Flexible Entrepreneurship

Since you're reading this on-line, odds are very high you're reading it via Internet Explorer from Microsoft - your web browser.  Do you remember who invented the first web browser and took it to market?  Spyglass - a Chicago company.  They were rapidly followed by Netscape and only months later by Microsoft.  Netscape was bought by AOL and disappeared from view.  What happened to Spyglass?  You probably think it went belly-up.

Wrong.  When Microsoft launched IE they simultaneously brought everyone into the world of the web.  They made surfing common.  And they crushed their competition.  But the leadership of Spyglass didn't simply die.  While most high-tech entrepreneurs get so wedded to their Success Formula that they let such market changes doom their enterprise, Spyglass didn't (See article in Chicago Tribune).

Spyglass used the lost market share and financial losses to spur a Disruption, and then they redirected their energies into new markets.  They moved from PCs to specializing in internet access for TVs, cell phones and other devices.  The company was sold to OpenTV in 2000 for $2.4billion - right, billion.  After their market position was destroyed by Microsoft.

All businesses have to be ready to disrupt and adapt.  Not just big, mature companies.  Even small companies have to watch their markets and remain flexible to develop new success formulas.  And smart leaders that can sustain success across years are like the leaders at Spyglass - flexible, adaptable and ready to use White Space.

A Tale of Two Turnarounds

Motorola announced a great profit leap this week.  Sales keep going up in all markets, and most notably sales of Motorola handsets have been gaining share.  It was just 2 years ago that most analysts had given up on Motorola.  They tagged the company as unresponsive to customers and a bad investment.  But now, analysts all over are trumpeting the success at this aged, but recovering, company and recommending investors buy the stock (as well as the products).

Unfortunately, the same can't be said for Kodak.  Since dropping off the DJIA Kodak has been struggling to re-orient the company toward markets and renewed growth.  Kodak announced a loss last quarter, and longer delays before returning to profitability.  Although Kodak has been working on its "turnaround" for over 5 years (from film to digital photography) they still are saying that reaching their goals is at least 18 months away.  Eighteen months ..... that's longer in the future than Motorola has been executing its turnaround.  And analysts are far from optimistic about the Kodak's future.

Motorola is opening two new R&D centers, while Kodak is planning to lay-off 20,000+ employees. 

Last January (2004)  Motorola undertook a pattern interrupt and launched a host of new white space initiatives.  The new leader (Ed Zander) escshewed massive layoffs in favor of reigniting his employees and seeking new growth markets.  In fairly short order, Motorola has unleashed creative energy trapped in the organization and taken new products to market which are growing the company again.  Motorola, in about a year, moved from the Swamp back into the Rapids by effectively disrupting itself then creating and managing White Space projects.

On the other hand, Kodak keeps trying to Defend and Extend its old business while "transitioning" to a new future.  The leaders at Kodak won't let go of the past and unleash their own organization to seek the future.  Kodak has plenty of talented people, a great brand, and good distribution.  But it keeps trying to defend its past instead of taking the actions to reignite growth in new markets.  Its a shame, since Kodak was one of the early pioneers in digital imaging (they held many of the first patents) and its employees have had a clear view of "the future" for 20 years.  But management has let lock-in to an old success formula keep them from unleashing their own resources.

Two big and "mature" companies found themselves stuck in the Swamp.  Growth had stopped and financial results tanked.  One followed the Phoenix Principle, and the other followed traditional management practices.  One is now regaining share and growing again, the other remains seriously troubled. 

Apple's Risk of Success

Apple Computer has done something rather amazing.  Fewer than 10% of companies that hit a growth stall ever regain growth.  But Apple has done it spectacularly. 

Just a few years ago Apple was described as one company caught in the grips of the Innovator's Dilemma by Clayton Christensen.  Sales of Macs became so large that the company abanded its efforts to develop what became the very large PDA market (remember the Newton?).  Apple began focusing on Defending and Extending its Mac business, and innovative product markets were abandoned.  Then Macs fell victim to a market shift toward Wintel PCs and Apple faultered horribly - with layoffs and a risk of failure.

Now, after a series of CEO changes, Apple has taken the lead in the on-line digital music business with its iPod.  Third quarter sales were up 75% versus a year ago, leading to a five-fold increase in profits (see Chicago Tribune report.)  And share prices are near 5 year highs.  That's great.... so long as Apple doesn't succumb to the siren's song of now trying to be just an iPod company.  What turned around Apple was using white space to find a new product market overlooked by Sony and other traditional music industry players trying to defend and extend their outdated business model. 

What Apple must do is continue disrupting itself, creating white space projects and developing new product markets.  In the fast cycle-time world of personal electronics, the requirements for success are applying the Phoenix Principle and avoiding the lure of trying to defend and extend a hit product/market.

Dieing for Results

Today Bernie Ebbers was sentenced to 25 years in prison.  For some it is seen as a signal to all CEOs they had better not commit fraud.  For others it's revenge for the ruination of a large corporation.  For others it's yet another sign of America's misguided business leadership.  And for others this is just an isolated, and irregular, activity by a wildman CEO.  No matter what the view, unless this decision is overturned on appeal it's very likely Bernie Ebbers will die in prison.

What we know from the trial is that Bernie Ebbers worked hard to pursue quarterly revenue and earnings goals.  He never for a moment took his eyes off the P&L.  He was so single-minded, he was found guilty of altering his books in a massive fraud in order to produce those desperately sought after results.  Yet during his leadership at WorldCom he was hailed as a great leader by those in and out of his company who admired his single-minded behavior and focus on results.

Ebbers forgot the basic rule - the P&L is about RESULTS.  You don't create results, they happen because of the business decisions you make.  When results don't come in as favorably as desired it's not the results you should focus upon, but instead the business decisions which create those results. 

Bernie Ebbers is nothing more than another manager who fell victim to Defending and Extending a broken Success Formula.  He went farther than most - to the point of fraud - in order to defend and extend that Success Formula.  As such, he represents just how far Locked-In management can go to practice D&E Management.  All managers who fall into the trap of D&E thinking, and D&E practices, run the risk of facing the reality that the RESULTS simply aren't what they projected.  Then they face very, very difficult choices.

There are other such victims in management today.  Some are going through the wringer for it - AIG, Enron, Healthsouth to name a few.  And there are many, many more that aren't on the front page of today's business section or under investigation.  But all represent a common threat to their organizations and investors.  The threat created by locking-in, focusing on the results and thereby not preparing to make strategic shifts when market changes require them.  Then these managers don't know what to do when the RESULTS aren't what was projected.

It appears that Bernie Ebbers may well die in prison because of the decisions he made.  Everyone loses - the wiped out WorldCom shareholders, the laid-off employees, the stranded customers, the defaulted suppliers and now the leader himself.  And this could have been avoided if Worldcom management (led by Ebbers) simply hadn't locked-in on that Success Formula and become single-mindedly devoted to Defending and Extending it.  And that is the lesson for us all, we have much to fear from Lock-In and D&E Management practices.