by Adam Hartung | Sep 12, 2013 | General, In the Whirlpool, Leadership
This week the people who decide what composes the Dow Jones Industrial Average booted off 3 companies and added 3 others. What's remarkable is how little most people cared!
"The Dow," as it is often called, is intended to represent the core of America's economy. "As the Dow goes, so goes America" is the theory. It is one of the most watched indices of all markets, with many people tracking how much it goes up, or down, every trading day. So being a component of the DJIA is a pretty big deal.
It's not a good day when you find out your company has been removed from the index. Because it is a very public statement that your company simply isn't all that important any more. Certainly not as important as it once was! Your relevance, once considered core to representing the economy, has dissipated. And, unfortunately, most companies that fall off the DJIA slip away into oblivion.
I have a simple test. Do like Jay Leno, of Tonight Show fame, and simply ask a dozen college graduates that are between 26 and 31 about a company. If they know that company, and are positively influenced by it, you have relevancy. If they don't care about that company then the CEO and Board should take note, because it is an early indicator that the company may well have lost relevancy and is probably in more trouble than the leaders want to admit.
Ask these folks about Alcoa (AA) and what do you imagine the typical response? "Alcoa?" It is a rare person under 40 who knows that Alcoa was once the king of aluminum — back when we wrapped food in "tin foil" and before we all drank sodas and beer from a can. To most, "Alcoa" is a random set of letters with no meaning – like Altria – rather than its origin as ALuminum COrporation of America.
But, its not even the largest aluminum company any more. Alcoa is now 3rd. In a world where we live on smartphones and tablets, who really cares about a mining company that deals in commodities? Especially the third largest with no growth prospects?
Speaking of smartphones, Hewlett Packard (HPQ) was recently considered a bellweather of the tech industry. An early innovator in test equipment, it was one of the original "Silicon Valley" companies. But its commitment to printers has left people caring little about the company's products, since everyone prints less and less as we read more and more off digital screens.
Past-CEO Fiorina's huge investment in PCs by buying Compaq (which previously bought minicomputer maker DEC,) committed the rest of HP into what is now one of the fastest shrinking markets. And in PCs, HP doesn't even have any technology roots. HP is just an assembler, mostly offshore, as its products are all based on outsourced chip and software technology.
What a few years ago was considered a leader in technology has become a company that the younger crowd identifies with technology products they rarely use, and never buy. And lacking any sort of exciting pipeline, nobody really cares about HP.
Bank of America (BAC) was one of the 2 leaders in financial services when it entered the DJIA. It was a powerhouse in all things banking. But, as the mortgage market disintegrated B of A rapidly fell into trouble. It's shotgun wedding with Merrill Lynch to save the investment bank from failure made the B of A bigger, but not stronger.
Now racked with concerns about any part of the institution having long-term success against larger, and better capitalized, banks in America and offshore has left B of A with a lot of branches, but no market leadership. What innovations B of A may have had in lending or derivatives are now considered headaches most people either don't understand, or largely despise.
These 3 companies were once great lions of their industries. And they were rewarded with placement on the DJIA as icons of the economy. But they now leave with a whimper. Their values so shredded that their departure makes almost no impact on calculating the DJIA using the remaining companies. (Note: the DJIA calculation was significantly impacted by the addition of much higher valued companies Nike, Goldman Sachs and Visa.)
If we look at some past examples of other companies removed from the DJIA, one should be skeptical about the long-term future for these three:
- 2009 – GM removed due to bankruptcy
- 2004 – AT&T and Kodak removed (both ended up in bankruptcy)
- 1999 – Goodyear, Union Carbide, Sears
- 1997 – Westinghouse, Woolworths
- 1991 – American Can, Navistar/International Harvester
Any company can lose relevancy. Markets shift. There is risk incurred by focusing on the status quo (Status Quo Risk.) New technology, regulations, competitors, business practices — innovations of all sorts — enter the market daily. Being really good at something, in fact being the worlds BEST at something, does not insure success or longevity (despite the popularity of In Search of Excellence).
When markets shift, and your company doesn't, you can find yourself without relevancy. And with a fast declining value. Whether you are iconic – or not.
by Adam Hartung | Dec 10, 2012 | Current Affairs, Defend & Extend, In the Whirlpool, Leadership, Lifecycle, Television
Remember when almost everyone read a daily newspaper?
Newspaper readership peaked around 2000. Since then printed media has declined, as readers shifted on-line. Magazines have folded, and newspapers have disappeared, quit printing, dramatically cut page numbers and even more dramatically cut staff.
Amazingly, almost no major print publisher prepared for this, even though the trend was becoming clear in the late 1990s.
Newspapers are no longer a viable business. While industry revenue grew for
almost 2 centuries, it collapsed in a mere decade.
Chart Source: BusinessInsider.com
This market shift created clear winners, and losers. On-line news sites like Marketwatch and HuffingtonPost were clear winners. Losers were traditional newspaper companies such as Tribune Corporation, Gannett, McClatchey, Dow Jones and even the New York Times Company. And investors in these companies either saw their values soar, or practically disintegrate.
In 2012 it is equally clear that television is on the brink of a major transition. Fewer people are content to have their entertainment programmed for them when they can program it themselves on-line. Even though the number of television channels has exploded with pervasive cable access, the time spent watching television is not growing. While simultaneously the amount of time people spend looking at mobile internet displays (tablets, smartphones and laptops) is growing at double digit rates.
Chart Source: Silicone Alley Insider Chart of the Day 12/5/12
It would be easy to act like newspaper defenders and pretend that television as we've known it will not change. But that would be, at best, naive. Just look around at broadband access, the use of mobile devices, the convenience of mobile and the number of people that don't even watch traditional TV any more (especially younger people) and the trend is clear. One-way preprogrammed advertising laden television is not a sustainable business.
So, now is the time to prepare. And change your business to align with impending new realities.
Losers, and winners, will be varied – and not entirely obvious. Firstly, a look at those trying to maintain the status quo, and likely to lose the most.
Giant consumer goods and retail companies benefitted from the domination of television. Only huge companies like P&G, Kraft, GM and Target could afford to lay out billions of dollars for television ads to build, and defend, a brand. But what advantage will they have when TV budgets no longer control brand building? They will become extremely vulnerable to more innovative companies that have better products and move on fast lifecycles. Their size, hierarchy and arcane business practices will lead to huge problems. Imagine a raft of new Hostess Brands experiences.
Even as the trends have started changing these companies have continued pumping billions into the traditional TV networks as they spend to defend their brand position. This has driven up the value of companies like CBS, Comcast (owns NBC) and Disney (owns ABC) over the last 3 years substantially. But don't expect that to last forever. Or even a few more years.
Just like newspaper ad spending fell off a cliff when it was clear the eyeballs were no longer there, expect the same for television ad spending. As giant advertisers find the cost of television harder and harder to justify their outlays will eventually take the kind of cliff dive observed in the chart (above) for newspaper advertising. Already some consumer goods and ad agency executives are alluding to the fact that the rate of return on traditional TV is becoming sketchy.
So far, we've seen little at the companies which own TV networks to demonstrate they are prepared for the floor to fall out of their revenue stream. While some have positions in a few internet production and delivery companies, most are clearly still doing their best to defend & extend the old business – just like newspaper owners did. Just as newspapers never found a way to replace the print ad dollars, these television companies look very much like businesses that have no apparent solution for future growth. I would not want my 401K invested in any major network company.
And there will be winners.
For smaller businesses, there has never been a better time to compete. A company as small as Tesla or Fisker can now create a brand on-line at a fraction of the old cost. And that brand can be as powerful as Ford, and potentially a lot more trendy. There are very low entry barriers for on-line brand building using not only ad words and web page display ads, but also using social media to build loyal followers who use and promote a brand. What was once considered a niche can become well known almost overnight simply by applying the new dynamics of reaching customers on-line, and increasingly via mobile. Look at the success of Toms Shoes.
Zappos and Amazon have shown that with almost no television ads they can create powerhouse retail brands. The new retailers do not compete just on price, but are able to offer selection, availability and customer service at levels unachievable by traditional brick-and-mortar retailers. They can suggest products and prices of things you're likely to need, even before you realize you need them. They can educate better, and faster, than most retail store employees. And they can offer great prices due to less overhead, along with the convenience of shipping the product right into your home.
And as people quit watching preprogrammed TV, where will they go for content? Anybody streaming will have an advantage – so think Netflix (which recently contracted for all the Disney content,) Amazon, Pandora, Spotify and even AOL. But, this will also benefit those companies providing content access such as Apple TV, Google TV, YouTube (owned by Google) to offer content channels and the increasingly omnipresent Facebook will deliver up not only friends, but content — and ads.
As for content creation, the deep pockets of traditional TV production companies will likely disappear along with their ability to control distribution. That means fewer big-budget productions as risk goes up without revenue assurances.
But that means even more ability for newer, smaller companies to create competitive content seeking audiences. Where once a very clever, hard working Seth McFarlane (creator of Family Guy) had to hardscrabble with networks to achieve distribution, and live in fear of a single person controlling his destiny, in the future these creative people will be able to own their content and capture the value directly as they build a direct audience. A phenomenon like George Lucas will be more achievable than ever before as what might look like chaos during transition will migrate to a much more competitive world where audiences, rather than network executives, will decide what content wins – and loses.
So, with due respects to Don McLean, will today be the day TV Died? We will only know in historical context. Nobody predicted newspapers had peaked in 2000, but it was clear the internet was changing news consumption behavior. And we don't know if TV viewership will begin its rapid decline in 2013, or in a couple more years. But the inevitable change is clear – we just don't know exactly when.
So it would be foolish to not think that the industry is going to change dramatically. And the impact on advertising will be even more profound, much more profound, than it was in print. And that will have an even more profound impact on American society – and how business is done.
What are you doing to prepare?
by Adam Hartung | May 25, 2011 | Defend & Extend, Disruptions, In the Swamp, Innovation, Leadership, Lock-in, Openness, Transparency, Web/Tech
Nobody admits to being the innovation killer in a company. But we know they exist. Some these folks “dinosaurs that won’t change.” Others blame “the nay-saying ‘Dr. No’ middle managers.” But when you meet these people, they won’t admit to being innovation killers. They believe, deep in their hearts as well as in their everyday actions, that they are doing the right thing for the business. And that’s because they’ve been chosen, and reinforced, to be the Status Quo Police.
When a company starts it has no norms. But as it succeeds, in order to grow quickly it develops a series of “key success factors” that help it continue growing. In order to grow faster, managers – often in functional roles – are assigned the task of making sure the key success factors are unwaveringly supported. Consistency becomes more important than creativity. And these managers are reinforced, supported, even bonused for their ability to make sure they maintain the status quo. Even if the market has shifted, they don’t shift. They reinforce doing things according to the rules. Just consider:
Quality – Who can argue with the need to have quality? Total Quality Management (TQM,) Continuous Improvement (CI,) and Six Sigma programs all have been glorified by companies hoping to improve product or service quality. If you’re trying to fix a broken product, or process, these work pretty well at helping everyone do their job better.
But these programs live with the mantra “if you can’t measure it, you can’t improve it. Measure everything that’s important.” If you’re innovating, what do you measure? If you’re in a new technology, or manufacturing process, how do you know what you really need to do right? If you’re in a new market, how do you know the key metric for sales success? Is it number of customers called, time with customers, number of customer surveys, recommendation scores, lost sales reports? When you’re trying to do something new, a lot of what you do is respond quickly to instant feedback – whether it’s good feedback or bad.
The key to success isn’t to have critical metrics and measure performance on a graph, but rather to learn from everything you do – and usually to change. Quality people hate this, and can only stand in the way of trying anything new because you don’t know what to measure, or what constitutes a “good” measure. Don’t ever forget that Motorola pretty much invented Six Sigma, and what happened to them in the mobile phone business they pioneered?
Finance. All businesses exist to make money, so who can argue with “show me the numbers. Give me a business plan that shows me how you’re going to make money.” When your’e making an incremental investment to an existing asset or process, this is pretty good advice.
But when you’re innovating, what you don’t know far exceeds what you know. You don’t know how to meet unment needs. You don’t know the market size, the price that people will pay, the first year’s volume (much less year 5,) the direct cost at various volumes, the indirect cost, the cost of marketing to obtain customer attention, the number of sales calls it will take to land a sale, how many solution revisions will be necessary to finally put out the “right” solution, or how sales will ramp up quarterly from nothing. So to create a business plan, you have to guess.
And, oh boy, then it gets ugly. “Where did this number come from? That one? How did you determine that?” It’s not long until the poor business plan writer is ridden out of the meeting on a rail. He has no money to investigate the market, so he can’t obtain any “real” numbers, so the business plan process leads to ongoing investment in the old business, while innovation simply stalls.
Under Akia Morita Sony was a great innovator. But then an MBA skilled in finance took over the top spot. What once was the #1 electronics innovator in the globe has become, well, let’s say they aren’t Apple.
Legal – No company wants to be sued, or take on unnecessary risk. And when you’re selling something, lawyers are pretty good at evaluating the risk in that business, and lowering the risk. While making sure that all the compliance issues are met in order to keep regulators – and other lawyers – out of the business.
But when you’re starting something new, everything looks risky. Customers can sue you for any reason. Suppliers can sue you for not taking product, or using it incorrectly. The technology could fail, or have negative use repercussions. Reguators can question your safety standards, or claims to customers.
From a legal point of view, you’re best to never do anything new. The less new things you do, the less likely you are to make a mistake. So legal’s great at putting up roadblocks to make sure they protect the company from lawsuits, by making sure nothing really new happens. The old General Motors had plenty of lawyers making sure their cars were never too risky – or interesting.
R&D or Product Development – Who doesn’t think it’s good to be a leader in a specific technology? Technology advances have proven invaluable for companies in industries from computers to pharmaceuticals to tractors and even services like on-line banking. Thus R&D and Product Development wants to make sure investments advance the state of the technology upon which the company was built.
But all technologies become obsolete. Or, at least unprofitable. Innovators are frequently on the front end of adopting new technologies. But if they have to obtain buy-in from product development to obtain staffing or money they’ll be at the end of a never-ending line of projects to sustain the existing development trend. You don’t have to look much further than Microsoft to find a company that is great at pouring money into the PC platform (some $9B, 16% of revenue in 2009,) while the market moves faster each year to mobile devices and entertainment (Apple spent 1/8th the Microsoft budget in 2009.)
Sales, Marketing & Distribution – When you want to protect sales to existing customers, or maybe increase them by 5%, then doing more of what you’ve always done is smart. So money is spent to put more salespeople on key accounts, add more money to the advertising budget for the most successful (or most profitable) existing products. There are more rules about using the brand than lighters at a smoker’s convention. And it’s heresy to recommend endangering the distribution channel that has so successfully helped increase sales.
But innovators regularly need to behave differently. They need to sell to different people – Xerox sold to secretaries while printing press manufacturers sold to printers. The “brand” may well represent a bygone era, and be of no value to someone launching a new product; are you eager to buy a Zenith electronic device? Sprucing up the brand, or even launching something new, may well be a requirement for a new solution to be taken seriously.
And often, to be successful, a new solution needs to cut through the old, high-cost distribution system directly to customers if it is to succeed. Pre-Gerstner IBM kept adding key account sales people in hopes of keeping IT departments from switching out of mainframes to PCs. Sears avoided the shift to on-line sales successfully – and revenue keeps dropping in the stores.
Information Technology – To make more money you automate more functions. Computers are wonderful for reducing manpower in many tasks. So IT implements and supports “standard solutions” that are cost effective for the historical business. Likewise, they set up all kinds of user rules – like don’t go to Facebook or web sites from work – to keep people focused on productivity. And to make sure historical data is secure and regulations are met.
But innovators don’t have a solution mapped out, and all that automated functionality is an enormously expensive headache. When being creative, more time is spent looking for something new than trying to work faster, or harder, so access to more external information is required. Since the solution isn’t developed, there’s precious little to worry about keeping secure. Innovators need to use new tools, and have flexibility to discover advantageous ways to use them, that are far beyond the bounds of IT’s comfort zone.
Newspapers are loaded with automated systems to collect and edit news, to enter display ads, and to “Make up” the printed page fast and cheap. They have automated systems for classified advertising sales and billing, and for display ad billing. And systems to manage subscribers. That technology isn’t very helpful now, however, as newspapers go bankrupt. Now the most critical IT skills are pumping news to the internet in real-time, and managing on-line ads distributed to web users that don’t have subscriptions.
Human Resources – Growth pushes companies toward tighter job descriptions with clear standards for “the kinds of people that succeed around here.” When you want to hire people to be productive at an existing job, HR has the procedures to define the role, find the people and hire them at the most efficient cost. And they can develop a systematic compensation plan that treats everyone “fairly” based upon perceived value to the historical business.
But innovators don’t know what kinds of people will be most successful. Often they need folks who think laterally, across lots fo tasks, rather than deeply about something narrow. Often they need people who are from different backgrounds, that are closer to the emerging market than the historical business. And pay has to be related to what these folks can get in the market, not what seems fair through the lens of the historical business. HR is rarely keen to staff up a new business opportunity with a lot of misfits who don’t appreciate their compensation plan – or the rules so carefully created to circumscribe behavior around the old business.
B.Dalton was America’s largest retail book seller when Amazon.com was founded by Jeff Bezos. Jeff knew nothing about books, but he knew the internet. B.Dalton knew about books, and claimed it knew what book buyers wanted. Two years later B.Dalton went bankrupt, and all those book experts became unemployed. Amazon.com now sells a lot more than books, as it ongoingly and rapidly expands its employee skill sets to enter new markets – like publishing and eReaders.
Innovation requires that leaders ATTACK the Status Quo Police. Everything done to efficiently run the old business is irrelevant when it comes to innovation. Functional folks need to be told they can’t force the innovatoirs to conform to old rules, because that’s exactly why the company needs innovation! Only by attacking the old rules, and being willing to allow both diversity and disruption can the business innovate.
Instead of saying “this isn’t how we do things around here” it is critical leaders make sure functional folks are saying “how can I help you innovate?” What was done in the name of “good business” looks backward – not forward. Status Quo cops have to be removed from the scene – kept from stopping innovation dead in its tracks. And if the internal folks can’t be supportive, that means keeping them out of the innovator’s way entirely.
Any company can innovate. Doing so requires recognizing that the Status Quo Police are doing what they were hired to do. Until you take away their clout, attack their role and stop them from forcing conformance to old dictums, the business can’t hope to innovate.
by Adam Hartung | Apr 1, 2011 | Current Affairs, In the Rapids, Innovation, Leadership, Openness, Transparency, Web/Tech
Summary:
- Google is locking-in on what it made successful
- But as technologies, and markets, change Google could be at risk of not keeping up
- Internal processes are limiting Google’s ability to adapt quickly
- Google needs to be better at creating and launching new projects that can expand its technology and market footprint in order to maintain long-term growth
Google has been a wild success. From nowhere Google has emerged as one of the biggest business winners at leveraging the internet. With that great success comes risk, and opportunity, as Larry Page resumes the CEO position this year.
Investors hope Google keeps finding new opportunities to grow, somewhat like Apple has done by moving into new markets with new solutions. Where Apple has built strong revenue streams from its device and app sales in multiple markets, Google hasn’t yet demonstrated that success. Despite the spectacular ramp-up in Android smartphone sales, Google hasn’t yet successfully monetized that platform – or any other. Something like 90% of revenues and profits still come from search and its related ad sales.
Investors have reason to fear Google might be a “one-trick pony,” similar to Dell. Dell was wildly successful as the “supply chain management king” during the spectacular growth of PC sales. But as PC sales growth slowed competitors matched much of Dell’s capability, and Dell stumbled trying to lower cost with such decisions as offshoring customer service. Dell’s revenue and profit growth slowed. Now Dell’s future growth prospects are unclear, and its value has waned, as the market has shifted toward products not offered by Dell.
Will Google be the “search king” that didn’t move on?
When companies are successful they tend to lock-in on what made them successful. To keep growing they have to overcome those lock-ins to do new things. The risk is that Google can’t overcome it’s lock-ins; that internal status quo police enforce them to the point of keeping new things from flourishing into new growth markets. That the company becomes stale as it avoids investing effectively in new technologies or solutions.
At Slacy.com (“What Larry Page Really Needs to Do to Return Google to its Start-up Roots“) we read from a former Google employee that there are some serious lock-ins to worry about within Google:
- The launch coordination process sets up a status quo protection team that keeps things from moving forward. When an internal expert gains this kind of power, they maintain their power by saying “no.” The more they say no, the more power they wield. Larry Page needs to be sure the launch team is saying “here’s how we can help you launch fast and easy” rather than “you can’t launch unless…”
- Hiring is managed by a group of internal recruiters. When the people who actually manage the work don’t do recruiting, and hiring, then the recruits become filtered by staffers who have biases about what makes for a good worker. Everything from resume screening to background reviews to appearances become filters for who gets interviewed by engineers and managers. In the worst case staffers develop a “Google model employee” profile they expect all hires to fit. This process systematically narrows the candidates, leading to homogeneity in hiring, a reduction in new approaches and new ways of thinking, and a less valuable, dynamic employee population.
- Increasingly engineers are forced to use a limited set of Google tools for development. External, open source, tools are increasingly considered inferior – and access to resources are limited unless engineers utilize the narrow tool set which initially made Google successful. The natural outcome is “not invented here” syndrome, where externally created products and ideas are overlooked – ignored – for all the wrong reasons. When you’re the best it’s easy to develop “NIH,” but it’s also really risky in fast moving markets like technology where someone really can have a better idea, and implement, from outside the halls of the early leader.
These risks are very real. Yet, in a company of Google’s size to some extent it is necessary to manage launches systematically, and to have staffers doing things like recruiting and screening. Additionally, when you’ve developed a set of tools that create success on an enormous scale it makes sense to use them. So the important thing for Mr. Page to do is manage these items in such a way that lock-in doesn’t keep Google from moving forward into the next new, and possibly big, market.
Google needs to be sure it is not over-managing the creation of new things. The famous “20% rule” at Google isn’t effective as applied today. Nobody can spend 80% of their job conforming to norms, and then expect to spend 20% “outside the box.” Our minds don’t work that way. Inertia takes over when we’re at 80%, and keeps us focused on doing our #1 job. And we never find the time to really get started on the other 20%. And it’s unrealistic to try dedicating an entire day a week to doing something different, because the “regular job” is demanding every single day. Likewise, nobody can dedicate a week out of the month for the same reason. As a result, even when people are encouraged to spend time on new and different things it really doesn’t happen.
Instead, Google needs a really good method for having ideas surface, and then creating dedicated teams to explore those ideas in an unbounded way. Teams that have as their only job the requirement for exploring market needs, product opportunities, and developing solutions that generate profitable new revenue. Five people totally dedicated to a new opportunity, especially if their success is important to their career ambitions, will make vastly more headway than 25 people working on a project when they can “find the time.” The bigger team may have more capabilities and more specialties, but they simply don’t have the zeal, motivation or commitment to creating a success. Failing on something that’s tertiary to your job is a lot more acceptable, especially if your primary work is going well, than failing on something to which your wholly dedicated. Plus, when you are asked to support a project part-time you do so by reinforcing past strengths, not exploring something new.
Especially worrisome is Inc magazine’s article “Facebook Poaches Inc’s Creative Director.” This is the fellow that created, and managed, the new opportunity labs at Google. What will happen to those now?
These teams also must have permission to explore the solution using any and all technology, approaches and processes. Not just the ones that made Google successful thus far. By utilizing new technologies, which may appear less robust, less scalable and even initially less powerful, Google will have people who are testing the limits of what’s new – and identifying the technologies, products and processes that not only threaten existing Google strengths but can launch Google into the next new, big thing. Supporting their needs to explore new solutions is critical to evolving Google and aiding its growth in very dynamic technologies and markets.
The major airlines all launched discount divisions to compete with Southwest. Remember Song and Ted? But these failed largely because they weren’t given permission to do whatever was necessary to win as a discount airline. Instead they had to use existing company resources and processes – including in-place reservation systems, labor union standards, existing airports and gates – and honor existing customer loyalty programs. With so many parameters pre-set, they had no hope of succeeding. They lacked permission to do what was necessary because the airlines bounded what they could do. Lock-in to what already existed killed them.
The concern is that Google today doesn’t appear to have a strong process for creating these teams that can operate in white space to develop new solutions. Google lacks a way to get the ideas on the agenda for management discussion, rapidly create a team dedicated to the tasks, resource the teams with money and other necessary tools, and then monitor performance while simultaneously encouraging behaviors that are outside the Google norms. Nobody appears to have the job of making sure good ideas stay inside Google, and are developed, rather than slipping outside for another company to exploit (can you say Facebook – for example?)
I’m a fan of Google, and a fan of the management approaches Larry Page and Google have openly discussed, and appear to have implemented. Yet, success has a way of breeding the seeds of eventual failure. Largely through the process of building strong sacred cows – such as in technology and processes for all kinds of activities that end up limiting the organization’s ability to recognize market shifts and implement changes. Success has a way of creating staff functions that see themselves as status quo cops, dedicated to re-implementing the past rather than scouting for future requirements. The list of technology giants that fell to market shifts are legendary – Cray, DEC, Wang, Lanier, Sybase, Netscape, Silicon Graphics and Sun Microsystems are just a few.
It’s good to be the market leader. But Larry Page has a tough job. He has to manage the things that made Google the great company it is now – the things that middle management often locks in place and won’t alter – so they don’t limit Google’s future. And he needs to make sure Google is constantly, consistently and rapidly implementing and managing teams to explore white space in order to find the next growth opportunities that keep Google vibrant for customers, employees, suppliers and investors.
View a short video on Lock-in and why businesses must evolve http://on.fb.me/i2dekj
by Adam Hartung | Sep 16, 2010 | Current Affairs, Defend & Extend, Food and Drink, Innovation, Leadership, Lock-in, Openness, Web/Tech
Summary:
- Businesses usually try defending an old solution in the face of an emerging new solution
- Status Quo Police use “cannibalization” concerns to stop the organization from moving to new solutions and new markets
- If you don’t move early, you end up with a dying business – like newspapers – as new competitors take over the customer relationship – like Apple is doing with news subscriptions
- You can adapt to shifting markets, profitably growing
- You must disrupt your lock-ins to the old success formula, including stopping the Status Quo Police from using the cannibalization threat
- You should set up White Space teams early to embrace the new solutions and figure out how to profitably grow in the new market space
When Sony saw MP3 technology emerging it worked hard to defend sales of CDs and CD Players. It didn’t want to see a decline in the pricing, or revenue, for its existing business. As a result, it was really late to MP3 technology, and Apple took the lead. This is the classic “Innovator’s Dilemma” as described by Professor Clayton Christenson of Harvard. Existing market leaders get so hung up on defending and extending the current business, they fear new solutions, until they become obsolete.
In the 1980s Pizza Hut could see the emergence of Domino’s Pizza. But Pizza Hut felt that delivered pizza would cannibalize the eat-in pizza market management sought to dominate. As a result Pizza Hut barely participated in what became a multi-biliion dollar market for Domino’s and other delivery chains.
The Status Quo Police drag out their favorite word to fight any move into new markets. Cannibalization. They say over and over that if the company moves to the new market solution it will cannibalize existing sales – usually at a lower margin. Sure, there may someday be a future time to compete, but today (and this goes on forever) management should keep close to the existing business model, and protect it.
That’s what the newspapers did. All of them could see the internet emerging as a route to disseminate news. They could see Monster.com, Vehix.com, eBay, CraigsList.com and other sites stealing away their classified ad customers. They could see Google not only moving their content to other sites, but placing ads with that content. Yet, all energy was expended trying to maintain very expensive print advertising, for fear that lower priced internet advertising would cannibalize existing revenues.
Now, bankrupt or nearly so, the newspapers are petrified. The San Jose Mercury News headlines “Apple to Announce Subscription Plan for Newspapers.” As months have passed the newspapers have watched subscriptions fall, and not built a viable internet distribution system. So Apple is taking over the subscription role – and will take a cool third of the subscription revenue to link readers to the iPad on-line newspaper. Absolute fear of cannibalization, and strong internal Status Quo Police, kept the newspapers from embracing the emerging solution. Now they will find themselves beholden to the device providers – Apple’s iPad, Amazon’s Kindle, or a Google Android device.
But it doesn’t have to be that way. Netflix built a profitable growth business delivering DVDs to subscribers. Streaming video clearly would cannibalize revenues, because the price is lower than DVDs. But Netflix chose to embrace streaming – to its great betterment! The Wrap headlines “Why Hollywood should be Afraid of Netfilx – Very Afraid.” As reported, Netflix is now growing even FASTER with its streaming video – and at a good margin. The price per item may be lower – but the volume is sooooo much higher!
Had Netflix defended its old model it was at risk of obsolescence by Hulu.com, Google, YouTube or any of several other video providers. It could have tried to slow switching to streaming by working to defend its DVD “core.” But by embracing the market shift Netflix is now in a leading position as a distributor of streaming content. This makes Netfilx a very powerful company when negotiating distribution rights with producers of movie or television content (thus the Hollywood fear.) By embracing the market shift, and the future solution, Netflix is expanding its business opportunity AND growing revenue profitably.
Don’t let fear of cannibalization, pushed by the Status Quo Police, stop your business from moving with market shifts. Such fear will make you like the proverbial deer, stuck on the road, staring at the headlights of an oncoming auto — and eventually dead. Embrace the market shift, Disrupt your Locked-in thoughts (like “we distribute DVDs”) and set up White Space teams to figure out how you can profitably grow in the new market!
