by Adam Hartung | Aug 2, 2011 | Current Affairs, Defend & Extend, In the Whirlpool, Leadership, Lock-in
Bernie Ebbers (of WorldCom) and Jeff Skilling (of Enron) went to prison. Less well known is Conrad Black – the CEO of Sun Times Group – who also went to the pokey. What do they have in common with Rupert Murdoch – besides CEO titles? The famous claim, “I am not responsible” closely allied with “I’ve done nothing wrong.” While Murdoch hasn’t been charged with crimes, or come close to jail (yet,) there is no doubt people at News Corp have been charged, and some will go to jail. And there is public outcry Murdoch be fired.
Investors should take note; three bankruptcies killed 2 of the organizations the ex-cons led and investors were wiped out at Sun Times which barely remains in business. What will happen at News Corp? Given the commonalities between the 4 leaders, I don’t think I’d want to be a News Corp. stockholder, employee or supplier right now.
How in the world could something like this happen?
Like the infamous trio, Rupert Murdoch was, and is, a leader who defined the success formula of his company. As time passed, the growing organization became adroit at implementing the success formula, operating better, faster and cheaper. Loyal managers, who identified with, and implemented intensely, the success formula were rewarded. Those who asked questions were let go. Acquisitions were forced to conform to the success formula (such as MySpace) even if such conformance created a gap between the business and market needs. Business failure was not nearly as bad as operating outside the success formula. Failure could be forgiven – but better yet was finding a creative way to make things look successful.
Supporting the company’s success formula – its identity, cultural norms and operating methods – using all forms of ingenuity became the definition of success in these companies. This ingenuity was unbridled, even rewarded! Even when it came to skirting the edge of – or even breaking – the law. Cleverly using outsiders to do “dirty work” was an ingenious way to create plausible deniability. Financial machinations were not considered a problem if there was any way to explain changes. Violating accounting conventions not really an issue if done in the pursuit of shoring up reported results. Moving money wherever necessary to avoid taxes, or fines, and pay off executives or their friends, not really a big deal if it helped the company implement its success formula. Any behavior that reinforced the success formula, as the leader expressed it, made employees and contractors successful.
Do the ends justify the means? Of course! As long as the results appear good, and the leader is taking home a whopping amount of cash, everything appears “A-OK.”
Is this because these are crooks? Far from it. Rather, they are dedicated, hard working, industrious, smart, inventive managers who have been given a clear mission. To make the success formula work. Each small step down the ethical gangplank was a very small increment – and everyone believed they operated far from the end. If they got away with something yesterday, then why not expect to get away with a little more today? What are ethics anyway? Relative, changeable, difficult to define. Whereas fulfilling the success formula creates clear, measurable outcomes!
What is the News Corp’s Board of Directors position? The New York Times headlined “Murdoch’s Board Stands By as Scandal Widens.” Mr. Murdoch, like any good leader implementing a success formula, made sure the Board, as well as the executives and managers, were as dedicated to the success formula as he. Through that lens there are no difficult questions facing the Board. Everything was done to defend and extend the success formula. Mr. Murdoch and his team have done nothing wrong – except perhaps a zealous pursuit of implementation. What’s wrong with that? Why should the Board object?
Could this happen to you, and your organization? It may already be happening.
Answer this option, what’s more important to you and your company:
- Focusing on and identifying market trends, and adapting your strategy, tactics, products, services and processes to align with emerging future trends, or
- Focusing on execution. Setting goals, holding people to metrics and making sure implementation remains true to the company’s history, strengths and core capabilities, customers and markets? Rewarding those who meet metrics, and firing those who don’t?
If it’s the latter, it’s an easy slide into Murdoch’s very uncomfortable public seat. Very few will end up with an Enron Sized Disaster, as BNET.com headlined. But failure is likely. Any time execution is more important than questioning, implementation is more important than listening and conforming to historical norms is more important than actual business results you are chasing the select group of leaders exemplified today by Mr. Murdoch.
Here are 10 questions to ask if you want to know how at risk you just might be. If even a couple of these ring “yes,” you could be confidently, but errantly, thinking everything is OK :
- Is loyalty more important than business results? Do you have people working for you that don’t do that good a job, but do exactly what you want so you keep them?
- Do you hold certain aspects of your business as being beyond challenge – such as technology base, meeting key metrics, supporting historical distributors (or customers) or operating according to specified “rules?”
- Do you ask employees to operate according to norms before asking if they have a better idea?
- Does HR tell employees how to do things rather than asking employees what they need to succeed?
- Do employee and manager reviews have a section for asking how well they “fit” into the organization? Are people pushed out that don’t “fit?”
- Are “trusted lieutenants” moved into powerful positions over talented managers just because leaders aren’t comfortable with the newer people?
- Are certain functions (finance, HR, IT) expected (perhaps enforcers?) to make sure everyone operates according to the historical status quo?
- Is management meeting time spent predominantly on internal, versus external, issues? Talking about “how to do it” rather than “what should we do?”
- Is your advisory board, or Board of Directors, filled with your friends and co-workers that agree with your success formula and don’t seek change?
- Do your customers, employees, or suppliers learn that demonstrating dissatisfaction leads to a bad (or ended) relationship?
by Adam Hartung | May 19, 2010 | Current Affairs, Defend & Extend, In the Swamp, In the Whirlpool, Leadership, Web/Tech, Weblogs
Do you lament "the way things used to be?" I remember my parents using that phrase. Now I often hear my peers. And it really worries me. Success requires constant growth, and when I hear business leaders talking about "the way things used to be" I fear they are unwilling to advance with market shifts.
For 5 years newspaper publishers have been lamenting the good old days, when advertisers had little choice but to pay high rates for display or classified ads. Newspaper publishers complain that on-line ads are too inexpensive, and thus unable to cover the costs of "legitimate" journalism. While they've watched revenues decline, almost none have done anything to effectively develop robust on-line businesses that can offer quality journalism for the future. Instead, most are cutting costs, reducing output and using bankruptcy protection to stay alive (such as Tribune Corporation.) Even as more and more readers shift toward the digital environment.
Source: Business Insider 5/18/10
While most of the "major" newspapers (including Tribune owned LA Times) have been trying to preserve their print business (Defend & Extend it) HuffingtonPost.com has gone out and built a following. There's little doubt that with the last 3 years trajectory, HuffingtonPost will soon be the largest site. And reports are that HuffingtonPost.com is profitable.
In 2006 the CFO at LATimes told me he couldn't divert more resources to his web department. He felt it would be jeopardize to the print business. "After all," he said "you don't think that the future of news will be bloggers do you?" Clearly, he was unprepared for the kind of model Arianna Huffington was building – and the kind of readership HuffingtonPost.com could create.
On Tuesday I presented the keynote address at the Innovation and Energy Summit in Grand Rapids, MI – and as reported in West Michigan Business "Energy & Innovation Summit Speakers Urge Business Leaders to Seek New Businesses, Not Protect Old Ones." Defend & Extend management always "feels" right. It seems like the smart thing to try and preserve the old Success Formula, usually by cutting costs and increasing focus on primary revenue sources. But in reality, this further blinds the organization to market shifts and makes it more vulnerable to disaster. While NewsCorp and others are busy trying to think like newspapers, emerging news market competitors are developing entirely different models that attract customers – and make a profit.
That's why it is so important to use future scenarios to drive planning (not old products and customers) while passionately studying competitors. Talking to advertisers gave these publishers no insight as to how to compete, however had they spent more time watching HuffingtonPost.com, and other on-line sites, they might well have used Disruptions to change their investment models – pushing more resources to the web business. And had they set up dedicated White Space teams not constrained by old Lock-ins to traditional revenue models and goals of "avoiding advertiser cannibalization" they might very well have evolved to a more effective Success Formula necessary for competing on the internet into 2020.
by Adam Hartung | Apr 20, 2010 | Current Affairs, Defend & Extend, In the Rapids, Innovation, Leadership, Openness, Television, Web/Tech
News Corp. executives (and shareholders) need to be worried. Really worried. While they are busy trying to Defend their newspaper approach, including the planned move to charge everyone a subscription fee to access the Wall Street Journal on-line, there is a competitor ready to eliminate them. Of course, if you've read the WSJ for years you may think this sounds ridiculous. This competitor is vying to do the same to the Financial Times, a newspaper much more popular in Europe than the USA, which already charges for on-line access. But this competitor is serious, and just might pull it off.
According to BusinessInsider.com, "Bloomberg Redesigns Web Site as it Tries to Kill Journal." Hiring an executive from Yahoo, Bloomberg News is "pulling the gloves off" and preparing to take on old-line competitors as it steers a course to being #1. And the odds are looking good for its success.
The market for business news has been shifting for years. Once this market was dominated by two delivery mechanisms. One was very expensive, costing thousands or hundreds of dollars per month, driving information to terminals sitting at desks of traders and brokers. The other was a daily reporting of business news through the traditional business newspapers mentioned above. Both businesses were very profitable.
But today, almost everyone can get almost everything the expensive terminals had simply by scanning the web. And if you can get news real-time, why wait until tomorrow? News Corp. bought Dow Jones and has been trying to Defend the terminal business, in the face of intense Bloomberg competition for traders desks and much lower cost competition for everyone else. In an effort to shore up the P&L at Wall Street Journal the company has announced it will reverse all industry trends and start charging for WSJ content on-line. They still haven't figured out how to effectively take advantage of Marketwatch.com as a viable delivery mechanism for WSJ content. An admission they don't know how to develop a robust advertising model on the web and mobile devices that will support the publication.
Don't forget, News Corp. was early to the on-line world with its acquisition of MySpace.com. But instead of letting the people who run MySpace.com do what they needed to do to become Facebook – or possibly to become the next Marketwatch.com – News Corp. leaders interceded. They helped "manage" MySpace and applied News Corp. Success Formula parameters to it. MySpace was not allowed to operate as a White Space project. Now MySpace is a narrow site mostly for musicians and artists – missing the big opportunities in social media, business/financial news or even traditional news dissemination. Had it been given permission to do whatever it needed to succeed, permission to create a new Success Formula, who knows what MySpace might have become?
Today's marketplace will not produce acceptable returns for the old Success Formula. But the value of good business news is growing, as all investors want to know what traders know as fast as they know it. And that is where Bloomberg.com is headed. It is squarely directed at building a new business that is advertiser supported which will deliver the right news to the right place fast enough to capture those who want business news.
Bloomberg is now running 2 separate businesses. They continue to allow the terminal business to work hard as possible at defending its turf. Simultaneously they have established a White Space project that is designed to eventually obsolete the old business. In the process they will cannibalize the terminal business. But they also will very likely drive less agile competitors Dow Jones and Financial Times out of business. In the process they could capture significant ad dollars while learning how to dominate the mobile device market as well as the traditional web.
When markets shift, nobody can win by trying to Defend the old. Customers move on, and they abandon old solutions. Returns decline. The winner has to use Disruptions to overcome old Lock-ins to do whatever is necessary to profitably grow! (like having a web site that looked like an old terminal screen with amber text on a black background) and establish White Space with permission to do what is necessary to succeed! Even recognizing this may create cannibalization – but in the process learning how to earn high rates of return while crushing competitors.
Kudos to the management at Bloomberg. They are going for the jugular in the business news marketplace, and doing so by moving where the market is headed – while other competitors are trying to Defend & Extend old ways of doing business. It may not take Bloomberg long to create serious damage to the old institutions in business and financial news.
by Adam Hartung | Jul 20, 2009 | Current Affairs, Defend & Extend, eBooks, General, In the Whirlpool, Leadership, Lock-in
Years ago there was a TV ad featuring the actor Pauly Shore. Sitting in front of a haystack there was a sign over his frowning head reading "Find the needle." The voice over said "hard." Then another shot of Mr. Shore sitting in front of the same haystack grinning quite broadly, and the sign said "Find the hay." the voice over said "easy." Have you ever noticed that in business we too often try to do what's hard, rather than what's easy?
Take for example The New York Times Company, profiled today on Marketwatch.com in "The Gray Lady's Dilemma." The dilemma is apparently what the company will do next. Only, it really doesn't seem like much of a dilemma. The company is rapidly on its way to bankruptcy, with cash flow insufficient to cover operations. The leaders are negotiating with unions to lower costs, but it's unclear these cuts will be sufficient. And they definitely won't be within a year or two. Meanwhile the company is trying to sell The Boston Globe, which is highly unprofitable, and will most likely sell the Red Sox and the landmark Times Building in Manhattan, raising cash to keep the paper alive.
Only there isn't much of a dilemma here. Newspapers as they have historically been a business are no longer feasible. The costs outweigh the advertising and subscription dollars. The market is telling newspaper owners (Tribune Corporation, Gannett, McClatchey, News Corp. and all the others as well as The Times) that it has shifted. Cash flow and profits are a RESULT of the business model. People now are saying that they simply won't pay for newspapers – nor even read them. Thus advertisers have no reason to advertise. The results are terrible because the market has shifted. The easy thing to do is listen to the market. It's saying "stop." This should be easy. Quit, before you run out of money.
Of course, company leadership is Locked-in to doing what it always has done. So it doesn't want to stop. And many employees are Locked-in to their old job descriptions and pay – so they don't want to stop. They want to do what's hard – which is trying to Defend & Extend a money-losing enterprise after its useful life has been exhausted. But if customers have moved on, isn't this featherbedding? How is it different than trying to maintain coal shovelers on electric locomotives? This approach is hard. Very hard. And it won't succeed.
For a full half-decade, maybe longer, it has been crystal clear that print news, radio news and TV news (especially local) is worth a lot less than it used to be. They all suffer from one-way communication limits, poor reach and frequently poor latency. All problems that didn't exist before the internet. This technology and market shift has driven down revenues. People won't pay for what they can get globally, faster and in an interactive environment. As these customers shift, advertisers want to go where they are. After all, advertising is only valuable when it actually reaches someone.
Meanwhile, reporting and commentary increasingly is supplied by bloggers that work for free – or nearly so. Not unlike the "stringers" used by news services back in the "wire" days of Reuters, UPI and AP. Only now the stringers can take their news directly to the public without needing the wire service or publishers. They can blog their information and use Google to sell ads on their sites, thus directly making a market for their product. They even can push the product to consolidators like HuffingtonPost.com in order to maximize reach and revenue. Thus, the costs of acquiring and accumulating news has dropped dramatically. Increasingly, this pits the expensive journalist against the low cost journalist. And the market is shifting to the lower cost resource — regardless of how much people argue about the lack of quality (of course, some [such as politicians] would question the quality in today's "legitimate" media.)
Trying to keep The New York Times and Boston Globe alive as they have historically been is hard. I would contend a suicide effort. Continuing is explained only by recognizing the leaders are more interested in extending Lock-in than results. Because if they want results they would be full-bore putting all their energy into creating mixed-format content with maximum distribution that leads with the internet (including e-distribution like Kindle), and connects to TV, radio and print. Pricing for newspapers and magazines would jump dramatically in order to cover the much higher cost of printing. And the salespeople would be trained to sell cross-format ads which run in all formats. Audience numbers would cross all formats, and revenue would be tied to maximum reach, not the marginal value of each format. That is what advertisers want. Creating that sale, building that company, would be relatively much easier than trying to defend the Lock-in. And it would produce much better results.
The only dilemma at The New York Times Company is between dying as a newspaper company, or surviving as something else. The path it's on now says the management would rather die a newspaper company than do the smart thing and change to meet the market shift. For investors, this poses no dilemma. Investors would be foolhardy to be long the equity or bonds of The New York Times. There will be no GM-style bailout, and the current direction is into the Whirlpool. Employees had better be socking away cash for the inevitable pay cuts and layoffs. Suppliers better tighten up terms and watch the receivables. Because the company is in for a hard ending. And faster than anyone wants to admit.
Don't miss my recent ebook, "The Fall of GM" for a
quick read on how easily any company (even the nation's largest employer) can be
easily upset by market shifts. And learn what GM could have done to avoid
bankruptcy – lessons that can help your business grow!
http://tinyurl.com/mp5lrm
by Adam Hartung | Jun 8, 2009 | Current Affairs, General, Leadership, Lifecycle
Unless you have a lot of time to research stocks, you probably invest in a fund. Funds can be either an index, or actively managed. People like index funds because you aren't relying on a manager to have a better idea. Index funds can only own those stocks on the index. Like the S&P index fund – it can only own stocks in the S&P 500. Nothing else. Interestingly, the Dow Jones Industrial Average is considered an index fund – even though I don't know what it indexes. And that is important if you are an investor who benchmarks performance against the Dow. It's even more important if you invest in the Dow (or Diamonds – the EFT for the Dow Industrials).
GM is now off the Dow ("What does GM bankruptcy mean for Index Funds?"). Because it went bankrupt, the editors at Dow Jones removed it. But it wasn't long ago that the editors removed Sears and Kodak. But not because these companies filed bankruptcy. Rather, the Dow Jones editors felt these companies no longer represented American business. So the Dow is a list of 30 companies. But what companies is up to the whim of these Dow editors. Sounds like an active management (judgement) group (fund) to me.
Go back to the original DJIA and you get American Cotton Oil, American Sugar, Distilling & Cattle Feed, Leclede Gas Light, Tennesse Coal Iron and Railroad and U.S. Leather. Household names – right? As the years went buy a lot of companies came and went off the list. Bethlehem Steel, Honeywell, International Paper, Johns-Manville, Nash Motor, International Harvester, Owens-Illinois, Union Carbide — get the drift? These may have been successful at some time, but the didn't exactly withstand "the test of time" all that well. Even some of the recent appointments have to be questioned – like Home Depot and Kraft which have had horrible performance since joining the elite 30. You also have to wonder about the viability of some aging participants, like 3M, Alcoa and DuPont. So the DJIA may be someone's guess about some basket of companies that they think in some way represents the American economy – but it's definitely subject to a lot of personal bias.
Like any basket of stocks, when the DJIA is lagging market shifts, it is not a good place to invest. And the editors are greatly prone to lagging. Like their holdings in agriculture and basic commodities years ago, through holding big industrial companies in the 1990s and 2000s. And the over-weighting of financial companies at the turn of the century when they were merely using financial machinations to hide considerable end-of-value-life problems. When the DJIA is holding companies that are part of the previous economy, you don't want to be there.
The Dow should not be a lagging indicator. Rather, given its iconic position, it should hold the "best" companies in America. Not extremely poorly performing mega-bricks – like GM. GM should have been dropped several years ago. And you should be concerned about the recent appointment of Kraft. And even Travelers.
Those companies that will do well are going to be good at information, and making money on information. So who's likely to fall off (besides Kraft)? DuPont, which has downsized for 2 decades is a likely candidate. Caterpillar is laying off almost everyone, and cutting its business in China, as it struggles to compete with an outdated industrial Success Formula. Bank of America has shown it is disconnected from understanding how to compete globally as it has asked for billions in government bail-out money. And the hodge-podge of industrial businesses, none of which are on the front end of new technologies, at United Technologies makes it a candidate — if people ever recognize that the company would quickly disintegrate without massive U.S. government defense spending. Even 3M is questionable as it has slowed allowing its old innovation processes to keep the company current in the information age.
Adding Cisco was a good move. Cisco is representative of the information economy – as are Verizon, AT&T (which was SBC and before renameing, GE, HP, Intel, IBM, Microsoft, Merck and Pfizer (if they transition to biologics from old-fashioned pharmaceutical manufacturing ways – otherwise replace them with Abbott). But all those other oldies – like Walt Disney (sorry, but the web has forever changed the marketplace for entertainment and Walt's folks aren't keeping up with the times), Boeing (are big airplanes the wave of the future in a webinar age?), Coke (they've kinda covered the world and run out of new ideas), P&G (anybody excited about Swiffer variation 87?), and Wal-Mart – which couldn't recognize doing anything new under any circumstances.
As an investor, you want companies that can grow and create a profit. And that's increasingly not the DJIA – even as it slowly adds a Microsoft, Intel and Cisco. You want to include companies in leadership positions like Google and Apple. Their ability to move forward in new markets by Disrupting their Lock-ins and using White Space to launch new projects in new markets gives them longevity. As an investor you don't want the "dogs" – so why would you want to own DuPont, et.al.?
Investors may have been stung by overvaluations in technology companies during the 1990s. But that was the past. What matters now is future growth ("Technology on the comeback trail"). And that can be found by investing in the future – not what was once great but instead what will be great. Invest for the future, not from the past. And that can be found outside the DJIA. Unless the Dow editors suddenly change the portfolio to match the shift to an information economy.
(For additional ideas about recomposing the DJIA, see my blog of 3/12/09 "Dated Dow")
