by Adam Hartung | Jul 7, 2009 | Current Affairs, Defend & Extend, General, In the Whirlpool, Leadership, Lock-in
"Tribune Company Profitability Continues to Deteriorate" is the Crain's headline. Even though Tribune filed for bankruptcy several months ago, its sales, profits and cash flow have continued deteriorating. The company is selling assets, like the Chicago Cubs, in order to raise cash. But its media businesses, anchored by The Chicago Tribune, are a sinking ship which management has no idea how to plug. While the judge can wipe out debt, he cannot get rid of the internet and competitors that are reshaping the business in which Tribune participates. Bankruptcy doesn't "protect" the business, it merely delays what increasingly appears to be inevitable failure.
"GM Clears Key Hurdles to Bankruptcy Exit" is the BusinessWeek headline. In record time a judge has decided to let GM shift all its assets and employees into a "new" GM, leaving all the bondholders, employee contracts and lawsuits in the "old" GM. This will wipe out all the debt, obligations and lawsuits GM has complained about so vociferously. But it won't wipe out lower cost competitors like Kia, Hyuandai or Tata Motors. And it won't wipe out competitors with newer technology and faster product development cycles like Toyota or Honda. GM will still have to compete – but it has no real plan for overcoming competitive weaknesses in almost all aspects of the business.
It was 30 years ago when I first head the term "strategic bankruptcy." The idea was that a business could hide behind bankruptcy protection to fix some minor problem, and a clever management could thereby "save" a distressed business. But this is a wholly misapplied way to think about bankruptcy. In reality, bankruptcy is just another financial machination intended to allow Locked-in existing management to Defend & Extend a poorly performing Success Formula. Bankruptcy addresses a symptom of the weak business – debts and obligations – but does not address what's really wrong - a business model out of step with a shifted marketplace.
The people running GM are the same people that got it into so much trouble. The decision-making processes, product development processes, marketing approaches are all still Locked-in and the same. GM hasn't been Disrupted any more than Tribune company has. Quite to the contrary, instead of being Disrupted bankruptcy preserves most of the Locked-in status quo and breathes new life into it by eliminating the symptoms of a very diseased Success Formula. Meanwhile, White Space is obliterated as the reorganized company kills everything that smacks of doing anything new in a cost-cutting mania intended to further preserve the old Success Formula.
Everyone in the bankruptcy process talks about "lowering cost" as the way to save the business. When in fact the bankrupt business is so out of step with the market that lowering costs has only a minor impact on competititveness. Just look at the perennial bankruptcy filers – United Airlines, American Airlines and their brethren. Bankruptcy has never allowed them to be more competitive with much more profitable competitors like Southwest. Even after 2 or 3 trips through the overhaul process.
Bankruptcy does not bode well for any organization. It's a step on the road to either having your assets acquired by someone who's better market aligned, or failure. Those who think Tribune will emerge a strong media competitor are ignoring the lack of investment in internet development now happening – while Huffington Post et.al. are growing every week. Those who think the "new" GM will be a strong auto company are ignoring the market shifts that threw GM to the brink of failure over the last year. Both companies are still Defending & Extending the past in a greatly shifted world – and nobody can succeed following that formula.
Don't forget to download the ebook "The Fall of GM: What Went Wrong and How To Avoid Its Mistakes" for a primer on how to keep your business out of bankruptcy court during these market shifts.
by Adam Hartung | Apr 5, 2009 | Uncategorized
Michael Porter wrote a famous book in 1980 on strategy called, befittingly, Competitive Strategy. His doctoral work at Harvard had shown him that in an industrial market, you could map out the power a company has – and from that imply its future profitability. Famous from this book was his "5 Forces" model in which companies could compare the relative strength of customers, suppliers, substitutes and potential entrants with traditional competitor rivalry to ascertain attractiveness. An outcome of his late 1970s analysis was that if you are really strong, you can control the behavior of the other forces to dictate your profitability. This was all pre-internet, pre-information economy.
Today (Sunday) my wife was fit to be tied (an old midwestern phrase) when she opened the Chicago Tribune and couldn't find a television schedule. She's not much of a newspaper reader, primarily just the Sunday ads and the TV schedule. When she couldn't find the TV schedule, she called the newspaper to ask for another copy. But the automated response at the Trib said not to leave a message if you're calling about the TV schedule, because it was now being printed in the Saturday edition. As you might guess, we don't take Saturday because we don't have time to read newspapers any more. Her reaction was simple "I get most of these ads delivered in the mailbox now during the week. If we don't get the TV schedule, we might as well cancel the paper altogether."
This, of course, is not the reaction Sam Zell and his management team at Tribune Corporation are expecting. They think their last remaining competitor, Sun Times Corp., is most likely going to fold now that it's filed bankruptcy and seems drowned in red ink. Following Porter's nearly 30 year old approach, they think they have little competition and no threat of new newspaper entrant – so they'll simply "force" readers to buy Saturday if they want the TV schedule.
But they are wrong, of course. Just like every other action they've taken since Zell overleveraged the corporation in his buy-out, they continue to ignore that the internet exists. As I pointed out to my wife, we can easily bookmark several locations to identify our local programming – including a nice layout at USAToday.com.
In an industrial economy, many leaders came to believe that they could erect entry barriers which allowed them great power to run their business for high profits. At newspapers, many felt that by being the only (or largest) local paper they had a "moat" around their business guaranteeing profits. They felt comfortable they could raise rates on advertising, and classified ads for those looking to find new hires or sell a used car. But of course they missed the fact that advertisers could go to the web to find customers. And that it was a lot cheaper to use Monster.com, Vehix.com or Craig's List than a local classified ad. So now Zell's team is trying to use his "relative strength" to push his subscribers into behavior they have avoided – buying a Saturday paper. And, again, the team has forgotten that in an internet-connected world customers have lots of options, and given a push they'll go look for other solutions.
The folks at Tribune Corporation made a big mistake by over-leveraging their acquisition. And they worsened that mistake by trying to use 1980s strategy post-2000. I recently emailed books editor Julia Keller with a recommendation for promoting book reading more strongly in her Sunday "Lit Life" column. She responded by upbraiding me for having the temerity to offer an idea to her – and concluded by challenging not only my intelligence but my own reading ability – then telling me to subscribe to the Saturday edition so I'd stop being such a luddite. My son wrote to the Trib's Sunday auto reviewer Jim Mateja with some insights he had about hybrids as a 21 year old, and Mr. Mateja responded that since he was only 21 he wasn't old enough to have common sense, and certainly no insights a serious auto reviewer or auto executive should consider. Bullying customers seems to have become commonplace around The Chicago Tribune.
When business conditions turn poorly it's very easy to focus on Defending & Extending what worked in the past. It's natural to turn against those who complain, and seek out your most loyal customers for reinforcement that you're Success Formula need not change. It's not uncommon to "write off" customers that walk away from you, saying they are no longer in your market target or niche. It's likely you'll turn to management practices that might have worked 3 decades ago (think about GM as well as newspapers). It's comfortable to turn to your "hedgehog concept" and try to do more of what you know how to do, primarily because you know how to do it and are good at it.
But you can't bully customers. Today, more than ever, substitutes and new entrants are no further than a Google search. Markets aren't as neatly and tightly defined as they were in 1980. When you see results slip, you can't try to force them back up by bullying vendors either. You have to align with market needs – with the direction markets are headed. You have to look into the future to see what customers will value, and do the Google search yourself to identify alternative competitors you need to beat. The Chicago Tribune could do a lot more to make its business valuable to people in Chicago and beyond. A little White Space could go a long way. Unfortunately, management appears intent on being the first major market newspaper to really fail – and folks in Chicago as well as L.A. (Tribune Corp. also owns The Los Angeles Times) may find themselves first on the curve to using web media exclusively.
by Adam Hartung | Mar 30, 2009 | Current Affairs, Defend & Extend, General, In the Rapids, In the Whirlpool, Leadership, Quotes, Television
"This is the future of media. Whether in print, over the air or online — the delivery mechanism isn't as important as the unique, rich nature of the content provided." That's what the Tribune Corporation's COO, Randy Michaels, said in "Tribune Merges Conn. paper, stations" as reported on Crain's ChicagoBusiness.com. After filing bankruptcy, and seeing both newspaper subscribers and advertisers hacked away dramatically, Tribune is merging together all operations – newspaper and 2 TV stations – in Hartford, CT. They are cutting costs again.
We can hope Mr. Michaels means what he says, but excuse me if I'm doubtful. Despite the rapid acceleration of on-line news readership, and the fact that in most major markets Tribune has one or more TV stations as well as a newspaper, Tribune has never consolidated it's news operations or its advertising sales force. This is sort of remarkable. Going back at least 5 years, it made sense when gathering the news, or talking to an advertiser, to discuss how you could maximize his value for ad money spent. That meant a sharp company would have laid out programs showing how they could give advertisers access to eyeballs from all sources. But instead, at Tribune each station had its own salesforce, each newspaper, and each on-line edition of the newspaper. There was little effort to give the customer a good value for his spend – and no effort to discuss how he could transfer dollars between media to be a big winner. Even though Tribune was an early investor in the internet, it has not learned from its investment and migrated to a new Success Formula.
At a time when advertisers are unclear about how to justify their spending, a sharp media company would be explaining how many eyeballs in are in each format, the demographic profiles and the cost to reach those eyeballs. A company that really is "media independent" would have a big advantage over one trying to sell only the legacy products, because it isn't learning from the marketplace how to offer the best product at the best price and make a profit.
And Tribune had better move quickly. Arianna Huffington has announced the launch of the "Huffington Post Investigative Fund," as announced on the website HuffingtonPost.com. This is her effort to create a pool of investigative journalists for on-line sites who will do the kind of work we historically expected newspapers to do. She is throwing in $1.75million, and asking others to put up additional money. Thus giving this White Space project not only permission to figure out a "new age" model for investigative reporting, but hopefully the resources with which to experiment and learn. Whether this project will succeed or not is unclear, but that it is intended to make on-line news (and her website) more powerful and successful is clear. With each step like this, and this one she took all over the airwaves Monday discussing on multiple television stations, the case against quality of on-line news declines – and increases the on-line competition for eyeballs with television, radio and newspaper formats.
What we'd like to see is an announcement that the Tribune project in Hartford is a White Space project intended to figure out the Success Formula for future media. As we come ever closer to the "Max Headroom" world, depicted in the 1980s of a future where there is 24×7 news around all of us all the time, what no one knows for sure is how the profit model will work. Those who experiment first, and learn the fastest, will be in a strong position to be the leader.
Unfortunately, the Tribune announcement does not look like White Space. The Tribune leadership has still not Disrupted its grip on the old Success Formula. The project in Hartford looks more like a cost-saving effort, trying to defend the old newspaper, than a learning proposition. The project seems to lack the permission to do whatever is necessary to succeed (like perhaps stop printing), and it has no resources coming its way with which to experiment as it keeps trying to maintain all 3 of the legacy business units. Rather than a learning environment, this looks more like an effort to save 3 troubled businesses by cost saving - a Defend practice that doesn't work when markets shift and new competitors are trying all kinds of new things.
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.
