know rather than invest in something new that we don't know as well – right?
But look at this chart from Business Insider:
Microsoft has spent billions of dollars in R&D Defending its desktop PC near-monopoly with enhancements to Office (Office 2007 and now Office 2010) and the operating System (Vista and System 7). It has spent heavily on other things as well, but in the end its entertainment division and mobile O/S products as well as others have not successfully grown revenues. As a result, Microsoft's value has not risen and Apple is about to eclipse Microsoft's value despite being a smaller company (see yesterday's blog for a more thorough review of valuation issues).
Now we can see that all this spending on R&D to Defend & Extend is in no way cheap. In dollars, Microsoft spent 3.5 times as much as Google and 8 times as much as Apple in 2009 – companies which as a result of their spending generated considerably more growth than Microsoft. Microsoft even spent more dollars, and more money as a percent of revenue, than IBM and Cisco (companies that rely heavily on hardware as well as software sales)! By any measure, Microsoft's efforts to Defend & Extend its "base," or its "core" has come at a very, very high price – in dollars or as a percent of revenue.
Consider that a good measure of R&D should be its ability to generate incremental revenue. Using that yardstick, Microsoft is a disaster, while Apple is a star.
Far too many companies Lock-in R&D and New Product Development to the existing business. The decision-making systems are geared to invest more in what is known. New investments are tagged with "risk adjustments" and "cannibalization charges" and a host of other costs to make them look less positive than doing more of what has historically been done. Lock-in to the Success Formula means that the financial review system, along with the technology assessments, are designed to give a major benefit to doing more of the same, while dramatically penalizing anything new!
In almost all companiess decision-making systems are designed to reinforce the Success Formula, not give an "independent" answer based upon markets. The processes are designed to do more, not do something new. And in the case of Microsoft, we can see how that has led to huge investments in simply defending the PC business while the technology marketplace is now rapidly shifting to new platforms – like mobile devices (smartphones and tablets), cloud-based applications and data access, and even gaming consoles. Competitors are developing a huge advantage by investing R&D and New Product Development dollars in new markets which provide greater growth opportunities – and higher rates of return over any time period other than the very short term.
Even if you're not in the computer/tech business, you don't want to end up like Microsoft. You don't want to over-invest in yesterday's solution trying to Defend it in the face of market shifts. That did not work out well for Polaroid, Kodak or Xerox which lost their luster as customers switched to new solutions and new competitors. Be sure to look not just at how much you spend, but that your spending is linked to markets and their growth, not simply doing more of what you already know!
by Adam Hartung | Mar 4, 2010 | Current Affairs, Defend & Extend, In the Rapids, Leadership, Web/Tech, Weblogs
Apple's shareholder meeting was last week. In an era where shareholders are most worried about the survivability of the companies where they are invested, the biggest issue at Apple is what to do with all its cash! Reuters.com reported "Apple's Jobs says must think 'big' on cash hoard." In 2009, when most companies saw their market value decline, Apple's value doubled. Yet, it's cash is fully 1/5 (20%) of its current market capitalization! Clearly the company is generating cash faster than it has found investment opportunities. Even after launching the iPad with expectations of selling 2 to 5 million units in 2010!
We all should be so lucky, to have this problem of riches. Apple has enough cash that it could buy all the equity of Dell. Of course, why do that? It just goes to show that the company that built its market cap in the 1990s on Defend & Extend behavior – focusing on execution in a growing PC marketplace – has seen its valuation multiple shredded as buyers have shifted to other solutions. Meanwhile, Apple's value has skyrocketed because it entered new markets and created new solutions. Yet, it's cash flow has skyrocketed even faster!
It is possible for all companies to follow Apple's lead, increasing revenues and valuation. Last week I was interviewed by Zane Safrit for his radio program and highlights are on his blog, and the full interview is available for listening at the BlogTalkRadio site. In the interview Zane brings out how so many business leaders are stuck defending and extending broken Success Formulas that cannot produce better returns, and waiting for a "better economy" to "save" them. What Zane also cleverly brings out is how The Phoenix Principle can be applied to any business, with results that can be as stunning as Apple's. If leaders will start focusing on the future, obsessing about competitors, utillize Disruptions and White Space.
Of course, these are amplified in the "10 Ways to Stay Ahead of the Competition" I posted in yesterday's blog. I've received comments that the links to the deeper discussion on both the Business Insider web site and the IBM Open Forum weren't working, so I'm reproducing them here again.
10 Ways to Stay Ahead of the Competition – Business Insider
How to Stay Ahead of the Competition – IBM Open Forum
All companies can grow like Apple. But it takes a different way of approaching management. I hope you can find time to listen to the interview and explore how your organization can become like a Phoenix, forever growing through constant rebirth.
