by Adam Hartung | Dec 7, 2010 | Defend & Extend, In the Swamp, Leadership, Web/Tech
Today’s guest blog is provided by Mike Meikle, hope you enjoy:
Summary
- Oracle is at the top of the heap in the Traditional Software market.
- Traditional Software market is deflating with $7 billion less profit than 2009
- Software as a Service, a component of Cloud Computing, has a forecasted 26% annual growth rate over the next five years.
- Oracle Cloud Computing strategy is muddled with bi-polar corporate marketing and platform dependency.
- Customers feel trapped with Oracle and are looking for alternatives.
- Oracle is trapped in a classic Defend and Extend situation.
- Oracle seems to be following Microsoft in using 1990’s corporate strategy in 2011.
Throughout the 1990’s Microsoft held the dominant position in software. Firmly ensconced in Corporate and Consumer arenas, Microsoft generated enormous profits. With an overflowing war chest, MSFT aggressively quashed or bought out the competition – which eventually attracted the attention of the United States Justice Department.
After a little less than 10 years, Microsoft now fights to stay relevant as multiple challengers have exposed gaping holes in its armor. The tech giant’s senior leadership appears rudderless as product lines fail to get off the mark (Windows Phone 7) or flounder (Vista).
With this in mind let us turn toward Oracle. Long viewed as the top Database Management System (DBMS) for the corporate world, its database software underpins much of the global information economy. It has a large war chest stuffed with the profits created by costly traditional software licensing deals with locked-in customers. It has used that cash to acquire new lines of business (PeopleSoft, Sun) and competitors (ATG, MySQL).
However there are some dark clouds on the horizon. The advent of Cloud Computing is a threat to its current licensing model. How will Oracle adapt to corporations implementing virtual servers and databases in the Cloud? Traditional software licensing is down $7 billion industry-wide from 2009. Meanwhile “software as a service” (SaaS) is seeing explosive growth, with a forecasted 26% annual growth rate over the next five years as a natural component of Cloud Computing.
Oracle has made some efforts to delve into the Cloud Computing fray with the Oracle Exalogic Elastic Cloud, or “Cloud-In-a-Box”, leveraging their SUN and ATG acquisitions. However this arrives several years behind the Amazon, Google, and Microsoft triumvirate of Cloud Computing products. Oracle’s Cloud offering will also have to overcome Oracle’s own negative statements about Cloud Computing. CEO Larry Ellison called Cloud Computing “complete gibberish” in late 2008.
Oracle also has problems with its customers. Chafing under the steep licensing costs and sub-standard support, nearly half are looking to shift to lower cost alternatives as they become available. Many have felt trapped by lack of suitable replacements. MySQL was one such competitor, but with Oracle purchasing SUN and getting MySQL in the bargain, that option disappeared. So customers have continued to (reluctantly) fork over licensing and maintenance fees to Oracle, creating the bulk of the organization’s profit stream.
Sound familiar?
Also, the champions of Oracle software offerings, developers, are dissatisfied with the company. The founders of MySQL and the creator of Java, now key software offerings of Oracle, have jumped ship as a result of disagreements with Oracle’s corporate direction.
Now Oracle finds itself in is a classic Defend & Extend situation. Nearly all their profits rely on historical licensing and maintenance for traditional software, a market that is rapidly shrinking. Current customers are unhappy with cost and service; hungry for alternatives and ready to embrace new solutions. But Oracle has arrived late and timidly to the Cloud Computing maketplace, attempting to leverage recently acquired assets where key personnel have left (and taking who knows how much vital market and product knowledge.) Not only will Oracle have to struggle to differentiate itself from other Cloud offerings going forward, it will have to incorporate their newly acquired assets (including technologies) into a cohesive offering while trying to ramp up top notch service.
Oracle will have to break out of the “consistency trap” if it is to drive profits toward new growth. New services that provide value to the customer will have to be developed and aggressively marketed. To grow future revenue and profits Oracle cannot rely on shoehorning customers into poorly fitting licensing and support models based on the fading market of yesteryear.
Or Oracle could choose to not change its old Success Formula. For advice on that approach Oracle’s Mr. Ellison talk to Microsoft’s Mr. Ballmer to see how well his 1990’s corporate strategy is working as Microsoft stumbles into 2011.
Thanks Mike! Mike Meikle shares his insights at “Musings of a Corporate Consigliere” (http://mikemeikle.wordpress.com/). I hope you read more of his thoughts on innovation and corporate change at his blog site. I thank Mike for contributing this blog for readers of The Phoenix Principle today, and hope you’ve enjoyed his contribution to the discussion about innovation, strategy and market shifts.
If you would like to contribute a guest blog please send me an email. I’d be pleased to pass along additional viewpoints on wide ranging topics.
by Adam Hartung | 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!
by Adam Hartung | Dec 3, 2009 | Books, Current Affairs, In the Swamp, Innovation, Leadership, Lock-in
Seizing the White Space is a new book being launched by HBS Press (and being pre-sold on Amazon.com.) I'm very glad to read about others who are taking up the message of Create Marketplace Disruption – which first published the critical role of White Space in successfully managing any business (published in 2008 by Financial Times Press and also available on Amazon.com).
The author, Mark Johnson, is Chairman of Innosight, a consulting firm he co-founded with Clayton Christenson who's on the Harvard Business School faculty (and author of The Innovator's Dilemma also on Amazon.com). Innosight primarily focuses on consulting businesses to identify Disruptive innovations. Now the Chairman is starting to realize that implementation is as important as identifying the implementation – and he's linked it to WHITE SPACE. Great!!!
You can read his insights to how IBM and some of his other large clients have used White Space in an Harvard Business Publishinng Blog "Is Your Company Brave Enough For Business Model Innovation?" You'll quickly see that he applies The Disruptive Opportunity Matrix from chapter 10 of Create Marketplace Disruption – which is how companies have been shown to reach new businesses using White Space. It's so gratifying to read somebody else who's applied your research and come to the same conclusions!
I'm looking forward to the book. Readers please let me know what you think of the author's blog post – and the book when it comes out.
Post-script to yesterday's blog about the CEO of GM:
"Cat's Owens, Deere's Lane on short list of CEO candidates" is the AP article appearing on Crain's Chicago Business about the search for a new leader at GM. As I predicted yesterday, recruiters seem to think the ideal candidate for the job needs to be from another big industrial company. And preferably, an auto company "to understand the industry complexities." Not only is there no incentive for these highly paid executives to take a similar job, at a lot less pay, in a government funded organization — but investors shouldn't want it! GM needs change. And more change than trying to make GM into John Deere, or CAT.
John Deere has had weak results for decades. The company has been wedged between other equipment manufacturers so badly that most of its profits now come from yard tractors homeowner's buy from Home Depot. Just because the company is big, and one of the few left making equipment for which there is declining demand, is no reason to want the CEO at a turnaround like GM. Likewise, CAT is under intense competition from Komatsu, Volvo and other manufacturers who are squeezing it from all sides – jeapardizing revenues and profits. Only acquistions have kept CAT growing the last 10 years, and margins have plummeted. That leadership is not what's needed at GM either.
When will somebody speak up for the investors and start a search in the right direction? GM needs leadership that thinks entirely differently. Unwilling to accept old-fashioned industrial notions about how to lead a company. Like I recommended, go somewhere entirely different. Maybe recruit somebody from Dell or HP or Cisco that understands rapid design cycles. Or someone from Wal-Mart or Target that understands how to sell things – cheaply. Or someone from Oracle or Mozilla or Google that understands the value of software – and that the product is a lot more than the iron – so you can capture the right value. It's so disappointing to read how the "recruiting industry" is just as Locked-in as GM.
If one of you readers knows somebody on the GM Board, maybe you should send them this blog (and yesterday's) to see if they can consider searching in the right place for new leadership!
Don't miss the recent ebook, "The Fall of GM" for a
quick read on how easily any company (even the nation's largest employer) can be
easily upset by market shifts. And learn what GM could have done to avoid
bankruptcy – lessons that can help your business grow! http://tinyurl.com/mp5lrm
by Adam Hartung | Apr 22, 2009 | Current Affairs, Defend & Extend, In the Whirlpool, Lock-in
Yesterday I discussed how Sun Microsystems nailed its coffin shut in the mid-1990s when it committed itself to hardware instead of following the market into software. Even though Sun was the then leader in Unix operating systems (Solaris) and internet application development (Java), the company chose to only offer its software on its own hardware (Solaris) – or give it away (Java). Had Sun recognized the market shift to valuing software rather than "systems" the company could have transitioned itself and avoided being gobbled up by Oracle – which is sure to close Sun's R&D facility and discontinue hardware sales.
Now we hear that the New York Times company behaved very similarly at almost the same time, putting itself at unnecessary risk that has destroyed huge value for shareholders and cost thousands of jobs. In 1995 NYT was worth between $1.5B and $2B. The Boston Globe recently reported in "What Went Wrong?" that same year the founder of Monster offered to sell a chunk of his new company to the Globe (which is owned by NYT) for $1million. And Monster would start cooperating with the Globe to offer help-wanted ads on-line as well as in the newspaper. At the time, help wanted ads alone was a $100million business at the Globe. For 1% of just one segment of the Globe's revenue – and a far lesser fraction of NYT sales and equity value – the company could have been part of the great migration to the web.
Globe and NYT management said no. And for the rest of the decade advertising growth remained on a tear, driving the value of NYT up to about $6.5 to $7billion by 2000. And even though the recession came in 2001, NYT's value remained in that range until 2004. But then, in 2004, early market shifts started to become pronounced. Like the proverbial snowball rolling downhill, internet usage had become a big market and advertisers were looking for lower cost and more capable options. Advertisers from auto companies to movie studies started moving ad dollars to the web – as did companies advertising for help. The value of NYT started to drop, and hasn't stopped yet. In 5 years more than $6billion of that value has evaporated – leaving the whole of NYT – including not only the Globe but the venerable New York Times worth a mere $700million (see 5year chart here). Value is dropping precipitously as losses mount ("New York Times loss widens; shares fall 16%" was headline on Marketwatch yesterday), and the company leverages its Manhattan real estate to try preserving its now unprofitable Success Formula.
When business was good NYT had the opportunity to Disrupt itself and invest in some White Space to help understand the direction of future markets. Instead, management clung to the old Success Formula and ignored impending market shifts. While the company racked up profits it eschewed investing in new projects, because there were no Disruptions causing it to consider White Space. And now that the market has shifted it very likely is too late to save the company (investor Rupert Murdoch with investments across all media, including the web, is licking his chops for the opportunity to take over these influential journals with which he has long tangled politically. Even if only to watch them decline and remove a thorn in his side.) Because of decisions made in 1995, when business was good, the nails were being driven into the coffin. Management failed to recognize how deadly those decisions were, because they were focused on Defending & Extending the past rather than exploring how markets might change.
The Sun and NYT story emphasize how easy it is to remain Locked-in. Profits during good times – often right at the peak of the business – become an excuse to do more of the same. But what we see over and over is that long-term success requires Disruptions during these best times. Companies that make the transitions don't wait for the crisis. When times are good they invest in new market opportunities, so they can learn what works and how to compete. They Disrupt their old model so they pay attention to market shifts, and invest in White Space where they learn and inform the entire organization about what's coming. Lock-in is very dangerous because it is so easy to ignore. But if you want to survive market shifts you must create an organization that can evolve with new markets. That requires you manage Lock-in by constantly Disrupting and keeping White Space alive.
PS – a note of thanks to reader Tejune Kang for pointing me to the Globe article about Monster. I encourage all readers to forward me your insights to companies Locked-in and at risk, as well as those practicing The Phoenix Principle.
by Adam Hartung | Apr 21, 2009 | Current Affairs, Defend & Extend, In the Whirlpool, Leadership, Lock-in, Web/Tech
"With Oracle, Sun avoids becoming another Yahoo," headlines Marketwatch.com today. As talks broke down because IBM was unwilling to up its price for Sun Microsystems, Oracle Systems swept in and made a counter-offer that looks sure to acquire the company. Unlike Yahoo – Sun will now disappear. The shareholders will get about 5% of the value Sun was worth a decade ago at its peak. That's a pretty serious value destruction, in any book. And if you don't think this is bad news for the employees and vendors just wait a year and see how many remain part of Oracle. A sale to IBM would have fared no better for investors, employees or vendors.
It was clear Sun wasn't able to survive several years ago. That's why I wrote about the company in my book Create Marketplace Disruption. Because the company was unwilling to allow any internal Disruptions to its Success Formula and any White Space to exist which might transform the company. In the fast paced world of information products, no company can survive if it isn't willing to build an organization that can identify market shifts and change with them.
I was at a Sun analyst conference in 1995 where Chairman McNealy told the analysts "have you seen the explosive growth over at Cisco System? I ask myself, how did we miss that?" And that's when it was clear Sun was in for big, big trouble. He was admitting then that Sun was so focused on its business, so focused on its core, that there was very little effort being expended on evaluating market shifts – which meant opportunities were being missed and Sun would be in big trouble when its "core" business slowed – as happens to all IT product companies. Sun had built its Success Formula selling hardware. Even though the real value Sun created shifted more and more to the software that drove its hardware, which became more and more generic (and less competitive) every year, Sun wouldn't change its strategy or tactics – which supported its identity as a hardware company – its Success Formula. Even though Sun became a leader in Unix operating systems, extensions for networking and accessing lots of data, as well as the creator and developer of Java for network applications because software was incompatible with the Success Formula, the company could not maintain independent software sales and the company failed.
Sort of like Xerox inventing the GUI (graphical user interface), mouse, local area network to connect a PC to a printer, and the laser printer but never capturing any of the PC, printer or desktop publishing market. Just because Xerox (and Sun) invented a lot of what became future growth markets did not insure success, because the slavish dedication to the old Success Formula (in Xerox's case big copiers) kept the company from moving forward with the marketplace.
Instead, Sun Microsystems kept trying to Defend & Extend its old, original Success Formula to the end. Even after several years struggling to sell hardware, Sun refused to change into the software company it needed to become. To unleash this value, Sun had to be acquired by another software company, Oracle, willing to let the hardware go and keep the software – according to the MercuryNews.com "With Oracle's acquisition of Sun, Larry Ellison's empire grows." Scott McNealy wouldn't Disrupt Sun and use White Space to change Sun, so its value deteriorated until it was a cheap buy for someone who could use the software pieces to greater value in another company.
Compare this with Steve Jobs. When Jobs left Apple in disrepute he founded NeXt to be another hardware company – something like a cross between Apple and Sun. But he found the Unix box business tough sledding. So he changed focus to a top application for high powered workstations – graphics – intending to compete with Silicon Graphics (SGI). But as he learned about the market, he realized he was better off developing application software, and he took over leadership of Pixar. He let NeXt die as he focused on high end graphics software at Pixar, only to learn that people weren't as interesed in buying his software as he thought they would be. So he transitioned Pixar into a movie production company making animated full-length features as well as commercials and short subjects. Mr. Jobs went through 3 Success Formulas getting the business right – using Disruptions and White Space to move from a box company to a software company to a movie studio (that also supplied software to box companies). By focusing on future scenarios, obsessing about competitors and Disrupting his approach he kept pushing into White Space. Instead of letting Lock-in keep him pushing a bad idea until it failed, he let White Space evolve the business into something of high value for the marketplace. As a result, Pixar is a viable competitor today – while SGI and Sun Microsystems have failed within a few months of each other.
It's incredibly easy to Defend & Extend your Success Formula, even after the business starts failing. It's easy to remain Locked-in to the original Success Formula and keep working harder and faster to make it a little better or cheaper. But when markets shift, you will fail if you don't realize that longevity requires you change the Success Formula. Where Unix boxes were once what the market wanted (in high volume), shifts in competitive hardware (PC) and software (Linux) products kept sucking the value out of that original Success Formula.
Sun needed to Disrupt its Lock-ins – attack them – in order to open White Space where it could build value for its software products. Where it could learn to sell them instead of force-bundling them with hardware, or giving them away (like Java.) And this is a lesson all companies need to take to heart. If Sun had made these moves it could have preserved much more of its value – even if acquired by someone else. Or it might have been able to survive as a different kind of company. Instead, Sun has failed costing its investors, employees and vendors billions.
