by Adam Hartung | Sep 15, 2009 | Current Affairs, General, In the Whirlpool, Leadership, Lock-in
The Real Blindness Behind The Collapse
Adam Hartung,
09.14.09, 05:00 PM EDT
The exact same failing brought down Wall Street, Detroit and Main Street's real estate speculators.
"Too big to fail" is a new phrase in the American lexicon, born in the economic crisis that gave us a bankrupt Lehman Brothers and the shotgun marriage of Merrill Lynch with Bank of America.
Nobody really knows what it means, except that somehow in the banking
world, central bankers can decide that some institutions–like AIG, Citigroup, JPMorgan Chase and BofA–are so big they simply have to be kept alive.
This is the first paragraph in my latest column for Forbes. There is much EVERY business leader can learn from the collapse of Lehman. Learn about risk, and about how to succeed in a shifting marketplace. Please give the Forbes article a read – and put on a comment! Everybody enjoys reading what others think!
by Adam Hartung | Sep 2, 2009 | Current Affairs, Defend & Extend, General, In the Rapids, In the Whirlpool, Leadership, Openness
"Huffington Says Her Site Is Close To Making Money" is the video headline at Marketwatch.com. For years this blog has chastised traditional news publishers for trying to Defend & Extend their traditional business, when the market has shifted on-line —- both for readers and advertisers. Of course, the newspaper companies counter this argument by saying that they can't make any money on-line. They have to defend their traditional business – even from web competitors.
When shifts happen it's best to get started experimenting and migrating early. You may hate the political bent of HuffingtonPost.com, but that it's near making money shows that the model can work. Just differently than a newspaper or magazine. Unfortunately, most traditional media have been too busy trying to fend off the web to learn anything. For example, Tribune Corporation has long owned equity stakes in CareerBuilder.com and Cars.com as well as FoodChannel.com. But the company refused to learn from these ventures and migrate toward a different Success Formula.
Now it's too late for these traditional companies. You may think that if HuffingtonPost.com is still not quite profitable there's still time to compete. But reality is that Ms. Huffington's organization has been experimenting and learning and creating this Success Formula for 4 years. That kind of learning you can't pick up overnight. You have to participate in the marketplace, then make what you learn (good and bad) available for everyone to see. Then you have to discuss what you've learned openly so the organization can become knowledgable about what works and migrate toward a new Success Formula in which they have confidence. And that's why most companies react to market switches way too late. They think they can jump in at the last minute. But by then the HuffingtonPost.coms and Marketwatch.coms and MediaPost.coms have already learned how to succeed at this business, developed a subscriber base and created a viable ad sales program.
Take for example "Clunkers Program Boosts Ford, But Not GM, Chrysler" as headlined on Marketwatch.com. Now that the results are in from the government stimulated "clunkers" program, we know that the market has shifted away from GM and Chrysler. Year-over-year, Hyundai sales were up 47%, Honda up 9%, Toyota up 6.4%. Ford scored big with sales up 17%. But GM sales were down over 20%, and Chrysler sales fell 15%. We can see from this data that people were ready to buy cars, given a boost. While the overall market was up, we can see that it has shifted to a new batch of competitors. GM and Chrysler simply weren't prepared to compete – and it's doubtful they ever will be. They've missed the market shift, and now they don't have the R&D, products, distribution, marketing, etc. to remain competitive with companies that are seeing volumes and revenues rise.
Of course, every company has the opportunity to shift with markets – or be crushed by changes. The latest economic reports show that too many American businesses, like GM and Chrysler, are waiting to be crushed. "US productivity rises at fastest pace in nearly 6 years, while labor costs plunge in spring" is the ChicagoTribune.com headline. This is bad news for those thinking an economic upturn will save them.
When an economy grows productivity improvements are good. Imagine you sell 100 items. You have 100 employees. Productivity is 1. A growing economy allows you to sell 105, your employment remains the same, and productivity jumped 5%. Lots of winners – between the employees (more pay or bonus), the customers (possibly lower prices down the road based on rising volume), for investors (more profits) and for suppliers (more volume and less pressure on prices.) Let's say the economy slackens – like 2009. Volume drops to 90. But through cost saving measures employment drops to 86. Productivity just went up almost 5%! But nobody won. And that's what's happening today. Labor rates keep dropping because there's more labor supply than product demand – and if businesses keep cutting costs we'll improve our productivity right up while the economy keeps going down.
Business leaders need to be more like Huffington Post, and less like GM. To improve profits they need to recognize that markets have shifted, and move quickly to develop new Success Formulas which get them growing. Trying to Defend & Extend the old business, like newspaper publishers, simply drives you toward bankruptcy. Instead, it's time to Disrupt the status quo and create some White Space projects to learn what the market wants. It's time to experiment and get the whole company involved in applying the collective brainpower to develop new a new Success Formula which gets you growing, making more money, and improving productivity for real!
by Adam Hartung | Aug 12, 2009 | Current Affairs, Defend & Extend, General, In the Swamp, In the Whirlpool, Leadership, Lock-in, Weblogs
GM. Those two letters call up a lot of emotion these days. People ask,
"What went wrong?" "How could a company that large, that successful, go
bankrupt?" The less polite say: "General Motors' leadership is
corrupt." "They ignored customers." "The union killed them."
"Government interference." "Idiots."
This is the first paragraph of my new column on Forbes.com. You can read it, and future articles, in the Leadership section – Link Here.
I'm very excited to find new audiences for discussing what's caused the latest round of business problems – and failures. As well as spreading the message about how businesses can start growing again. Check out the column.
by Adam Hartung | Aug 4, 2009 | Innovation, Investing, Leadership, Software
A typical headline from last week read "Microsoft, Yahoo to Begin Joint Assault on Google". After a year of negotiating, the behemoth Microsoft finally came up with an accord to get some Yahoo technology in order to be more effective with its search engine product. "Microsoft to Tap 400 Yahoo Workers in Partnership" is the Marketwatch headline today trumpeting the plan to bring Yahoo engineers to Microsoft.
Will it make a difference? If we look at the trend, it looks doubtful (slide courtesy Silicon Alley Insider):
Of course, lots of folks think this isn't a very good idea. (Cartoon Courtesy DenverPost.com):
As John Dvorak pointed out in his column: "Microsoft and Yahoo Bring Google Good News." After all, the Google's competitors just went from 2 to 1 – a 50% reduction. What's more, the remaining player is not known for expertise in internet technology – merely its money hoard. Moreover, when it used its money hoard in the past it has rarely (never?) resulted in a success. No wonder BusinessWeek headlined "Microsoft and Yahoo: Too Little, Too Late, Too Hyped."
What's more intriguing to me is what this deal says about Microsoft. The company has already missed the market shift in search and ad placement. Search is "yesterday's news". Microsoft is still trying to fight the last war, not the next one. As it has done far too often, Microsoft remained Locked-in to its old Success Formula — all about the desktop and personal computing. It has not been part of the market shift to new applications and new ways of personal automation. That has been going to RIM, Apple, Oracle and other players. Microsoft has sat on its market share in the old market, piled up cash, but not taken the actions to be a winner in the next market – the next battle for growth. Now it's joint venture with Yahoo will strip out engineers, attempt to convert them to Microsoft ways of thinking, and put them into battle with not only the largest player in search and on-line ad placement – but the only one making money. And the one introducing new technologies and products on a regular basis.
Someone asked me last week "Who's the next GM?" I think they meant "who's the next big bankruptcy." But the better question here is "Who's the giant company that everyone thinks is competitively insurmountable, but at great risk of falling from market leadership into the Whirlpool – and eventual bankruptcy?" To that I say keep your eyes on Microsoft.
The comparisons between Microsoft and GM are striking:
- Early market leaders
- Developed near monopolies
- Challenged by the trust busters
- Created very high growth rates and huge cash hoards
- Considered a great place to work, with great longevity
- Bought up competitors
- Bought up technologies, and often never took them to market
- Became arrogant to customers
- Implemented a strong Success Formula that everyone was expected to follow
- Strong leaders that kept the companies "focused"
- Dominated their local geography as employers
- Tended to talk a lot about their past, and how what they've previously accomplished
- Tended to ignore competitors
- Avoided Disruptions – late to market with every product. Tried using marketing and money to succeed rather than being first with great products and solutions
- Never allowed White Space to develop anything new
This joint venture is not White Space. Microsoft may want to be in Search and ad sales, but the company is still relying on its old business to "carry it through." They have ignored Google and other competitors, and are trying to use the old Success Formula to compete with a much nimbler and more market-attuned competitor. They have ignored Disruptive innovations, and not developed any new solutions themselves. They have refused to allow White Space to develop new solutions for shifting market needs – instead trying to push the market to buy their solutions based on old ways of doing business. Don't forget that MSN and it's search engine have been in the market since the beginning – it's not like they just woke up to discover the market existed. Rather, they just started hinting that maybe, after 15 years of failing, they aren't doing the right things.
If you still own Microsoft stock, I predict a really bumpy ride. They won't go bankrupt soon. But GM spent 30 years going sideways for investors before finally going bankrupt. That looks like the future at Microsoft. If you're a vendor, expect poor returns to create a procurement environment intending to suck all profits out of your business. If you're a customer, expect "me too" products that are late, expensive and at best "lowest common denominator" in appearance and performance. If you're an employee, expect increased turnover, lot of infighting, increased internal politics, promotions based on reinforcing the status quo rather than results, and few opportunities for personal growth.
Employees, vendors and investors of Microsoft should read the free ebook "The Fall of GM: What Went Wrong and How To Avoid Its Mistakes." Everyone who has to deal with shifting markets needs to.
by Adam Hartung | Jul 22, 2009 | Current Affairs, Defend & Extend, In the Swamp, Leadership, Lock-in
"Pfizer reports lower profit, revenue" is the Marketwatch headline. Unhappy news has become the norm for Pfizer shareholders. Since peaking in 2000 at just under $50/share, the stock has gone nowhere but down for the entire decade – going below $13.00 in 2009 (see Yahoo Finance chart here). You have to go back to 1997 to find the last time Pfizer was valued this lowly. Despite its ownership of several well known, branded drugs – like Viagra and Lipitor – Viagra cannot regain revenue growth or investor interest.
Leadership has done a lot of things the last 10 years to try and improve the business. In 2000, at the valuation peak, the company bought Warner Lambert. In 2002 Pfizer bought Pharmacia (the merged Upjohn/Searle company). In 2005 they spent massively on legal work to protect the remaining patent life on Lipitor. In 2006 they sold the consumer products business to Johnson & Johnson. Across the last 4 years the company has dramatically cut R&D costs for both human and animal products. And earlier this year they agreed to pay a premium to buy Wyeth. But none of this has increased valuation for the last 8 years. To the contrary, value has continued to step down again, and again, and again – losing about 70%.
The problem at Pfizer is management built a Success Formula many years ago, and keeps trying to defend it. They believe in the model of finding, or buying, blockbuster drugs – meaning a product with wide appeal. And selling this only if it has patent protection in order to generate a huge price premium. This made Pfizer huge and profitable long ago. And the company keeps trying to find a way to replay that tune, hoping to achieve the old results.
But the world has shifted. The science of pharmacology has been mined for nearly 100 years. Today, most new drugs have as many problems as benefits. Increasingly, improvement happens only in narrow population niches where genetics align with the chemical additive. Pharmacology is running out of gas. Medical science has shifted to biologics. Instead of looking for a chemical solution, the focus is on nano-tech to isolate product delivery directly to diseased cells. Or engineering to alter genes through cell modification for superior healing performance. These bio-engineering solutions are now offering far better results at far lower cost – while the costs of pharmacology skyrocket amidst diminishing returns.
Pfizer has not shifted. Pfizer management keeps trying to Defend & Extend its old business. Locked-in to the old Success Formula, leadership looks for new drugs, new therapy programs, new solutions that "fit" its approach to the market. But it simply isn't paying off. And everyone from investors to employees to suppliers is at risk. Desperately, leadership is willing to overpay for Wyeth to avoid falling into oblivion when existing drugs come off patent protection in the next few years. But everyone knows this game is nearly over. This may extend the senior leader's jobs, and their pay, it doesn't provide a return to shareholders. Unless leadrship changes the Success Formula Pfizer will never again be as profitable as it once was, or grow as it once did.
Even though it is located in New Jersey, not Michigan, and is full of phramacology Ph.Ds and medical doctors rather than mechanical engineers, Pfizer is more like GM than it would ever admit. It developed a Success Formula, and it is doing everything possible to keep it alive – rather than shift with the market. As GM has shown, no matter how big you are if you don't shift with the market eventually you go bankrupt. Size is no protection from market shifts. Too bad for investors and employees that size is the only thing leadership is trying to use to protect itself.
Don't forget to download the free ebook "The Fall of GM: What Went Wrong and How To Avoid Its Mistakes."
