by Adam Hartung | Apr 26, 2011 | Defend & Extend, In the Rapids, In the Swamp, Innovation, Leadership, Lock-in, Web/Tech
Summary:
- Everyone discriminates in hiring – just some is considered bad, and some considered good
- Only “good discrimination” inevitably leads to homogeneity and “group think” leaving the business vulbnerable to market shifts
- Efforts to defend & extend the historical success formula moves beyond hiring to include using internal bias to favor improvement projects and disfavor innovations
- Amazon has grown significantly more than Wal-Mart, and it’s value has quadrupled while Wal-mart’s has been flat, because it has moved beyond its original biases
The long list of people attacking Wal-Mart includes a class-action law suit between former female workers and their employer. The plaintiffs claim Wal-Mart systematically was biased, via its culture, to pay women less and limit their promotion opportunities. The case is prompting headlines like BNet.com‘s “Does Your Company Help You Discriminate?”
Actually, all cultures – and hiring programs – are designed to discriminate. It’s just that some discrimination is legal, and some is not. At Google it’s long been accepted that the bias is toward quant jocks and those with highest IQs. That’s not illegal. Saying that men, or white people, or Christians make better employees is illegal. But there is risk in all hiring bias – even the legal kind. To avoid the illegal discrimination, its smarter to overcome the “natural bias” that cultures create for hiring. And the good news is that this is better for the business’s growth and rate of return!
Successful organizations build a profile of “who did well around here – and why” as they grow. It doesn’t take long until that profile is what they seek. The downside is that quickly there’s not a lot of heterogeneity in the hiring – or the workforce. That leads to “group think,” which reinforces “not invented here.” Everyone becomes self-assured of their past success, and believes that if they keep doing “more of the same” the future will work out fine. Whether Wal-Mart’s hiring biases were legal – or not – it is clear that the group think created at Wal-Mart has kept it from innovating and moving into new markets with more growth.
Markets shift. New products, technologies and business practices emerge. New competitors figure out ways of providing new solutions. Customers drift toward new offerings, and growth slows. Unfortunately, bias keeps the early winner from accepting this market shift – so the company falls into serious growth troubles trying to do more, better, faster, cheaper of what worked before. Look at Dell, still trying to compete in PCs with its supply chain focus long after competitors have matched their pricing and started offering superior customer service and other advantages. Meanwhile, the market growth has moved away from PCs into products (tablets, smartphones) Dell doesn’t even sell.
Wal-Mart excels at its success formula of big, boring, low price stores. And its bias is to keep doing more of the same. Only, that’s not where the growth is in retailing any longer. The market for “cheap” is pretty well saturated, and now filled with competitors that go one step further being cheap (like Dollar General,) or largely match the low prices while offering better store experience (like Target) or better selection and varied merchandise (like Kohl’s). Wal-Mart is stuck, when it needs to shift. But its bias toward “doing what Sam Walton did that made us great” has now made Wal-Mart the target for every other retailer, and stymied Wal-Mart’s growth.
A powerful sign of status quo bias shows itself when leaders and managers start overly relying on “how we’ve done things here” and “the numbers.” The former leads to accepting recommendations fro hiring and promotion based upon similarity with previous “winners.” Investment opportunities to defend and extend what’s always been done sail through reviews, because everyone understands the project and everyone believes that the results will appear.
Nearly all studies of operational improvement projects show that returns rarely achieve the anticipated outcomes. Because these projects reinforce the status quo, they are assumed to be highly accurate projections. But planned efficiences do not emerge. Headcount reductions do not happen. Unanticipated costs emerge. And, most typically, competitors copy the project and achieve the same results, leading to price reductions across the board benefitting customers rather than company profits.
Doing more of the same is easily approved and rarely questioned – whether hiring, or investing. And if things don’t work out as expected results are labeled “business necessity” and everyone remains happy they made the original decision, even if it did nothing for market share, or profit improvement. Or perhaps turns out to have been illegal (remember Enron and Worldcom?)
To really succeed it is important we overcome biases. Look no further than Amazon. Amazon could have been an on-line book retailer. But by overcoming early biases, in hiring and new projects, Amazon has grown more than Wal-Mart the last decade – and has a much brighter future. Amazon now leads in a large number of retail segments, far beyond books. It has products which allow anyone to take almost any product to market – using the Amazon on-line tools, as well as inventory management.
And in publishing Amazon has become a powerhouse by helping self-published authors find distribution which was before unavailable, giving us all a much larger variety of book products. More recently Amazon pioneered e-Readers with Kindle, developing the technology as well as the inventory to make Kindle an enormous success. Simultaneously Amazon now offers a series of technical products providing companies access to the cloud for data and applications.
Where most companies would say “that’s not our business” Amazon has taken the approach of “if people want it, why don’t we supply it?” Where most organizations use numbers to kill projects – saying they are too risky or too small to matter or too low on “risk adjusted” rate of return Amazon creates a team, experiments and obtains real market information. Instead of worrying whether or not the initial project is a success or failure, market input is treated as learning and used to adapt. By continuously looking for new opportunities, and pushing those opportunities, Amazon keeps growing.
Every business develops a bias. Overcoming that bias is critical to success. From hiring to decision making, internal status quo police try to reinforce the bias and limit change. Often on the basis of “too much risk” or “too far from our core.” But that bias inevitably leads to stalled growth. Because new competitors never stop beating down rates of return on old success formulas, and markets never stop shifting.
Wal-Mart should look upon this lawsuit not as a need to defend and extend its past practices, but rather a wake-up call to be more open to diversity – in all aspects of its business. Wal-mart doesn’t need to win this lawsuit neary as badly as it needs to create an ability to adapt. Until then, I’d recommend investors sell Wal-Mart, and buy Amazon.com.
Chart of WMT stock performance compared to AMZN last 5 years (source Yahoo.com)
by Adam Hartung | Aug 30, 2010 | Current Affairs, In the Rapids, Innovation, Leadership, Web/Tech
Summary:
- We like to think we can compete effectively by waiting on others to show us the market direction
- You cannot make high rates of return with a “fast follower” strategy
- Companies that constantly take innovations to market grow longer, and make higher rates of return
- White Space allows you to learn, grow and be smart about when to get out while costs are low
“I want to be a fast follower. Let somebody else carry the cost of learning what the market wants and what solutions work. I plan to come in fast behind the leader and make more money by avoiding the investment.” Have you ever heard someone talk this way? It sounds so appealing. Only problem is – it very rarely works! Fast followers might gain share sometimes, but universally they have terrible margins. Their sales come at an enormous investment cost.
Those who enter new markets early actually gain a lot, for little cost. Take for example Amazon.com’s early entry into electronic publishing with Kindle. Entering early gave Amazon a huge advantage. Amazon may have appeared to be floundering, potentially “wasting” resources, but it was learning how the technology of e-Ink worked, how costs could be driven down and what users demanded in a solution. Every quarter Amazon was learning how to find new uses for the Kindle, making it more viable, finding new customers, encouraging repeat purchases and growing. Now Mediapost.com headlines “Review: New Kindle Kicks (Even Apple’s) B*tt.”
Now there are a raft of “fast followers” trying to catch the Kindle in the eReader market. But the Kindle is far lighter, easier to use, with greater functionality and available at one of the market’s lowest prices. While the cost of entry was low, Amazon learned immensely. That knowledge is not repeatable by companies trying to now play “catch up” without spending multiples of what Amazon spent. Amazon is so far in front of other eReaders that it’s competition is the vastly more sophisticated (and expensive) mobile devices from Apple (iPhone and iPad). By entering early, Amazon has lower cost, and considerably more/better market knowledge, than later entrants.
We see this very clearly in Microsoft’s smart phone approach. Microsoft got far behind in smart phones, losing over 2/3 its market share, as it focused on Windows 7 and Office 2010 the last 3 years while Resarch in Motion (RIM) Apple and Google pioneered the market. Now the 3 leaders have millions of units in the market, low price point establishment, and between them somewhere between 400,000 and 500,000 mobile apps available.
As reported in Mediapost.com “Microsoft Gets Serious with Windows 7 Phone” entering now is VERY expensive for Microsoft. Microsoft spent almost $1billion on Kin, which it dropped after only a few months because the product was seriously unable to compete. So now Microsoft is expecting to spend $500million on launch costs for a Windows 7 mobile operating system. But it faces a daunting challenge, what with 350,000 or so iPhone apps in existence, and Google giving Android away for free (as well as sporting some 100,000 apps itself).
The cost of entry, ignoring Microsoft’s technology development cost, to get the mindshare of developers for app development (so Windows 7 mobile doesn’t slip into the Palm or Blackberry problem of too few apps to be interesting) as well as minds of potential buyers will more likely cost well over $1B – just for communications!! Microsoft now has to take share away from the market leaders – a very expensive proposition! Like XBox marketing, these exorbitant marketing costs could well go on for several years. XBox has had only 1 quarter near break-even, all others showing massive losses. The same is almost guaranteed for the Windows 7 phone. And it’s entering so late that it may never, even with all that money being spent, catch the two leaders! Who are the new users that will come along, and what is Microsoft uniquely offering? It’s expensive to buy mind and market share.
Clearly Apple and Android entered the smart phone market at vastly lower cost, and have developed what are already profitable businesses. Microsoft will lose money, possibly for years, and may still fail – largely because it focused on its core products and chose to undertake a “fast follower” strategy in the high growth smart phone business.
We like to believe things that reinforce our behaviors. We like to think that tortoises can outrun hares. But that only happens when hares make foolish decisions. Rarely in business are the early entrants foolish. Most learn – a lot – at low cost. They figure out where the early customers are with unmet needs, and how to fulfill those needs. They learn how to identify ways to grow the business, manage costs and earn a profit. And they learn at a much lower cost than late followers. They capture mind and market share, and work hard to grow the business with new customers keeping them profitable and maintaining share.
We want to think that innovators bear a high risk. But it’s simply not true. Innovators take advantage of market learning to create revenues and profits at lower cost. Companies that keep White Space projects flourishing, entering new markets generating growth, earn higher rates of return longer than any other strategy. Just look at Cisco, Nike, Virgin, J&J and GE (until very recently). The smart money gets into the game early, developing a winning approach — or getting out before the costs get too high!
by Adam Hartung | Jan 30, 2010 | Current Affairs, Defend & Extend, General, Innovation, Leadership, Lock-in, Web/Tech
One of the biggest business news items this week was the launch of Apple's iPad for $499. Although perhaps overlooked by many big companies, and several IT departments. To some businesspeople, the iPad seems another consumer toy, thus not terribly noteworthy. Some see it as a small-market share sort of oversized iPhone for mobile telephony/data use. One executive commented to me this week "I don't understand why anyone cares, I don't own an iPhone and cannot imagine why I would ever want to download an app," He has a huge investment in Microsoft technology, has never used an iPhone or Palm Treo or even a Blackberry. Hes' never seen an iPhone app, and was amazed when I told him 1 billion had been downloaded. He's comfortable in his traditional IT solution, and doesn't see the importance of iPad.
But the iPad is another step demonstrating a big market shift is happening. With Apple's announcement, Amazon announced that it's sales of Kindle are about twice what most analysts had expected – see "During Apple Week Google and Amazon try to Remind You They Exist" at Fast Company. Further, it appears now that for every 10 books Amazon sells, it sells 6 Kindle books — a substantial number and indications of serious market change. The iPad is half the price most people expected, and now rumors are Kindle's will drop to $100 as competition heats up. It rapidly appears that while there is an emerging battle between Amazon and Apple, the biggest insight is that the market for BOTH is growing a whole lot faster than anyone expected. As are iPhone sales. These devices, and the technology solution embedded within them, are grabbing a lot of buyers, and quickly. The sales, in units and dollars, are growing much faster than anticipated. And new users are flocking toward this technology platform.
Thus, the iPad is likely to be a big winner for Amazon and Kindle – as well as Google. It is expanding the application base, and use patterns, for mobile devices. It is expanding the product breadth and price points. Quite simply, it is helping people do new things they couldn't do before – especially when mobile – that they could not do before. As a result, apps will grow and sales of both hardware and software will grow. And early adopters will gain an advantage as they use this new technology to create advantages for their customers. Apple and Amazon are both "winners" who are driving revenue and profit growth.
And Microsoft loses. Microsoft has never changed its Success Formula. Its Identity, Strategy and Tactics remain as they've been for three decades – to provide a one-stop near monopolistic, integrated (mainframe style – and certainly monolithic) solution. As the market has been shifting, however, this has been less and less successful.
Source: Silicon Alley Insider
As the chart shows, Microsoft's product strategies, product introductions, acquisitions and management changes have done nothing for growth – or valuation. Microsoft keeps trying to do what made it great in the late 80s and early 90s. But since then, the market has shifted dramatically and the sustaining innovations Microsoft has offered, while meeting customer requests for improvement, haven't really helped growth.
The cost of this Lock-in has been horrific.
Source: Silican Alley Insider
Microsoft has poured billions of dollars into a failed approach intended to Defend & Extend its Success Formula – but to no avail. The market is going a different direction – toward cloud computing with its distributed data, extremely small apps at very low (disposable) prices, easy to use interfaces and greatly lower device cost.
Even as large and cash rich as Microsoft was in 2000, it cannot stop a market shift. And even though this shift has been predictable, with competitors from the fringe like Google, Amazon and Apple bringing to market new products, Microsoft has chosen to try Defending & Extending its Success Formula rather than Disrupt and use White Space to develop new solutions. What can we expect from Microsoft in the future? Unfortunately, more of the same and most likely a dramatically deteriorating value. When the market's shift to these thin devices with a different architecture becomes clear, the inability of System 7 and Bing to make any difference in Microsoft results will be clear. And investors are likely to run for the proverbial hills – letting the stock price drop along with new users. Microsoft will increasingly be dependent upon legacy applications and maintenance – markets with little/no growth. Microsoft could soon be the next Unisys (remember that company?)
So, what is your company doing? Are you moving forward with new apps which will grow your revenues and profits? Are you looking for ways to use these devices, and the underlying mobile computing architectures, to offer your customers better solutions? Are you bringing out new approaches that are potential game changers, bringing new customers to you and accelerating growth? Or are you trying to Defend & Extend your old processes, approaches and products? Are you planning a future that will be PC/laptop centric, and delivering traditional web pages? Are you following the laggard, Microsoft, or are you Disrupting your business, and market, with White Space projects that will change market behaviors using these new technologies and positioning you as the market leader? In 2015, will you look like Microsoft – frozen in place as the market shifts – or will you look more like Google, Amazon and Apple with new solutions that create excitement and new sales?
Have you tried a Kindle yet? iPad? iPhone? Do you have any White Space wher
e you are trying these new things? Have you Disrupted any of your organization and challenged them to apply this technology? Exactly what are you waiting on?
by Adam Hartung | Oct 19, 2009 | Defend & Extend, Disruptions, General, Innovation, Leadership, Web/Tech
The McKinsey Quarterly just published a new report "Where Innovation Creates Value." I think the consultant got paid by the word for this really long article, which boils down to a simple argument. It doesn't matter what kind of innovations are developed, or where innovations are created. What does matter is who implements them. The implementers gain the vast majority of the value from innovation. More than the patent holders or the countries where inventors live.
Historically America has been a hotbed for trying new things. America was advantaged over Europe because it didn't have the regulations and other innovation testing roadblocks. America was advantaged over Africa and much of South America because it didn't have a legacy of dictator governments and corruption that kept things from moving forward – blocking innovation. America was advantaged over China and India because it's per capita GDP has been very high, meaning there were ample resources to invest in trying new innovations. Thus, America has historically been an innovation testing grounds that has paid enormous dividends by keeping its companies on the leading edge of competitiveness.
But there is cause to worry. Recently I blogged about how companies were blocking employee access to social networking sites ("Letting the Bogeyman Hurt Your Business"). Concerned about employee efficiency, managers were blocking these sites so employees kept their fingers on the keyboards performing designated, approved tasks. Sort of Taylor-ish sounding, don't you think? In today's economy the value of smart employees is pretty high, but how do you know if they are smart if you block their access to tools. Is success more about how fast they do the tasks, or if they can figure out a better way that is inherently cheaper? Do you want employees doing the same thing better, faster, cheaper – or do you want them developing new solutions that are more competitive?
Consider the smart phone market, led today by the iPhone. And the new publishing media like Kindle and Sony's eReader. Soon we'll have plenty more of these products available that will increase knowledge access and speed of information flow making those who are connected even more competitive. According to SeekingAlpha.com, "Verizon's Droid is the Real Deal." New phones from Motorola with Google's Android operating system (get that, an operating system for your phone. Does that phrase not surprise at least a few people – some of whom might remember when phones had no intelligence – not even a dial tone?) will have an explosion of new applications and uses raising productivity and results.
Yet, how many companies are providing these devices and data access for employees? Most of the early adopters I see are paying for this out of their own pocket. The obvious concern is that American companies will remain focused on efficiency in this downturn. They will block access to parts of the web, and avoid technology investments for employees and customers. Meanwhile competitors in countries growing at 6-8%/year like China, India and Brazil will make these investments. If so, they become the early innovation implementers. And if that happens….. well that could be a very serious game changer. We can't assume the American economy will recharge if we don't apply innovations, and we can't assume competitiveness if companies from other places increase their adoption rates to exceed America's.
I don't see a lot of Disruption or White Space in America right now. Even top economists are bemoaning how businesses keep cutting employees and costs while the overall GDP does better. Business leaders seem stuck trying to Defend & Extend past business practices which aren't producing better results – and won't. They remain focused on cutting costs rather than innovating new solutions. But what we know is that the greatest return comes from a willingness to Disrupt and open up White Space to implement new solutions – in the process of making your own business a market disruptor that can grow and achieve superior rates of return.
by Adam Hartung | Oct 7, 2009 | Current Affairs, Disruptions, General, In the Rapids, Innovation, Leadership, Web/Tech
"Amazon Cuts Kindle Price to $259" is the USAToday headline. This $40 whack is the second price cut this year. Sony is selling its ePocket for $199. Of course Kindle is pushing that it has more content available and easier wireless access than Sony,- even internationally. Expectations are for 3 million e-Readers to be sold in 2009 (about 1 million around the holidays.) Obviously, if you aren't paying attention this is a big deal. It is changing publishing (books, magazines and newspapers.) But the impact goes far beyond publishing.
Simultaneously, The Wall Street Journal reports "Just a Touch Away, the Elusive Tablet PC." According to this article, new devices are being tested that will allow you to do everything from classic PC applications to web interconnection to watch movies – or read books – on a keyboard-less new tablet. Something that is a cross between an iPhone/iTouch (with a bigger screen) and a PC. As iPhone users are learning (quickly) you don't need a keyboard or mouse to have an interface to your machine and the world.
So what will be the future solution? Will it be one of these, or yet something different? I don't know. Do you have a crystal ball? But the answer to that question really doesn't matter to us today. We don't need to know that sort of specific to begin growing our businesses.
Not being widget nuts, or platform forecasters, should not stop us from planning for a different sort of future and changing our approach today. Scenarios for 2013 (you do have scenario plans for 2013, don't you?) should be planning on practically everybody having one of these devices. And perhaps these devices being so cheap they could be included with sales of every major appliance (like a car, or refrigerator). If that sounds silly, just look at how cheap a flash (or thumb) drive is now. Remember when we thought floppy disks were expensive? Now people exchange flash drives that have more capacity than a 2004 laptop without thinking about cost. These made tapes, floppy drives, zip drives and a lot of other technology obsolete in a hurry.
How can your business take advantage of this shift? Can you replace paper manuals, maybe even user instructions with a tablet? Or a tablet app? Can you use an interactive device that grabs input from your appliance to do diagnostics, recommend maintenance, report on failures? Would this help customers pop for the new frig – say if it helped lower electric bills? Or could it encourage that new washer by helping set the cycles to lower water cost? Could you build it right into the console on a washer or dryer? Or could you encourage someone to buy a new car by telling them to forget about maintenance logs and just track the car's performance on a tablet?
If you provide content – are you planning for this? Recently The Economist sent me an email (I've registered on their web site) telling me they were going to start charging for web content. I've heard News Corp. properties, like the Wall Street Journal, intend to do the same. I guess they haven't noticed the world is moving in a direction that makes such a plan – well, impossible. In a recent Harris poll (reported on Silicon Alley Insider "People Won't Pay for News Online") 74% of web users said they'd simply switch sites before paying. With one of these eReader/Tablets in hand, why would they ever pay for content when another provider is a finger streak away? As access becomes easier and easier, the willingness to pay will go down and down. Publishers had better start figuring out how to get paid a different way than subscriptions!
Now is about when executives like to say "so I want to know which format will win before I start doing this. I only want to do this once." That old cry for efficiency. Unfortunately, while waiting for a winner to emerge, the waiter becomes the laggard. The early adopter, that recognizes the value provided to consumers, gets out there and starts using these innovations to drive better customer value. And to capture more sales. When you are part of making the market – like Apple in music – you gain huge advantages. You don't have to know all the answers to compete. You just have to be willing to Disrupt old notions and use White Space to experiment and learn.
I have drawers filled with obsolete electronics. How many obsolete cell phones do you own? How many big old monitors are you recycling to replace with flat screens? Do you still have a fax machine? I have an old keyboard that used something called "sideband technology" to allow me to interact with people and get news and sports info years before the internet was popular – and before wireless internet was available. Obsolete now, that device taught me how valuable the internet was going to be when Congress made it available for commercial use. Fear of throwing away a few products or software – maybe a betamax machine or copy of visicalc – is no reason not to get into the market and learn!
Markets are marvelous things. As these articles discuss, nobody knows how we will be using technology in the future. Not exactly. It will be some combination of eReader – computer – music player – television – telephone. But we do know the broad theme. And if you want to get out of this recession, you can start playing to this market shift now. You'll never grow if you sit on the sidelines watching and waiting. Get in the market. Participate. Use this technology to create new solutions! There are countless applications (as the expanding iPhone app base is proving.) Want to get into the Rapids of growth? You'll never succeed if you don't become part of the marketplace. Nothing creates learning like doing!
