Leadership Matters - Ballmer vs. Bezos

Not far from each other, in the area around Seattle, are two striking contrasts in leadership.  They provide significant insight to what creates success today.

Steve Ballmer leads Microsoft, America's largest software company.  Unfortunately, the value of Microsoft has gone nowhere for 10 years.  Steve Ballmer has steadfastly defended the Windows and Office products, telling anyone who will listen that he is confident Windows will be part of computing's future landscape.  Looking backward, he reminds people that Windows has had a 20 year run, and because of that past he is certain it will continue to dominate.

Unfortunately, far too many investors see things differently.  They recognize that nearly all areas of Microsoft are struggling to maintain sales.  It is quite clear that the shift to mobile devices and cloud architectures are reducing the need, and desire, for PCs in homes, offices and data centers.  Microsoft appears years late recognizing the market shift, and too often CEO Ballmer seems in denial it is happening - or at least that it is happening so quickly.  His fixation on past success appears to blind him to how people will use technology in 2014, and investors are seriously concerned that Microsoft could topple as quickly DEC., Sun, Palm and RIM. 

Comparatively, across town, Mr. Bezos leads the largest on-line retailer Amazon.  That company's value has skyrocketed to a near 90 times earnings!  Over the last decade, investors have captured an astounding 10x capital gain!  Contrary to Mr. Ballmer, Mr. Bezos talks rarely about the past, and almost almost exclusively about the future.  He regularly discusses how markets are shifting, and how Amazon is going to change the way people do things. 

Mr. Bezos' fixation on the future has created incredible growth for Amazon.  In its "core" book business, when publishers did not move quickly toward trends for digitization Amazon created and launched Kindle, forever altering publishing.  When large retailers did not address the trend toward on-line shopping Amazon expanded its retail presence far beyond books, including more products  and a small armyt of supplier/partners.  When large PC manufacturers did not capitalize on the trend toward mobility with tablets for daily use Amazon launched Kindle Fire, which is projected to sell as many as 12 million units next year (AllThingsD.com). 

Where Mr. Ballmer remains fixated on the past, constantly reinvesting  in defending and extending what worked 20 years ago for Microsoft, Mr. Bezos is investing heavily in the future.  Where Mr. Ballmer increasingly looks like a CEO in denial about market shift, Mr. Bezos has embraced the shifts and is pushing them forward. 

Clearly, the latter is much better at producing revenue growth and higher valuation than the former.

As we look around, a number of companies need to heed the insight of this Seattle comparison:

• At AOL it is unclear that Mr. Armstrong has a clear view of how AOL will change markets to become a content powerhouse.  AOL's various investments are incoherent, and managers struggle to see a strong future for AOL.  On the other hand, Ms. Huffington does have a clear sense of the future, and the insight for an entirely different business model at AOL.  The Board would be well advised to consider handing the reigns to Ms. Huffington, and pushing AOL much more rapidly toward a different, and more competitive future.
• Dell's chronic inability to identify new products and markets has left it, at best, uninteresting.  It's supply chain focused strategy has been copied, leaving the company with practically no cost/price advantage.  Mr. Dell remains fixated on what worked for his initial launch 30 years ago, and offers no exciting description of how Dell will remain viable as PC sales diminish.  Unless new leadership takes the helm at Dell, the company's future  5 years hence looks bleak.
• HP's new CEO Meg Whitman is less than reassuring as she projects a terrible 2012 for HP, and a commitment to remaining in PCs - but with some amorphous pledge toward more internal innovation.  Lacking a clear sense of what Ms. Whitman thinks the world will look like in 2017, and how HP will be impactful, it's hard for investors, managers or customers to become excited about the company.  HP needs rapid acceleration toward shifting customer needs, not a relaxed, lethargic year of internal analysis while competitors continue moving demand further away from HP offerings.
• Groupon has had an explosive start.  But the company is attacked on all fronts by the media.  There is consistent questioning of how leadership will maintain growth as reports emerge about founders cashing out their shares, highly uneconomic deals offered by customers, lack of operating scale leverage, and increasing competition from more established management teams like Google and Amazon.  After having its IPO challenged by the press, the stock has performed poorly and now sells for less than the offering price.  Groupon desperately needs leadership that can explain what the markets of 2015 will look like, and how Groupon will remain successful.

What investors, customers, suppliers and employees want from leadership is clarity around what leaders see as the future markets and competition.  They want to know how the company is going to be successful in 2 or 5 years.  In today's rapidly shifting, global markets it is not enough to talk about historical results, and to exhibit confidence that what brought the company to this point will propel it forward successfully. And everyone recognizes that managing quarter to quarter will not create long term success.

Leaders must  demonstrate a keen eye for market shifts, and invest in opportunities to participate in game changers.  Leaders must recognize trends, be clear about how those trends are shaping future markets and competitors, and align investments with those trends.  Leadership is not about what the company did before, but is entirely about what their organization is going to do next. 

Update 30 Nov, 2011

In the latest defend & extend action at Microsoft Ballmer has decided to port Office onto the iPad (TheDaily.com).  Short term likely to increase revenue.  But clearly at the expense of long-term competitiveness in tablet platforms.  And, it misses the fact that people are already switching to cloud-based apps which obviate the need for Office.  This will extend the dying period for Office, but does not come close to being an innovative solution which will propel revenues over the next decade.

Will Meg Whitman be more like Steve Jobs, or Carol Bartz?

The media has enjoyed a field day last week amidst the ouster of Leo Apotheker as Hewlett Packard's CEO and appointments of former Oracle executive Ray Lane as Executive Chairman and former eBay CEO Meg Whitman as CEO.  There have been plenty of jabs at the Board, which apparently hired Mr. Apotheker without everyone even meeting him (New York Times), and plenty of complaining about HP's deteriorating performance and stock price.  But the big question is, will Meg Whitman be able to turn around HP?

Ms. Whitman is the 7th HP CEO in a mere 12 years.  Of those CEOs, the only one pointed to with any attraction was Mark Hurd.  He did not take any strategic actions, but merely slashed costs - which immediately improved the profit line and drove up the short-term stock price.  Actions taken at the expense of R&D, new product development and creating new markets, leaving HP short on a future strategy when he was summarily let go by the Baord that hired Apotheker. 

And that indicates the strategy problem at HP - which is pretty much a lack of strategy.

HP was once a highly innovative company. We all can thank HP for a world of color.  Before HP brought us the low-priced ink-jet printer all office printing was black.  HP unleashed the color in desktop publishing, and was critical to the growth of office and home printing, as well as faxing with their all-in-one, integrated devices. 

But then someone - largely Ms. Fiorina - had the idea to expand on the HP presence in desktop publishing by expanding into PC manufacturing and sales, even though there was no HP innovation in that market.  Mr. Hurd expanded that direction by buying a service organization to support field-based PCs. 

This approach of expanding on HPs "core" printer business, almost all by acquisition, cost HP a lot of money.  Further, supply chain and retail program investments to sell largely undifferentiated products and services in a hotly contested PC market sucked all the money out of new products development.  Every year HP was spending more to grow sales of products becoming increasingly generic, while falling farther behind in any sort of new market creation.

Into that innovation void jumped Apple, Google and Amazon.  They pushed new mobile solutions to market in smartphones and tablets.  And now PCs, and the printers they used, are seeing declining growth.  All future projections show an increase in mobile devices, and a sales cliff emerging for PCs and their supporting devices.  Simultaneously as mobile devices have become more popular the trend away from printing has grown, with users in business and consumer markets finding digital devices less costly, more user friendly and more adaptable than printed material (just compare Kindle sales and printed book sales - or the volume of tablet newspaper and magazine subscriptions to printed subscriptions.)  HP invested heavily in PC products, and now that market is dying. 

Now HP is in big trouble.  There are plenty of skeptics that think Ms. Whitman is not right for the job. What should HP under Ms. Whitman do next?  Keep doubling down on investments in existing markets?  That direction looks pretty dangerous.  IBM jumped out years ago, selling its laptop line to Lenovo for a tidy profit before sales slackened.  With all the growth in smartphones and tablets, it's hard to imagine that strategy would work.  Even Mr. Apotheker took action to deal with the market shift by redirecting HP away from PCs with his announced intention to spin off that business while buying an ERP (enterprise ressource planning) software company to take HP into a new direction.  But that backfired on him, and investors.

Mr. Apotheker and Carol Bartz, recently fired CEO of Yahoo, made similar mistakes.  They relied heavily on their personal past when taking leadership of a struggling enterprise. They looked to their personal success formulas - what had worked for them in the past - when setting their plans for their new companies.  Unfortunately, what worked in the past rarely works in the future, because markets shift.  And both of these companies suffered dramatically as the new CEO efforts took them further from market trends. 

The job Ms. Whitman is entering at HP is wildly different from her job at eBay.  eBay was a small company taking advantage of the internet explosion.  It was an early leader in capitalizing on web networking and the capability of low-cost on-line transactions.  At eBay Ms. Whitman needed to keep the company focused on investing in new solutions that transformed PC and internet connectivity into value for users.  As long as the number of users on the internet, and the time they spent on the web, grew eBay could capitalize on that trend for its own growth.  eBay was in the right place at the right time, and Ms. Whitman helped guide the company's product development so that it helped users enjoy their on-line experience.  The trends supported eBay's early direction, and growth was built opon making on-line selling better, faster and easier.

The situation could not be more different at HP.  It's products are almost all out of the trend.  If Ms. Whitman does what she did at eBay, trying to promote more, better and faster PCs, printers and traditional IT services things will not go well.  That was Mr. Hurd's strategy.  "Been there, done that" as people like to say.  That strategy ran its course, and more cost-cutting will not save HP.

In 2020 if we are to discuss HP the way we now discuss Apple's dramatic turnaround from the brink of failure, Ms. Whitman will have to behave very differently than her past - and from what her predecessor and Ms. Bartz did.  She has to refocus HP on future markets.  She has to identify triggers for market change - like Steve Jobs did when he recognized that the growing trend to mobility would explode once WiFi services reached 50% of users - and push HP toward developing solutions which take advantage of those market shifts.

HP has under-invested in new market development for years.  It's acquisition of Palm was supposed to somehow rectify that problem, only Palm was a failing company with a failing platform when HP bought it.  And the HP tablet launch with its own proprietary solution was far too late (years too late) in a market that requires thousands of developers and a hundred thousand apps if it is to succeed.  The investment in Palm and WebOS was too late, and based on trying to be a "me too" in a market where competitors are rapidly advancing new solutions. 

There are a world of market opportunities out there that HP can develop.  To reach them Ms. Whitman must take some quick actions:

1. Develop future scenarios that define the direction of HP.  Not necessarily a "vision" of HP in 2020, but certainly an identification of the big trends that will guide HP's future direction for product and market development.  Globalization (like IBM's "smarter planet") or mobility are starts - but HP will have to go beyond the obvious to identify opportunities requiring the resources of a company with HP's revenue and resources.  HP desperately needs a pathway to future markets.  It needs to be developing for the emerging trends.
2. A recognition of how HP will compete.  What is the market gap that HP will fulfill - like Apple did in mobility?  And how will it fulfill it?  Google and Facebook are emerging giants in software, offering a host of new capabilities every day to better network users and make them more productive.  HP must find a way to compete that is not toe-to-toe with existing leaders like Apple that have more market knowledge and extensive resoureces.
3. HP needs to dramatically up the ante in new product development.  Innovation has been sorely lacking, and the hierarchical structure at HP needs to be changed.  White Space projects designed to identify opportunities in market trends need to be created that have permission to rapidly develop new solutions and take them to market - regardless of HP historical strengths.  Resources need to shift - rapidly - from supporting the aging, and growth challenged, historical product lines to new opportunities that show greater growth promise.

Apple and IBM were once given almost no chance of survival.  But new leadership recognized that there were growth markets, and those leaders altered the resource allocation toward things that could grow.  Investments in the old strategy were dropped as money was pushed to new solutions that built on market trends and headed toward future scenarios.  HP is not doomed to failure, but Ms. Whitman has to start acting quickly to redirect resources or it could easily be the next Sun Microsystems, Digital Equipment, Wang, Lanier or Cray

Status Quo Police - Innovation Killers

Nobody admits to being the innovation killer in a company.  But we know they exist.  Some these folks "dinosaurs that won't change."  Others blame "the nay-saying 'Dr. No' middle managers."  But when you meet these people, they won't admit to being innovation killers.  They believe, deep in their hearts as well as in their everyday actions, that they are doing the right thing for the business.  And that's because they've been chosen, and reinforced, to be the Status Quo Police.

When a company starts it has no norms.  But as it succeeds, in order to grow quickly it develops a series of "key success factors" that help it continue growing.  In order to grow faster, managers - often in functional roles - are assigned the task of making sure the key success factors are unwaveringly supported.  Consistency becomes more important than creativity.  And these managers are reinforced, supported, even bonused for their ability to make sure they maintain the status quo.  Even if the market has shifted, they don't shift.  They reinforce doing things according to the rules.  Just consider:

Quality - Who can argue with the need to have quality?  Total Quality Management (TQM,) Continuous Improvement (CI,) and Six Sigma programs all have been glorified by companies hoping to improve product or service quality.  If you're trying to fix a broken product, or process, these work pretty well at helping everyone do their job better.

But these programs live with the mantra "if you can't measure it, you can't improve it.  Measure everything that's important."  If you're innovating, what do you measure?  If you're in a new technology, or manufacturing process, how do you know what you really need to do right?  If you're in a new market, how do you know the key metric for sales success?  Is it number of customers called, time with customers, number of customer surveys, recommendation scores, lost sales reports?  When you're trying to do something new, a lot of what you do is respond quickly to instant feedback - whether it's good feedback or bad.

The key to success isn't to have critical metrics and measure performance on a graph, but rather to learn from everything you do - and usually to change.  Quality people hate this, and can only stand in the way of trying anything new because you don't know what to measure, or what constitutes a "good" measure.  Don't ever forget that Motorola pretty much invented Six Sigma, and what happened to them in the mobile phone business they pioneered?

Finance.  All businesses exist to make money, so who can argue with "show me the numbers.  Give me a business plan that shows me how you're going to make money."  When your'e making an incremental investment to an existing asset or process, this is pretty good advice. 

But when you're innovating, what you don't know far exceeds what you know.  You don't know how to meet unment needs.  You don't know the market size, the price that people will pay, the first year's volume (much less year 5,) the direct cost at various volumes, the indirect cost, the cost of marketing to obtain customer attention, the number of sales calls it will take to land a sale, how many solution revisions will be necessary to finally put out the "right" solution, or how sales will ramp up quarterly from nothing.  So to create a business plan, you have to guess. 

And, oh boy, then it gets ugly.  "Where did this number come from?  That one?  How did you determine that?"  It's not long until the poor business plan writer is ridden out of the meeting on a rail.  He has no money to investigate the market, so he can't obtain any "real" numbers, so the business plan process leads to ongoing investment in the old business, while innovation simply stalls.

Under Akia Morita Sony was a great innovator. But then an MBA skilled in finance took over the top spot.  What once was the #1 electronics innovator in the globe has become, well, let's say they aren't Apple.

Legal - No company wants to be sued, or take on unnecessary risk.  And when you're selling something, lawyers are pretty good at evaluating the risk in that business, and lowering the risk.  While making sure that all the compliance issues are met in order to keep regulators - and other lawyers - out of the business.

But when you're starting something new, everything looks risky.  Customers can sue you for any reason.  Suppliers can sue you for not taking product, or using it incorrectly.  The technology could fail, or have negative use repercussions.  Reguators can question your safety standards, or claims to customers. 

From a legal point of view, you're best to never do anything new.  The less new things you do, the less likely you are to make a mistake.  So legal's great at putting up roadblocks to make sure they protect the company from lawsuits, by making sure nothing really new happens.  The old General Motors had plenty of lawyers making sure their cars were never too risky - or interesting.

R&D or Product Development - Who doesn't think it's good to be a leader in a specific technology?  Technology advances have proven invaluable for companies in industries from computers to pharmaceuticals to tractors and even services like on-line banking.  Thus R&D and Product Development wants to make sure investments advance the state of the technology upon which the company was built.

But all technologies become obsolete.  Or, at least unprofitable.  Innovators are frequently on the front end of adopting new technologies.  But if they have to obtain buy-in from product development to obtain staffing or money they'll be at the end of a never-ending line of projects to sustain the existing development trend.  You don't have to look much further than Microsoft to find a company that is great at pouring money into the PC platform (some $9B, 16% of revenue in 2009,) while the market moves faster each year to mobile devices and entertainment (Apple spent 1/8th the Microsoft budget in 2009.)

Sales, Marketing & Distribution - When you want to protect sales to existing customers, or maybe increase them by 5%, then doing more of what you've always done is smart.  So money is spent to put more salespeople on key accounts, add more money to the advertising budget for the most successful (or most profitable) existing products.  There are more rules about using the brand than lighters at a smoker's convention.  And it's heresy to recommend endangering the distribution channel that has so successfully helped increase sales.

But innovators regularly need to behave differently.  They need to sell to different people - Xerox sold to secretaries while printing press manufacturers sold to printers.  The "brand" may well represent a bygone era, and be of no value to someone launching a new product; are you eager to buy a Zenith electronic device?  Sprucing up the brand, or even launching something new, may well be a requirement for a new solution to be taken seriously.

And often, to be successful, a new solution needs to cut through the old, high-cost distribution system directly to customers if it is to succeed.  Pre-Gerstner IBM kept adding key account sales people in hopes of keeping IT departments from switching out of mainframes to PCs.  Sears avoided the shift to on-line sales successfully - and revenue keeps dropping in the stores.

Information Technology - To make more money you automate more functions.  Computers are wonderful for reducing manpower in many tasks.  So IT implements and supports "standard solutions" that are cost effective for the historical business.  Likewise, they set up all kinds of user rules - like don't go to Facebook or web sites from work - to keep people focused on productivity.  And to make sure historical data is secure and regulations are met.

But innovators don't have a solution mapped out, and all that automated functionality is an enormously expensive headache.  When being creative, more time is spent looking for something new than trying to work faster, or harder, so access to more external information is required.  Since the solution isn't developed, there's precious little to worry about keeping secure.  Innovators need to use new tools, and have flexibility to discover advantageous ways to use them, that are far beyond the bounds of IT's comfort zone.

Newspapers are loaded with automated systems to collect and edit news, to enter display ads, and to "Make up" the printed page fast and cheap.  They have automated systems for classified advertising sales and billing, and for display ad billing.  And systems to manage subscribers.  That technology isn't very helpful now, however, as newspapers go bankrupt.  Now the most critical IT skills are pumping news to the internet in real-time, and managing on-line ads distributed to web users that don't have subscriptions. 

Human Resources - Growth pushes companies toward tighter job descriptions with clear standards for "the kinds of people that succeed around here."  When you want to hire people to be productive at an existing job, HR has the procedures to define the role, find the people and hire them at the most efficient cost.  And they can develop a systematic compensation plan that treats everyone "fairly" based upon perceived value to the historical business.

But innovators don't know what kinds of people will be most successful. Often they need folks who think laterally, across lots fo tasks, rather than deeply about something narrow.  Often they need people who are from different backgrounds, that are closer to the emerging market than the historical business.  And pay has to be related to what these folks can get in the market, not what seems fair through the lens of the historical business.  HR is rarely keen to staff up a new business opportunity with a lot of misfits who don't appreciate their compensation plan - or the rules so carefully created to circumscribe behavior around the old business.

B.Dalton was America's largest retail book seller when Amazon.com was founded by Jeff Bezos.  Jeff knew nothing about books, but he knew the internet.  B.Dalton knew about books, and claimed it knew what book buyers wanted.  Two years later B.Dalton went bankrupt, and all those book experts became unemployed. Amazon.com now sells a lot more than books, as it ongoingly and rapidly expands its employee skill sets to enter new markets - like publishing and eReaders.

Innovation requires that leaders ATTACK the Status Quo Police.  Everything done to efficiently run the old business is irrelevant when it comes to innovation.  Functional folks need to be told they can't force the innovatoirs to conform to old rules, because that's exactly why the company needs innovation!  Only by attacking the old rules, and being willing to allow both diversity and disruption can the business innovate.

Instead of saying "this isn't how we do things around here" it is critical leaders make sure functional folks are saying "how can I help you innovate?"  What was done in the name of "good business" looks backward - not forward.  Status Quo cops have to be removed from the scene - kept from stopping innovation dead in its tracks.  And if the internal folks can't be supportive, that means keeping them out of the innovator's way entirely.

Any company can innovate.  Doing so requires recognizing that the Status Quo Police are doing what they were hired to do.  Until you take away their clout, attack their role and stop them from forcing conformance to old dictums, the business can't hope to innovate.

 

Buy Apple, Sell Microsoft

The Wall Street Journal  headlined Monday, "Apple Chief to Take Leave."  Forbes.com Leadership editor Fred Allen quickly asked what most folks were asking "Where does Steve Jobs Leave Apple Now?" as he led multiple bloggers covering the speculation about how long Mr. Jobs would be absent from Apple, or if he would ever return, in "What They Are Saying About Steve Jobs."  The stock took a dip as people all over raised the question covered by Steve Caulfield in Forbes' "Timing of Steve Jobs Return Worries Investors, Fans."

If you want to make money investing, this is what's called a "buying opportunity."  As Forbes' Eric Savitz reported "Apple is More Than Just Steve Jobs." Just look at the most recent results, as reported in Ad Age "Apple Posts 'Record Quarter' on Strong iPhone, Mac, iPad Sales:"

• Quarterly revenue is up 70% vs. last year to $26.7B (Apple is a $100B company!)
• Quarterly earnings rose 77% vs last year to $6B
• 15 million iPads were sold in 2010, with 7.3 million sold in the last quarter
• Apple has $50B cash on hand to do new product development, acquisitions or pay dividends

ZDNet demonstrated Apple's market resiliency headlining "Apple's iPad Represents 90% of All Tablets Shipped."  While it is true that Droid tablets are now out, and we know some buyers will move to non-Apple tablets, ZDNet predicts the market will grow more than 250% in 2011 to over 44 million units, giving Apple a lot of room to grow even with competitors bringing out new products. 

Apple is a tremendously successful company because it has a very strong sense of where technology is headed and how to apply it to meet user needs.  Apple is creating market shifts, while many other companies are reacting.  By deeply understanding its competitors, being willing to disrupt historical markets and using White Space to expand applications Apple will keep growing for quite a while.  With, or without Steve Jobs.

On the other hand, there's the stuck-in-the-past management team at Microsoft.  Tied to all those aging, outdated products and distribution plans built on PC technology that is nearing end of life.  But in the midst of the management malaise out of Seattle Kinect suddenly showed up as a bright spot!  SFGate reported that "Microsoft's Xbox Kinect beond hackers, hobbyists."  Seems engineers around the globe had started using Kinect in creative ways that were way beyond anything envisioned by Microsoft! Put into a White Space team, it was possible to start imagining Kinect could be powerful enough to resurrect innovation, and success, at the aging monopolist!

But, unfortunately, Microsoft seems far too stuck in its old ways to take advantage of this disruptive opportunity. Joel West at SeekingAlpha.com tells us "Microsoft vs. Open Kinect: How to Miss a Significant Opportunity."  Microsoft is dedicated to its plan for Kinect to help the company make money in games - and has no idea how to create a White Space team to exploit the opportunity as a platform for myriad uses (like Apple did with its app development approach for the iPhone.)

In the end, ZDNet joined my chorus looking to oust Ballmer (possibly a case study in how to be the most misguided CEO in corporate America) by asking "Ballmer's 11th Year as Microsoft's CEO - Is it Time for Him to Go?"  Given Ballmer's massive shareholding, and thus control of the Board, it's doubtful he will go anywhere, or change his management approach, or understand how to leverage a breakthrough innovation.  So as the Cloud keeps decreasing demand for traditional PCs and servers, Brett Owens at SeekingAlpha concludes in "A Look at Valuations of Google, Apple, Microsoft and Intel" that Microsoft has nowhere to go but down!  Given the amazingly uninspiring ad program Microsoft is now launching (as described in MediaPost "Microsoft Intros New Corporate Tagline, Strategy") we can see management has no idea how to find, or sell, innovation.

We often hear advice to buy shares of a company.  Rarely recommendations to sell.  But Apple is the best positioned company to maintain growth for several more years, while Microsoft has almost no hope of moving beyond its Lock-in to old products and markets which are declining.  Simplest trade of 2011 is to sell Microsoft and buy Apple.  Just read the headlines, and don't get suckered into thinking Apple is nothing more than Steve Jobs.  He's great, but Apple can remain great in his absence.

Disrupt to Thrive in 2011 - Model Facebook, Groupon, Twitter

Summary:

• Communication is now global, instantaneous and free
• As a result people, and businesses, now adopt innovation more quickly than ever
• Competitors adapt much quicker, and react much stronger than ever in history
• Profits are squeezed by competitors rapidly adopting innovations
• But many business leaders avoid disruptions, leading to slower growth and declining returns
• To maintain, and grow, revenues and profits you must be willing to implement disruptions in order to stay ahead of fast moving competitors
• Amidst fast shifting markets, greatest value (P/E multiple and market cap) is given to those companies that create disruptions (like Facebook, Groupon, Twitter)

All business leaders know the pace of competitive change has increased. 

It took decades for everyone to obtain an old-fashioned land line telephone. Decades for everyone to buy a TV.  And likewise, decades for color TV adoption.  Microwave ovens took more than a decade. Thirty years ago the words "long distance" implied a very big cost, even if it was a call from just a single interchange away (not even an area code away - just a different set of "prefix" numbers.) People actually wrote letters, and waited days for responses! Social change, and technology adoption, took a lot longer - and was considered expensive.

Now we assume communications at no cost with colleagues, peers, even competitors not only across town state, or nation, but across the globe!  Communication - whether email, or texting, or old fashioned voice calls - has become free and immediate. (Consider Skype if you want free phone calls [including video no less] and use a PC at your local library or school building if you don't own one.) Factoring inflation, it is possible to provide every member of a family of 5 with instant phone, email and text communication real-time, wirelessly, 24x7, globally for less than my parents paid for a single land-line, local-exchange only (no long distance) phone 50 years ago! And these mobile devices can send pictures!

As a result, competitors know more about each other a whole lot faster, and take action much more quickly, than ever in history.  Facebook, for example, is now connecting hundreds of millions of people with billions of communications every day.  According to statistics published on Facebook.com, every 20 minutes the Facebook website produces:

• 1,000,000 shared links
• 1,323,000 tagged photos
• 1,484,000 event invitations
• 1,587,000 Wall posts
• 1,851,000 Status updates
• 1,972,000 Friend requests accepted
• 2,716,000 photos uploaded
• 4,632,000 messages
• 10,208,000 comments

Multiply those numbers by 3 to get hourly. By 72 to get daily. Big numbers!  Alexander Graham Bell had to invent the hardware and string thousands of miles of cable to help people communicate with his disruption. His early "software" were thousands of "operators" connecting calls through central switchboards. Mark Zuckerberg and friends only had to create a web site using existing infrastructure and existing tools to create theirs.  Rapidly adopting, and using, existing innovations allowed Facebook's founders to create a disruptive innovation of their own!  Disruption has allowed Facebook to thrive!

Facebook has disrupted the way we communicate, learn, buy and sell.  "Word of mouth" referrals are now possible from friends - and total strangers.  Product benefits and problems are known instantaneously.  Networks of people arguably have more influence that TV networks!  Many employees are likely to make more facebook communications in a day than have conversations with co-workers!  Facebook (or twitter) is rapidly becoming the new "water cooler." Only it is global and has inputs from anyone.  Yet only a fraction of businesses have any plans for using Facebook - internally or to be more competitive!

Far too many business leaders are unwilling to accept, adopt, invest in or implement disruptions.

InnovateOnPurpose.com highlights why in "Why Innovation Makes Executives Uncomfortable:"

1. Innovation is part art, and not all science.  Many execs would like to think they can run a business like engineering a bridge. They ignore the fact that businesses implement in society, and innovation is where we use the social sciences to help us gain insight into the future.  Success requires more than just extending the past - because market shifts happen.  If you can't move beyond engineering principles you can't lead or manage effectively in a fast-changing world where the rules are not fixed.
2. Innovation requires qualitative insights not just quantitative statistics. Somewhere in the last 50 years the finance pros, and a lot of expensive strategy consultants, led business leaders to believe that if they simply did enough number crunching they could eliminate all risk and plan a guaranteed great future.  Despite hundreds of math PhDs, that approach did not work out so well for derivative investors - and killed Lehman Brothers (and would have killed AIG insurance had the government not bailed it out.) Math is a great science, and numbers are cool, but they are insufficient for success when the premises keep changing.
3. Innovation requires hunches, not facts.  Well, let's say more than a hunch.  Innovation requires we do more scenario planning about the future, rather than just pouring over historical numbers and expecting projections to come true.  We don't need crystal balls to recognize there will be change, and to develop scenario plans that help us prepare for change.  Innovation helps us succeed in a dynamic world, and implementation requires a willingness to understand that change is inevitable, and opportunistic.
4. Innovation requires risks, not certainties.  Unfortunately, there are NO certainties in business.  Even the status quo plan is filled with risk. It's not that innovation is risky, but rather that planning systems (ERP systems, CRM systems, all systems) are heavily biased toward doing more of the same - not something new! Markets can shift incredibly fast, and make any success formula obsolete.  But most executives would rather fail doing the same thing faster, working harder, doing what used to work, than implement changes targeted at future market needs.  Leaders perceive following the old strategy is less risky, when in reality it's loaded with risk too!  Too many businesses have failed at the hands of low-risk, certainty seeking leadership unable to shift with changing markets (GM, Chrysler, Circuit City, Fannie Mae, Brach's, Sun Microsystems, Quest, the old AT&T, Lucent, AOL, Silicon Graphics, Yahoo, to name a few.)

Markets are shifting all around us.  Faster than imaginable just 2 decades ago.  Leaders, strategists and planners that enter 2011 hoping they can win by doing more, better, faster, cheaper will have a very tough time.  That is the world of execution, and modern communication makes execution incredibly easy to copy, incredibly fast.  Even Wal-Mart, ostensibly one of the best execution-oriented companies of all time, has struggled to grow revenue and profit for a decade.  Today, companies that thrive embrace disruption.  They are willing to disrupt within their organizations to create new ideas, and they are willing to take disruptive opportunities to market. Compare Apple to Dell, or Netflix to Blockbuster.

Recent investments have valued Facebook at $50B, Groupon at $6B and Twitter at almost $4B. Apple is now the second most valuable company (measured by market capitalization).  Why? Because they are disrupting the way we do things. To thrive (perhaps survive by 2015) requires moving beyond the status quo, overcoming the perceived risk of innovation (and change) and taking the actions necessary to provide customers what they want in the future!  Any company can thrive if it embraces the disruptions around it, and uses them to create a few disruptions of its own.

Look for Disruption, not Consistency, to Find Superior Returns - Kraft v Groupon

Summary:

• Business leaders like consistency
• Consistency leads to repetition, sameness, and lower rates of return
• Kraft's product lines are consistent, but without growth
• Kraft's value has been stagnant for 10 years
• Disruptive competitors make higher rates of return, and grow
• Disruptive competitors have higher valuations - just look at Groupon

"Needless consistency is the hobgoblin of small minds" - Ralph Waldo Emerson

That was my first thought when I read the MediaPost.com Marketing Daily article "Kraft Mac & Cheese Gets New, Unified Look." Whether this 80-something year old brand has a "unified" look is wholly uninteresting.  I don't care if all varieties have the same picture - and if they do it doesn't make me want to eat more powdered cheese and curved noodles. 

In fact, I'm not at all interested in anything about this product line.  It is kind of amusing, in an historical way, to note that people (largely children) still eat the stuff which fueled my no-cash college years (much like ramen noodles does for today's college kids.)  While there's nothing I particularly dislike about the product, as an investor or marketer there's nothing really to like about it either.  Pasta products always do better in a recession, as people look for cheaper belly-fillers (especially for the kid,) so that more is being sold the last couple of years doesn't tell me anything I would not have guessed on my own.  That the entire category has grown to only $800M revenue across this 8 decade period only shows that it's a relatively small business with no excitement!  Once people feel their finances are on firm footing sales will soon taper off.

Kraft's Mac & Cheese is emblematic of management teams that lock-in on defending and extending old businesses - even though the lack of growth leaves them struggling to grow cash flow and create a decent valuation.  Introducing multiple varieties of this product has not produced growth that even matched inflation across the years.  Primarily, marketing programs have been designed to try keeping existing customers from buying something else.  This most recent Kraft program is designed to encourage adults to try a product they gave up eating many years ago.  This is, at best, "foxhole" marketing.  Spending money largely just to keep the brand from going away, rather than really expecting any growth.  Truly, does anyone think this kind of spending will generate a billion dollar product line in 2011 - or even 2012?

What's wrong with defensive marketing, creating consistency across the product line - across the brand - and across history?  It doesn't produce high rates of return.  There are lots of pasta products, even lots of brands of mac & cheese.  While Kraft's product surely produces a positive margin, multiple competitors and lack of growth means increased spending over time merely leaves the brand producing a marginal rate of return. Incremental ad spending doesn't generate real growth, just a hope of not losing ground.  We know people aren't flocking to the store to buy more of the product.  New customers aren't being identified, and short-term growth in revenues does not yield the kinds of returns that would enhance valuation and make the world a better place for investors - or employees.

While Kraft is trying to create headlines with more spending in a very tired product, across town in Chicago Groupon has created a $500M revenue business in just 2 years!  And new reports from the failed acquisition attempt by Google indicate revenues are likely to reach $2B in 2011 (CNNMoney.com, Fortune, "Google's Groupon Groping Reveals the Shifting Power of the Web World.")  Where's Kraft in this kind of growth market?  After all, coupons for Kraft products have been in mailers and Sunday inserts for 50 years.  Why isn't Kraft putting money into a real growth business, which is producing enormous value while cash flow grows in multiples?  While Groupon has created somewhere around $6B of value in 2 years, Kraft's value has only gone sideways for the last decade (chart at Marketwatch.com.)

Kraft has not introduced a new product since --- well -- DiGiorno.  And that's been more than a decade.  While the company has big revenues - so did General Motors.  The longer a company plays defense, regardless of size, trying to extend its outdated products (and business model) the riskier that business becomes.  While big revenues appear to offer some kind of security, we all know that's not true.  Not only does competition drive down margins in these older businesses, but newer products make it harder and harder for the old products to compete at all.  Eventually, the effort to maintain historical consistency simply allows competitors to completely steal the business away with new products, creating a big revenue drop, or producing such low returns that failure is inevitable.

Lots of business people like consistency.  They like consistency in how the brand is executed, or how products are aligned.  They like consistency in the technology base, or production capabilities.  They like consistency in customers, and markets.  They like being consistent with company history - doing what "made the company famous."  They like the similarity of doing something again, and again, hoping that consistency will produce good returns. 

But consistency is the hobgoblin of small minds.  And those who are more clever find ways to change the game.  Xerox figured out how to let everyone be a one-button printer, and killed the small printing press manufacturers.  HP's desktop printers knocked the growth out of Xerox.  Google figured out a better way to find information, and place ads, just about killing newspapers (and magazines.)  Apple found a better way to use mobile minutes, taking a big bite out of cell phone manufacturers. Amazon found a better way to sell things, killing off bookstores and putting a world of hurt on many retailers.  Netflix found a better way of distributing DVDs and digital movies, sending Blockbuster to bankruptcy.  Infosys and Tata found a better way of doing IT services, wiping out PWC and nearly EDS.  Hulu (and soon Netflix, Google and Apple) has found a better way of delivering television programming, killing the growth in cable TV.  Groupon is finding a better way of delivering coupons, creating huge concerns for direct mail companies.  Now tablet makers (like Apple) are demonstrating a better way of working remotely, sending shivers of worry down the valuation of Microsoft. These companies, failed or in jeapardy, were very consistent.

Those who create disruptions show again and again that they can generate growth and above average returns, even in a recession.  While those who keep trying to defend and extend their old business are letting consistency drive their behavior - leading to intense competition, genericization, and lower rates of return.  Maybe Kraft should spend more money looking for the next food we would all like, rather than consistently trying to convince us we want more Mac & Cheese (or Velveeta).

You Should Love, and Buy, Netflix - the next Apple or Google

Summary:

• Most leaders optimize their core business
• This does not prepare the business for market shifts
• Motorola was a leader with Razr, but was killed when competitors matched their features and the market shifted to smart phones
• Netflix's leader is moving Netflix to capture the next big market (video downloads)
• Reed Hastings is doing a great job, and should be emulated
• Netflix is a great growth story, and a stock worth adding to your portfolio

"Reed Hastings: Leader of the Pack" is how Fortune magazine headlined its article making the Netflix CEO its BusinessPerson of the Year for 2010.  At least part of Fortune's exuberance is tied to Netflix's dramatic valuation increase, up 200% in just the last year.  Not bad for a stock called a "worthless piece of crap" in 2005 by a Wedbush Securities stock analyst.  At the time, popular wisdom was that Blockbuster, WalMart and Amazon would drive Netflix into obscurity.  One of these is now gone (Blockbuster) the other stalled (WalMart revenues unmoved in 2010) and the other well into digital delivery of books for its proprietary Kindle eReader.

But is this an honor, or a curse?  It was 2004 when Ed Zander was given the same notice as the head of Motorola.  After launching the Razr he was lauded as Motorola's stock jumped in price.  But it didn't take long for the bloom to fall off that rose. Razr profits went negative as prices were cut to drive share increases, and a lack of new products drove Motorola into competitive obscurity.  A joint venture with Apple to create Rokr gave Motorola no new sales, but opened Apple's eyes to the future of smartphone technology and paved the way for iPhone.  Mr. Zander soon ran out of Chicago and back to Silicon Valley, unemployed, with his tale between his legs.

Netflix is a far different story from Motorola, and although its valuation is high looks like a company you should have in your portfolio. 

Ed Zander simply took Motorola further out the cell phone curve that Motorola had once pioneered.  He brought out the next version of something that had long been "core" to Motorola.  It was easy for competitors to match the "features and functions" of Razr, and led to a price war.  Mr. Zander failed because he did not recognize that launching smartphones would change the game, and while it would cannibalize existing cell phone sales it would pave the way for a much more profitable, and longer term greater growth, marketplace.

Looking at classic "S Curve" theory, Mr. Zander and Motorola kept pushing the wave of cell phones, but growth was plateauing as the technology was doing less to bring in new users (in the developed world):

Meanwhile, Research in Motion (RIM) was pioneering a new market for smartphones, which was growing at a faster clip.  Apple, and later Google (with Android) added fuel to that market, causing it to explode.  The "old" market for cell phones fell into a price war as the growth, and profits, moved to the newer technology and product sets:

The Motorola story is remarkably common.  Companies develop leaders who understand one market, and have the skills to continue optimizing and exploiting that market.  But these leaders rarely understand, prepare for and implement change created by a market shift.  Inability to see these changes brought down Silicon Graphics and Sun Microsystems in 2010, and are pressuring Microsoft today as users are rapidly moving from laptops to mobile devices and cloud computing.  It explains how Sony lost the top spot in music, which it dominated as a CD recording company and consumer electronics giant with Walkman, to Apple when the market moved people from physical CDs to MP3 files and Apple's iPod.

Which brings us back to what makes Netflix a great company, and Mr. Hastings a remarkable leader.  Netflix pioneered the "ship to your home" DVD rental business.  This helped eliminate the need for brick-and-mortar stores (along with other market trends such as the very inexpensive "Red Box" video kiosk and low-cost purchase options from the web.)  Market shifts doomed Blockbuster, which remained locked-in to its traditional retail model, made obsolete by competitors that were cheaper and easier with which to do business.

But Netflix did not remain fixated on competing for DVD rentals and sales - on "protecting its core" business.  Looking into the future, the organization could see that digital movie rentals are destined to be dramatically greater than physical DVDs.  Although Hulu was a small competitor, and YouTube could be scoffed at as a Gen Y plaything, Netflix studied these "fringe" competitors and developed a superb solution that was the best of all worlds.  Without abandoning its traditional business, Netflix calmly moved forward with its digital download business -- which is cheaper than the traditional business and will not only cannibalize historical sales but make the traditional business completely obsolete!  

Although text books talk about "jumping the curve" from one product line to another, it rarely happens.  Devotion to the core business, and managing the processes which once led to success, keeps few companies from making the move.  When it happens, like when IBM moved from mainframes to services, or Apple's more recent shift from Mac-centric to iPod/iPhone/iPad, we are fascinated.  Or Google's move from search/ad placement company to software supplier.  While any company can do it, few do.  So it's no wonder that MediaPost.com headlines the Netflix transition story "Netflix Streams Its Way to Success."

Is Netflix worth its premium?  Was Apple worth its premium earlier this decade?  Was Google worth its premium during the first 3 years after its Initial Public Offering?  Most investors fear the high valuations, and shy away.  Reality is that when a company pioneers a growth business, the value is far higher than analysts estimate.  Today, many traditionalists would say to stay with Comcast and set-top TV box makers like TiVo.  But Comcast is trying to buy NBC in order to move beyond its shrinking subscriber base, and "TiVo Widens Loss, Misses Street" is the Reuters' headline. Both are clearly fighting the problems of "technology A" (above.)

What we've long accepted as the traditional modes of delivering entertainment are well into the plateau, while Netflix is taking the lead with "technology B."  Buying into the traditionalists story is, well, like buying General Motors.  Hard to see any growth there, only an ongoing, slow demise.

On the other hand, we know that increasingly young people are abandoning traditional programing for 100% entertainment selection by download.  Modern televisions are computer monitors, capable of immediately viewing downloaded movies from a tablet or USB drive - and soon a built-in wifi connection.  The growth of movie (and other video) watching is going to keep exploding - just as the volume of videos on YouTube has exploded.  But it will be via new distribution.  And nobody today appears close to having the future scenarios, delivery capability and solutions of Netflix.  24x7 Wall Street says Netflix will be one of "The Next 7 American Monopolies."  The last time somebody used that kind of language was talking about Microsoft in the 1980s!  So, what do you think that makes Netflix worth in 2012, or 2015?

Netflix is a great story.  And likely a great investment as it takes on the market leadership for entertainment distribution.  But the bigger story is how this could be applied to your company.  Don't fear revenue cannibalization, or market shift.  Instead, learn from, and behave like, Mr. Hastings.  Develop scenarios of the future to which you can lead your company.  Study fringe competitors for ways to offer new solutions. Be proactive about delivering what the market wants, and as the shift leader you can be remarkably well positioned to capture extremely high value.

 

 

Top 6 Reasons Projects Fail - 8 Steps to Avoid the Failures!

I was struck by a recent Baseline.com article that described the top 6 reasons IT projects fail in "What Dooms IT Projects."  Primarily because the reasons have nothing to do inherently with information technology, and thus are identical to why all projects fail - including new product launches, new market expansions, new manufacturing technology adoption, new financing forms and any other new projects companies start.  AND because these are the same reasons I've been reading for 20 years! 

1. Insufficient user (or customer) involvement. Inevitably someone says that if the team had just spent more time talking to users/customers everything would have worked out OK.  As if for some reason the team had no interest in the customers, and were so arrogant as to simply not care!  We all know that lots of time is spent capturing user/customer input.  The problem is that users/customers don't really know what they want!  Therefore, their recommendations are insufficient to describe what it would take to really make them happy with any change.
2. Unrealistic Timetable.  Why do people say they'll do a project in 3 months that everyone knows will take 9?  Simply, the team has no choice.  In today's world we have to achieve results quickly.  Long projects are never completed, because conditions keep changing (more on this in #4 below).  So the team is forced into very rapid deadlines.  Only, the deliverables are usually kept the same, making it impossible for the project to complete on time!
3. Poor Requirements.  As if there was no target? There are plenty of requirements, it's just that (back to #1 above) the customer doesn't really know what they want, so the requirements which look great at the beginning look insufficient (poor) after people are a lot more educated from the completed work!  The requirements look great until you get into the effort and start seeing how much more could be done, and how much of the value lies in going the next step (often in multiple places.)
4. Scope Creep.  During the project users/customers see early examples or interim deliverables.  Once that happens they say "Oh, now I have a LOT better idea what I really want.  So can't you just make this small change?  It will make all the difference imaginable in how I'll use this - or even whether I'll use this."  Given this interim input, there's almost no way to NOT add on to the project.
5. Lack Executive Support.  Of course no executive is going to say "I am four-square behind this project" once user/customer feedback starts coming back less than enthusiastic, timetables start slipping, the deliverable starts looking a lot bigger (and the work a lot more expensive) and finger-pointing has started about "why didn't we figure this all out before we started!"  Even when the entire management team yells "go" at the beginning, once a project is deemed problematic support evaporates faster than ethyl alcohol rubbed on hot stainless steel!
6. Poor Testing. Sure, blame the testers.  Given how many variables have shifted and turned since the project started, who remembers, or knows, what to test any longer?  Exactly what performance requirements will be the triggers that determine acceptability?  Which variables are most important?  And, if the project is now struggling with changed requirements, the timetable is blown, scope has been redefined more than once, users/customers have started griping about delays and the executives are saying "will this nightmare project ever end" exactly what tester is going to stand in front of the train and say "hey, let's stop this thing"?

Bad projects are expensive.  According to Baseline.com, just in American IT projects $63B is lost every year to failed IT projects.  About 25% of the time - really, 1 in 4 times - projects are considered complete failures.  Less than 1/3 of the time are projects considered successful.  Yet, there is nothing new in this list.  It's been the same list for at least 20 years!  Even though "project management" has now become an academic discipline - results are not improving.

The approach to project management since the 1960s has been the same.  Write down requirements, use some sort of "scientific management" effort - some kind of time/motion study - to estimate the time to complete, freeze the project, get agreement on project outcomes and funding, then "execute."  And project management has been all about how to improve this process by adding more, and more, and more, and more steps.  There are now checklists that are book after book of things to do in order to "nail down" each step.  And there are hundreds of articles written about the "discipline" of keeping to the plan, not changing things, and keeping "everyone on board to the original project" until it is complete.

But all of this simply adds up to do more of what we've always done, try to do it better, via automation try to do it faster and consider using consultants or offshore resources to do all of this extra work cheaper.  There's been no change to how we do project management, no change to the underlying premise.  Even though results are no better now - in fact they may well be worse - than 40 years ago!

So why don't we change the approach?

The problem is that shifts happen.  Customer needs change every day, based upon what happens not only in their work but in what their customers want and in what competitors do. As the world shifts, requirements change.  Customers that don't really know what they want, because they only know what they've done, are asked to do the impossible to define their requirements - and then asked to do the even more impossible task of not wanting more as things shift.  As demands on customers change, and as competitors change the environment, shifts demand changes in expectations.  And testing is all about "does the hurdler jump the bar" without any consideration, by design, as to whether he finishes the race (much less how fast he finishes.) And the incentives are for judges to lower the bar, so the darn race can just end.

The old approach was designed for a nice, slow-paced, static world.  Where everything is known, and that's impossible with market needs.  It can work if you're trying to build a bridge maybe, but when trying to design some solution for a complex system (like the modern market, or IT community, or logistics design, etc.) that has infinite moving parts?  And where the speed with which parts change can be amazingly fast?  Let's get real, traditional project management simply won't work in today's complex IT, marketing, finance, HR, operations, production, logistics, manufacturing, sales world!

So, instead, try a new approach.  We've used this for 10 years with all kinds of projects, and it works a whole lot better.  Undertake your project realizing that if it aligns with future needs it will add value - and that is what really matters.

1. Don't ask users what they want.  Don't ask them for requirements.  They don't know.
2. Develop your scenario of what would be the PERFECT, ideal solution in 2 or 5 years.  Really.  Not just an improvement over today, what would be perfect!  Even if you have no idea how you would ever do it.  Write that down.  Then, say what those requirements are.  Design to those specs - which are probably 10 to 100 times beyond the current state.  Don't settle for some fractional design.  Don't start if you can't deliver what the market will want in the future when customers aren't bridled by what they don't know today.  Build for a future scenario that is way better than today - not just some initial requirements your Locked-in customer thought about.
3. If you don't know how to design it, study your competitors - including fringe competitors.  Look at everyone imaginable that is solving a similar problem and see how those you may never before considered are doing it.  See how people in China, Bangladesh, Hyderabad, San Paulo, Moscow, Taipei or Bangkok are doing it.  See how some 20 year old college kid and her buddies are trying to do it.  Look at how the upcoming competitor with .1% market share is doing it.  Don't just go for the well known solution approach.  Don't settle for "best practice" which is a 6 year old innovation that has little competitive value left.  Don't be afraid to do what can provide huge value improvement.
4. Write a long story, with detail, about how completing this project is going to really screw with your existing competitors.  Describe the huge pain they will feel.  How they will be in shock and awe of your performance once you are able to blow them away with this new capability.  Destroying the traditional competition is a great motivator.  Make them into the villain - after all, they are! (By the way, if you don't think the project will have a positive competitive impact - why are you doing it?)
5. Focus really, really, really hard on defining important early valuable deliverables.  Fast wins.  Don't just figure out what the end state will look like, it's critical to know what you can deliver successfully in 90 or 120 days! We can't wait forever for results, so throw out complex ROI analysis.  Instead ask the team to simply say how quickly they can start producing, rather than spending, money - and how quickly their project will pay back the investment.  Force them to prove that there are measurable wins in the first year, and payback in less than 3 -- on something!!  Don't worry about "scale."  Just the opposite, worry about how to demonstrate value quickly! Keep all timelines under a year, most under 4 months.
6. Tell everyone you are going to do something new.  You are prepared to be the innovator.  You can, and will, Disrupt the things you've done in order to give spectacular results.  You don't just want a 5% improvement, you want to win. It's not about how much better you were than before - it's about being competitively better than everyone else.  You simply want to win in the marketplace - and you'll do new things to accomplish this.  You care about results more than process.
7. Give the team permission to do whatever they have to do to succeed.  Don't give them a list of "rules" within which the project has to operate.  Give them the permission to really focus on success - that they can do what's needed to accomplish their goal.  Don't set up barriers.  Instead, tell them there are no barriers and you don't want them to talk about there being any barriers.
8. Make sure the team does not report to the Status Quo management.  Structure the project so that the team reports to someone who can focus on project success first, rather than abiding by old rules, or fears cannibalization, or has a vested interest in the success of the Status Quo.
9. Commit enough resources so the project can succeed.  Don't give it piecemeal funding that will require the team constantly battle to keep the project moving forward.  Don't expect success from part-time resources borrowed from other full-time work, or from a team assembled only to do this project then return to their old jobs.  Everyone has to be committed to the project, and its success, and the money should be there if they reach their goals (regardless of the route they took.)

This may not sound like a typical project management approach.  But hey, given how well the old approach has worked out don't you think it's time to give something new a chance?  Would medicine have ever advanced if we just kept on blood-letting?  When will we try something new if not now?

PS - Don't miss my newest column in CIOMagazine. "IT Strategy, Use Scenario Planning to Get Beyond Legacy Systems."  As IT has become one of our highest costs, it's more important than ever we change how we do IT planning and project management.

Of goats and heroes - Sara Lee's Barnes and Apple's Jobs

Rumors are flying around Chicago about the health of Sara Lee CEO Brenda Barnes.  Will she stay or leave?  Some investors are wondering as well.  While I join the chorus of voices that wish Ms. Barnes good health, her departure would not be a bad thing for Sara Lee investors, employees, suppliers and customers!  Whether for health or other reasons, a change in the top at Sara Lee is long overdue.

As Crain's Chicago Business reported in "Sara Lee's Secrecy on CEO Barnes' Health Leaves Investors Wondering" in the 5 years Ms. Barnes has been CEO Sara Lee's value has dropped 25%, even as the S&P consumer goods index has risen by 18%!  During her tenure, revenues at Sara Lee have declined 50% - largely due to asset sales from which the cash proceeds have done nothing to improve results.  Currently, Ms. Barnes has a large deal on the table to sell another multi-billion dollar business in her ongoing effort to make Sara Lee a smaller and less competitive company.

There's nothing wrong with selling a business.  But leaders have a responsibility to either pay the proceeds out to investors or re-invest the proceeds into new, growing businesses with high rates of return that will add more value.  In Ms. Barnes case the money has been spent buying up shares of stock (the plan for any future proceeds, by the way).  That has done nothing more than make the pool of shares, like the company assets, smaller.  As already mentioned, these asset sales have not added anything to revenue or profit growth and thus the company value has steadily declined.

Of course, as I vilify Ms. Barnes reality is that it takes the agreement of Sara Lee's Board of Directors for this strategy to be implemented.  And it takes a leadership team which agrees to go along - without offering strong dissent and driving discussion of results and long-term impact. While I make out Ms. Barnes to be a "goat" there is a lot more wrong at Sara Lee these days than simply the CEO. 

Sara Lee has long been without any White Space.  The company has tried to "milk" its aged brands, hoping to get more profits out of products that were much more exciting to customers in 1970 than 2010.  While Jimmy Dean Sausage, Sara Lee frozen desserts and similar products were the stuff of my youth the current generation of young adults have chosen much different fare - in not only food but household and health/beauty products.  Sara Lee's leadership before Ms. Barnes started the route of focusing on past sales and simply trying to give existing customers more.  As a result, there has been 2 decades of insufficient scenario planning, limited competitor analysis - and no Disruptions.  There has been no White Space to do anything new.  

Similarly, we can easily make heroes out of CEOs in companies doing well.  Steve Jobs at Apple is a case in point.  During his 10 year leadership, Apple has gone from near bankruptcy to value greater than Microsoft.  But this was not all Mr. Jobs.  He has pushed his Board of Directors and leadership team to do more scenario planning, obsess about competitors, implement Disruptions and open White Space for doing new things.  As a result, the Apple organization is now entering new markets and launching new products. 

Mr. Jobs has not been without his own health concerns the last few years.  Hopefully, he is doing well and will live many, many more healthy and happy years.  Yet, if he chose to depart Apple for health or other reasons Apple is well positioned to continue doing well.  Because as an organization it is planning correctly and implementing Disruptions and White Space - critical capabilities of Phoenix organizations.

CEOs matter.  They set the tone for their organizations.  Good ones understand the need to build organizations that can enter new markets - like Mr. Jobs. Bad ones spend their energy trying to Defend & Extend past results, often getting trapped in financial machinations as the organization shrinks and value disintegrates - like Ms. Barnes.  But it's not all about the CEO and we shouldn't get too caught up in that single job.  Good organizations have the skills to produce long-term growth and high rates of returns, and that can be built anywhere.  Let's hope Sara Lee's Board wakes up to this and starts making changes in that organization soon.

Go Beyond Your Customers - Facebook, Apple, Google, Microsoft

I get the most heat when I talk about spending less time listening customers.  But I'm not joking.  To grow revenues and profits you have to go far beyond asking your customers - who are more likely to hold you back from growth than accelerate it.

BusinessInsider.com makes this point loudly in an Henry Blodgett article "Ignore the Scream's -- Facebook's Aggressive Approach is Why It Will Soon Become the Most Popular Site in the World." Given how many people use Facebook, it's hard to remember that the site is only 6 years old.  What we've also mostly forgotten is that Facebook wasn't even first.  It followed the popular, and well financed after acquisition by News Corp, MySpace.com.  Lots of companies got into social networking.  But now the marketplace is dominated by Facebook - which will soon be the web's most popular site (as it closes in on Google.)

Facebook did not win by asking users/customers what they wanted.  To the contrary, Facebook's leaders took the approach of offering what they perceived would be steps forward - and then letting the market react.  Frequently a VERY loud contingent would be VERY upset.  Screaming loudly they hated the change.  But with each advancement, Facebook grew users and the site's success.  Facebook didn't ask users what they wanted, nor did they ask users for permission to do new things.  Facebook went into the market, and using its scenarios about the future Facebook's leaders drove toward what they expected to be a more popular site.  They did it, and learned from their experience.

Too many businesses spend way too much time trying to make small advances, and miss the big shifts.  Microsoft is a great example.  As it launches Office 2010, Microsoft isn't trying to bring in new users to grow its base - like Facebook is doing.  Instead it is trying to preserve its installed base.  Nonetheless, some "loss" is a given.  You can't preserve forever.  If you don't bring in new customers, you can't grow because you have to replace lost ones and find incremental new ones.  But what do we see in Microsoft's offerings (such as Office 2010 and System 7) that is designed to bring in new users? 

Meanwhile, Google is offering more powerful and cheaper Cloud-based solutions, as Apple and Google grow the demand for mobile devices (like iPhone and iPad) that don't use Microsoft products.  The big shifts are all away from Microsoft, while Microsoft's efforts at preservation are leaving these alternatives with limited competition.

Today Bnet Australia posted a podcast interview I did with Phil Dobbie, sponsored by CBS, last week.  In "Disrupt To Win" we discuss the big difference between Apple and Google as compared to Microsoft.  The growing companies use scenarios to develop new solutions which will appeal to new users.  They keep expanding the marketplace.  As new users adopt new solutions, eventually it becomes mainstream - further accelerating growth.  Growth doesn't come from trying to Defend the old platform or user base, but from launching new solutions which grow the market leading to conversion and even greater growth.

Facebook is now a phenomenon, growing in 6 years from obscurity to the second largest global user base.  Because, like Apple and Google, the leadership did not ask customers what they wanted (which was what MySpace.com did).  Rather, they studied competitors and emerging markets to create new solutions - without worrying about cannibalization or moving faster than customers would recommend.  And the leadership has been willing to overlook vocal user minorities in order to appeal to new users, thus driving more growth.  You can't expect customers to deliver great growth, that has to come from aggressive scenario planning, deep competitive analysis and a willingness to Disrupt your organization and the marketplace.