by Adam Hartung | Oct 27, 2009 | Current Affairs, Defend & Extend, General, In the Swamp, Innovation, Leadership, Lock-in, Web/Tech
"IBM authorizes another $5Billion for share buybacks" is the Marketwatch.com headline. This brings the amount available for buying the stock to $9.2billion – or enough to buy about 73.6million shares. But it begs the question, what value will this bring anyone?
"The U.S. Workplace: A Horror Story" is the CIOZone.com headline. A survey by Monster.com and The Human Capital Institute of more than 700 companies (over 5,000 workers) discovered that by and large, employees are mad at their employers. They don't trust business leaders, and think those leaders are exploiting the recession for their own purposes (and gains). 79% of workers would like to find a better employer – to switch – but only 20% of employers have a clue how many workers have become disillusioned.
Simultaneously, "Many vanished jobs might be gone for good" is the Courier-Journal.com headline. Historically, increases in manufacturing (usually led by autos) and construction (primarily housing) caused recessions to diminish. But nobody expects either of those sectors to do well any time soon. Manufacturing is showing no signs of improving, in any sector, as we realize that all the outsourcing and offshoring has permanently reduced demand for American labor. And quite simply, very few investments are being made by business leaders that will create any new jobs.
"ALL BUSINESS: Innovation Needed Even in a Recession" is the Washington Post headline. The article points out that almost all recent improvement in profitability – boosting the stock market – has been through cost cutting. But that has done nothing to help companies improve revenues, or improve competitiveness. It's done nothing to bring new solutions to market that will increase demand. Quoting the former Intel CEO Gordon Moore – "you can't save your way out of a recession" – the article cites several consultants who point out that companies which earn superior rates of return use recessions to invest in new technologies and innovations that create new demand. And eventually new jobs. But today's CEOs aren't making those investments. Instead, they are taking short-term actions that dress up the bottom line while doing nothing about the top line.
Which brings me back to IBM. Who benefits from $9.2billion being spent by IBM on its own stock? Only the top managers who have bonuses and options linked to the stock price. The shareholders will benefit more if IBM invests in new products and services that will increase revenues and drive up long-term equity. Employees and vendors will benefit from creating new solutions that generate demand for workers and components. Almost nobody benefits from a stock buyback – except a small percentage of leaders that have most of their compensation tied to short-term stock price.
What new innovations and revenues could be developed if IBM put that $9.2billion to work (a) at its own R&D, product development labs or innovation centers, or (b) at some young companies with new ideas that desperately need capital in this market where no bank will make a loan, or (c) with vendors that have new product ideas that could meet shifting markets?
That's the beauty of an open market system, it supposedly funnels resources to the highest rate of return opportunities. But this doesn't work if managers only cut costs, then use the money to prop up stock prices short term. It's a management admission of failure when it buys its own stock. An admission that there is nothing management can find worth investing in, so it will use the money to artificially manipulate the short-term stock price. For capitalism to work resources need to go to those new business opportunities that generate new sales. Money needs to flow toward new health care products and new technologies – not toward keeping open money-losing auto companies and failed banks that won't make loans.
If we want to get out of this recession, we have to invest in new solutions that will increase demand. We have to seek out innovations and fund them. We cannot simply try to Defend & Extend Success Formulas that are demonstrating their inability to create more revenues and profits. Laid off workers do not buy more stuff. We must put the money to work in White Space projects where we can learn what customers need, and fulfill that need. That in turn will generate jobs. And only by investing in new opportunity development will workers begin to trust employers again. IBM, and most of the other corporate leaders, need to "get it."
by Adam Hartung | Oct 14, 2009 | Current Affairs, In the Rapids, Innovation, Leadership, Openness, Web/Tech
"Samsung Seeks Some iPhone Magic" is the Wall Street Journal headline. Hand it to the Korean company to demonstrate how to make money out of market shifts. Not only is Samsung looking to add more capability to its mobile handsets – the obvious Defend & Extend action – but the company is developing applications for all its products to get into new, emerging markets. It is now adding internet capability into almost all the devices it designs, makes and sells.
Recognizing the market Challenge, in 2008 Samsung set up a White Space project with permission to explore just how it could coordinate software and content for cell phones. But quickly the team recognized this charter was not sufficient permission. They went back and asked to extend their opportunity development to everything Samsung makes (or considers making.) By making sure it had the right permission to really think broadly about the opportunities, this White Space team made sure it could really accomplish the greatest gains.
Kudos to the company for resourcing this effectively. Samsung did not reach into the different business lines and ask each one to devote "some" resource onto this project. That approach usually ends up getting almost no attention until year end when people remember this was on the checklist for bonuses. Instead Samsung dedicated resources – money and people. And Samsung made this into a business unit which is intended to make a profit!! This isn't just an experiment – a lab – it's White Space that is intended to figure out new opportunities, as well as the business model which would make these new innovations profitable.
Samsung is a company historically known for manufacturing skills, supply chain management and lower cost. Yet, it is showing that regardless of size (Samsung is one of the largest companies in Korea and one of the world's largest electronics companies) or history any company can establish White Space to connect with market shifts and introduce innovation.
Do you have White Space in your company? Or are you relying on your old Success Formula to return you to previous growth rates and profitability? What are you doing to take advantage of market shifts – like what's happening with iPhones, Kindles, Tablet devices and other innovations? You might want to take a tip from Samsung and set up some White Space with permission and resources to investigate how you could participate in market shifts to make more money!
by Adam Hartung | Jun 4, 2009 | Uncategorized
This week marks the 20th anniversary of the Chinese student uprising in Tiananmen Square, and its brutal put-down by the Chinese leadership. Ironically, the same week GM agrees to sell its Hummer division to a Chinese company. Quite a contrast in outcomes over 20 years. China was then a backwater nation having very little business with the USA, and GM was still considered a dominant U.S. industrial power.
We all know what China has accomplished in the last 20 years. From struggling poverty, the country is now the third largest economy – and the single largest offshore holder of America's debt. China is poised to be a superpower, and the world's largest economy within another 20 years. How?
Within months of the Tiananmen event, in which the Chinese military slaughtered thousands of its own citizens, the Berlin Wall tumbled. The Soviet Union evaporated, leaving behind a series of independent states poorly capitalized and ill prepared to compete internationally. The Chinese leadership recognized this as a major market shift, and wasted no time taking action.
Step 1 was recognizing that future scenarios no longer required investing massive funds defending the world's longest contested border. More tanks were on the Chinese/Soviet border than all the rest of the world combined – and the replacement of those tanks suddenly became non-essential. And the Chinese recognized this, and changed. With speed exceeding anything anybody imagined, the Chinese changed all their scenarios about the future. Instead of spending massive funds on military works, those funds could be spent elsewhere. By reworking their future scenarios, they realized they could undertake different opportunities. No longer were they required to do "more of the same" as they'd done for several decades.
Step 2 was recognizing the new competition. Instead of fighting a traditional war, the Chinese would be in an economic war with the smaller eastern European nations, and India. Dissolving the USSR meant the Indians, who had long sparred with the Soviets while also taking aid, suddenly knew they had to rely completely on the USA – and trade. And that meant the Chinese had a new #1 competitor, but in the new battle for trade rather than old fashioned aid. Where before China wanted money for armaments, now they needed to invest money in production to pull dollars from U.S. business. The new objective became competing with India, rather than the Russians.
Thirdly, they Disrupted their approach to world diplomacy. Instead of a closed country, they became open. Instead of investing in guns, they invested in power plants, roads and infrastructure. On the world stage, China wanted to become the biggest winner of foreign exchange. And the road to that win came through participating with American capitalists. The leadership realized it needed to totally change the country's investment patterns in order to make the country's low cost labor available, and it did so. Almost overnight. How, by recognizing and undertaking a Disruption in their investment patterns.
Fourth, China implemented White Space for job creation. Suddenly, almost every city had a development zone. They didn't need to figure out what infrastructure to buy. All they had to do was invite the Americans in and we'd tell them what we wanted. We'd describe the airports, power plants, telecom systems, roadways – everything we wanted to give them the work (and foreign exchange). All they had to do was listen and do it.
China is an example in doing things differently, changing how you
compete to be very efffective, without really changing values.
People often tell me they worry that The Phoenix Principle means you
have to give up your ideals. I disagree. Being a Phoenix organization
means you're willing to adapt to market requirements, and doing so does
not mean you have to change your "ethos," religion or personal values.
You merely have to adapt. If you want to be "green" or "sustainable" or "ethical" or even "religious" you can do so. You just have to make sure you are connected to the marketplace in ways that allows you to develop a Success Formula which creates growth.
Compared to India, the Chinese have been wildly successful. And that's saying lot, given how incredibly successful India has been. There is no doubt that India, too, has used outsourcing to raise foreign exchange, create jobs and grow. But compared to China, well there's no comparison. The Indian government is still trying to figure out how to build a highway, expand major (overcrowded) airports and provide consistent electricity to business parks in major cities. The Indian leaders don't suffer from a lack of smart – no way – but the government keeps trying to operate the way it always has. And that has held them back from making the investments and taking the actions which have catapulted the Chinese into the lead. While India had a head start in 1989 (largely English speaking leadership and a strong investment in education for the elite), China has eclipsed their growth and is chasing Japan and the USA.
Through all of this, China never changed its politics. Some people who go to China return talking about how "capitalistic" the country is. They forget the lessons of Tiananmen Square. China has been and remains a tightly controlled, Communist, centrally-planned country. "China scholars see little chance for political reform" is the headline describing how the politics of China are unchanged since the days when they shot thousands of their own students, and imprisoned thousands more. Several students taken prisoner have never been heard from again. Those that fled the country are not allowed to return – and their families were subsequently required to consider them bad Chinese. Many were held in prisons for years, and others are still in remote work camps. China is still China, deep inside. No more a market/capitalistic country than it ever was. It just learned to adapt to a changing world. (Something Chairman Mao tried to avoid – almost destroying the country.)
Coincidentally, my 21 year old son returned from a month in China yesterday evening. He was visiting manufacturing plants and engineering schools. We talked, and will talk more, about what the Chinese businesses and schools are doing. Why, and exactly HOW do these schools and factories affect competition? Competition to be a world-class engineer (he's a mechanical engineer prepping for his civil engineering master's degree), and competition for building things. As he summed it up before crashing to sleep "they do things entirely differently than we do in America – and I can easily see why they get things done cheaply. They do things in a uniquely Chinese way, but it meets the needs of American companies who want lower costs and market access. This may have been my first trip to China, but it won't be my last. It can't be if I want to remain competitive. Maybe I need to learn Mandarin or Cantonese so I can go to one of their schools for a year."
We all have to learn to adapt. The world changes. Every year. If we try to resist those changes, to Defend & Extend what we like to do, we grow further out of touch with market requirements and lose the ability to compete. You don't have to "sell your soul" to adapt. But you must adapt if you want to continue succeeding. You have to make your investments based upon what will make you a winner in the future – not what made you a winner in the past. You have to study competitors, and do those things that will make you a winner. You have to accept Disruptions by attacking old Lock-ins, and use White Space to develop new solutions. If you do that, even at the scale of the Chinese economy, you can have unbelievably successful results. Or at the level of an individual engineer. If you don't the results aren't pretty. Not pretty at all. Just ask the employees at GM.
by Adam Hartung | Jun 2, 2009 | Current Affairs, In the Whirlpool, Leadership, Openness
How appropriate. "GM strikes deal to sell Hummer" headlines a Marketwatch.com article. A day after declaring bankruptcy, Hummer with all its branding and product drawings is going to China. It seems everything about GM is iconic – including its movement of an operating auto businesses to China.
Is this bad for America, or good? I'd rather say it's inevitable. In a global economy, industrial production will move to the lowest cost location. And with a low valued currency, a very lowly paid workforce, and access to very inexpensive capital that puts China at the top of the list. Unless you want to bring back Chairman Mao and wall-in China, the population density and government programs make it inevitable that the country will be a leader in manufacturing.
But that doesn't equate to high value.
America is the world's largest agricultural nation. But has that made America wealthy? Not since the 1800s has it been true that land ownership for agricultural uses made Americans – and the nation – wealthy. As the value of agriculture declined – largely due to dramatic increases in production – America's wealth shifted to industrial production. It was by being the largest and most productive industrial nation that America prospered during the Industrial economy.
But now, industrial production has razor thin margins. Much like agriculture. Over-invest in capacity, and you can end up with under-utilized (or closed) plants and not much margin from other businesses to cover the cost. Not since the 1990s has America operated anywhere near "full capacity" on its manufacturing base. The "good" years of the last decade were unable to produce industrial jobs, or wealth for industrial companies (i.e. – GM's bankruptcy.)
In the great battle for economic leadership, the next wave is about information. How to obtain, use and manipulate information is where value is now created. Steel traders can make more than steel producers today. If you want to improve your profitability, and your longevity, you have to change your thinking from "how do I make and sell more stuff" to "what do I know they don't know, and how do I turn that into value?"
For somebody selling autos, it's becoming a lot more important to understand customer wants and preferences than to be good at making cars. Toyota and Honda can identify opportunities first, and put products into the market faster than anyone else. They can maximize their product development and short-run capability to reach targets fast, and gain advantages over competitors. Don't forget, Honda made money not just on small, high mileage cars but on a full-size pick-up called the Ridgeline (and Toyota on the Tundra). These companies are better at using scenarios to recognize early market shifts, and clearer about competitor moves so they can position products to fulfill unique customers needs. Even if it means launching products not traditional to their "core" – like Honda's Ridgeline, it's manufacturing robotics, and its new jet airplanes.
In the industrial era, people sought scale advantages and tried to build entry barriers against competitors. In the information economy flexibility is equally (or more) important than size. Recognizing customer needs and competitor actions early is more important than catering to old, devoted customer groups. Willingness to Disrupt, and do what you must do to change the market by using White Space test projects keeps you ahead of the competition – rather than trying to Defend & Extend your "core."
For the industry, having Hummer production in China could turn out to be a good thing. It will lower product cost. If the distribution in the USA can gain control of the market, by recognizing customer needs and directing the production, the distributors can grab all the value away from the Chinese manufacturer. If, on the other hand, the dealers try to act like old fashioned dealers who merely keep stock and negotiate price — then they won't create value and margins will stink. There are ways to make money in the information economy, even for traditional players, but it requires changing your Success Formula from industrial-era behaviors to the needs of an information-based economy. You can follow GM – or you can try to be like Cisco.
