by Adam Hartung | Nov 29, 2009 | Current Affairs, Disruptions, In the Rapids, Leadership, Openness, Web/Tech
Cisco is an admirable company. In the high tech world, few survive half as long as Cisco. Even fewer maintain growth and profitability. Cisco's willingness to obsolete its own products has been a stated objective which has helped the company keep on top of new technologies and products, growing to $36B. It's Disruptive when you are compelled to obsolete your own products. Most companies make the mistake of trying to sell products too long, trying to extend profitability by selling the product while winding down development. They fear launching new products which might "cannibalize" an existing product. As a result, competitors leapfrog their products and by the company admits things are obsolete it's too late – and the business is in deep trouble.
Now Cisco is working to keep growing by utilizing a Disruptive organization model. Headlined "Cisco's Extreme Ambition" has BusinessWeek overviewing the distribution of decision-making power to 48 different councils. Instead of a traditional hierarchy, the councils can make decisions about products themselves, thus shortening the decision process and the time to get new products to market or make acquisitions.
Cisco competes in at least 30 markets. Staying on the leading edge in that many businesses requires rethinking how to organize. Especially when you know it is critical to keep Disrupting your organization to bring forward new products which can keep you competitive. By distributing decision-making this organizational model overcomes traditional Lock-ins that could slow down Cisco
- Now strategy can be developed for the markets, built on multiple scenarios (perhaps even competing scenarios), overcoming monolithic strategy processes that are too confining and do too much option narrowing
- Hiring, including executives, won't require everybody look alike. Different kinds of people allows for alternative thinking and different sorts of decision processes – as well as different decisions
- The structure can form to the market needs – rather than being dictated from an insider perspective. By organizing to the market need each council is more likely to keep close to emerging needs
- Investments are made at a lower level, reducing the "big bang" investments that Lock-in organizations to monolithic technologies or products
- Internal experts don't gain too much power, which often limits the technologies and markets pursued.
Maintaining its willingness to remain Disruptive is critical to the ongoing success of Cisco. This new organization model is allowing Cisco to enter the lower margin server business, for example, which would be (and has been) escewed by a more centralized decision making. By focusing the organization on markets, Cisco can keep finding new ways to compete — and set new metrics for measuring itself market-by-market. And Cisco can more quickly and easily set up White Space projects to continue pursuing new market opportunities. All it has to do is add another council!
by Adam Hartung | Aug 21, 2009 | Current Affairs, Disruptions, General, Innovation, Leadership, Lock-in, Openness
Smartphones will outsell PC by 2011 according to Silicon Valley Insider:
Your first reaction might be "interesting chart, so what's the big deal?" That's the way a lot of people react to news about market shifts. Like the shift is important maybe for the suppliers, but what difference should it make to me? That's kind of how a lot of people reacted to PCs when they came along – and those businesses ended up with IT costs that were too high and processes that were too slow.
Market shifts affect us all. As the number of smart phone users keeps doubling, the number of new PC buyers doesn't. You may not care today that there will be more smartphones sold in 2011 – but if you think about it, you should.
- Do you deliver information across the internet? If so, are you formatting content for access on a PC screen – or on a smartphone?
- Are you publishing information for long-format page views like a PC, or short-format small views like a smartphone?
- Are you planning to continue sending people information on email, or will texting be more efficient and practical soon?
- Do your on-line ads present well on a smartphone?
- Do you print things you should send immediately via smartphones? Could you stop printing?
- Do you have a PC in your family room – and will you need to have one there when everything you want to know is available on a smartphone?
- If you can access 90%+ of your information on a smartphone, will you still carry around a laptop?
- Will fax machines become obsolete? What will that do for land-line demand? What does this portend for maintaining land-line service to your home or business?
These are just a few thoughts about how things could change as smartphone sales grow. There will be more. The biggest risk in this chart isn't that the lines meet in 2011 – but that as we get into 2010 smartphone sales keep growing on a log (rather than linear) line and PC sales don't recover anywhere close to the projections shown here. Realizing that forecasts tend to be wrong by more than 25% as often as they are correct within 10%, we can realistically expect that in 2011 smartphone sales might be more than 500MM units, and PC sales might be less than 250MM units – or rougly double!!! When that sort of impact happens, we see sales fall off a cliff of old technology. Do you remember when every admin had a typewriter – then suddenly none did – like in a matter of months.
So, are you preparing for this possibility? If you did, could you gain advantage over your competition? If you were the first to aggressively plan for, and implement, smart phone technology use can you lower your cost? Better connect with customers? Find new customers? React faster to customer needs? Offer new services? Promote new products?
If you wait, what can your competitor do to you? How could she clip your customer relationships? Lower her prices? Expand her offerings? If you wait, how could you find yourself doing poorly?
This will be a big deal for the technology companies. This shift is the kind of thing that could expose the great weaknesses in Microsoft's and Dell's horribly Locked-in Success Formulas. It also could catapult Apple, Google — or maybe an outside player like Motorola (largely given up for dead) into a leadership position. Positions could change very fast if the adoption rate turns more aggressive. Is your investment portfolio prepared?
We see these kind of charts all the time. But do you do anything about it? Market shifts happen. They obsolete old Success Formulas. They put businesses at risk that aren't paying attention. They create new winners out of companies that aggressively pursue the shifts. We often see the shift coming – but Lock-in keeps us from doing anything about it. Perhaps you need to consider Disrupting your status quo and setting up some White Space to see what you can do to improve your position!
by Adam Hartung | Jul 15, 2009 | Disruptions, In the Rapids, Leadership, Openness
I've had the good fortune recently to meet some companies that are doing an extremely good job of practicing The Phoenix Principle. Although no company story can be told well within the shortness of a blog, some of these stories are so powerful I want share some of the good things I'm seeing. Especially now, when it seems bad news is dominating. That's not true everywhere – and it's worth profiling a few winners (and hoping they'll excuse the brevity of these descriptions.)
Recently I met with Tasty Catering in suburban Chicago. Tasty is by far not the largest caterer in the U.S. (or even Chicago), nor the smallest. Nor is it the oldest, nor youngest. You could easily miss it as "just another company." One of those nearly faceless businesses crowded into the business parks around America. But this company is by no means normal, and as a result
- It's been named "Caterer of the Year" by top food magazines
- It's been The Best Company to Work For in Chicago 3 times
- It's been honored by Winning Workplaces and The Wall Street Journal as a top American business.
- There were a lot of awards, these are just the ones that come to top of mind.
When Tasty Catering created its vision – it's BHAG (in Jim Collins venacular) – nowhere does it say "caterer". Their ambition is to be the best. At whatever the company does. The 50-ish founder told me that his employees were insistent about this, because they did not think Tasty would just be a caterer. There are too many possibilities, according to the internal teams. The people at Tasty want to go wherever the market leads them. Their ambition is to GROW.
Everyone in Tasty is challenged to scan the horizons for new business opportunities. . And create business plans. The CEO encourages his people to work with college professors and get school credit – but if the plans are good Tasty funds them. And the business ideas don't have to be in catering, or even food. Whatever has the opportunity for growth. So Tasty now has a finance company, a "green" gift business, a supplier to large-scale retailers of packaged food, and a trucking company. Again, those are just the ones I remember. And at least one of these was created by employees who are first-generation immigrants with little formal education – employees another company might deride as "kitchen workers" – but with a massive desire to grow the business. At Tasty, everyone is considered capable of seeing a market opportunity that can create profitable revenue, and everyone is encouraged to bring those market-based ideas to the table.
Tasty obsesses about competition. Everyone in the company has internet access. And manager after manager told me stories about using the web to track competitors. Press releases, articles, anything that's on the web – they keep track of what competitors are doing. When they see competitors do something, they want to know why – and if it works. Tasty uses competitors as much as test beds for ideas – what works and doesn't – while simultaneously tracking their activities in traditional areas. They track customer reactions to competitive ideas, and use that to bring out their own ideas. As a result, Tasty finds new customers, finds new products to sell and finds new markets to develop.
The CEO told me that when he started he had a bunch of hot
dog/hamburger joints. But it was an intern who told him he'd be
better off to sell those assets and change into catering. This was an
incredible distruption, to change from a fast food operator to a
caterer, but with the growth of franchise fast food staring him in the face he made the
switch. Now the CEO relishes the Disruptions his staff bring. Wouldn't trucks make great rolling billboards – if painted for that purpose? Time to change the trucks. Wouldn't having a menu that's all healthy, and disposable products that are entirely eco-friendly, snare some accounts? Why not try it? If the kitchen isn't busy 24×7, couldn't we make packaged food for sale as retailer brands? If we need financing for a new business line, can't we fund that from internal cash flow? Why not start an internal finance company? If restaurant and store operators want prepared food, why not start pursuing RFPs and see if we can win some retail business (even though it means we'd have to double our equipment overnight)? Disruptions are so common at Tasty they don't even think aboout them as disruptions – they are the norm.
And as the last paragraph indicated, White Space is everywhere. When an employee has an idea they can turn it into a business plan. The people inside Tasty even help work on it. Then the plan is vetted and reviewed. If it looks good, Tasty will set up a separate company to implement the plan, and make the employee the CEO. Now this person has the permission to go make it happen, and the money to do it. There are goals, and report-backs. And discussions about how to make the business grow. And every project is visible for everyone in the company to see. No "skunk works." Everyone knows what's happening, and looking to see what works. Everyone wants to learn and migrate toward a growing future so the business will succeed and they can succeed with it.
2009 started off with a sledge hammer for catering. The recession caused companies to cancel events, big and small, and quit catering in food. It would have been easy for Tasty to falter – because revenues went down for the very first time. But instead, everyone met and put their heads into finding ways to get back on the growth track. Resources were cut in the tradtiional business. Belt tightening went around the board. But resources were expended in new marketing – viral on-line campaigns for example – to find the customers who still have needs. People put more energy into differentiation programs – like the non-plastic clear wrap and non-plastic disposable utensils – to make the business more appealing to those who still have events. And new business opportunities – like the private label manufacturing – took on new urgency and more resources. As a result, while many caterers have failed and others are in dire straits Tasty has returned to growth – and not just in catering.
Meanwhile, the employees at Tasty are some of the most gratified I've seen. Here in this recession, they still are highly motivated and love their work. Even though they could do other jobs, they stay. They don't expect the CEO to find them work, or promise them a job, or guarantee their income. But they do understand that if they keep growing, working at Tasty is great. They tie their success to the success of the business – which they tie to identifying market opportunities and fulfilling them better than competitors. They work at Tasty because they are connected to the market – and it is empowering. It's not paternalism that keeps them satisfied (far from it, peer reviews assure paternalism is not allowed), it is seeing market results from the innovations they develop and implement.
If you have an event of any kind, go to the Tasty Catering web site and/or give them a call. If you have a need for someone to supply you with muffins, cookies, baked goods or other foodstuffs private label – again, to the web site and/or give them a call. This is one great company. Given a little time, they just might give Sysco Foods (the country's largest supplier of food to restaurants) or another mega-company a run for their money. This company is out to WIN – and all eyes are focused on the market, everyone pays attention to competition, Disruptions are the norm and new White Space is created every few months (regardless of the economy.)
by Adam Hartung | Jul 9, 2009 | Current Affairs, Defend & Extend, In the Rapids, In the Whirlpool, Leadership, Lock-in, Openness
Google is growing, and GM is trying to get out of bankruptcy. On the surface there are lots of obvious differences. Different markets, different customers, different products, different size of company, different age. But none of these get to the heart of what's different about the two companies. None of these really describe why one is doing well while the other is doing poorly.
GM followed, one could even say helped create, the "best practices" of the industrial era. GM focused on one industry, and sought to dominate that market. GM eschewed other businesses, selling off profitable businesses in IT services and aircraft electronics. Even selling off the parts business for its own automobiles. GM focused on what it knew how to do, and didn't do anything else.
GM also figured out its own magic formula to succeed, and then embedded that formula into its operating processes so the same decisions were replicated again and again. GM Locked-in on that Success Formula, doing everything possible to Defend & Extend it. GM built tight processes for everything from procurement to manufacturing operations to new product development to pricing and distribution. GM didn't focus on doing new things, it focused on trying to make its early money making processes better. As time went by GM remained committed to reinforcing its processes, believing every year that the tide would turn and instead of losing share to competitors it would again gain share. GM believed in doing what it had always done, only better, faster and cheaper. Even into bankruptcy, GM believed that if it followed its early Success Formula it would recapture earlier rates of return.
Google is an information era company, defining the new "best practices". It's early success was in search engine development, which the company turned into a massive on-line advertising placement business that superceded the first major player (Yahoo!). But after making huge progress in that area, Google did not remain focused alone on doing "search" better year after year. Since that success Google has also launched an operating system for mobile phones (Android), which got it into another high-growth market. It has entered the paid search marketplace. And now, "Google takes on Windows with Chrome OS" is the CNN headline.
"Google to unveil operating system to rival Microsoft" is the Marketwatch headline. This is not dissimilar from GM buying into the airline business. For people outside the industry, it seems somewhat related. But to those inside the industry this seems like a dramatic move. For participants, these are entirely different technologies and entirely different markets. Not only that, but Microsoft's Windows has dominated (over 90% market share) the desktop and laptop computer markets for years. To an industrial era strategist the Windows entry barriers would be considered insurmountable, making it not worthwhile to pursue any products in this market.
Google is unlike GM in that
- it has looked into the future and recognizes that Windows has many obstacles to operating effictively in a widely connected world. Future scenarios show that alternative products can make a significant difference in the user experience, and even though a company currently dominates the opportunity exists to Disrupt the marketplace;
- Google remains focused on competitors, not just customers. Instead of talking to customers, who would ask for better search and ad placement improvements, Google has observed alternative, competitive operating system products, like Unix and Linux, making headway in both servers and the new netbooks. While still small share, these products are proving adept at helping people do what they want with small computers and these customers are not switching to Windows;
- Google is not afraid to Disrupt its operations to consider doing something new. It is not focused on doing one thing, and doing it right. Instead open to bringing to market new technologies rapidly when they can Disrupt a market; and
- Google uses extensive White Space to test new solutions and learn what is needed in the product, distribution, pricing and promotion. Google gives new teams the permission and resources to investigate how to succeed – rather than following a predetermined path toward an internally set goal (like GM did with its failed electric car project).
Nobody today wants to be like GM. Struggling to turn around after falling into bankruptcy. To be like Google you need to quit following old ideas about focusing on your core and entry barriers – instead develop scenarios about the future, study competitors for early market insights, Disrupt your practices so you can do new things and test lots of ideas in White Space to find out what the market really wants so you can continue growing.
Don't forget to download the new, free ebook "The Fall of GM: What Went Wrong and How To Avoid Its Mistakes"
by Adam Hartung | Jun 29, 2009 | Defend & Extend, In the Whirlpool, Leadership, Lock-in
In May "The Largest U.S. Bankruptcies" was published in BusinessWeek – and since then we've added General Motors to the list. From biggest down:
- General Motors
- Lehman Brothers
- Washington Mutual
- Worldcom
- Enron
- Conseco
- Chrysler
- Thornburg Mortgage
- Pacific Gas & Electric
- Texaco
Did you notice that only 1 of these happened prior to 2001 (Texaco)? As I pointed out in Create Marketplace Disruption, the number of bankruptcies has been skyrocketing from historical norms. And the number of bankruptcies of truly huge companies has been growing at an unprecedented rate.
Ever since the modern corporation was born, the theory has been that being large gave a company lower risk. Since the 1940s people have believed that their jobs, and careers, are safer in big corporations. But today big corporations are failing at a truly alarming rate. What's changed?
Very large companies usually have a Success Formula, locked into place with hierarchy, decision-making processes, narrow strategy programs, consistent hiring processes, tight employee review processes, rigid IT infrastructure and very large investments designed to provide economies of scale. Their approach to success was driven by the notion that with size they would create entry barriers which would protect them from competitors, allowing for years of ongoing profitability. These practices were designed to focus the business on its core technology, products, customers and markets. Management theorists believed that with focus came ongoing success. They did expected businesses to be stable. With limited change.
But today we're seeing dramatic market shifts. And locked-in Success Formulas are literally failing because the company, and leadership, is unable to adapt to these shifts. During the 1950s, '60s, '70s and '80s competition was relatively stable. But that is no longer true. Success no longer comes from Defending & Extending what you used to do.
Dramatic improvements in telecommunications connectivity, computer assisted data accumulation and analysis, and global access to resources has changed the basis of competition. Now businesses must adjust to an extremely dynamic marketplace. Scale is meaningless when a new competitor can access your customers with a web page, achieve global distribution with a logistics partner, access a low-cost outsourced manufacturing plant via telephone, and provide 24×7 service with an Indian-based service contractor. When a new technology can go from invention to market in weeks, adaptability becomes far more important than size.
The marketplace has been shifting dramatically since 2001. In everything from manufacturing to financial services to commodities. Yet, far too few companies are adjusting to the new competitive requirements. Too many analysts and business leaders still seek market segments, market share and developing entry barriers. To succeed today businesses have to overcome Lock-in to Success Formulas in order to Disrupt their old approaches and remain vital to customers through the use of White Space to develop, test and implement new solutions. During periods of dramatic shift, those who follow these practices are far more successful. Regardless of size.
Don't forget to download the new ebook "The Fall of GM" for more on how the world's largest auto company failed to adjust to market shifts – and how you can avoid the GM fate by taking actions to make your business more adaptable.
