by Adam Hartung | Jul 15, 2014 | Current Affairs, Defend & Extend, In the Swamp, Leadership
Famed actor and comedian Tracy Morgan has filed a lawsuit against Walmart. He was seriously injured, and his companion and fellow comedian James McNair was killed, when their chauffeured vehicle was struck by a WalMart truck going too fast under the control of an overly tired driver.
It would be easy to write this off as a one-time incident. As something that was the mistake of one employee, and not a concern for management. Walmart is huge, and anyone could easily say “mistakes will happen, so don’t worry.” And as the country’s largest company (by sales and employees) Walmart is an easy target for lawsuits.
But that would belie a much more concerning situation. One that should have investors plenty worried.
Walmart isn’t doing all that well. It is losing customers, even as the economy recovers. For a decade Walmart has struggled to grow revenues, and same store sales have declined – only to be propped up by store closings. Despite efforts to grow offshore, attempts at international expansion have largely been flops. Efforts to expand into smaller stores have had mixed success, and are marginal at generating new revenues in urban efforts. Meanwhile, Walmart still has no coherent strategy for on-line sales expansion.
Unfortunately the numbers don’t look so good for Walmart, a company that is absolutely run by numbers. Every single thing that can be tracked in Walmart is tracked, and managed – right down the temperature in every facility (store, distribution hub, office) 24x7x365. When the revenue, inventory turns, margin, distribution costs, etc. aren’t going in the right direction Walmart is a company where leadership applies the pressure to employees, right down the chain, to make things better.
Unfortunately, a study by Northwestern University Kellogg School of Management has shown that when a culture is numbers driven it often leads to selfish, and unethical, behavior. When people are focused onto the numbers, they tend to stretch the ethical (and possibly legal) boundaries to achieve those numerical goals. A great recent example was the U.S. Veterans Administration scandal where management migrated toward lying about performance in order to meet the numerical mandates set by Secretary Shinseki.
Back in November, 2012 I pointed out that the Walmart bribery scandal in Mexico was a warning sign of big problems at the mega-retailer. Pushed too hard to create success, Walmart leadership was at least skirting with the law if not outright violating it. I projected these problems would worsen, and sure enough by November the bribery probe was extended to Walmart’s operations in Brazil, China and India.
We know from the many employee actions happening at Walmart that in-store personnel are feeling pressure to do more with fewer hours. It does not take a great leap to consider it possible (likely?) that distribution personnel, right down to truck drivers are feeling pressured to work harder, get more done with less, and in some instances being forced to cut corners in order to improve Walmart’s numbers.
Exactly how much the highest levels of Walmart knows about any one incident is impossible to gauge at this time. However, what should concern investors is whether the long-term culture of Walmart – obsessed about costs and making the numbers – has created a situation where all through the ranks people are feeling the need to walk closer to ethical, and possibly legal, lines. While it may be that no manager told the driver to drive too fast or work too many hours, the driver might have felt the pressure from “higher up” to get his load to its destination at a certain time – or risk his job, or maybe his boss’s.
If this is a widespread cultural issue – look out! The legal implications could be catastrophic if customers, suppliers and communities discover widespread unethical behavior that went unchecked by top echelons. The C suite executives don’t have to condone such behavior to be held accountable – with costs that can be exorbitant. Just ask the leaders at JPMorganChase and Citibank who are paying out billions for past transgressions.
Worse, we cannot expect the marketplace pressures to ease up any time soon for Walmart. Competitors are struggling mightily. JCPenney cannot seem to find anyone to take the vacant CEO job as sales remain below levels of several years ago, and the chain is most likely going to have to close several dozen (or hundreds) of stores. Sears/KMart has so many closed and underperforming stores that practically every site is available for rent if anyone wants it. And in the segment which is even lower priced than Walmart, the “dollar stores,” direct competitor Family Dollar saw 3rd quarter profits fall another 33% as too many stores and too few customer wreak financial havoc and portend store closings.
So the market situation is not improving for Walmart. As competition has intensified, all signs point to a leadership which tried to do “more, better, faster, cheaper.” But there is no way to maintain the original Walmart strategy in the face of the on-line competitive onslaught which is changing the retail game. Walmart has continued to do “more of the same” trying to defend and extend its old success formula, when it was a disruptive innovator that stole its revenues and cut into profits. Now all signs point to a company which is in grave danger of over-extending its success formula to the point of unethical, and potentially illegal, behavior.
If that doesn’t scare the heck out of Walmart investors I can’t imagine what would.
by Adam Hartung | Sep 19, 2013 | Current Affairs, In the Swamp, Innovation, Leadership, Television, Web/Tech
Apple announced the new iPhones recently. And mostly, nobody cared.
Remember when users waited anxiously for new products from Apple? Even the media became addicted to a new round of Apple products every few months. Apple announcements seemed a sure-fire way to excite folks with new possibilities for getting things done in a fast changing world.
But the new iPhones, and the underlying new iPhone software called iOS7, has almost nobody excited.
Instead of the product launches speaking for themselves, the CEO (Tim Cook) and his top product development lieutenants (Jony Ive and Craig Federighi) have been making the media rounds at BloombergBusinessWeek and USAToday telling us that Apple is still a really innovative place. Unfortunately, their words aren't that convincing. Not nearly as convincing as former product launches.
CEO Cook is trying to convince us that Apple's big loss of market share should not be troubling. iPhone owners still use their smartphones more than Android owners, and that's all we should care about. Unfortunately, Apple profits come from unit sales (and app sales) rather than minutes used. So the chronic share loss is quite concerning.
Especially since unit sales are now growing barely in single digits, and revenue growth quarter-over-quarter, which sailed through 2012 in the 50-75% range, have suddenly gone completely flat (less than 1% last quarter.) And margins have plunged from nearly 50% to about 35% – more like 2009 (and briefly in 2010) than what investors had grown accustomed to during Apple's great value rise. The numbers do not align with executive optimism.
For industry aficianados iOS7 is a big deal. Forbes Haydn Shaughnessy does a great job of laying out why Apple will benefit from giving its ecosystem of suppliers a new operating system on which to build enhanced features and functionality. Such product updates will keep many developers writing for the iOS devices, and keep the battle tight with Samsung and others using Google's Android OS while making it ever more difficult for Microsoft to gain Windows8 traction in mobile.
And that is good for Apple. It insures ongoing sales, and ongoing profits. In the slog-through-the-tech-trench-warfare Apple is continuing to bring new guns to the battle, making sure it doesn't get blown up.
But that isn't why Apple became the most valuable publicly traded company in America.
We became addicted to a company that brought us things which were great, even when we didn't know we wanted them – much less think we needed them. We were happy with CDs and Walkmen until we discovered much smaller, lighter iPods and 99cent iTunes. We were happy with our Blackberries until we learned the great benefits of apps, and all the things we could do with a simple smartphone. We were happy working on laptops until we discovered smaller, lighter tablets could accomplish almost everything we couldn't do on our iPhone, while keeping us 24×7 connected to the cloud (that we didn't even know or care about before,) allowing us to leave the laptop at the office.
Now we hear about upgrades. A better operating system (sort of sounds like Microsoft talking, to be honest.) Great for hard core techies, but what do users care? A better Siri; which we aren't yet sure we really like, or trust. A new fingerprint reader which may be better security, but leaves us wondering if it will have Siri-like problems actually working. New cheaper color cases – which don't matter at all unless you are trying to downgrade your product (sounds sort of like P&G trying to convince us that cheaper, less good "Basic" Bounty was an innovation.)
More (upgrades) Better (voice interface, camera capability, security) and Cheaper (plastic cases) is not innovation. It is defending and extending your past success. There's nothing wrong with that, but it doesn't excite us. And it doesn't make your brand something people can't live without. And, while it keeps the battle for sales going, it doesn't grow your margin, or dramatically grow your sales (it has declining marginal returns, in fact.)
And it won't get your stock price from $450-$475/share back to $700.
We all know what we want from Apple. We long for the days when the old CEO would have said "You like Google Glass? Look at this……. This will change the way you work forever!!"
We've been waiting for an Apple TV that let's us bypass clunky remote controls, rapidly find favorite shows and helps us avoid unwanted ads and clutter. But we've been getting a tease of Dick Tracy-esque smart watches.
From the world's #1 tech brand (in market cap – and probably user opinion) we want something disruptive! Something that changes the game on old companies we less than love like Comcast and DirecTV. Something that helps us get rid of annoying problems like expensive and bad electric service, or routers in our basements and bedrooms, or navigation devices in our cars, or thumb drives hooked up to our flat screen TVs —- or doctor visits. We want something Game Changing!
Apple's new CEO seems to be great at the Sustaining Innovation game. And that pretty much assures Apple of at least a few more years of nicely profitable sales. But it won't keep Apple on top of the tech, or market cap, heap. For that Apple needs to bring the market something big. We've waited 2 years, which is an eternity in tech and financial markets. If something doesn't happen soon, Apple investors deserve to be worried, and wary.
by Adam Hartung | Sep 25, 2012 | Disruptions, In the Rapids, Innovation, Leadership, Transparency, Web/Tech
I like writing about tech companies, such as Apple and Facebook, because they show how fast you can apply innovation and grow – whether it is technology, business process or new best practices. But many people aren't in the tech industry, and think innovation applies a lot less to them.
Whoa there cowboy, innovation is important to you too!
Few industries are as mired in outdated practices and slow to adopt technology than construction. Whether times are good, or not, contractors and tradespeople generally do things the way they've been done for decades. Even customers like to see bids where the practices are traditional and time-worn, often eschewing innovations simply because they like the status quo.
Skanska, a $19B construction firm headquarted in Stockholm, Sweden with $6B of U.S. revenue managed from the New York regional HQ refused to accept this. When Bill Flemming, President of the Building Group recognized that construction industry productivity had not improved for 40 years, he reckoned that perhaps the weak market wasn't going to get better if he just waited for the economy to improve. He was sure that field-based ideas could allow Skanska to be better than competitors, and open new revenue sources.
Skanska USA CEO Mike McNally agreed instantly. In 2009 he brought together his management team to see if they would buy into investing in innovation. He met the usual objections
- We're too busy
- I have too much on my plate
- Business is already too difficult, I don't need something new
- Customers aren't asking for it, they want lower prices
- Who's going to pay for it? My budget is already too thin!
But, he also recognized that nobody said "this is crazy." Everyone knew there were good things happening in the organization, but the learning wasn't being replicated across projects to create any leverage. Ideas were too often tried once, then dropped, or not really tried in earnest. Mike and Bill intuitively believed innovation would be a game changer. As he discussed implementing innovation with his team he came to saying "If Apple can do this, we can too!"
Even though this wasn't a Sweden (or headquarters) based project, Mike decided to create a dedicated innovation group, with its own leader and an initial budget of $500K – about .5% of the Building Group total overhead.
The team started with a Director of innovation, plus a staff of 2. They were given the white space to find field based ideas that would work, and push them. Then build a process for identifying field innovations, testing them, investing and implementing. From the outset they envisaged a "grant" program where HQ would provide field-based teams with money to test, develop and create roll-out processes for innovations.
Key to success was finding the right first project. And quickly the team knew they had one in one of their initial field projects called Digital Resource Center, which could be used at all construction sites. This low-cost, rugged PC-based product allowed sub-contractors around the site to view plans and all documentation relevant for their part of the project without having to make frequent trips back to the central construction trailer.
This saved a lot of time for them, and for Skanska, helping keep the project moving quickly with less time wasted talking. And at a few thousand dollars per station, the payback was literally measured in days. Other projects were quick to adopt this "no-brainer." And soon Skanska was not only seeing faster project completion, but subcontractors willing to bake in better performance on their bids knowing they would be able to track work and identify key information on these field-based rugged PCs.
As Skanska's Innovation Group started making grants for additional projects they set up a process for receiving, reviewing and making grants. They decided to have a Skansa project leader on each grant, with local Skansa support. But also each grant would team with a local university which would use student and faculty to help with planning, development, implementation and generate return-on-investment analysis to demonstrate the innovation's efficacy. This allowed Skansa to bring in outside expertise for better project development and implementation, while also managing cost effectively.
With less than 2 years of Innovation Group effort, Skanska has now invested $1.5M in field-based projects. The focus has been on low-cost productivity improvements, rather than high-cost, big bets. Changing the game in construction is a process of winning through lots of innovations that prove themselves to customers and suppliers rather than trying to change a skeptical group overnight. Payback has been almost immediate for each grant, with ROI literally in the hundreds of percent.
You likely never heard of Skanska, despite its size. And that's because its in the business of building bridges, subway stations and other massive projects that we see, but know little about. They are in an industry known for its lack of innovation, and brute-force approach to getting things done.
But the leadership team at Skanska is proving that anyone can apply innovation for high rates of return. They
- understood that industry trends were soft, and they needed to change if they wanted to thrive.
- recognized that the best ideas for innovation would not come from customers, but rather from scanning the horizon for new ideas and then figuring out how to implement themselves
- weren't afraid to try doing something new. Even if the customer wasn't asking for it
- created a dedicated team (and it didn't have to be large) operating in white space, focused on identifying innovations, reviewing them, funding them and bringing in outside resources to help the projects succeed
In addition to growing its traditional business, Skanska is now something of a tech company. It sells its Digital Resource stations, making money directly off its innovation. And its iSite Monitor for monitoring environmental conditions on sensitive products, and pushing results to Skanska project leaders as well as clients in real time with an app on their iPhones, is also now a commercial product.
So, what are you waiting on? You'll never grow, or make returns, like Apple if you don't start innovating. Take some lessons from Skanska and you just might be a lot more successful.
by Adam Hartung | Aug 9, 2012 | Current Affairs, Disruptions, In the Rapids, Innovation, Leadership, Web/Tech
Mark Zuckerberg was Time magazine's Person of the Year in December, 2010. He was given that honor because Facebook dominated the emerging social media marketplace, and social media had clearly begun changing how people do things. Despite his young age, Mr. Zuckerberg had created a phenomenon demonstrated by the hundreds of million new Facebook users.
But things have turned pretty rough for the young Mr. Zuckerberg.
- Facebook was pretty much forced, legally, to go public because it had accumulated so many shareholders. The stock hit the NASDAQ with much fanfare in May, 2012 – only to have gone pretty much straight down since. It now trades at about 50% of IPO pricing, and is under constant pressure from analysts who say it may still be overpriced.
- Facebook discovered perhaps 83million accounts were fake (about 9%) unleashing a torrent of discussion that perhaps the fake accounts was a much, much larger number.
- User growth has fallen to some 35% – which is much slower than initial investors hoped. Combined with concerns about fake accounts, there are people wondering if Facebook growth is stalling.
- Facebook has not grown revenues commensurate with user growth, and people are screaming that despite its widespread use Facebook doesn't know how to "monetize" its base into revenues and profits.
- Mobile use is growing much faster than laptop/PC use, and Facebook has not revealed any method to monetize its use on mobile devices – causing concerns that it has no plan to monetize all those users on smartphones and tablets and thus future revenues may decline.
- Zynga, a major web games supplier, announced weak earnings and said its growth was slowing – which affects Facebook because people play Zinga games on Facebook.
- GM, one of the 10 largest U.S. advertisers, publicly announced it was dropping Facebook advertising because executives believed it had insufficient return on investment. Investors now fret Facebook won't bring in major advertisers.
- Google keeps plugging away at competitive product Google+. And while Facebook disappointed investors with its earnings, much smaller competitor Linked-in announced revenues and earnings which exceeded expectations. Investors now worry about competitors dicing up the market and minimalizing Facebook's future growth.
Wow, this is enough to make 50-something CEOs of low-growth, non-tech companies jump with joy at the upending of the hoody-wearing 28 year old Facebook CEO. Zynga booted its Chief Operating Officer and has shaken up management, and not suprisingly, there are analysts now calling for Mr. Zuckerberg to step aside and install a new CEO.
Yet, Mr. Zuckerberg has been wildly successful. Much more than almost anyone else in American business today. He may well feel he needs no advice. But…. what do you suppose Steve Jobs would tell him to do?
Recall that Mr. Jobs was once the young head of Apple, only to be displaced by former Pepsi exec John Sculley — and run out of Apple. As everyone now famously knows, after a string of Apple CEOs led the company to the brink of disaster Mr. Jobs agreed to return and completely turned around Apple making it the most successful tech company of the last decade. Given what we've observed of Mr. Jobs career, and read in his biography, what advice might he give Mr. Zuckerberg?
- Don't give up your job. Not even partly. If you create a "shadow" or "co" CEO you'll be gone soon enough. Lead, quit or make the Board fire you. If you had the vision to take the company this far, why would you quit?
- Nothing is more important than product. Make Facebook's the best in the world. Nothing less will allow a tech company to survive, much less thrive. Don't become so involved with financials and analysts that you lose sight of your #1 job, which is to make the very, very best social media product in the world. Never stop improving and perfecting. If your product isn't obviously superior to other solutions you haven't accomplished your #1 priority.
- Be unique. Make sure your products fulfill needs no one else fulfills – at least not well. Meet unserved and underserved needs so that people talk about your product and what it does – not how much it costs. Make sure that Facebook has devoted, diehard customers that believe your products meet their needs so well they would not consider your competition.
- Don't ask customers what they want – give them what they need. Understand the trends and create future scenarios so you are constantly striving to create a better future, not just improve on history. Never look backward at what you've done, but instead always look forward at creating what noone else has ever done. Push your staff to create solutions that meet user needs so well that you can tell customers why they need your product in ways they never before considered.
- Turn your product releases into a show. Don't just run out new products willy-nilly, or on a random timeline. Make sure you bundle products together and make a big show of each release so you can describe the upgrades, benefits and superiority of what you offer for customers. People need to understand the trends you are meeting, and need to see the future scenario you are creating, and you have to tell them that story or they won't "get it."
- Price for profit. You run a business, not a hobby or not-for-profit society. If you do the product right you shouldn't even be talking about price – so price to make ridiculous margins by industry standards. At Apple, Next and Pixar the products were never the cheapest, but they accomplished what customers needed so well that we could price high enough to make margins that supported additional product development. And you can't remain the best solution if you don't have enough margin to keep developing future products.
- Don't expect products to sell themselves. Be the #1 passionate spokesperson for the elegance and superiority of your products. Never stop beating the drum for the unique capability and superiority of your product, in every meeting, all the time, never ending. People like to "revert to the mean" so you have to keep telling them that isn't good enough – and you have something far superior that will greatly improve their success.
- Never miss an opportunity to compare your products to competition and tell everyone why your products are far better. Don't disparage the competition, but constantly reinforce that you are first, you are ahead of everyone else, you are far better — and the best is yet to come! Competition is everywhere, and listen to the Andy Groves advice "only the paranoid survive." You aren't satisfied with what the competition offers, and customers should not be satisfied either. Every once in a while give people a small glimpse as to the radically different world you see in 3-5 years so they buy what you are selling in order to prepare for that future world.
- Identify key customers that need your solution and SELL THEM. Disney needed Pixar, so we made sure they knew it. Identify the customers who can gain the most from doing business with you and SELL THEM. Turn them into lead customers, obtain their testimonials and spread the word. If GM isn't your target, who is? Find them and sell them, then tell us all how you will build on those early accounts to eventually dominate the market – even displacing current solutions that are more popular. If GM is your target then make the changes you need to make so you can SELL THEM. Everyone wants to do business with a winner, so you must show you are a winner.
- Identify 5 of your competition's biggest customers (at Google, Yahoo, Linked-in, etc.) and make them yours. Demonstrate your solutions are superior with competitive wins.
- Hire someone who can talk to the financial community for you – and do it incredibly well. While you focus on future markets and solutions someone has to tell this story to the financial analysts in their lingo so they don't lose faith (and they are a sacrilegious lot who have no faith.) Keep Facebook out of the forecasting game, but you MUST create and maintain good communication with analysts so you need someone who can tell the story not only with products and case studies but numbers. Facebook is a disruptive innovation company, so someone has to explain why this will work. You blew the IPO road show horribly by showing up at meetings in a hoodie – so now you need to make amends by hiring someone who will give them faith that you know what you're doing and can make it happen.
These are my ideas for what Steve Jobs would tell Mark Zuckerberg. What are yours? What do you think the #1 CEO of the last decade would say to the young, embattled CEO as he faces his first test under fire leading a public company?
by Adam Hartung | Jul 11, 2012 | Current Affairs, Defend & Extend, Disruptions, Innovation, Leadership, Lock-in
The news is not good for U.S. auto companies. Automakers are resorting to fairly radical promotional programs to spur sales. Chevrolet is offering a 60-day money back guarantee. And Chrysler is offering 90 day delayed financing. Incentives designed to make you want to buy a car, when you really don't want to buy a car. At least, not the cars they are selling.
On the other hand, the barely known, small and far from mainstream Tesla motors gave one of its new Model S cars to Wall Street Journal reviewer Dan Neil, and he gave it a glowing testimonial. He went so far as to compare this 4-door all electric sedan's performance with the Lamborghini and Ford GT supercars. And its design with the Jaguar. And he spent several paragraphs on its comfort, quiet, seating and storage – much more aligned with a Mercedes S series.
There are no manufacturer incentives currently offered on the Tesla Model S.
What's so different about Tesla and GM or Ford? Well, everything. Tesla is a classic case of a disruptive innovator, and GM/Ford are classic examples of old-guard competitors locked into sustaining innovation. While the former is changing the market – like, say Amazon is doing in retail – the latter keeps laughing at them – like, say Wal-Mart, Best Buy, Circuit City and Barnes & Noble have been laughing at Amazon.
Tesla did not set out to be a car company, making a slightly better car. Or a cheaper car. Or an alternative car. Instead it set out to make a superior car.
Its initial approach was a car that offered remarkable 0-60 speed performance, top end speed around 150mph and superior handling. Additionally it looked great in a 2-door European style roadster package. Simply, a wildly better sports car. Oh, and to make this happen they chose to make it all-electric, as well.
It was easy for Detroit automakers to scoff at this effort – and they did. In 2009, while Detroit was reeling and cutting costs – as GM killed off Pontiac, Hummer, Saab and Saturn – the famous Bob Lutz of GM laughed at Tesla and said it really wasn't a car company. Tesla would never really matter because as it grew up it would never compete effectively. According to Mr. Lutz, nobody really wanted an electric car, because it didn't go far enough, it cost too much and the speed/range trade-off made them impractical. Especially at the price Tesla was selling them.
Meanwhile, in 2009 Tesla sold 100% of its production. And opened its second dealership. As manufacturing plants, and dealerships, for the big brands were being closed around the world.
Like all disruptive innovators, Tesla did not make a car for the "mass market." Tesla made a great car, that used a different technology, and met different needs. It was designed for people who wanted a great looking roadster, that handled really well, had really good fuel economy and was quiet. All conditions the electric Tesla met in spades. It wasn't for everyone, but it wasn't designed to be. It was meant to demonstrate a really good car could be made without the traditional trade-offs people like Mr. Lutz said were impossible to overcome.
Now Tesla has a car that is much more aligned with what most people buy. A sedan. But it's nothing like any gasoline (or diesel) powered sedan you could buy. It is much faster, it handles much better, is much roomier, is far quieter, offers an interface more like your tablet and is network connected. It has a range of distance options, from 160 to 300 miles, depending up on buyer preferences and affordability. In short, it is nothing like anything from any traditional car maker – in USA, Japan or Korea.
Again, it is easy for GM to scoff. After all, at $97,000 (for the top-end model) it is a lot more expensive than a gasoline powered Malibu. Or Ford Taurus.
But, it's a fraction of the price of a supercar Ferrari – or even a Porsche Panamera, Mercedes S550, Audi A8, BMW 7 Series, or Jaguar XF or XJ - which are the cars most closely matching size, roominess and performance.
And, it's only about twice as expensive as a loaded Chevy Volt – but with a LOT more advantages. The Model S starts at just over $57,000, which isn't that much more expensive than a $40,000 Volt.
In short, Tesla is demonstrating it CAN change the game in automobiles. While not everybody is ready to spend $100k on a car, and not everyone wants an electric car, Tesla is showing that it can meet unmet needs, emerging needs and expand into more traditional markets with a superior solution for those looking for a new solution. The way, say, Apple did in smartphones compared to RIM.
Why didn't, and can't, GM or Ford do this?
Simply put, they aren't even trying. They are so locked-in to their traditional ideas about what a car should be that they reject the very premise of Tesla. Their assumptions keep them from really trying to do what Tesla has done – and will keep improving – while they keep trying to make the kind of cars, according to all the old specs, they have always done.
Rather than build an electric car, traditionalists denounce the technology. Toyota pioneered the idea of extending a gas car into electric with hybrids – the Prius – which has both a gasoline and an electric engine.
Hmm, no wonder that's more expensive than a similar sized (and performing) gasoline (or diesel) car. And, like most "hybrid" ideas it ends up being a compromise on all accounts. It isn't fast, it doesn't handle particularly well, it isn't all that stylish, or roomy. And there's a debate as to whether the hybrid even recovers its price premium in less than, say, 4 years. And that is all dependent upon gasoline prices.
Ford's approach was so clearly to defend and extend its traditional business that its hybrid line didn't even have its own name! Ford took the existing cars, and reformatted them as hybrids, with the Focus Hybrid, Escape Hybrid and Fusion Hybrid. How is any customer supposed to be excited about a new concept when it is clearly displayed as a trade-off; "gasoline or hybrid, you choose." Hard to have faith in that as a technological leap forward.
And GM gave the market Volt. Although billed as an electric car, it still has a gasoline engine. And again, it has all the traditional trade-offs. High initial price, poor 0-60 performance, poor high-end speed performance, doesn't handle all that well, isn't very stylish and isn't too roomy. The car Tesla-hating Bob Lutz put his personal stamp on. It does achieve high mpg – compared to a gasoline car – if that is your one and only criteria.
Investors are starting to "get it."
There was lots of excitement about auto stocks as 2010 ended. People thought the recession was ending, and auto sales were improving. GM went public at $34/share and rose to about $39. Ford, which cratered to $6/share in July, 2010 tripled to $19 as 2011 started.
But since then, investor enthusiasm has clearly dropped, realizing things haven't changed much in Detroit – if at all. GM and Ford are both down about 50% – roughly $20/share for GM and $9.50/share for Ford.
Meanwhile, in July of 2010 Tesla was about $16/share and has slowly doubled to about $31.50. Why? Because it isn't trying to be Ford, or GM, Toyota, Honda or any other car company. It is emerging as a disruptive alternative that could change customer perspective on what they should expect from their personal transportation.
Like Apple changed perspectives on cell phones. And Amazon did about retail shopping.
Tesla set out to make a better car. It is electric, because the company believes that's how to make a better car. And it is changing the metrics people use when evaluating cars.
Meanwhile, it is practically being unchallenged as the existing competitors – all of which are multiples bigger in revenue, employees, dealers and market cap of Tesla – keep trying to defend their existing business while seeking a low-cost, simple way to extend their product lines. They largely ignore Tesla's Roadster and Model S because those cars don't fit their historical success formula of how you win in automobile competition.
The exact behavior of disruptors, and sustainers likely to fail, as described in The Innovator's Dilemma (Clayton Christensen, HBS Press.)
Choosing to be ignorant is likely to prove very expensive for the shareholders and employees of the traditional auto companies. Why would anybody would ever buy shares in GM or Ford? One went bankrupt, and the other barely avoided it. Like airlines, neither has any idea of how their industry, or their companies, will create long-term growth, or increase shareholder value. For them innovation is defined today like it was in 1960 – by adding "fins" to the old technology. And fins went out of style in the 1960s – about when the value of these companies peaked.
