The Phoenix Principle

Does your business Facebook?

I had two more Facebook ignorers this week.  First was an old friend who didn't use Facebook, and could not imagine how it would be beneficial to his business.  I responded with "that's kind of like the folks who didn't use a telephone saying that they didn't see any value in it for business."  When you don't use a tool, it's easy to pretend it isn't valuable.  Makes life easy on your competitors who do give it a try.

The second was a business that recruits people under 30.  The top marketers at this company are still doing all their efforts with newspapers, radio and typical broadcast forms of media.  They said they couldn't use social media to reach their base "because you can't control the message on Facebook."  OK, so  they don't use social media, and their focus is on message control so they don't intend to use social media.  But their target is a population that every month uses less traditional media, and more social media.  And these folks are wondering why media costs are up, and their success is way, way down.  Uh huh.

At MediaPost.com "Avoiding Social Media Malpractice" Chad Cappellman tells the story of a hospital division that gets more people coming for insight through Facebook than come through the highlighted links on the hospital's own web site!  People use Facebook today - a lot.  We all would prefer a personal referral when we have a question.  Often, a referral is better than 10 Google search hits at pointing you to the service provider or product which really fits your needs.  And Facebook is a fast way to generate referrals.  As is Twitter.  So when you want potential customers referred your way, why wouldn't you try to maximize the use of social media?  As the story above discusses, people would rather get info about a hospital (an example) from friends than from about any other source.

As for implementation, social media is part of the more sweeping market shift affecting all businesses.  Historically, business people thought in terms of "control."  The business had communication walls, internally and externally.  More time was spent making sure information wasn't passed around than making sure communication was fluid and accurate.  But in another MediaPost.com article "Twitter and Facebook Could Get You Fired" we see that approach simply won't work any more.  We live in a "connected" and "networked" world today.  There are precious few secrets when everyone has a mobile phone, and most of those have cameras, and texting is ubiquitous, and the vast majority of people under 35 have multiple social network locations. 

Today, you can't win by limiting communications.  That is a failed approach.  Nor is it possible to "control" what is said about your business or its products and services.  What you can, and increasingly must, do is monitor the chatter and be part of it.  Of course some things will be inaccurate, so its now your role to help move the message in the right direction.  Don't think about control, think about helping the message move toward accuracy.  And leverage all the chatter to help you sell more stuff!

We live in a fast shifting world.  That is not going to change.  Slow moving traditional media is gradually dying.  No competitor can succeed by avoiding the shifts.  Those competitors that win will use scenario planning to help anticipate the shifts, and focus on fringe competitors to learn how to do new things which can create advantage.  Success isn't going to come from trying to Defend & Extend the "core" - but rather by rapidly adapting to new market needs even if it means changing your "core."  And the best way to stay connected to shifting markets today is through social media.  It not only gives great, and timely, feedback but offers everyone the chance to enter into a dialogue with potential new customers at remarkably low cost.  And in remarkably powerful ways.

Be Flexible, and Forward Thinking - Office Depot, Apple

"Strategic Plans Lose Favor" is a recent Wall Street Journal headline.  Seems like some big companies, and big consulting firms like Accenture, McKinsey and the Boston Consulting Group are rapidly learning what this blog has been pushing for a few years.  That flexibility trumps traditional approaches to strategic planning.

• When Office Depot's strategic plan was leading to revenue struggles, the company set up a situation room to track key indicators and adjust to market shifts much quicker.
• "Strategy as we know it is dead" according to Walt Shill, head of strategic planning at Accenture. "increased flexibility and accelerated decision making are much more important than simply predicting the future."  (Do you think he's been reading this blog and my book?)
• "business leaders will start to rely less on static five-year strategic plans and more on rough "adaptive" strategies that consider multiple scenarios"  according to Martin Reeves, Senior Partner at BCG.  (Where'd he read that - on this site?)
• ""The rate of change and width of volatility is much wider and faster than what we would have assumed coming into this," Jeff Fettig, CEO at Whirlpool
• McKkinsey has opened a "Center for Managing Uncertainty."  Really.

As this recession has come on, and lingered, businesses are clearly starting to realize that market shifts happen fast, and businesses cannot be slow to change.  Adaptability is one of the most important capabilities to compete in the post-2000 business world.

And the real market leaders are incorporating this kind of thinking into their organizations.  While the earlier quotes show how, caught on the defensive, organizations are finding new ways to react, the best performing organizations are taking market leadership by being Disruptive.  Like Apple.  In a Harvard Business Review blog Roberto Verganti, professor at Politecnico di Milano tells us "Apple's Secret:  It tells us what we should love." 

The good professor of design and management points out that Apple does not ask customers what they want.  Instead the company designs products which take customers to new levels of performance beyond what they imagined.  Instead of being reactive, Apple uses scenario planning to understand future market needs and create shifts with its products.  This approach leads to breakthrough performance, such as the success of Nintendo and its Wii product line.

To be successful businesses can no longer try to Defend & Extend their old strategies.  They have to be market focused, and flexible to manage through market shifts.  And to earn superior rates of return they have to be market leaders that use scenario planning and White Space to launch new solutions meeting emerging needs which attract customers and grow sales.

Winners and Losers from Shifts - Apple, Amazon, Microsoft

One of the biggest business news items this week was the launch of Apple's iPad for $499.  Although perhaps overlooked by many big companies, and several IT departments.  To some businesspeople, the iPad seems another consumer toy, thus not terribly noteworthy.  Some see it as a small-market share sort of oversized iPhone for mobile telephony/data use.  One executive commented to me this week "I don't understand why anyone cares, I don't own an iPhone and cannot imagine why I would ever want to download an app,"  He has a huge investment in Microsoft technology, has never used an iPhone or Palm Treo or even a Blackberry.  Hes' never seen an iPhone app, and was amazed when I told him 1 billion had been downloaded.  He's comfortable in his traditional IT solution, and doesn't see the importance of iPad.

But the iPad is another step demonstrating a big market shift is happening.  With Apple's announcement, Amazon announced that it's sales of Kindle are about twice what most analysts had expected - see "During Apple Week Google and Amazon try to Remind You They Exist" at Fast Company.  Further, it appears now that for every 10 books Amazon sells, it sells 6 Kindle books -- a substantial number and indications of serious market change.  The iPad is half the price most people expected, and now rumors are Kindle's will drop to $100 as competition heats up.  It rapidly appears that while there is an emerging battle between Amazon and Apple, the biggest insight is that the market for BOTH is growing a whole lot faster than anyone expected.  As are iPhone sales.  These devices, and the technology solution embedded within them, are grabbing a lot of buyers, and quickly.  The sales, in units and dollars, are growing much faster than anticipated.  And new users are flocking toward this technology platform.

Thus, the iPad is likely to be a big winner for Amazon and Kindle - as well as Google.  It is expanding the application base, and use patterns, for mobile devices.  It is expanding the product breadth and price points.  Quite simply, it is helping people do new things they couldn't do before - especially when mobile - that they could not do before.  As a result, apps will grow and sales of both hardware and software will grow.  And early adopters will gain an advantage as they use this new technology to create advantages for their customers.  Apple and Amazon are both "winners" who are driving revenue and profit growth.

And Microsoft loses.  Microsoft has never changed its Success Formula.  Its Identity, Strategy and Tactics remain as they've been for three decades - to provide a one-stop near monopolistic, integrated (mainframe style - and certainly monolithic) solution.  As the market has been shifting, however, this has been less and less successful.

Source:  Silicon Alley Insider

As the chart shows, Microsoft's product strategies, product introductions, acquisitions and management changes have done nothing for growth - or valuation.  Microsoft keeps trying to do what made it great in the late 80s and early 90s.  But since then, the market has shifted dramatically and the sustaining innovations Microsoft has offered, while meeting customer requests for improvement, haven't really helped growth. 

The cost of this Lock-in has been horrific.

Source:  Silican Alley Insider

Microsoft has poured billions of dollars into a failed approach intended to Defend & Extend its Success Formula - but to no avail.  The market is going a different direction - toward cloud computing with its distributed data, extremely small apps at very low (disposable) prices, easy to use interfaces and greatly lower device cost.

Even as large and cash rich as Microsoft was in 2000, it cannot stop a market shift.  And even though this shift has been predictable, with competitors from the fringe like Google, Amazon and Apple bringing to market new products, Microsoft has chosen to try Defending & Extending its Success Formula rather than Disrupt and use White Space to develop new solutions.  What can we expect from Microsoft in the future?  Unfortunately, more of the same and most likely a dramatically deteriorating value.  When the market's shift to these thin devices with a different architecture becomes clear, the inability of System 7 and Bing to make any difference in Microsoft results will be clear.  And investors are likely to run for the proverbial hills - letting the stock price drop along with new users.  Microsoft will increasingly be dependent upon legacy applications and maintenance - markets with little/no growth.  Microsoft could soon be the next Unisys (remember that company?)

So, what is your company doing?  Are you moving forward with new apps which will grow your revenues and profits?  Are you looking for ways to use these devices, and the underlying mobile computing architectures, to offer your customers better solutions?  Are you bringing out new approaches that are potential game changers, bringing new customers to you and accelerating growth?  Or are you trying to Defend & Extend your old processes, approaches and products?  Are you planning a future that will be PC/laptop centric, and delivering traditional web pages?  Are you following the laggard, Microsoft, or are you Disrupting your business, and market, with White Space projects that will change market behaviors using these new technologies and positioning you as the market leader?  In 2015, will you look like Microsoft - frozen in place as the market shifts - or will you look more like Google, Amazon and Apple with new solutions that create excitement and new sales?

Have you tried a Kindle yet?  iPad?  iPhone?  Do you have any White Space where you are trying these new things?  Have you Disrupted any of your organization and challenged them to apply this technology?  Exactly what are you waiting on?

Data is overrated - Scenario planning and global warming

Most businesses have multiple analysts who spend day after day accumulating, analyzing and displaying data.  Financial analysts, marketing analysts, IT analysts - they are all over the place.  Then businesses will hire consultants who bring their own analysts to further find and review data - then present yet more charts and data summaries.  When I worked for The Boston Consulting Group we used to say "the data will set you free!" And we believed that if we dug up more data and did more analysis than anyone else we would offer insight to change businesses everywhere.

Yet, more of our clients didn't take action than did.  When I moved on to other firms, the results weren't really different.  And when I was in corporate America at huge companies, like PepsiCo and DuPont I found that the army of analysts and mounds of data really had almost no impact on how decisions were made. or what decisions were made..  

Once a business is prosperous, its Success Formula drives behavior.  Its Identity is set, its strategy is in place and tactics are predetermined.  Things don't change just because someone shows the leadership data.  No matter how synthesized or analyzed or elegant, the data really makes little (if any) difference.  It's easy for leaders to simply ignore data that is troubling, and highlight data which confirms previously held beliefs.  And even if insight is created, insight has nothing to do with what people will do next.  Insight doesn't change the decision-making processes, or any of the other Lock-ins keeping the Success Formula in place.  Even though managers claim that they want to see "the data," in reality the data makes no difference.

Last night the U.S. President Barack Obama referred in his State of the Union address to the data which confirms global warming.  This drew significant snarky laughter from some of the joint congressional attendees.  And even though there are regular reports, like the recent New York Times article "Past Decade Warmest on Record, NASA Data Shows," there are regular polls showing an enormous amount of the population, at all income levels, who simply don't believe the earth is warming.  The data, in the end, is ignored or discounted.  It simply doesn't matter.  And no one is going to change the opinions of anyone who doesn't think the earth is warming by trying to show more data.

Data leads to debates.  Who's answer is right?  Who's forecast is more likely?  Debates about data can go on forever.  An old business joke says if you strong all the econometric modelers together end to end they'd still never reach a conclusion.  But you'd get a lot of debate.  

Instead of data and debate, realize the limitations and move on.  If we spent 1/10th the time digging for and analyzing data, we'd do just fine.  Rather, we should spend the other 9/10th of the time building scenarios.  Instead of debating a topic like global warming, we could build scenarios that ranged from global cooling by 5, 3, 2 or 1 degree to no change to warming by 1, 2, 3 or 5 degrees.  The issues isn't which is most likely - but rather that we think through the implications of ALL, and prepare.  What strategies would allow for success given that any of these are possible? 

Business analysts, strategists and leaders spend a lot of time trying to guess the future.  But their crystal ball is just as foggy as everyone else's.  Their guesses are mostly wrong, because a dynamic marketplace is very hard to predict.  So they plan to do something, but then shifts make the returns lower because the world/market didn't turn out as planned.  Given that we KNOW that we're more likely to be wrong than right, why the fascination with trying to pick the future?

Those who win more than they lose develop a lot of scenarios.  They don't try to pick a scenario.  They try to think through the many possibilities and prepare for as many as possible.  And they develop mechanisms to track the market so they can keep an eye on the multiple scenarios and anticipate things as time passes.  It's never the things you expect that really hurt you, it's the one you didn't think about.  To be prosperous for a long time you have to build the ability to think very broadly about the scenarios that can happen, and prepare.

So the next time you feel the urge to "get more data" think about global warming.  Has all this data changed the debate?  Has it helped any country to better prepare?  Has anything really happened, as the mountains of data on the topic have been assembled, analyzed and distributed?  Does anyone think the data will cause a change in policy, or behavior?  If not, then maybe you can start to spend more time creating multiple, wide scenarios that will help you prepare - and possibly help you to develop new behaviors to protect your business from a range of potential outcomes.

The problem with lists and awards - and best practices

We all love awards and lists.  Who doesn't like being rewarded for their accomplishments.  At the same time, we have acquired a strong taste for lists "The best..."  Another verification of success. But both can be harbingers of potential problems - and even destruction.

Ben Bernanke became Time magazine's "Man of the Year" and now he's at some risk of losing his job (see 24/7WallStreet.com "In Not Bernanke, Who?"  Think about the list of Great Companies that appear in books, like Good to Great, only to end up in big trouble - like Circuit City and Fannie Mae.  Why does it seem those who top awards and lists end up shortly struggling?

Too often businesses, and business people, "win" by doing more of the same.  They work hard to optimize their Success Formula.  They get really committed to practicing what they do (remember Outliers by Malcolm Glaldwell and his recommendation to practice, practice, practice?)  They get better and better.  And in fields like sports and music, where the rules are well understood and the approach is clear, this often works. And as long as they keep practicing top athletes and musicians often remain near the top of competitors.

But we have to recognize that most of the time those "at the top" in business have emerged within a given market.  Then they are knocked off by a shift.  Like Ed Zander of Motorola being named #1 CEO in 2004, only to be fired within 2 years as RAZR sales toppled.  Like Sun Microsystems perfecting Unix servers for an emerging client/server technology market that became saturated and shifted to PC servers.  Like Michael Dell (and Dell Corporation) which emerged when lower cost made supply chain efficiencies critical for PCs, before the PC market became saturated and iPhones plus Blackberries started dominating the landscape.  Or WalMart which also used a new supply chain to grow the emerging discount retailing sector, only now it is laying off 10,000 employees as it shuts Sam's stores across the country.  These companies created a Success Formula and honed it quarter after quarter to maximize performance in a high growth environment.  But the market shifted.

In business the rules are not "set".  There is no written music to perform.  Instead, the market is highly dynamic.  New competitors emerge, new ways of competing emerge, new technologies emerge and new solutions emerge.  The market keeps changing. Suddenly, what worked last year isn't successful any more.  When the market shifts, the previous winner becomes the new goat.  That optimized business starts to look like the world's best wrestler, only to be obsolete when a flood occurs making swimming the new, necessary skill.  Being last year's best is impossible to repeat because the market shift makes the old approach less valuable - possibly obsolete.

"Best practices" are usually little more than copying last year's list topper.  In the 1990s everyone wanted to copy product development practices at Sun, and supply chain practices at Dell.  But both led to horrible returns when demand for servers and PCs diminished.  Best practices are almost guaranteed to be a solution developed to late, and applied even later, to solve previous years' problems.  They aren't forward looking, and not designed to meet the needs 2 years into the future.

Business success isn't about topping a list.  And, to a great degree, the Outlier approach (as is a hedgehog concept) is very risky.  If you spend 10,000 hours doing something, only to see the value for that something go away, what good was it?  Remember when Cobol writers were in demand?  Being the world's best at something in business can cause you to be optimized on the past and inflexible to market change.

Business success requires adaptability. And that requires a focus on future markets.  It requires the ability to constantly Disrupt your approach, to build capability in many different areas and markets.  It requires skill at establishing and operating White Space projects to learn about new markets and shifts - the ability to know how to test and then understand the results of those tests.  In business adaptability trumps optimization, because you can be sure that things will change - markets will shift - and the highly optimized find themselves behind the shift and struggling.

New Solutions Emerge - Apple, Amazon, Netflix, YouTube, Hulu

Most people misunderstand evolution.  They think that changes happen slowly.  Imagine an animal with a 12 inch tail.  Every generation or so it's imagined that the tail gets a little shorter, then a little shorter, then a little shorter until after some very long time it simply disappears.  But that's not at all how evolution works.

Instead, most of the animals have a long tail.  Some small number of animals are born each year with very short or no tails.  For the most part, this matters little.  If the tail is valuable - say for warding off parasites - those without tails may suffer and die off quickly.  And that's the way things are, largely unchanged, for decades.  But then, something happens in the environment.  Perhaps the emergence of a predator able to catch these animals by the tail and hold them in place to let the pack kill it.  Within one generation almost all of the tailed animals are killed by the predator, and only the no-tail animals survive.  Some of these have developed an immunity to the parasite.  So then this "evolved" animal becomes dominant.  No-tail animals replace the tailed animals.  That's how evolution really works.  It happens fast, with drastic change (and this time of change is referred to as a punctuated equilibrium.)

Once we know how evolution really works, we can start to better understand business competition.  A Success Formula works for a really long time, until something changes in the marketplace.  Suddenly, the old Success Formula has far poorer results.  And a replacement takes over.

Consider newspapers.  They played a very important role in society for at least 100 years (maybe 200 or 300 hundred years.)  But with the advent of the internet, their role is no longer viable.  Printing and delivering a daily paper is too expensive for the value it can provide.  So think of newspapers as the long-tail animal.  And digital news delivery is a short-tail animal.  The internet is the attack pack that kills the newspapers.  And within short order, the world is a different place - in a new equilibrium.  And everything about the surrounding environment is shifted.  Regardless of how much you enjoyed newspapers, they simply cannot compete and new competitors are a better fit in the new marketplace.

Now consider Netflix.  Netflix played a major influence in obsoleting traditional movie rental shops - like Blockbuster.  Netflix was a winner.  But markets - new attack packs - keep emerging.  And the latest shift are products like the Kindle and Apple Tablet (as well as other tablet PCs.)  These products make Hulu and YouTube a lot more viable.  Suddenly, Netflix is the long-tail animal, and the short-tail animals are doing relatively better. 

According to The Wall Street Journal, in "Apple Sees New Money in Old Media" Apple is close to a deal with several newspapers to deliver their content to readers via their internet device.  They also are negotiating rights to deliver movies and television (small format) entertainment.  Simultaneously, Amazon keeps marching forward as MediaPost.com reports in "Take That Apple: Kindle Introduces Apps."  We see that there are a LOT of potential different versions of the short-tail animal.  Tablets, phones, netbooks, etc.  Which will be the biggest winners?  Not clear.  But what is clear is that the old long-tail competitors (newspapers, print magazines, network television, traditional PCs) are not going to flourish as they once did.  The market has permanently shifted.  Those competitors are in the back end of their lifecycle.

Simultaneously, this market shift causes ripple effects through the environment.  The market shift affects ALL players - not just the one most visibly being attacked.  So, as SiliconBeat.com reports in "Looks Like Netflix is Dead, Again" this change suddenly imperils Netflix which has mostly counted on postal delivery rather than digital.  And it provides a boost to short-tail players like Hulu and YouTube which could see much larger revenue given their digital-based delivery models.

And this affects you.  What do you print, or say, that could be better handled on a mobile device?  Could you deliver user instructions via an iPhone or Kindle app?  If so, why aren't you doing it?  Are you still working on traditional web pages, with embedded text in graphics that can't be seen by a mobile phone, when most people are likely to find you first on their mobile device?  Are you busy working on your web site, while ignoring having a Linked-in or Facebook account?  Are you advertising on television, or in newspapers, and ignoring Facebook ads - or YouTube links?  Do you have a YouTube channel with short clips to instruct users on your product, or how to install an upgrade, or even why to buy?  Are you still competing with a long tail, while the pack is rapidly killing off the long-tail species?

Market shifts are happening fast today.  If you don't react, you just may find yourself deep into the pack with declining results.  Or you can shift with the market to keep your business competitive.

Swim with the current - Newspapers, Facebook, YouTube

Over the last week everyone has heard stories about how Facebook, and Twitter, became primary communication conduits for people with connections in Haiti.  Telephone and slower communication vehicles simply have not been able to connect family and friends in this crisis like Facebook.  When shift happens, it accelerates as new uses come to the forefront quickly.  For everyone trying to connect with employment candidates, suppliers and customers this shift has immediate and important impact on behavior.

 

Source:  Silicon Alley Insider

For advertisers, the impact is significant.  Where should ad dollars be placed?  On a traditional home page and search site - like Yahoo! - or on Facebook?

And it's not just the sites themselves, but how long people are on these sites.  From an advertising point of view, you can start to think about Facebook - and YouTube - almost like a "channel" from early television days.  Where the audience comes back again and again - offering you not only a large audience, but more opportunities to reach them more often.  Facebook and YouTube are beginning to dominate the "user views."

Source:  Silicon Alley Insider

Source:  Silicon Alley Insider

Of course, the impact isn't just regarding the web, but how any business would use media to reach a target audience.  Most advertising agencies, and ad people, are still focused on traditional media.  But, as we can see, that WILL shift -- even more than it traditionally has.

Source:  Silicon Alley Insider

Anybody investing in newspapers, expecting a resurgence in value, is pretty foolish.  Newspapers are going to lose ad dollars - not gain.  Relatively, newspapers already are getting too much of the ad spend.  Talk radio has growth.  And clearly the web.  Since we can expect that newspaper and magazine readership will continue recent downward trends, and television is fragmenting as well as stalling, the big growth is on the internet.

The market shift is really pretty clear.  We aren't speculating about the market direction with this data.  The question becomes, will you be an early adopter of these new media channels or not?  Given that the web and mobile have the lowest ad rates of all media, why wouldn't you?  Over the last 2 months Pepsi has decided to NOT advertise on the Super Bowl, instead putting the money into social media.  And after introducing the Granite Concept car at the Detroit auto show, even behind-the-times GM is now considering a launch of this vehicle, intended for buyers under 35, using only web advertising.

So what are your plans?  Do you have scenarios where Facebook and YouTube are integral to your marketing?  Do you have pages, groups and channels on these sites?  Do you post content? Are you using them to interact with potential customers, vendors and employees?  If not - what are you waiting on?  Do you need a Disruption to create some White Space and get started?  If so - isn't it time to get going?

Use Disruptions, not Goals, to Succeed - GM

Many people think the best way to grow is by setting big goals - even Big Audacious Hairy Goals (BHAGs).  But increasingly we're learning that goal setting is not correlated with success.  At AmericanPublicRadio.org there's a partial text, and MP3 download, of a recent interview between General Motors leaders and a University of Arizona Professor titled "It's not always good to create goals." 

The story relates how about a decade a go, with market share hovering at 25%, GM set the goal of moving back to 29%.  It became a huge, multi-year campaign.  Lapel pins with "29" were made and all kinds of motivational programs were put in place.  The GM organization had its goal, and it was highly aligned to the goal.  But it didn't happen.  Despite the goal, and all the energy and talent put into focusing on the goal, GM continued to struggle, lose share - and eventually file bankruptcy.  The goal made no difference.

Worse, the interview goes on to discuss how goals often lead to decidedly undesirable, sometimes unethical - even illegal - behavior.  Instances are cited where goal obsession led company employees to falsify documents, even  ship bricks in place of products to meet sales targets.  No executive wants this, but goals and goal obsession - especially when there is a lot of reinforcement socially and monetarily on the goal - can become a serious problem.

Results are exactly that.  Results.  They are an outcome. They are the way we track our behaviors and activities - our decisions.  When we focus on goals - usually some sort of result - we lose track of what is important.  We have to focus on what we do.  And for most organizations a big goal merely leads people to try working harder, faster,better, cheaper.  But when the Success Formula is mis-aligned with the market - even when the whole organization is aligned on maximizing the Success Formula results will still struggle - even falter.  Goals don't help you fix a Success Formula returning poor results.  Just look at GM.

In fact, it can make matters worse.  In "White Bears and Other Unwanted Thoughts" (available on Amazon.com) the authors point out that when you try to turn a negative (a problem) into a positive (a challenge, or goal), you often achieve a rebound effect making people obsess about the problem.  Tell somebody not to think about a white bear - and it's all they think about.  When your company has a problem and you try to tell employees "hey, don't think about the problem.  Go do your job.  Work harder, increase your focus, and all will work out.  Sure share is down, but don't think about lost share, instead think about the goal of higher market share" frequently the employees will start to become obsessive about the problem.  It will reinforce doing more of the same - perhaps manicly.  Instead of becoming innovative and doing something new, obsessive devotion to trying to make the old methods produce better results becomes the norm.  Goals don't produce innovation - they produce repetition.

So what should you do when facing a problem?  Disruptions.  GM didn't need a big goal.  GM needed to Disrupt its broken Success Formula.  GM needed to attack a Lock-in (or two).  GM leaders needed to admit the market had shifted, and that competitors were changing the game.  GM needed to recognize, admit and encourage employees to engage in attacking old assumptions - and recognize that market share would continue eroding if they didn't do things differently.  Setting a big goal reinforced the old Lock-ins and even an aligned organization - working it's metaphorical tail off - couldn't make the outdated Success Formula produce positive results. 

Only a Disruption would have helped save GM.  After attacking some Lock-ins, like the desire to move all customers to bigger and more expensive cars, or the desire to focus on long production runs, GM should have set up White Space teams to discover new Success Formulas.  Instead of putting all its management energy and money into growing volume at Chevrolet, Cadillac, Buick and GM nameplates, General Motors leadership should have revitalized the innovative Saturn and Saab to do new things - to develop new approaches that would be more competitive.  Instead of pushing Hummer to have 3 identical cars in 3 sizes, GM leadership should have unleashed Hummer to explore the market for truly unique, limited production vehicles. GM should have allowed Pontiac to really take advantage of the design breakthroughs happening at the Australian design studio - to change the nameplate into a performance car segment leader.  By attacking Lock-ins, Disrupting, and using White Space GM really could have turned around.  Instead, by creating a BHAG GM reinforced its focus on its Hedgehog concept - and drove the company into bankruptcy.

You can see a 40 second video about the value and importance of Disruptions on YouTube here.

A 75 second video on White Space effectiveness on YouTube here.

Read free ebook on "The Fall of GM:  What Went Wrong and How To Avoid Its Mistakes"

Overcoming metrics to grow - Motorola, Xerox, Kodak, Six Sigman, TQM, Lean

Do all good ideas originate outside the organization?  Of course not.  Motorola understood all the critical technologies for smart phones, and taught Apple how to use them in a joint development project that created the ROKR.  That's just one example of a company that had the idea for growth, but didn't move forward effectively.  In this case Apple captured the value of new technology and a market shift.

On the Harvard Business Review blog site one of consulting firm Innosight's leaders, Mark Johnson, covers two stories of companies that had all the technology and capability to lead their markets, but got Locked-in to old practices.  In "Have You Already Killed Your Next Big Thing" Mr. Johnson talks about Xerox and Kodak - two stories profiled in my 2008 book "Create Marketplace Disruption."  Both companies developed the technology that replaced their early products (Xerox developed desktop publishing and Kodak developed the amateur digital camera.)  But Lock-in kept them doing what they did rather than exploiting their own innovation.

One of the causes is a fascination with metrics.  Again on the Harvard Business Review blog site Roger Martin, Dean of the Rotman School of Management at the University of Toronto, tells us in "Why Good Spreadsheets Make Bad Strategies" that you can't measure everything.  And often the most important information about markets and what you must do to succeed is beyond measuring - at least in the short term. 

Measurements are good control tools.  Measurements can help force a focus on short term improvements.  But measurements, and the concomitant focus, reduces an organization's ability to look laterally.  They lose sight of information from lost customers, from small customers, from fringe customers and fringe competitors.  Measurement often leads to obsession, and a deepening of Defend & Extend behavior.  It's not accidental that doctors often find anorexia patients measure everything in (liquids and solids) and everything out (liquids and solids). 

Measurements are created when a business is doing well.  In the Rapids.  Like Kodak during the 1960s and Xerox in the 1970s.  Measurements are structural Lock-ins that help "institutionalize" the behavior which makes the Success Formula operate most effectively.  And they help growth.  But they do nothing for recognizing a market shift, and when new technology comes along, they stand in the way.  That's why a powerful Six Sigma or Total Quality Management (TQM) or Lean Manufacturing project can help reduce costs short term, but become an enormous barrier to innovation over time when markets shift.  These institutionalized efforts keep people doing what they measure, even if it doesn't really add much incremental value any longer.

To overcome measurement Lock-ins we all have to use scenario planning.  Scenarios can help us see that in a future marketplace, a changed marketplace, measuring what we've been doing won't aid success.  And because we don't yet know what the future market will really look like, we can't just swap out existing metrics for something different.  As we proceed to do new things, in White Space, it's about learning what the right metrics are - about getting into the growth Rapids - before we tie ourselves up in metrics.

Note:  To all readers of my Forbes article last week - there has been an update.  The very professional and polite leadership at Tribune Corporation took the time to educate me about the LBO transition.  As a result I learned that what I previously read, and reported in my column as well as on this blog, as being an investment of employee retirement funds into the LBO was inaccurate.  Although Tribune is in hard times right now, the very good news is that the employee retirement funds were NOT wiped out by the bankruptcy.  The Forbes article has been corrected, and I am thankful to the Tribune Corporation for helping me report accurately on that issue.

Sacred cows - Google and Nexus One

So out of the blue I got called by a reporter asking me what I thought of Google posting an advertisement for the new Nexus One on its homepage.  It was an easy question - the Google homepage isn't sacrosanct.  Like everything, it needs to be used in a way that's most valuable for customers and suppliers.  Times change, and it should change.  So I answered that the Google home page wasn't a sacred cow, and it's smart for Google to try things. 

So OnlineMediaDaily.com quotes me on Thursday in "Google Runs Multimillion-dollar ad for Nexus One." 

• "Has Google changed its stance on using the home page as a promotional platform? Adam Hartung, an analyst with Spark Partners, refers to Google's home page as a "sacred cow." The company has something that almost seems like a religious idol. This ad demonstrates that Google is willing to change that and "attack a sacred cow to step the company forward," he says. "And that's a very good sign for investors."

I didn't record myself, but it sounds like me.  Sacred cows get you into trouble.  You have to constantly test, try new things.

But the CEO of Burst Media didn't agree with me.  Picking up on my quote, in the HuffingtonPost.com "Google Should Not Give Up the Sanctity of Its Homepage" Mr. Coffin takes me to task for violating what he considers a sacred public trust.  He fears that anything added to the Google homepage creates cracks in Google's foundation putting the company at risk.

How does anyone in web marketing get so Locked-in?  It just goes to show that you don't have to be old, or a big company, or have a lot of money to be Locked-in to something.  Google's homepage isn't even a decade old.  Nor is Burst Media, an on-line marketing company, I don't think.  But here a reputation leader in on-line marketing is working, working hard actually, to defend a sacred cow.  "Sanctity" of a web page??? Give me a break.

Google has excelled, grown and made more money, because it has been willing to Disrupt its Success Formula and use White Space to test new things.  That's why it's become a household name - and in the process almost singlehandedly destroyed the newspaper industry.  And now is threatening to change how we do personal computing (with Chrome) and enterprise applications (with Google Wave) and even mobile computing (with Android and Nexus One).  Google should consider nothing sacred, because that's the kind of Lock-in which kills tech companies. Sun Microsystems was busy protecting its sanctity while the market shifted right out from under it

Lock-in is inevitable.  But winners - those who grow and make above average rates of return - learn how to manage Lock-in.  They are willing to Disrupt and use White Space.  Good for Google.  I would have expected nothing less!

   

Listen to Competitors Rather than Customers - Google, IBM, Tribune, Cisco

Leadership

Listen To Competitors--Not Customers

01.06.10, 03:10 PM EST

The accepted wisdom that the customer is king is all wrong.

That's the start to my latest Forbes column (Read here.)  Think about it.  What would Apple be if it had listened to its customers?  An out of business niche PC company by now.  What about Google?  A narrow search engine company - anyone remember Alta Vista or Ask Jeeves or the other early search engine companies?  No customer was telling Apple or Google to get into all the businesses they are in now - and making impressive rates of return while others languish.

But today Google launched Nexus One (read about it on Mobile Marketing Daily here) - a product the company developed by watching its competitors - Apple and Microsoft - rather than asking its customers.  In the last year "smartphones" went to 17% of the market - from only 7% in 2007 according to Forrester Research.  There's nothing any more "natural" about Google - ostensibly a search engine company - making smartphones (or even operating systems for phones like Android) than for GE to get into this business.  But Google did because it's paying attention to competitors, not what customers tell it to do. 

No customers told Google to develop a new browser - or operating system - which is what Chrome is about.  In fact, IT departments wanted Microsoft to develop a better operating system and largely never thought of Google in the space.  And no IT department asked Google to develop Google Wave - a new enterprise application which will connect users to their applications and data across the "cloud" allowing for more capability at a fraction of the cost.  But Google is watching competitors, and letting them tell Google where the market is heading.  Long before customers ask for these products, Google is entering the market with new solutions - the output of White Space that is disrupting existing markets.

Far too many companies spend too much time asking customers what to do.  In an earlier era, IBM almost went bankrupt by listening to customers tell them to abandon PCs and stay in the mainframe business ----- but that's taking the thunder away from the Forbes article.  Give it a read, there's lots of good stuff about how people who listen to customers jam themselves up - and how smarter ones listen to competitors instead.  (Ford, Tribune Corporation, eBay, Cisco, Dell, Salesforce.com, CSC, EDS, PWC, Dell, Sun Microsystems, Silicon Graphics and HP.)

Who to follow in 2010? - Amazon, WalMart

Happy New Year!

As we start 2010 the plan, according to The Financial Times, "WalMart aims to cut supply chain costs."  Imagine that.  Cost cutting has been the biggest Success Formula component for WalMart for its entire career.  And now, the company that is already the low cost retailer - and famous for beating its suppliers down on price to almost no profitability - is planning to focus on purchasing for the next 5 years in order to hopefully take another 5% out of purchased product cost.  How'd you like to hear that if Wal-Mart is one of your big customers?  What do you suppose the discussion will be like when you go to Target or KMart (match WalMart pricing?)

Will this make WalMart more admired, or more successful?  This is the epitome of "more of the same."  Even though WalMart is huge, it has done nothing for shareholders for years.  And employees have been filing lawsuits due to unpaid overtime. And some markets have no WalMart stores because the company refuses to allow any employees to be unionized.  This announcement will not make WalMart a more valuable company, because it simply is an attempt to Defend the Success Formula.

On the other hand according to Newsweek, in "The Customer is Always Right," Amazon intends to keep moving harder into new products and markets in 2010.  Amazon has added enormous value to its shareholders, including gains in 2009, as it has moved from bookselling to general merchandise retailing to link retailing to consumer electronics with the Kindle and revolutionizing publishing with the Kindle store.  Amazon isn't trying to do more of the same, it's using innovation to drive growth. 

And the CEO, Jeff Bezos freely admits that his success today is due to scenario development and plans laid 4 years ago - as Amazon keeps its planning focused on the future.  With the advent of many new products coming out in 2010 - including the Apple Tablet - Amazon will have to keep up its focus on new products and markets to maintain growth.  Good thing the company is headed that direction.

So which company would you rather work for?  Invest in?  Supply? 

Which will you emulate?

PS - "Create Marketplace Disruption:  How To Stay Ahead of the Competition" was selected last week to be on the list of "Top 25 Books to read in 2010" by PCWorld and InfoWorld.  Don't miss getting your copy soon if you haven't yet read the book.

New Decade - New Normal

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!

Planning for the future - 2010 - Facebook, Linked-in, MySpace, Pepsi

As we enter 2010, is your business expecting a very different future - and have you started planning to implement new approaches based upon a different future?  For example, how do you plan to acquire new customers, employees and vendors in 2010 and beyond?  Do you still rely on traditional advertising?  Do you use a web site?  Is most of your on-line IT budget still dedicated to web site development?  How much of your plans for 2010 are extensions of what you've been doing on 2009 - or maybe an ongoing trend from much earlier in the decade?

According to the Wall Street Journal in "Linked In Wants Users to Connect More," the number of Linked in users almost doubled in 2009, from 31.5M to 53.6M.  And to drive additional user traffic the site is working hard to add applications which can help companies with recruiting, marketing and other business functions.  With users jumping, and time on site increasing, is your company blocking access?  Or is it figuring out how to leverage this leading web site to find new customers, recruit aggressive new employees and build a stronger business? 

But Linked-in is considerably less successful than Facebook.  Do you still think of Facebook as a site for college kids to plan drinking parties?  If so, you've missed a tsunami in the making.  Facebook's user base, at 350 million, is over 6 times Linked-in.  According to ReadWriteWeb.com "It was a Facebook Christmas; Site Hits #1 in U.S. for First Time."  On 2 days Facebook actually had more site hits than search giant Google!  And Facebook was the #1 Google search in 2009.  Facebook use is exploding.  The average Facebook user spends over 3.5 hours in a session.  Many Facebook users log in daily to keep up with their network and what's happening in markets of interest to them.

Increasingly, people don't do web searches to find out about restaurants, movies, products, services - or even jobs.  They go to social media sites like Linked-In, Facebook and Twitter.  If you depend on people to use your web site to learn about your business - that may be too late.  When referred by a friend, what is the first impression a potential customer (or recruit) gets when reaching out to your LInked-in, MySpace or Facebook page?  What applications or groups do you support to demonstrate your business and your ability to grow?  How are you reaching out through these environments to meet the people who should be a customer, employee or vendor? 

Increasingly, people don't even make their first touch with your business via your web site.  iPhone users, and the soon-to-explode Android phone users, as well as all the other "smartphone" (or mobile device) users learn about your business from a very small screen that brings in small bits of information that is largely text.  They often go to a PC and search a traditional web site only every few days.  So how is your information presented?  Is it largely graphical, with embedded objects that don't show up well (or at all) on a mobile device?  Is it lengthy HTML pages that requires scrolling on a phone? 

Increasingly, people looking for you will blow off traditional web pages in favor of easier to access and read information.  You may hate the 140 character Twitter limit - but it's becoming a standard (the new "elevator pitch.") So is your on-line impression being driven by web developers, or by mobile device developers?  Is your on-line environment all about driving people to your web site - which may never happen - or are you effectively connecting with them via Facebook, et.al. and informing them without asking them to go to your environment?  Are you letting users control their access to your information, making it easy for them, or are you trying to control their behavior -- and putting off many?

There are many reasons to think that in 2010 how people acquire business information will shift from traditional web sites to social media sites.  First impressions, and a lot of the decision making process, will come from Facebook, Linked-in and Twitter.  Is your business positioned for this shift?

Pepsi recently made a decision that appears forward-focused rather than following tradition.  Pepsi is abandoning Super Bowl ads in favor of spending more on-line.  MarketingDaily.com reports in "Compete:  Pepsi's On-line Push a Smart Play" that Pepsi is reaching more people at a lower cost by investing in on-line marketing.  Despite the historical role Super Bowl ads have played for big consumer products companies, Pepsi's decision is positioning the company to better connect with more users and drive more sales.  Coke's decision to remain with traditional advertising looks increasingly expensive - and out of step with how people really make purchase decisions today.

Smart companies are already making changes to reach the tidal wave of people relying on social media.  They are building a strong impression, and business applications, that help them grow using environments like Linked-in, MySpace and Facebook.  And they employ people to keep their Twitter communications clear and strong. 

So is your business taking actions - making implementations - that will support where the market is headed in 2010?  Are you putting yourself where the customers and recruiting targets are?  Or are you trying to do more of the same better, faster and cheaper? 

HBR -The Decade's top Performing CEOs - Apple, Cisco, Amazon, eBay, Google

I was intrigued when I read on the Harvard Business Review web site "Do we celebrate the wrong CEOs?"  The article quickly pointed out that many of the best known CEOs - and often named as most respected - didn't come close to making the list of the top 100 best performing CEOs.  Some of those on Barron's list of top 30 most respected that did not make the cut as best performing include Immelt of GE, Dimon of JPMorganChase, Palmesano of IBM and Tillerson of ExxonMobil.  It did seem striking that often business people admire those who are at the top of organizations, regardless of their performance.

I was delighted when HBR put out the full article "The Best Performing CEOs in the World."  And it is indeed an academic exercise of great value.  The authors looked at CEOs who came  into their jobs either just before 2000, or during the decade, and the results they obtained for shareholders.  There were 1,999 leaders who fit the timeframe.  As has held true for a long time in the marketplace, the top 100 accounted for the vast majority of wealth creation - meaning if you were invested with them you captured most of the decade's return - while the bulk of CEOs added little value and a great chunk created negative returns.  (It does beg the question - why do Boards of Directors keep on CEOs who destroy shareholder value - like Barnes of Sara Lee, for example?  It would seem something is demonstrably wrong when CEOs remain in their jobs, usually with multi-million dollar compensation packages, when year after year performance is so bad.)

The list of "Top 50 CEOs" is available on the HBR website.  This group created 32% average gains every year!  They created over $48.2B of value for investors.  Comparatively, the bottom 50 had negative 20% annual returns, and lost over $18.3B.  As an investor, or employee, it is much, much better to be with the top 5% than to be anywhere else on the list.  However, only 5 of the top best performers were on the list of top 50 highest paid --- demonstrating again that CEO pay is not really tied to performance (and perhaps at least part of the explanation for why business leaders are less admired now than the previous decade.)

Consistent among the top 50 was the ability to adapt.  Especially the top 10.  Steve Jobs of Apple was #1, a leader and company I've blogged about several times.  As readers know, Apple went from a niche producer of PCs to a leader in several markets completely unrelated to PCs under Mr. Jobs leadership.  His ability to keep moving his company back into the growth Rapids by rejecting "focus on the core" and instead using White Space to develop new products for growth markets has been a model well worth following.  And in which to be invested.

Similarly, the leaders of Cisco, Amazon, eBay and Google have been listed here largely due to their willingness to keep moving into new markets.  Cisco was profiled in my book Create Marketplace Disruption for its model of Disruption that keeps the company constantly opening White Space.  Amazon went from an obscure promoter of non-inventoried books to the leader in changing how books are sold, to the premier on-line retailer of all kinds of products, to the leader in digitizing books and periodicals with its Kindle launch.  eBay has to be given credit for doing much more than creating a garage sale - they are now the leader in independent retailing with eBay stores.  And their growth of PayPal is on the vanguard of changing how we spend money - eliminating checks and making digital transactions commonplace.  Of course Google has moved from a search engine to a leader in advertising (displacing Yahoo!) as well as offering enterprise software (such as Google Wave), cloud applications to displace the desktop applications, and emerging into the mobile data/telephony marketplace with Android.  All of these company leaders were willing to Disrupt their company's "core" in order to use White Space that kept the company constantly moving into new markets and GROWTH.

We can see the same behavior among other leaders in the top 10 not previously profiled here.  Samsung has moved from a second rate radio/TV manufacturer to a leader in multiple electronics marketplaces and the premier company in rapid product development and innovation implementation.  Gilead Sciences is a biopharmaceutical company that has returned almost 2,000% to investors - while the leaders of Merck and Pfizer have taken their companies the opposite direction.  By taking on market challenges with new approaches Gilead has used flexibility and adaptation to dramatically outperform companies with much greater resources -- but an unwillingness to overcome their Lock-ins.

Three names not on the list are worth noting.  Jack Welch was a great Disruptor and advocate of White Space (again, profiled in my book).  But his work was in the 1990s.  His replacement (Mr. Immelt) has fared considerably more poorly - as have investors - as the rate of Disruption and White Space has fallen off a proverbial cliff.  Even though much of what made GE great is still in place, the willingness to Defend & Extend, as happened in financial services, has increased under Mr. Immelt to the detriment of investors.

Bill Gates and Warren Buffett are now good friends, and also not on the list.  Firstly, they created their investor fortunes in previous decades as well.  But in their cases, they remained as leaders who moved into the D&E world.  Microsoft has become totally Locked-in to its Gates-era Success Formula, and under Steve Ballmer the company has done nothing for investors, employees -- or even customers.  And Berkshire Hathaway has spent the last decade providing very little return to shareholders, despite all the great press for Mr. Buffett and his success in previous eras.  Each year Mr. Buffett tells investors that what worked for him in previous years doesn't work any more, and they should not expect previous high rates of return.  And he keeps proving himself right.  Until both Microsoft and Berkshire Hathaway undertake significant Disruptions and implement considerably more White Space we should not expect much for investors.

This has been a tough decade for far too many investors and employees.  As we end the year, the list of television programs bemoaning how badly the decade has gone is long.  Show after show laments the poor performance of the stock market, as well as employers.  We end the year with official unemployment north of 10%, and unofficial unemployment some say near 20%.  But what this HBR report  us is that it is possible to have a good decade.  We need leaders who are willing to look to the future for their planning (not the past), obsess about competitors to discover market shifts, be willing to Disrupt old Success Formulas by attacking Lock-in, and using White Space to keep the company in the growth Rapids.  When businesses overcome old notions of "best practice" that keeps them trying to Defend & Extend then business performs marvelously well.  It's just too bad so few leaders and companies are willing to follow The Phoenix Principle.

Why acquisitions often don't work - MySpace and NewsCorp.

The business media get really excited about acquisitions.  And it is clear that many executives still think acquisitions are a good way to grow - especially when wanting to enter new markets.  Even though all the academic research says that acquirers inevitably overpay, and that almost all acquisitions don't really have "synergy."  In fact, most acquisitions significantly reduce shareholder value.  While this doesn't keep execs from going forward, if we understand why acquisitions go badly better performance can be obtained.

As reported at Financial Times in "The Rise and Fall of MySpace" the problem with acquisitions is very tied to the "owner and acquired" thinking that emerges.  NewsCorp wanted to get into social media, so it moved early.  And the investment looked brilliant when a quick deal with Google appeared to make payback a year from new ad revenues.  MySpace was an early social media winner, and it looked to be potentially transformative for NewsCorp.

Until NewsCorp decided that things were too undisciplined at MySpace.  NewsCorp thought, like almost all acquirers, that it was more "disciplined" and "structured" and could apply its "better management" to the growth at MySpace.  Of course, all of this is code for pushing the NewsCorp Success Formula onto MySpace.  What was acquired as White Space was quickly turned into another NewsCorp division - with the decision-making processes and overhead costs that NewsCorp had.  Quickly Behavioral and Structural Lock-ins that were prevalent in NewsCorp were applied to MySpace in management's effort to "improve" the acquisition.

But applying the acquirer's Success Formula to an acquisition soon removes it from White Space. Even though NewsCorp felt sure that it's higher caliber IT staff, big budgets and strong management team would "help" MySpace, it was robbing MySpace of its tight link to a rapidly shifting/evolving marketplace and replacing that with "NewsCorp think."  Quickly, competitors started to take advantage of market shifts.  Facebook took advantage of the now weighted-down MySpace to rapidly bring on more users, while the additional ads on MySpace simply frustrated formerly happy customers more than willing to trade platforms. 

Scott Anthony on the Harvard Business Review blog "MySpace's Disruption, Disrupted" points out how in just 4years MySpace went from market leader to almost irrelevant.  MySpace lost its position as market disruptor as it increasingly conformed to demands of NewsCorp.  As the NewsCorp Success Formula overwhelmed MySpace it stopped being a market sensing project that could lead NewsCorp forward, and instead became a now money-losing division of a newspaper and TV company.  NewsCorp started trying to make MySpace into a traditional media company - rather than MySpace turning NewsCorp into the next Amazon, Apple or Google.

If a company wants to acquire a company for new market entry, that acquisition has to be kept in White Space.  It has to be given permission to remain outside the acquirer's Lock-ins and separate from the Success Formula.  It has to be allowed to use its resources to develop a new Success Formula toward which the acquirer with migrate - not "brought into the fold." 

Unfortunately, acquirers tend to think like previous century conquerers.  In Gengis Khan fashion they almost always end up moving to change the acquired.  Often in the name of "discipline" or "good management practices."  And that's too bad, because the result is a loss of shareholder value as the investment premium is dissipated when the acquisition fails to reach objectives.  Acquisitions can be good, but they have to be kept in White Space -- like we see Google doing with Facebook!

Innovation Budget 2010? BusinessWeek, GE, P&G, Google, Apple

In "The Year in Innovation" BusinessWeek has offered its review of innovation in 2009.  And the report is grim.  Most companies cut innovation spending - including R&D.  Even the pharmaceutical industry, historically tied to long-term investment cycles, cut 69,000 jobs in 2009, up 60% from 2008.  Meanwhile, P&G's dust cloth Swiffer was pronounced a major innovation - indicating both how few innovations made it to market in 2009 - and the degree to which BusinessWeek must depend upon P&G for advertising dollars given this selection (I mean really - BusinessWeek ignores Google Wave and Android entirely in the article but feature a Swiffer dust cloth!)

According to BusinessWeek, the big advances in innovation in 2009 apparently were "open innovation" and "trickle up innovation."  The first is asking vendors and others outside the company to contribute to innovation.  Adoption of open innovation has spurred one thing - less spending on innovation as companies cut budgets, using "open innovation initiatives" as an explanation for how they intend to maintain themselves while spending less.  Open innovation has not spurred improved innovation implementation, just justified spending less with no real plans to achieve growth.  With open innovation, of course, failures no longer belong to the company because the "open environment" didn't produce anything - hence innovation simply wasn't possible! 

Trickle up innovation is asking people in poor countries, like India, how they do things.  Then seeing if you can steal an idea or two. There's nothing wrong with turning over every rock when trying to innovate, but using analysis of third world countries, where costs happen to be very low and new innovations few, to drive your innovation program smacks of looking for ways to put a fig leaf on a naked innovation program.  Expectations are low, so explanations are more prevalent than results.  C.K. Prahalad wrote an entire book on this approach - which is popular with big company leaders who have abandoned innovation and think it clever to steal ideas from the poor.  But it's not how Apple became #2 in smart phonesor created iTunes or how Facebook has taken over social networking.

source:  Silicon Alley Insider (with Google picking up 2 new carriers in late 2009, this chart will be very different by summer 2010)

None of the trends identified by BusinessWeek reflect behavior of the real innovation winners.  Rather, they reflect the big companies who are mired in Defend & Extend management, and making excuses for their terrible performance since 2007.  Not once does the article talk about Google, Apple, Cisco - or leading small company innovators like Tasty Catering in Chicago.  There are companies winning at innovation, but they are certainly not following the trends (which have produced marginal results - at best) identified in this article.

Because planning processes look at last year when setting goals for next year, lots of companies now plan even lower innovation spending for 2010.  And that's how an economy goes into a tailspin.  Everyone from bankers to manufacturers to retailers are saying 2009 was weak, and they don't see much improvement for 2010.  That can become a self-fulfilling prophecy.  24/7 Wall Street reported in "Immelt Speaks at West Point: Future Leadership Path" that the CEO of GE, Jeff Immelt, is doing less innovation spending and relying more on government/business partnership.  And of course GE is realing from over-reliance on financial services and under-investment in new products during his leadership.  While Immelt is patching up holes at GE, the company is sinking without new products manning the oars.

Companies don't just need to spend on R&D.  Studies of R&D have shown that the bulk of spending is Defend & Extend.  Trying to get more out of the technologies embedded in the Success Formula.  P&G and GE can spend easily enough.  But when it's on short-term "quick hits" they get declining marginal returns and weaker competitiveness.

Companies in 2010 must adopt new approaches.  They have to quit planning from the past, and plan for the future.  More scenario development and understanding how to change competitive position.  And they have to quit being so conforming and promote Disruption.  Disruptions are needed to open White Space so new Success Formulas can be developed.  In the 2000/01 recession Apple looked to the future, Disrupted its total dedication to the Macintosh and unleashed White Space allowing the company to become a leader in digital music as well as the front runner in smart phones within a decade.

Your business can be a leader; and soon.  If you start thinking differently about what you must do, quit putting all your energy into Defend & Extend behavior and invest in White Space, innovation will flourish - and with it your revenues and profits.

Old White Men and changes at GM

Great blog today at MidasNation.com.  Rob Slee is a book author and blogger focused on privately held companies.  And today he took on "Old White Men" - or OWM - in his blog "Why 60 Year Old White Men are Killing America."  Telling the story about how GM management drove the profits out of suppliers while bankrupting the company, he contrasted GM's behavior with the Japanese run firms in America who partnered with suppliers to make a better product customers more highly valued.  We know who ended up with the profitable approach.

Similar to Defend & Extend management, Mr. Slee talks about "past as predicate" as he discusses older managers who keep doing what they always did, even though results keep worsening.  And how "command and control" hierarchies sucked the value out of the traditional Big 3 automakers.  His views about how OWM leaders expect a "return to the norm," creating a recipe for disaster in an ever changing world increasingly producing black swans.  His stories are an action call for all leaders to change their behavior.

According to Marketwatch.com today, "GM Hires Microsoft Exec Liddell as CFO."  Is this good, or just more OWM?  According to BusinessWeek, Mr. Liddell is 50 - which makes him 10 years shy of the minimum 60 Mr. Slee denotes for OWM.  More disconcerting was the final paragraph of his bio at Microsoft.com which claims Mr. Liddell "has completed a number of triathlons, including an Ironman and also enjoys rugby, yoga, golf and tennis."  Pretty seriously testosterone laden language - and appealing primarily to OWM types.  Like his new boss, the retired Southwestern Bell Chairman, now running GM.

Triathlon and rugby often have a way of making people Lock-in on the values of persistence, hard work and sacrifice.  Jim Collins is a rather famous triathlete who loves Lock-in.  Creativity and innovation are rarely the stuff of winners in those sports.  Of course, competing in a global marketplace with fast changing competitors who defy all rules is a far cry from any sport.  Sport analogies are usually more harmful than good in today's global marketplace, where adaptability is worth more than repetitive behavior seeking scale. 

Mr. Liddell's last boss, Steve Ballmer, is one of the 10 most Locked-in CEOs in corporate America.  Not a great mentoring for open-mindedness.  And during Mr. Liddell's 4.5 year career at Microsoft the company's big launches were the me-too, and underwhelmingly exciting, Vista and System 7 products.  Mr. Liddell didn't seem to push the innovation engine much in Seattle. 

From appearances it would seem likely he'll focus on cost reductions pretty hard --- something unlikely to make GM a success.  GM doesn't need to launch it's own version of Vista.  GM doesn't need a tough guy to whack the chicken coop hoping to get more eggs - instead just making the hens all upset.  GM needs significant Disruption - attacks on its Success Formula - with a revitalization of new product development and technology application.  GM needs an entirely new Success Formula, not just a better Defended and Extended one.

Keep your eyes on Mr. Liddell.  Perhaps he'll surprise us.  Look for Disruptions and White Space.  It doesn't seem to be Mr. Liddell's nature.  But watch.  Until then, there's no sign yet that GM is taking the right actions to make itself a vital competitor against Hyundai, Kia, Tata Motors, Honda and Toyota.

No sitting still, you grow or die - Yahoo, AOL, Blockbuster v Google, Facebook, Netflix

In a tough year like 2009, many business leaders want to jump in a foxhole and focus on survival.  The goal becomes maintain, and then try to grow again sometime in the future - when the economy gets better.  They cut marketing and sales costs, stop new product development/introduction, and literally plan to do nothing new until "the business" improves.  Unfortunately, that sets a business up for failure.

In today's fast moving competitive world, it's impossible to stand still.  Your business either grows, or it falls behind.  Think about Yahoo!.  The company hoped to maintain it's search business at it entered a "turnaround."  Unfortunately, the competition isn't willing to give Yahoo! any time at all.  Microsoft grabs off 10% of the market with its Bing introduction, and Google just keeps taking share.  Take a look at Yahoo's performance:

source: Silicon Alley Insider

Or consider AOL. AOL was the undoubted leader in bringing people to the internet.  But over the last decade AOL has tried to maintain its customers without offering any new products.  It has saved investment dollars, but lost its relevancy. Now Facebook has more unique visitors than AOL - a clear sign AOL (which recently went public) is well on the way to disappearing:

source: Silicon Alley Insider

Blockbuster was the clear market leader for video/movie rentals.  The company even had a college football bowl game named after it!  The CEO bought a baseball team, and made it into a World Series winner!  Blockbuster was THE store for obtaining entertainment for many years.  But the company saved its dimes, tried to defend its market position, and didn't develop new solutions.  Now it is being overwhelmed by competitor Netflix:

source:  Silicon Alley Insider

Too many business leaders believe in "The Myth of the Flats" (from Create Marketplace Disruption.)  They think that you can build a business, and then ride a market position.  When business is bad they depend upon living on past brand position.  They think they can wait for a better market to come along before they use White Space to introduce new solutions that meet emerging needs.  And the competitors, who don't slow down, use market downturns to introduce new solutions and overtake the former market leader.

Smart companies don't rest on their laurels.  They don't wait for a better market.  They keep using White Space to develop new solutions.  And even in a bad overall economy, like 2009, they sell more and make more profits.  Just look at Amazon, achieving record market valuation in 2009:

source:  Silicon Alley Insider

If you want 2010 to be a great year, it starts with recognizing that you can't stand still.  You can't wait for "a better market."  You have to create that better market by pushing forward with White Space to introduce new solutions that meet emerging market needs.

Implementing Market Shifts - Google, Android phone, eWallet

"The Google Phone, Unlocked" is a Seeking Alpha article detailing the early release of a Google phone planned for market introduction in 2010.  Will this be successful or not?  Legitimate question - given the success of Apple's iPhone.  And the answer to that really has nothing to do with cell phone technology.  It has everything to do with the downloadable applications.  The market for phones has shifted to where applications are rapidly becoming more important than the phones themselves. 

Which is why "Android to become eWallet" on MediaPost is an important article.  Mpayy is offering an app that supersedes both credit cars and debit cards.  It's Paypal on steroids.  This app allows users who want to buy something to use their phone to instantaneously pay for something.  Users can perform an eBay style transaction with immediate payment.  And they can do this buying products in the Burger King, or Starbucks, or Target. 

Two things are emerging that represent significant market shifts to which all businesses must react.  Firstly, mobile devices are much more than phones.  They are more than laptops.  They allow people to do a lot more things than they previously could, and these activities can be immediate.  From reading a CAT scan, to finding the closest pizzeria and downloading a coupon, to paying for a Pepsi at the convenience store.  This represents substantially different use of technology.  Those who remain Locked-in to old fashioned credit card/debit card technology - or internet transaction technology - will be left behind as users move quickly to mobile phone payment.

And, secondly, those who rapidly incorporate these opportunities will have advantages.  If you're making your business more internet friendly you are likely fighting the last war.  To be successful in 2012 it will be important you are able to offer real-time transactions buyers can access from their mobile device.  People will want to find you, find your discounts, and pay you from the device in their hands.  They will want to complete their business seamlessly using their mobile device - without a call, without a browser transaction.  Those who make life easy for customers will increasingly win - and making life easy will mean access via the mobile device

It is increasingly ineffective to build future plans based upon completing projects started last year - or the previous year - or a few  years ago.  Customers don't care about your enterprise system implementation that is X years into implementation.  Customers are running fast - really fast - toward using new, low cost and easily usable technology.  This is a substantial market shift.  And your scenario plans must incorporate these shifts, expect them, and use them to move beyond Locked-in competitors by implementing these shifts fast and effectively.  That allows you to Create Marketplace Disruptions which create superior rates of return.