If pigs could fly...

Can you recognize a leadership team (and business) in the Whirlpool? 

Today's Chicago Tribune quoted UAL as saying their losses were the result of "brutal" fuel costs.  If it just wasn't for those darn high fuel prices, why they could break-even. 

And if pigs could fly....

For many years United's management has had one excuse after another as to why they couldn't make money.  Unions, too many planes, high gate costs, insufficient ridership, too much competition.... fuel costs...  Their business model is broken and it can't make money.  They have no idea how to fix it.  They keep trying to find a way to Defend what they've done and Extend it in some fashion that will save the company.  But nothing works.  And it won't.  Yet, they can't seem to get the gumption to disrupt themselves and try to really do something new before everyone loses their jobs (they already wiped out the shareholders) and leave creditors owning a bunch of planes.

Why, if they could just get those pigs to fly....

Vegas Big Mac Attack

McDonald's is spending $20M this week to feel better about itself.  Unfortunately, it won't help shareholders.  McDonald's hit a growth stall 4 years ago, and ever since has been trying to use Defend & Extend management to regain growth.  That's included selling off assets and shutting stores.

Now it includes McDonald's bringing 5,000 store managers (most at franchisee expense) to Vegas in an effort to pump them up and thereby improve store execution.  The goal?  To regain a future by focusing on better execution in the store.  But, even the North American President admits "the U.S. would continue with 'solid' sales next year but probably not the double-digit growth..seen at times during the recent past."

So, a big chunk of one of America's largest training budgets is going into a straightforward Defend & Extend program.  Why?  According to the Chicago Tribune, "The store managers' performance will largely determine just how successful McDonald's is going forward."  Amazingly, we're to believe the future of this DJIA multi-billion dollar corporation's growth relies on the execution of 5,000 front line store managers in making and delivering Big Macs?  "Results are [expected to be] evident through better execution of procedures in the restaurants."  Where's the leadership in that?

McDonald's cannot rely on execution to regain its growth rate.  The company heritage - consistency - is all focused on execution.  So it's comfortable for leadership to lean on execution as 'the fix.'  But McDonald's needs more than new chicken sandwiches - it needs to find a way to compete with the likes of Starbucks.  And that won't come from doing magic shows for 5,000 store managers in Vegas.

Transitions are Tough

Readers of my BLOGs might think I am always opposed to layoffs.  It is true that the majority of layoffs are efforts to Defend & Extend outdated Success Formulas with short-term cost reductins that do not effectively address Challenges.  Those layoffs (such as across the board reductions) do nothing to improve a business and are difficult to support.  They simply push the business closer to the Whirlpool.  But, layoffs can also be important Disruptions tied to turning a troubled company around.

Troubled Success Formulas are turned around by White Space projects.  And White Space requires both permission and resources.  But where is a troubled company supposed to get the resources?  In many cases, it requires making tough decisions to STOP doing some things in order to refocus the business on developing a new Success Formula.  Layoffs targeted at redirection and resource generation for new projects are very effective Disruptions that can unleash new innovation and move toward renewed success.

HP and Time Warner have both stalled.  They must undertake serious redirection.  And both are taking Disruptive actions intended to generate Pattern Interrupts plus unleash resources to be invested in White Space. 

According to BusinessWeek, HP is going to redirect what it sells and how it sells it.  An action intended to get much closer to customer needs - something HP desperately needs to do.  And in order to finance this action it will likely layoff 15,000+ workers. 

TimeWarner is selling its cable business in order to invest in AOL.  A risky move - but one to applaud.  Cable franchises are not high growth businesses.  Capitalizing the future value of cable into current cash creates a treasure chest for developing new growth opportunities -- which likely lie in AOL as it moves aggressively to reposition and compete with Yahoo!

Both companies are far from out of the Swamp and back into the Rapids.  But both are doing exactly what they need to do to prepare themselves for the transition.  Investors may applaud these moves simply because these changes raise cash that will improve the balance sheets of both firms.  What investors should cheer is raising cash to invest in transitional White Space projects that could return both companies to higher growth.

Creativity Inspires Growth

Wall Street Week on PBS featured an interview with Richard Florida author of The Flight of the Creative Class.  Try to catch the episode if you can.

In this second book by Dr. Florida, he makes a great argument that growth comes from the efforts of those in society who are most creative.  His arguments are compelling.  In a nutshell, those companies (and economies) that help develop and then use the talents of our most creative people are most successful.

This may not seem insightful, until you think about how we actually have been treating creative people since 2000.  Business R&D budgets actually declined in 2002 - for the first time in 15 years.  And with those budget declines went many jobs for those leading our economic innovation engine. Businesses went even farther, though, by actually farming out much of their R&D to offshore companies in an effort to lower development costs.  As a result, non-U.S. companies began gaining ground in the ability to innovate and create competitive advantage.

Defend and Extend behavior can be deadly.  Using the need for profits as the justification, management can literally shoot the goose which laid the golden eggs.  Lock-in to old business ideas leads managers to believe they don't need innovation, just better execution.  They prefer the cost reductions to the investment in innovation.  Yet, the data would indicate otherwise.  Execution quickly becomes meaningless (and not very profitable) in a highly competitive world -- where a more innovative competitor can obsolete your superior execution in a heartbeat.

Despite what the politicians might say, businesspeople know its tough out there.  Profits are harder and harder to come by.  Every trip to China or India produces less return.  What's needed is a change in management thinking.  Away from a focus on execution, and a return to recognizing the importance, and value, of innovation. 

Internal innovation is as critical to business as oxygen is to human life.  Businesses won't competitively win in a dynamic world unless they ask for, develop, seek out, relish and promote innovation. 

Businesses need those highly creative people in Marketing, Sales, Product Development, R&D - and all aspects of the company.  Businesses need to hire, and listen to, those outside organizations (lawyers, ad agencies, consultants) filled with "outside the box thinkers".  These outsiders have been proven to drive innovation - and innovation drives growth!

Acquiring Right

It's easy to beat up on old businesses.  But lately, a very old business is making some very smart moves.

The venerable New York Stock Exchange came under some severe attacks last year.  It Chairman was accused of improper compensation and the Exchange Board was accused of improper oversight.  Things weren't looking too good as prosecutors went after specialists and floor traders.

But hand it to the new CEO.  He used the troubles to create an internal Disruption.  The NYSE's troubles were more a reflection of its inabilities to address its challenges from the NASDAQ than malfeasance (although the latter is still being argued.)  So he used the attacks to rethink the future of the exchange.

Viola - in a master stroke the new Chairman of the 200 year old exchange has acted to revitalize the NYSE by buying Archipelago.  Instead of taking actions in defense of the past, he is moving quickly to push the Exchange into the forefront of trading for the new millenium.  This acquisition is a classic example of using a Disruption to create White Space - and develop a new Success Formula for an old business.

In the hectic pace of change in business, many have paid little attention to this action.  But it's a great example of a new leader identifying the real challenge to the business - rather than reacting to its problems.  And then taking actions to create a pattern interrupt and new opportunities to learn.  And possibly saving a venerable, and horribly locked-in, organization.

This is a great move for the NYSE - and a stellar example of The Phoenix Principle in action.

The 5 mph bullet

GM is cutting another quarter of its workforce.  That's really not too surprising an announcement, given what's been made public about the company this year.  What is amazing is how so few people saw it coming. 

There are lots of pundits screaming about the high cost of health care in each GM care. Or talking about how the pension plan is too expensive. And of course some simply say GM designs me-too product, or doesn't produce to enough quality. But in fact, none of that is the real issue. 

In 1980 Chairman Roger Smith of GM saw that GM's future was in jeapardy. He undertook a series of actions to help GM move from a large, cash rich car company into new growth markets of IT, electronics and avionics - while creating a new division that would compete with Japanese producers like a Japanese producer. He saw that GM needed to expand its markets and be more than a "car company." GM needed to learn how to do new things.

No one expects GM to regain its glory. The amazing thing is that this bullet has been flying at GM for the entire period. Like a 5 mph bullet.

GM couldn't get out of the way. It's desire to remain locked into its old business model, at the risk of complete failure and the destruction of thousands of jobs and billions in shareholder wealth, was greater than its willingness to explore new opportunities. GM had visions - but it never learned how to address its lock-in.

Now GM is moving faster than ever toward the Whirlpool. Slashing jobs and creativity as fast as it can. All in a last ditch effort to dodge that 5 mph bullet. Ever heard the phrase "too little, too late"? It's obvious that after this long, the executives simply don't know what else to do. Creativity and innovation have atrophied and disappeared from what was once an innovative and growing company.

But, executive after executive since Smith has retrenched GM to its old business. And pundit after industry expert has pushed GM to be a "better" car company. And year after year, GM has struggled. Now, 20+ years later GM is finally tilting into the Whirlpool