New Decade – New Normal

by | Dec 31, 2009 | Current Affairs, Defend & Extend, General, Leadership, Openness, Web/Tech

HAPPY NEW YEAR!

We end the first decade in 2000 with another first.  In ReutersBreakingViews.com "Don't Diss the Dividend" we learn 2000-2009 is the first time in modern stock markets when U.S. investors made no money for a decade.  Right.  Worse performance than the 1930s Great Depression.  Over the last decade, the S&P 500 had a net loss of about 1%/year.  After dividends a gain of 1% – less than half the average inflation rate of 2.5%. 

Things have shifted.  We ended the last millenium with a shift from an industrial economy to an information economy.  And the tools for success in earlier times no longer work.  Scale economies and entry barriers are elusive, and unable to produce "sustainable competitive advantage."  Over the last decade shifts in business have bankrupted GM, Circuit City and Tribune Corporation – while gutting other major companies like Sears.  Simultaneously these changes brought huge growth and success to Google, Apple, Hewlett Packard, Virgin and small companies like Louis Glunz Beer, Foulds Pasta and Tasty Catering.

Even the erudite McKinsey Quarterly is now trumpeting the new requirements for business success in "Competing through Organizational Agility."  Using academic research from the London Business School, author Donald Sull points out that market turbulence increased 2 to 4 times between the 1970s and 1990s – and is continuing to increase.  More market change is happening, and market changes are happening faster.  Thus, creating strategies and organizations that are able to adjust to shifting market requirements creates higher revenue and improved operational efficiency.  Globally agility is creating better returns than any other business approach. 

A McKinsey Quarterly on-line video "Navigating the New Normal:  A Conversation with 4 Chief Strategy Officers," discusses changes in business requirements for 2010 and beyond.  All 4 of these big company strategists agree that success now requires far shorter planning cycles, abandoning efforts to predict markets that change too quickly, and recognizing that historically indisputable assumptions are rapidly becoming obsolete.  What used to work at creating competitive advantage no longer works.  Monolothic strategies developed every few years, with organizations focused on "execution," are simply uncompetitive in a rapidly shifting world.

And "the old boys club" of white men in top business leadership roles is quickly going to change dramatically.  In the Economist article "We Did It" we learn that in 2010 the American workforce will shift to more than 50% women.  If current leaders continue following old approaches – and generating anemic returns – they will rapidly be replaced by leaders willing to do what has to be done to succeed in today's marketplace.  Like Indra Nooyi of PepsiCo, women will take on more top positions as investors and employees demand changes to improve performance.   Leaders will have to be flexible and adaptive or they, and their organizations, will not survive.

Additionally, the information technology products which unleashed this new era will change, and become unavoidable.  In Forbes "Using the Cloud for Business" one of the creators of modern ERP (enterprise resource planning) systems (like SAP and Oracle) Jan Baan discusses how cloud computing changes business.  ERP systems were all about data, and the applications were stovepiped – like the industrial enterprises they were designed for.  Unfortunately, they were expensive to buy and very expensive to install and even more expensive to maintain.  Simultaneously they had all the flexibility of cement.  ERP systems, which proliferate in large companies today, were control products intended to keep the organization from doing anything beyond its historical Success Formula.

But cloud computing is infinitely flexible.  Compare Facebook to Lotus Notes and you start understanding the difference between cloud computing and large systems.  Anyone can connect, share links, share files and even applications on Facebook at almost no cost.  Lotus Notes is an expensive enterprise application that costs a lot to buy, to operate, to maintain and has significantly less flexibility.  Notes is about control.  Facebook is about productivity.

Cloud computing is 1/10th the cost of monolithic owned/internal IT systems.  Cloud computing offers small and mid-sized companies all the computing opportunity of big companies – and big advantages to new competitors if CIOs at big companies hold onto their "investments" in IT systems too long.  Businesses that use cloud architectures can rearrange their supply chain immediately – and daily.  Flexibility, and adaptability, grows exponentially.  And EVERYONE can use it.  Where mainframes were the tool for software engineers (and untouchable by everyone else), the PC made it possible for individuals to have their own applications.  Cloud computing democratizes computing so everyone with a smartphone has access and use.  With practically no training.

As we leave the worst business environment in modern times, we enter a new normal.  Those who try to defend & extend old business practices will continue to suffer  declining returns, poor performance and failure – like the last decade.  But those who embrace "the new normal" can grow and prosper.  It takes a willingness to let scenarios about the future drive your behavior, a keen focus on competitors to understand market needs, a willingness to disrupt old Lock-ins and implement White Space so you can constantly test opportunities for defining new, flexible and higher returning Success Formulas.

Here's to 2010 and the new normal!  Happy New Year!

Be Wary of Quick Fixes – HP, Dell, EDS and Perot Systems

by | 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.