by Adam Hartung | Dec 11, 2009 | Current Affairs, Defend & Extend, Food and Drink, In the Rapids, In the Swamp, Leadership, Television
If you can't sell products, I guess you sell the business to generate revenue. That seems to be the approach employed by Sara Lee's CEO – who has been destroying shareholder value, jobs, vendor profits and customer expectations for several years. Crain's Chicago Business reports "Sara Lee to sell air care business for $469M" to Proctor & Gamble. This is after accepting a binding offer from Unilever to purchase Sara Lee's European body care and detergent businesses. These sales continue Ms. Barnes long string of asset sales, making Sara Lee smaller and smaller. Stuck in the Swamp, Ms. Barnes is trying to avoid the Whirlpool by selling assets – but what will she do when the assets are gone? For how long will investors, and the Board, accept her claim that "these sales make Sara Lee more focused on its core business" when the business keeps shrinking? The corporate share price has declined from $30/share to about $12 (chart here) And shareholders have received none of the money from these sales. Eventually there will be no more Sara Lee.
Look at Motorola, a darling in the early part of this decade – the company CEO, Ed Zander, was named CEO of the year by Marketwatch as he launched RAZR and slashed prices to drive unit volume:
Chart supplied by Silicon Alley Insider
Motorola lost it's growth in mobile handsets, and now is practically irrelevant. Motorola has less than 5% share, about like Apple, but the company is going south – not north. When growth escapes your business it doesn't take long before the value is gone. Since losing it's growth Motorola share values have dropped from over $30 to around $8 (chart here).
And so now we need to worry about GE, while being excited about Comcast. GE got into trouble under new Chairman & CEO Jeffrey Immelt because he kept investing in the finance unit as it went further out the risk curve extending its business. Now that business has crashed, and to raise cash he is divesting assets (not unlike Brenda Barnes at Sara Lee). Mr. Immelt is selling a high growth business, with rising margins, in order to save a terrible business – his finance unit. This is bad for GE's growth prospects and future value (a company I've longed supported – but turning decidedly more negative given this recent action):
Chart supplied by Silicon Alley Insider
Meanwhile, as the acquirer Comcast is making one heck of a deal. It is buying NBC/Universal which is growing at 16.5% compounded rate with rising margins. That is something which suppliers of programming, employees, customers and investors should really enjoy.
Revenue growth is a really big deal. You can't have profit growth without revenue growth. When a CEO starts selling businesses to raise cash, be very concerned. Instead they should use scenario planning, competitive analysis, disruptions and White Space to grow the business. And those same activities prepare an organization to make an acquisition when a good opportunity comes along.
(Note: The President of Comcast, Steven Burke, endorsed Create Marketplace Disruption and that endorsement appears on the jacket cover.)
by Adam Hartung | Aug 13, 2009 | Current Affairs, Defend & Extend, General, In the Whirlpool, Innovation, Leadership
"It's Hard to Like Sara Lee" was the Barrons headline this week. And how could you, after the company reported its third straight quarter with sales and earnings below expectation. Check out this quote "Failed expansion has become a hallmark of Sara Lee in recent years, as
the company entered and exited businesses more frequently than tourists
passing through Grand Central station."
Meanwhile, over at Businessweek the headline is "Sara Lee, Why Investors Won't Bite." The company keeps focusing on cost cutting. "Sara Lee Chairman and Chief Executive Brenda Barnes
said on Aug. 12 that she expects annual cost savings of $350 million to
$400 million by 2012." I wonder how far revenues will fall during that same period? Since Ms. Barnes took the helm 5 years ago, Sara Lee's value has shrunk 54% (chart here). Yet, her biggest plan remains more sales of existing businesses – now focused on selling the "houesehold and body care segments." Although after all the sales the last 4 years the takers keep getting thinner and thinner, and the prices lower and lower. Buyers recognize when a business has been stripped of its value and is nothing more than a shell of its previous self – no longer able to grow and produce cash flow.
Meanwhile at Sara Lee there are no real plans to sell any new products or services, so the P/E just keeps falling. Now at 11, it's one of the industry's lowest. But when you expect revenues and profits to keep getting smaller, you can't justify much of a P/E now can you? It takes growth to increase your P/E multiple.
Forbes tried putting lipstick on the pig with its headline "Sara Lee Sees Meaty Growth." The writer tried to focus on hopes the company has for selling more sausage and lunch meat. But there's no innovation. Just a hope that low commodity prices will improve the margins on these products – and the commodities will stay low so the margins don't dip. Sara Lee hasn't launched a new product since Ms. Barnes took the helm. Crain's summarized the situation more bluntly "Investors Find Little Tasty in Sara Lee."
Business is about creating shareholder value, not destroying it. And Ms. Barnes has been going the wrong way her entire tenure leading Sara Lee. As I pointed out in her first year of leadership in this blog, and have repeated often, Ms. Barnes has not developed any new products for the future, she has not identified competitive opportunities for growth, nor has she been willing to Disrupt old patterns and use White Space to develop and launch new revenue opportunities. Instead, she has slowly and painfully sold off one asset after another – and none of that money has come back to shareholders. Today all shareholders have as a result of her leadership is a smaller and less profitable declining company. And no cash to compensate for the shrinkage.
If we want to come out of this recession we have to replace leaders who are so wrong headed. There's no value in quarter after quarter of cost cutting. There's no value in selling off assets for one time gains to cover ongoing losses. There's no value in shrinking a company without distributing proceeds to the owners for investing elsewhere. Thus, there's no value to the leadership at Sara Lee. What's needed is someone at the helm willing to look to the marketplace for new product ideas and then use White Space to innovate those new solutions. Someone who will put energy and resources behind growth.
The employees, shareholders and vendors at Sara Lee have a lot of scars for waiting – and nothing good. Even the suburban Chicago town of Downer's Grove, IL is hurt by the loss of jobs. To get America going again we have to start growing – and there's no better place to start than Sara Lee. Before it disappears into oblivion – like the onetime Chicago retailer Montgomery Wards!
by Adam Hartung | Jul 31, 2009 | Current Affairs, Defend & Extend, General, In the Swamp, Innovation, Lock-in
"Deeper Recession Than We Thought" is the Marketwatch headline. As government data reporters often do, today they revised the economic numbers for 2008. We now know the start to this recession was twice as bad as reported. The 3.9% decline was the worst economic performance since the Great Depression of the 1930s. The consumer spending decline was the worst since 1951 (58 years – a very low percentage of those employed today were even born then.) Business investment dropped a full 20%. Residential investment dropped 27%. Stark numbers.
How did business people react? Exactly as they were trained to react. They cut costs. Layed people off. Dropped new products. Stopped R&D and product development. They quit doing things. What's the impact? The decline slows, but it continues. Just like growth begets growth, cutting begets more decline.
Then really interesting bad things happen.
"ComEd loses customers for first time in 56 years" is the Crain's headline. There are 17,000 fewer locations buying electricity in the greater Chicago area than there were a year ago. That is amazing. When you see new homes being built, and new commercial buildings, the very notion that the number of electricity customers contracted is hard to fathom. People aren't even keeping the lights on any more. They've gone away.
In the old days we said "go west." But that hasn't been the case. Everyone remembers the dot.com bust ending the 1990s. "Silicon Valley Unemployment Skyrockets" is the Silican Alley Insider lead. Today unemployment in silicon valley is the highest on record – even higher than the dot bust days. When even tech jobs are at a nadir, it's clear something is very different this time.
The old approaches to dealing with a recession aren't working. While optimism is always high, what we can see is that things have shifted. The world isn't like it was before. And applying the same approaches won't yield improved results. "For Illinois, recession looking milder – but recovery weaker" is another Crain's headline. Nowhere are there signs of a robust economy.
We can't expect an economic recovery on "Cars for Cash" or "Clunker" programs. By overpaying for outdated and obsolete cars we can bring forward some purchases. But this does not build a healthy market for ongoing purchases. These programs aren't innovation that promotes purchase. They are a subsidy to a lucky few so they pay significantly less for an existing product. To recover we must have real growth. Growth from new products that meet new customer needs in new ways. Growth built on providing solutions that advantage the buyer. Only by introducing innovation, and creating value, will customers (businesses or consumer) open their wallets.
Advertising hasn't disappeared. But it has gone on-line. Today you don't have to spend as much to reach your target. Instead of mass advertising to 1,000 in order to reach the 100 (or 15) you really want, today you can target that buyer through the web and deliver them an advertisement far cheaper. I didn't learn about Cash for Clunkers from a TV ad, I learned about it on the web. As did thousands of people that rushed out to take advantage of the program at its introduction – exceeding expectations. It no longer takes inefficient mass advertising through newspapers or broadcast TV to reach customers – so that market shrinks. But the market for on-line ads will grow. So Google grows – double digit growth – while the old advertising media keeps shrinking. To get the economy growing businesses (like Tribune Corporation) have to shift into these new markets, and provide new products and services that help them grow.
I live in Chicago. Years ago, in the days of The Jungle Chicago grew as an agricultural center. There was a time the West Side of Chicago was known for its smelly stockyards and slaughter houses. But Chicago watched its agricultural companies move away. They moved closer to the farms. They were replaced by steel mills in places like Gary, IN and Chicago's south side. But those too shut down, moved to lower cost locations offshore. These businesses were replaced with assembly plants, like the famous AT&T Hawthorne facility, and manufacturers such as machine tool makers. Now, for the last decade, these too have been moving away. With each wave, the less valuable work, the more menial work, shifted to another location where it could be done as good but cheaper and often faster.
Historically growth continued by replacing those jobs with work tied to the shifting market – jobs that provided more value. So now, for Chicago to grow it MUST create information jobs. The market has moved. Kraft won't regain its glory if it keeps trying to sell more Velveeta. Kraft has not launched a major new product in over 9 years. Sara Lee has been shedding businesses and cutting costs for 6 years – getting smaller and losing value. McDonalds sold its high growth business Chipotles to raise money for defending its hamburger stores by adding new coffee machines. Motorola has let mobile telephony move to competitors as it remained too Locked-in to old technologies and old products while new companies – like Apple and RIM – brought out innovations that attracted new customes and growth.
Growth doesn't come from waiting for the economy to improve. Growth comes from implementing innovation that gives us new solutions. Every market, whether geographic or product based, requires new solutions to maintain growth. If we want our economy to improve, we must change our approach. We can't save our way to prosperity. Instead we must create solutions that fit future scenarios, introduce new solutions that Disrupt old patterns and use White Space to help customers shift to these products.
If we change our approach we can regain growth. Otherwise, we can expect to keep getting what we got in 2008.
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 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.]
