by Adam Hartung | Mar 31, 2009 | Current Affairs, Defend & Extend, Disruptions, In the Whirlpool, Leadership, Quotes
Readers of this blog know I've been very pessimistic about the future of GM for well over 2 years. And I've long extolled the need to change top management. I'm passing along some quotes from Professor Rosabeth Moss Kanter at the Harvard Business School in "Why Rick Wagoner Had to Go" at Harvard Business School publishing's web site.
"It was only a matter of time before GM's Rick Wagoner would have to go, and the board with him. I am surprised he lasted this long, a fact that also shows weakness on the board side…. In this tough economic environmnet, if you wait too long to envision and implement transformational changes you are out of the game. That holds for every industry under attack because of obsolete business models, including newspapers and big pharma…. New leaders at the top can bring a novel perspective, unburdened by the need to justify strategies of the past, and not stuck in a narrow way of thinking…. Companies finding themselves in a downward spiral need fresh views, not just redoubled efforts to do the same thing while waiting for the recession to end….. Now is the time for every company to do what GM failed to do fast enough and imaginatively enough: rethink everything. What…. takes you into the future, and what is just legacy, continued out of sentiment?"
Thanks Professor Kantor, I agree completely. GM was stuck Defending & Extending its old Success Formula, and as a result performance deteriorated to the point of failure. And it's not just GM. As the good professor points out, media companies that remain tied to newspapes have the same problem. Today the Sun Times Group, publisher of the Chicago Sun Times declared bankruptcy ("Sun Times Files for Bankruptcy" Marketwatch.com). There is no longer a major newspaper in Chicago that is not bankrupt. And this blog has covered how big pharma has stayed too long at the trough of old inventions, missing the move to biologics.
Things are bad. "All 50 states in recession for first time since the 1970s" is one of two Marketwatch.com headlines, "Global Economy to Shrink in 2009, World Bank Says." The downturn is expected to be 1.7% globally, a disaster for small and emerging economies. This is killing global trade (down 6.1%) and whipsawing countries like Russia – moving from growth last year of over 6% to a decline this year of over 4%! This is the stuff that has led to revolutions!
The only way out of this situation is for organizations to listen to the good professor, and not try to do more of the same. Markets have shifted – permanently. Management actions that are designed to weather short-term downturns, mostly by cost-cutting and conserving resources, don't work when markets shift. Instead, businesses have to develop new Success Formulas that get them out of the Whirlpool's spiral and into the Rapids of Growth. To do this requires planning based upon future senarios, not what worked before. Obsessing about competitors globally to develop new solutions. Not fearing, but rather embracing Disruptions that allow for trying new things in White Space where you have permission and resources to really develop new solutions. These 4 steps can turn around any organization – if you don't wait too long.
by Adam Hartung | Mar 29, 2009 | Current Affairs, Disruptions, General, Innovation, Leadership, Openness, Web/Tech
"Management is not a science, like physics, with immutable laws and testable theories. Instead, management, at its best, is an intelligent response to outside forces, often disruptive ones." So says Steve Lohr in " How Crisis shapes the Corporate Model" in The New York Times Saturday.
For years, many people thought of management as being all about execution. How to build plants, make things, sell those things and finance the operations of building and making stuff. In fact, whole books were written on execution, with the basis that strategy was pretty much unimportant. If you could execute well, what's the need for strategy?
But the last year has shown everyone that the world is a dynamic place. GM missed many changes, and now is barely alive. Despite a focus on execution, the CEO Rick Wagoner has been forced to step down by the administration if GM is to get more bailout money (see "GM's Wagoner Will Step Down" WSJ.com March 29) When you get behind, a "re-invention gap" emerges where the competition keeps going with the market further and further into the future, while you are left behind struggling to sell, grow and make money as you focus on execution. The longer you keep focusing on execution, the bigger the gap gets. Depending on size and competition, eventually you end up completely out of step with the market and unable to compete. Like GM.
The pressure to change with market needs is high everywhere, from banks to manufacturers to newspapers. From General Electric to Sara Lee to Sun Microsystems to The Tribune Corporation, companies that can't adapt to changes have seen their valuation hammered. And the companies we like today are those demonstrating they can adapt to market needs – like Google, Apple, RIM and Virgin. These companies are today investing in launching new products, investing in growth, rather than just trying to cut cost and execute on old business practices while waiting for the return of "better times."
Globalization is now hitting everyone. No industry, and no player in any industry, can ignore the impact of global competition in the way they compete. Today, we can wire together businesses from various service providers, with precious little investment, and reach customers quite profitably while maintaining enormous flexibility. Just ask Nike if you want to know how to "do it."
Focus, hard work, diligence – these have been the mantra for many business leaders. It makes us feel good to think that if we work hard, if we keep our eye on execution, we can succeed. But as readers of this blog have known for 4 years, those admirable qualities do not correlate to success (as academics and journalists have been pointing out when arguing with Jim Collins and his spurrious mathematical exercises). To be successful requires adaptability. You have to constantly scan the horizon for market shifts and emerging competitors that are ready to disrupt markets. And be ready to change everything you do, not just part of it, if you want to compete in the markets as they shift.
The companies, and executives, that will fail as a result of these tumultuous times has not been determined. You can keep from being one of the downtrodden if your focus remains on identifying future market needs and adapting to new competitors through White Space where you can develop new solutions. It's very possible to succeed going forward, if you're adaptive. Or you can end up like Mr. Wagoner and the management team at GM.
PS – The New York Times Company had better start reading its own material and undergo same radical adaptation of its own, or it may not survive to be a media player very soon. To steal from an old saying, it's about time that cobbler started checking his own family's shoes.
by Adam Hartung | Mar 25, 2009 | Current Affairs, Disruptions, General, Innovation, Leadership, Web/Tech
Forbes Magazine reviewed the new car from Tata Motors in "Nano Lives Up To The Hype." Although we've known Tata Motors was designing and preparing this low-end car for a couple of years, most people were ignoring it. But now it's here, and according to Forbes the $2,000 car exceeds expectations. It's not a golf cart on wheels, it's "a proper car." And it's about to go on sale in India.
So the world's largest car company, General Motors, is on the edge of bankruptcy – only able to stay out via the largesse of loans from the U.S. government. Their sales are down 40%. And at the same time, from far away in a country well known for poor roads, emerges a new competitor ready to sell cars at 1/5 the price of any car sold in America – or the rest of the western world. Do you suppose the executives at GM or staying awake worrying about the Nano, or do you think they are ignoring this car altogether while trying to figure out how to sell more Chevy's?
Admittedly, the Nano comes from the fringe of competition. People don't think of manufacturing when they think of India, they think of IT. And they sure don't think of cars. Powered rickshaws maybe. And the car itself weighs only about 1,350 pounds – half what any other car weighs. It's really designed for performance up to about 40 miles per hour, and it's not a great performer on the way to reaching the top speed of 65. Although loaded with interior room, it has no back access – not even a fuel hatch. It would be very easy to ignore. It's easy to say this may be the next Yugo. But, this one seems a lot more like the original Honda Civic in 1973. Bare bones vehicle from a foreign country that's cheap, but otherwise "not up to American standards?" Or is it a bare bones car from a new competitor with a strong desire to learn, improve and eat into the share of current competitors?
Any car executive who's smart is paying a lot of attention to the Nano. Firstly, it demonstrates making a car at an unheard of price. For much of the world, this offers people their first chance at an automobile of any kind. So it brings in new users who would otherwise be left out. It's price, alone, shows that in a global economy, auto production is headed toward lower prices due to lower world-wide cost. If this vehicle is satisfactory to westerners, or can be made satisfactory over the next few years, it may never again be possible to pay American labor rates for producing automobiles. For basic transportation, American labor may be too expensive.
Additionally, the Nano went from idea to car in about 3 years. No 5 or 6 year cycle, like American car companies desire. Tata has demonstrated it can design and manufacture a car in about half the time of the existing auto companies. So the cycle time is shortened even more. And that this car can be profitable at volumes a fraction of the American production runs shows that markets need not be enormous – and old notions about tooling and other fixed costs of production may be things of the past.
Nano demonstrates why we HAVE to obsess about competitors. Including "fringe" competitors. Because these new competitors are figuring out how to do things differently. They are shooting for future markets, not past markets (like India, China, eastern Europe, South America, Africa). They are developing new Success Formulas that have different requirements, possibly obsoleting the old Success Formulas. It's so easy if you're selling books to say "no one will buy books on the web" when you see the early interface and business model for Amazon – rather than think where this new competitor will be in a couple of years. If you're selling land-line phone service it's easy to deride the quality of early cell phones, and project they will never move beyond niche users. But smart competitors know that when a new product is introduced by a fringe competitor, it's best to pay really, really close attention. You may need to be more like that competitor than you realize in a great big hurry.
by Adam Hartung | Mar 24, 2009 | Current Affairs, Defend & Extend, In the Swamp, In the Whirlpool, Leadership, Weblogs
"Senator proposes nonprofit status for newspapers" was the headline at Marketwatch.com today. Senator Benjami Cardin, a democrate from Maryland, has proposed allowing newspapers to convert to 501(c)(3) status so their subscription and advertising revenue woujld be tax exempt, while contributions to run the papers would be tax deductible. This would allow some newspapers to stay afloat.
Let me share with you a response I received from a fellow reader of this blog:
"I watched Chris Mathews and had the same feeling. As they spoke I had visions of chiefs of Bethlehem, U.S. Steel, etc. sitting around a table in the 60s going 'continuous casting, those Japanese, that's not going anywhere.'
How can they say investigative reporting is going to be dead – there are a million reporters out there working for passion and curiosity. As a matter of fact, if I was going to be paid for a year to chase a story, seems to me a strong incentive to create a story when there really wasn't one.
I loved the way they were holding the paper and saying how people will miss the periphery articles. People will be limited to their feeds and be exposed to the rest of what's going on. I look at it as if I read an article in a newspaper that is just one take of the situation. With the internet I can drill down to get additional information and opinions. Plus get immediate commentary from experts."
Lots of people are getting "subsidy happy" these days. Money to banks, money to car companies, money to newspapers. What we must realize is that these short-term subsidies should be targeted at stopping a worse calamity. Nothing more. Sort of trading off company subsidies against even higher costs for unemployment, uninsured health care, and the costs of letting companies fail short-term. The reality is that none of these subsidized companies are sustainable as they are. The market has shifted, and their Success Formulas no longer produce positive results. They will burn up the subsidy money, as we've already seen happen at GM, and soon ask for more.
When markets shift, new competitors emerge to thrive. Provided we don't get in their way by propping up bad competitors too long with subsidies. In banking, we saw the unregulated institutions on a global scale start doing all sorts of financial services. While some of these are reverting back to regulated banks in the U.S. today so they can receive subsidies, globally we have seen the emergence of immense banks that are outside U.S. regulation. These institutions can borrow and lend globally, and are creating a new approach to financial services. We can't prop up an uncompetitive Citigroup against giant global banks making profits offshore. Likewise, globalization of manufacturing now means that good, low cost cars can be produced in Korea, China and India – making rates of return on higher cost labor in the USA, Germany and Japan harder to obtain. Additionally, many of these offshore competitors (in particular Japanese and Korean) have demonstrated they can deliver proifts on far lower volumes, thus requiring faster launch cycles and more niche products to succeed. GM lacks the manufacturing cost structure (in short-term line costs as well as labor) and the new product introduction processes to survive against these competitors. In newspapers consolidating the reporting into a daily made sense when you needed vast and costly infrastructure to print and deliver the news – no longer requirements in a web-enabled news marketplace.
Economists can make strong arguments for subsidies to help short-term dislocations. Such as helping companies in New Orleans to get back up and running due to a hurricane. That is a short-term problem not related to a market shift. But arguments for subsidies offered during market shifts are strictly "public policy" efforts trading off one policy cost for another. They cannot "save" a business. The company and its employees must use the subsidy to change their Success Formula as fast as possible, so they can compete with some product in some market where they can grow — without need for a subsidy
TARP and its other stimulus products are intended to keep some air in some parts of the boat so it doesn't sink entirely. But they aren't fixing the ship. That requires new competitors emerge that are attuned to current market needs, and have Success Formulas that produce profits based upon future markets. As the economist Schumpeter said 70 years ago, we rely upon these new entrepreneurs to give us the creative new solutions that create growth in the wake of the destruction of old businesses unable to keep up with shifting markets. Let's hope we don't spend all our money trying to keep the old battleship afloat, because we'll need some to help the newer, faster, more agile competitors grow with solutions that meet current and future needs.
by Adam Hartung | Mar 20, 2009 | Current Affairs, General, In the Swamp, In the Whirlpool, Innovation, Leadership, Lock-in, Travel, Web/Tech
"Xerox chops earnings outlook as sales slide" is the headline on Marketwatch.com. Do you remember when Xerox was considered the most powerful sales company on earth? In the 1970s and into the 1980s corporations marveled at the sales processes at Xerox – because those processes brought in quarter after quarter of increasing profitable revenue. Xerox practically wiped out competitors – the small printing press manufacturers – during this period, and "carbon paper" was quickly becoming a museum relic (if you are under 30 you'll have to ask someone older what carbon paper is – because it requires an explanation of something called a typewriter as well [lol]).
But today, do you care about Xerox? If you have a copier, you don't care who made it. It could be from Sharp, or Canon, or anybody. You don't care if it's Xerox unless you work in a "copy store" like Kinko's or run the copy center for the corporation – and possibly not even in those jobs. And because desktop printers have practically made copiers obsolete, you may not care about copiers at all. In short, even though Xerox invented the marketplace for widespread duplicating, because the company stayed in its old market of big copiers it has seen revenue declines and has largely become irrelevant.
"U.S. airline revenue plunges for another month" is another Marketwatch.com headline. And I ask again, do you care? The airlines were deregulated 30 years ago, and since then as a group they've never consistently made money (only 1 airline – Southwest – is the exception to this discussion.) The big players in the early days included TWA, Eastern, Braniff, PanAm – names long gone from the skies. They've been replaced by Delta, American and United – as we've watched the near collapse of US Airways, Northwest and Continental. But we've grown so used to the big airlines losing money, and going bankrupt, and screaming about unions and fuel costs, that we've pretty much quit caring. The only thing frequent travelers care about now is their "frequent flier miles" and how they can use them. The airline itself is irrelevant – just so long as I get those miles and get my status and they let me board early.
When you don't grow, you lose relevance. In the mid-1980s the battle raged between Apple's Macintosh and the PC (generically, from all manufacturers) as to which was going to be the dominant desktop computer. By the 1990s that question had been answered, and as Macintosh sales lagged Apple lost relevance. But then when the iPod, iTunes, iTouch and iPhone came along suddenly Apple gained a LOT of relevance. When companies grow, they demonstrate the ability to serve markets. They are relevant. When they don't grow, like GM and Citibank, they lose relevance. It's not about cash flow or even profitability. When you grow, like Amazon with its Kindle launch, you get attention because you demonstrate you are connected to where markets are headed.
Is your business obsessing about costs to the point it is hurting revenue? If so, you are at risk of losing relevance. Like Sara Lee in consumer goods, or Sears in retailing, even if the companies are able to make a profit – possibly even grow profits after some bad years – if you can't grow the top line you just aren't relevant. And if you aren't relevant, you can't get more customers interested in your products/services, and you can't encourage investors. People want to be part of Google, not Kodak.
To maintain (or regain) relevance today, you have to focus on growth. Cutting costs is not enough. If you lose relevance, you lose your customer base and financing, and you make it a whole lot easier for competitors to grow. While you're looking internally, or managing the bottom line, competitors are figuring out the market direction, and proving it by demonstrating growth. And that's why today, even more than before, it is so critical you focus planning on future markets for growth, obsess about competitors, use Disruptions to change behavior and implement White Space to experiment with new business opportunities. Because if you don't do those things you are far, far too likely to simply become irrelevant.
[note: Thanks for feedback that my spelling and grammar have gotten pretty sloppy lately. I'm going to allocate more time to review, as well as writing. And hopefully pick up some proofreading to see if this can improve. Sorry for the recent problems, and I appreciate your feedback on errors.]
