by Adam Hartung | Oct 27, 2010 | Current Affairs, Defend & Extend, In the Swamp, Leadership, Web/Tech
Summary:
- We like to think of "mature" businesses as good
- AT&T was a "mature" business, yet it failed
- "Maturity" leads to inward focus, and an unwillingness to adjust to market shifts
- Microsoft is trying to reposition itself as a "mature" company
- Despite its historical strengths, Microsoft has astonishing parallels to AT&T
- Growth is less risky than "maturity" for investors, employees and customers
Why doesn't your business grow like Apple or Google? Is it because you think of your business, or the marketplace you serve, as "mature?" Quite a euphanism, maturity. It sounds so good. How could being "mature" be bad? As children we strive to be "mature." The leader is usually the most "mature" person in the group. Those who like good art have "mature" taste. Surely, we should want to be "mature." And we should want our businesses to reach "maturity" and have "mature" leaders who don't take unnecessary risks. Once "mature" the business should be safe for investors, employees, suppliers and customers.
That was probably what the folks at AT&T thought. When judge Greene broke up AT&T in 1984 the company had a near monopoly on long-distance. AT&T was a "mature" company in a "mature" telephone industry. It appeared as though all AT&T had to do was keep serving its customers, making regular improvements to its offering, to perpetually maintain its revenue, jobs and profitability. A very "mature" company, AT&T's "mature" management knew everything there was to know about long distance – about everything related to communications. And due to its previous ownership of Bell Labs and Western Union, it had deep knowledge about emerging technologies and manufacturing costs allowing AT*T to make "mature" decisions about investing in future markets and products. This "mature" company would be able to pay out dividends forever! It seemed ridiculous to think that AT&T would go anywhere but up!
Unfortunately, things didn't work out so well. The "mature" AT&T saw its market share attacked by upstarts MCI and Sprint. As a few "early adopters" switched services – largely residential and other very small customers – AT&T was unworried. It still had most of the market and fat profits. As these relatively insignificant small users switched, AT&T reinforced its world's largest billing system as an incomparable strength, and reminded everyone that its "enterprise" (corporate) offerings were still #1 (anybody remember AT&T long distance cards issued by your employer for use at pay phones?).
But unfortunately, what looked like an unassailable market position in 1984 was eventually diminished dramatically as not only homeowners but corporations started shifting to new offerings from competitors. New pricing plans, "bundled" products and ease of use encouraged people to try a new provider. And that AT&T had become hard to work with, full of rules and procedures that were impossible for the customer to comprehend, further encouraged people to try an alternative. Customers simply got fed up with rigid service, outdated products and high prices.
Unexpectedly, for AT&T, new markets started to grow much faster and become more profitable than long distance voice. Data services started using a lot more capacity, and even residential customers started wanting to log onto the internet. Even though AT&T had been the leader (and onetime monopolist – did you know broadcast television was distributed over an AT&T network?) with these services, this "mature" company continued to focus on its traditional voice business – and was woefully late to offer commercial or residential customers new products. Not only were dial-up offerings delayed, but higher speed ISDN and DSL services went almost entirely to competitors.
And, much to the chagrin of AT&T leaders, customers started using their mobile phones a lot more. Initially viewed as expensive toys, AT&T did not believe that the infrastructure would be built quickly, nor be robust enough, to support a large base of cellular phone users. Further, AT&T anticipated pricing would keep most people from using these new products. Not to mention the fact that these new phones simply weren't very good – as compared to land-line services according to the metrics used by AT&T. The connection quality was wildly inferior to traditional long distance, and frequently calls were completely dropped! So AT&T was slow to enter this market, half-hearted in its effort, and failed to make any profits.
Along the way a lot of other "non-core" business efforts failed. There was the acquisition of Paradyne, an early leader in modems, that did not evolve with fast changing technology. New products made Paradyne's early products obsolete and the division disappeared. And the acquisition of computer maker NCR failed horribly after AT&T attempted to "improve" management and "synergize" it with the AT&T customer base and offerings.
AT&T had piles and piles of cash from its early monopoly. But most of that money was spent trying to defend the long distance business. That didn't work. Then there was money lost by wheelbarrow loads trying to enter the data and mobile businesses too late, and with little new to offer. And of course the money spent on acquisitions that AT&T really didn't know how to manage was all down the proverbial drain.
Despite its early monopoly, high cash flow, technology understanding, access to almost every customer and piles of cash, AT&T failed. Today the company named AT&T is a renamed original regional Bell operatiing company (RBOC) created in the 1984 break-up — Southwestern Bell. This classically "mature" company, a stock originally considered "safe" for investing in the "widow's and orphan's fund" used up its money and became obsolete. "Mature" was a misnomer used to allow AT&T to hide within itself; to focus on its past, instead of its future. By being satisfied with saying it was "mature" and competing in "mature" markets, AT&T allowed itself to ignore important market shifts. In just 25 years the company that ushered in mass communications, that had an incredibly important history, disappeared.
I was struck today when a Reuters story appeared with the headline "Sleepy in Seattle: Microsoft Learns to Mature." There's that magic word – "mature." While the article lays out concerns with Microsoft, there were still analysts quoted as saying that investors didn't need to worry about Microsoft's future. Investors simply need to change their thinking. Instead of a "growth" company, they should start thinking of Microsoft as a "mature" company. It sounds so reassuring. After all:
- Microsoft has a near monopoly in its historical business
- Microsoft has a huge R&D budget, and is familiar with all the technologies
- Microsoft has piles and piles of cash
- Microsoft has huge margins in its traditional business – in fact profits in operating systems and office automation exceed 100% of the total because it loses billions of dollars in other things like Bing, MSN and its incredibly expensive foray into gaming systems (xBox)
- Markets won't shift any time soon – say to this new "cloud computing" – and Microsoft will surely have products when they are needed if there is a market shift
- While home users may buy these new smartphones, tablets and some Macs, enterprise customers will keep using the technology they've long purchased
- Microsoft is smart to move slowly into new markets, it shouldn't cannibalize its existing business by encouraging customers to change platforms. Going slow and being late is a good thing for profits
- Although Microsoft has been late to smartphones and tablets, with all their money and size surely when they do get to market they will beat these upstarts Apple and Google, et. al.
Sure made me think about AT&T. And the fact that Apple is now worth more than Microsoft. Made me wonder just how comfortable investors should be with a "mature" Microsoft. Made me wonder how much investors, employees and customers should trust a "mature" CEO Ballmer.
Looking at the last 10 years, it seems like there's a lot more risk in "mature" companies than in "growth" ones. We can be almost certain that Apple and Google, which have produced huge returns for investors, will grow for the next 3 years, improving cash flow and profitability just by remaining in existing new markets. But of course both have ample new products pioneering yet more new markets. And companies like NetApp look pretty safe, building a fast-growing base of customers who are already switching to cloud computing – and producing healthy cash flow in the emerging marketplace.
Meanwhile, the track record for "mature" companies would leave something to be desired. One could compare Amazon to Circuit City or Sears. Or just list some names: AT&T, General Motors, Chrysler, Xerox, Kodak, AIG, Citibank, Dell, EDS, Sun Microsystems. Of course each of these is unique, with its own story. Yet….
by Adam Hartung | Jan 6, 2010 | Current Affairs, General, In the Rapids, Innovation, Leadership, Openness, Web/Tech
Leadership
Listen To Competitors–Not Customers
01.06.10, 03:10 PM EST
The accepted wisdom that the customer is king is all wrong.
That's the start to my latest Forbes column (Read here.) Think about it. What would Apple be if it had listened to its customers? An out of business niche PC company by now. What about Google? A narrow search engine company – anyone remember Alta Vista or Ask Jeeves or the other early search engine companies? No customer was telling Apple or Google to get into all the businesses they are in now – and making impressive rates of return while others languish.
But today Google launched Nexus One (read about it on Mobile Marketing Daily here) – a product the company developed by watching its competitors – Apple and Microsoft – rather than asking its customers. In the last year "smartphones" went to 17% of the market – from only 7% in 2007 according to Forrester Research. There's nothing any more "natural" about Google – ostensibly a search engine company – making smartphones (or even operating systems for phones like Android) than for GE to get into this business. But Google did because it's paying attention to competitors, not what customers tell it to do.
No customers told Google to develop a new browser – or operating system – which is what Chrome is about. In fact, IT departments wanted Microsoft to develop a better operating system and largely never thought of Google in the space. And no IT department asked Google to develop Google Wave – a new enterprise application which will connect users to their applications and data across the "cloud" allowing for more capability at a fraction of the cost. But Google is watching competitors, and letting them tell Google where the market is heading. Long before customers ask for these products, Google is entering the market with new solutions – the output of White Space that is disrupting existing markets.
Far too many companies spend too much time asking customers what to do. In an earlier era, IBM almost went bankrupt by listening to customers tell them to abandon PCs and stay in the mainframe business —– but that's taking the thunder away from the Forbes article. Give it a read, there's lots of good stuff about how people who listen to customers jam themselves up – and how smarter ones listen to competitors instead. (Ford, Tribune Corporation, eBay, Cisco, Dell, Salesforce.com, CSC, EDS, PWC, Dell, Sun Microsystems, Silicon Graphics and HP.)
by Adam Hartung | Sep 29, 2009 | Current Affairs, Defend & Extend, Disruptions, General, In the Swamp, Leadership, Lock-in, Web/Tech
Last week was big news for technology. Hewlett Packard announced it was killing the EDS brand name, pushing to make HP more of an integrated solutions company (like IBM). And Dell bought Perot Systems to launch itsfirst push into services. According to Washington Technology "HP, Dell Know They Have to Change or Die." The article talks about the dramatically shifting marketplace (love that language!), and how these two hardware oriented companies are trying to avoid the Sun Microsystems finality by getting into services. The author says the companies must "adapt or die," and "there's no sitting still." He goes on to say "it may take years," but he thinks they will transition and eventually be successful. His success forecast hinges on his belief that they must change to survive – and that will be sufficient motivation.
I love the awareness of shifting markets, and the recognition that shifts are demanding changes in these former leaders. But I don't agree with the conclusion that future success is highly likely. Because even with big acquisitions and name changes – HP and Dell haven't laid the groundwork to change. They have taken some rifle shots, but they haven't followed The Phoenix Principle and that means the odds are less than 10% they will successfully transition.
Lots of companies have tried to transition via acquisition. Heck, GM once bought EDS (and Hughes Electronics) – and look what it did for them. Just because a company buys something doesn't mean they'll change. McDonald's bought Chipotle, and then sold it despite double digit growth to fund acquisition of additional McDonald's. Just because a company needs to change its Success Formula to succeed – or even survive – is a long way from proving they will do it.
Neither HP or Dell show they are building a company for the future. Unfortunately, they look to be chasing a model built by IBM in the 1990s. Taking action in 2009 to recreate "best practices" of 15 – 20 years ago is far from creating a company positioned for success. There is no discussion of future scenario planning from either company – about technology use or changing business practices. No description of their scenarios for 2015 and 2020 – scenarios that would demonstrate very high growth and payoff from their action. To the contrary, all the discussion seems to be defensive. They are getting into services – finally – because they realize their growth has slowed and profits are declining. It's not really about the future, it's action taken by studying the rear view mirror.
Additionally, there is no discussion of any Disruptions at either company. To change organizations must attack old Lock-ins. Embedded processes – from hiring and reviews to product development and resource allocation – all exist to Defend & Extend past behavior. If these aren't attacked head-on then organizations quickly conform any potential change into something like the past. In the case of these companies, lacking a clear view of what future markets should look like, they have opted to forgo Disruptions. Mr. Gerstner attacked the sacred cows around IBM viciously in his effort to transition the company into more services. But the CEOs at HP and Dell are far less courageous.
And there's no White Space here for developing a new Success Formula aligned with market needs as they are emerging. Instead of creating an environment in which new leaders can compete in new ways, these businesses are being instructed on how to behave – according to some plan designed by someone who clearly thinks they are smarter than the marketplace. Without White Space, "the plan" is going to struggle to meet with markets that will continue to shift every bit as fast the next 2 years as they did the last year.
I have very limited expectations that these actions will increase the performance of either company. I predict organic growth will slow, as "integration" issues mount and "synergy" activities take more time than growth initiatives. They will not see a big improvement in profits, because competition is extremely severe and there is no sign these companies are introducing any kind of innovation that will leapfrog existing competitors – remember, mere size is not enough to succeed in today's marketplace. They will largely be somewhat bigger, but no more successful.
It's easy to get excited when a company makes an acquisition off the beaten path. But you must look closely at their actions and plans before setting expectations. These companies could make big changes. But that would require a lot more scenario planning, a lot more focus on emerging competitors (not the existing, well known behemoths), much more Disruption to knock back the Lock-in and White Space for building a new Success Formula. Without those actions this is going to be another acquisition followed by missed expectations, cost cutting and discussions about size that cover up declining organic growth.
by Adam Hartung | Apr 12, 2009 | Uncategorized
At Buckley Brinkman's Blog he asks the question "Can the auto industry be saved?" His posting gives a great overview of the complexities. I like his overview that "there are no safe, and few reasonable investments in this space."
Today a lot of people are asking, "how GM could be leading an industry that fell so far? How could all those managers, over all those years, end up doing so poorly? How could the collective wisdom of the last 30 years brought to the industry, including not only management but the union leadership and all the vendors seemingly let an entire industry, with companies the world's largest, end up in such a soup?"
A key to understanding the answer is offered by the recent Newsweek article "Saturn was supposed to save GM. Instead GM Crushed Saturn." This article underscores the dramatic actions taken by GM Chairman Roger Smith in the early 1980s to transform a floundering General Motors – including buying EDS and Hughes aircraft. And the unprecendented creation of a new auto division with a new union agreement to change the direction of American auto manufacturing.
Over the next few years, Saturn came onto the market as a successful division. It had unprecedented employee satisfaction, unprecedented loyalty for an American car brand, and unprecedented support by its new dealers. But what Saturn did NOT have was the support of GM. Nor even the union that helped create it. As the Newsweek article further details, inside GM there was no support for Saturn outside the Chairman's office. Management continually pushed the corporation to rob Saturn of resources, and even shut down the new division. Meanwhile, a new union leader took over the UAW, and he pushed for changing work rules back to the previous, contentious and frustrating relationship. To which GM quickly agreed preferring consistency over something that worked better.
Although Chairman Smith was dramatic in creating Saturn, he did not Disrupt GM. He never challenged the other division heads to recognize that they could not succeed with old practices. Chairman Smith never moved to place an EDS leader in a top position. In fact, to the contrary, he went along with special action to repurchase the GM shares traded to Ross Perot and remove him from the Board, on the basis that Mr. Perot was too Disruptive to GM. The very benefits Mr. Smith desired was epitomized in Mr. Perot, who pushed hard for big changes in GM management practices. But Mr. Smith was unwilling to actually Disrupt the history and hierarchy of GM. And the same was true for Hughes leadership. Instead of taking action to put a Hughes executive in charge of GM, to lead the way for change, GM leaders were backwatered and ignored in the halls of Detroit.
When you are unwilling to Disrupt, desired changes never "stick." Even with all the resources of the GM Chairman's office, without Disruption the Locked-In GM organization was more powerful and even better resourced. What was supposed to be White Space which would change GM made no difference, because GM was not Disrupted. So the organization kept Defending & Extending its Success Formula created in the 1940s. It didn't take long for the un-disrupted GM leaders to sell of both EDS and Hughes, using the profits to subsize the car business. And they converted Saturn into nothing more than another faceplate on just another GM car – nothing special at all – and widely despised by leaders who always felt Saturn had operated outside the Success Formula so needed to be closed.
Now the Chairman of GM that asked for billions of taxpayer money to save the company, Mr. Wagoner, has been fired. His approach continued to be pushing the same old Success Formula that is so obviously out of step with current market needs. So the banker of last resort asked for him to leave. Which is not so out of the ordinary. Any executive that would ask for investment in the dire straights of GM would expect the investors to make changes in the executive suite. It happens all the time. But the problem seems to be that after pushing Mr. Wagoner out, the U.S. government representatives as bankers haven't proposed a new slate.
The only way to "save" GM will require a wholesale restructuring of the company. Never have so many forces worked so hard to preserve an out of date Success Formula – from management to unions to vendors. It will take somebody of great will, and uncommon acumen, to kill off Chevrolet and the out-of-date parts of GM that simply have no future value. Because now, even more than in the 1980s, what GM needs is an enormous Disruption. Something that will cause the company, from the executive suite to the factory floor, to stop and say "wow, things really are going to be different around here." Only after that sort of Disruption will White Space be able to develop a new future for GM. As we've already seen, trying to do "more of the same" without an enormous Disruption will not save GM - in fact will not even substantially change it.
