2 Wrongs Don't Fix JC Penney

JCPenney's board fired the company CEO 18 months ago.  Frustrated with weak performance, they replaced him with the most famous person in retail at the time. Ron Johnson was running Apple's stores, which had the highest profit per square foot of any retail chain in America.  Sure he would bring the Midas touch to JC Penney they gave him a $50M sign-on bonus and complete latitude to do as he wished.

Things didn't work out so well.  Sales fell some 25%.  The stock dropped 50%.  So about 2 weeks ago the Board fired Ron Johnson.

The first mistake:  Ron Johnson didn't try solving the real problem at JC Penney.  He spent lavishly trying to remake the brand.  He modernized the logo, upped the TV ad spend, spruced up stores and implemented a more consistent pricing strategy.  But that all was designed to help JC Penney compete in traditional brick-and-mortar retail. Against traditional companies like Wal-Mart, Kohl's, Sears, etc.  But that wasn't (and isn't) JC Penney's problem.

The problem in all of traditional retail is the growth of on-line.  In a small margin business with high fixed costs, like traditional retail, even a small revenue loss has a big impact on net profit.  For every 5% revenue decline 50-90% of that lost cash comes directly off the bottom line - because costs don't fall with revenues.  And these days every quarter - every month - more and more customers are buying more and more stuff from Amazon.com and its on-line brethren rather than brick and mortar stores.  It is these lost revenues that are destroying revenues and profits at Sears and JC Penney, and stagnating nearly everyone else including Wal-Mart. 

Coming from the tech world, you would have expected CEO Johnson to recognize this problem and radically change the strategy, rather than messing with tactics.  He should have looked to close stores to lower fixed costs, developed a powerful on-line presence and marketed hard to grab more customers showrooming or shopping from home.  He should have targeted to grow JCP on-line, stealing revenues from other traditional retailers, while making the company more of a hybrid retailer that profitably met customer needs in stores, or on-line, as suits them.  He should have used on-line retail to take customers from locked-in competitors unable to deal with "cannibalization."

No wonder the results tanked, and CEO Johnson was fired.  Doing more of the tired, old strategies in a shifting market never works.  In Apple parlance, he needed to be focused on an iPad strategy, when instead he kept trying to sell more Macs.

But now the Board has made its second mistake.  Bringing back the old CEO, Myron Ullman, has deepened JP Penney's lock-in to that old, traditional and uncompetitve brick-and-mortar strategy. He intends to return to JCP's legacy, buy more newspaper coupons, and keep doing more of the same.  While hoping for a better outcome.

What was that old description of insanity?  Something about repeating yourself.....

Expectedly, Penney's stock dropped another 10% after announcing the old CEO would return.  Investors are smart enough to recognize the retail market has shifted.  That newsapaper coupons, circulars and traditional advertising is not enough to compete with on-line merchants which have lower fixed costs, faster inventory turns and wider product selection. 

It certainly appears Mr. Johnson was not the right person to grow JC Penney.  All the more reason JCP needs to accelerate its strategy toward the on-line retail trend.  Going backward will only worsen an already terrible situation.

United - this is NOT "any way to run an airline"

The good folks at Wichita State (a final four contender as U.S. basketball fans know) and Purdue released their 2013 Airline Quality Rating.  United Airlines came in dead last.  To which United responded that they simply did not care.  Oh my.

Interestingly, this study is based wholly on statistical performance, rather than customer input.  The academics utilize on-time flight performance, denied passenger boardings, mishandled bags and complaints filed with the Department of Transportation.  It does not even begin to explore surveying customers about their satisfaction.  Anyone who flies regularly can well imagine those results.  Oh my.

So how would you expect an innovative, adaptive growth-oriented company (think like Amazon, Apple, Samsung, Virgin, Neimann-Marcus, Lulu Lemon) to react to declining customer performance metrics?  They might actually change the product, to make it more desirable by customers.  They might hire more customer service representatives to identify customer issues and fix problems quicker.  They might adjust their processes to achieve higher customer satisfaction.  They might train their employees to be more customer-oriented. 

But, United decidedly is not an innovative, adaptive organization.  So it responded by denying the situation.  Claiming things are getting better.  And talking about how it is spending more money on its long-term strategy.

United doesn't care about customers - and really never has.  United is focused on "operational excellence" (using the word excellence very loosely) as Messrs. Treacy and Wiersema called this strategy in their mega-popular book "The Discipline of Market Leaders" from 1995. United's strategy, like many, many businesses, is to constantly strive for better execution of an old strategy (in their case, hub-and-spoke flight operations) by hammering away at cutting costs. 

Locked in to this strategy, United invests in more airplanes and gates (including making acquisitions like Continental) believing that being bigger will lead to more cost cutting opportunities (code named "synergies".)  They beat up on employees, fight with unions, remove anything unessential (like food) invent ways to create charges (like checked bags or change fees), fiddle with fuel costs, ignore customers and constantly try to engineer minute enhancements to operations in efforts to save pennies.

Like many companies, United is fixated on this strategy, even if it can't make any money.  Even if this strategy once drove it to bankruptcy.  Even if its employees are miserable. Even if quality metrics decline. Even if every year customers are less and less happy with the product.  All of that be darned!  United just keeps doing what it has always done, for over 3 decades, hoping that somehow - magically - results will improve.

Today people have choices.  More choices than ever.  That's true for transportation as well.  As customers have become less happy, they simply won't pay as much to fly.  The impact of all this operational focus, but let the customer be danged, management is price degradation to the point that United, like all the airlines, barely (or doesn't - like American) cover costs.  And because of all the competition each airline constantly chases the other to the bottom of customer satisfaction - each  lowering its price as it mimics the others with cost cuts.

In 1963 National Airlines ran ads asking "is this any way to run an airline?" Well, no. 

Success today - everywhere, not just airlines - requires more than operational focus.  Constantly cutting costs ruins the brand, customer satisfaction, eliminates investment in new products and inevitably kills profitability.  The litany of failed airlines demonstrates just how ineffective this strategy has become.  Because operational improvements are so easily matched by competitors, and ignores alternatives (like trains, buses and automobiles for airlines) it leads to price wars, lower profits and bankruptcy.

Nobody looks to airlines as a model of management.  But many companies still believe operational excellence will lead to success.  They need to look at the long-term implications of this strategy, and recognize that without innovation, new products and highly satisfied new customers no business will thrive - or even survive.

Innovation REALLY Matters - Lessons Learned from Detroit

Forbes republished its annual "Most Miserable Cities" list.  It looks at employment/unemployment, inflation, incomes and cost of living, crime, weather, commute times - a pretty good overview of things tied to living somewhere.  Detroit ranked first, as the most miserable city, with Flint, MI second.  And my home-sweet-home Chicago came in fourth.  Ouch! 

There is an important lesson here for every city - and for our country.

Detroit was a thriving city during the industrial revolution.  Innovation in all things mechanical led to the modern automobile; a marvelous innovation which, literally, everyone wanted.  As demand skyrocketed, Henry Ford's management team developed the modern assembly line which allowed production volumes to skyrocket as well.  Detroit was a hotbed of industrial innovation.

This fueled growth in jobs, which led to massive immigration to Detroit.  With growth the tax base expanded, and quickly Detroit was a leading city with all the best things people could want.  In the 1950s and 1960s Detroit reaped the benefits of the local auto companies, and their suppliers, as ongoing innovations drove better cars, more sales, more revenue taxes, higher property values and higher property taxes.  It was a glorious virtuous circle.

But things changed.

Offshore competitors came into the market creating different kinds of autos appealing to different customers.  Initially they had lower costs, and less expensive designs.  Their cars weren't as good as GM, Ford or Chrysler - but they were cheap.  And when gasoline prices took off in the 1970s people suddenly realized these cars were also more fuel efficient and cheaper to maintain.  As these offshore competitors gained more sales they invested in making better cars, until they had quality as good as the Detroit companies, plus better fuel efficiency.

But the Detroit companies had become stuck in their processes that worked in earlier days.  Even though the market shifted, they didn't.  What passed for innovations were increasingly simple appearance changes as bottom-line focus reduced willingness to do new things, and offered fewer new things to do.  GM and its brethren didn't shift with the market, and by the 1980s the seeds of big problems already were showing.  By the 1990s profits were increasingly variable and elusive.

The formerly weak and small competitors now were more competitive in a changed market favoring smaller cars with more, and better, technology.  The market had changed, but the big American auto companies had not.  They kept doing more of the same - hopefully better, faster and striving for cheaper.  But they were falling further behind.  By the 2000s decade failure had become the viable option, with both Chrysler and GM going bankrupt.

As this cycle played out, the impact on Detroit was clear.  Less success in the business base meant fewer revenue tax dollars from less profitable companies.  Cost reductions meant employment stagnated, then started falling.  Incomes stagnated, and people left Detroit to find better paying jobs. Property values began to fall.  Income and property taxes declined.  Governments had to borrow more, and cut costs, leading to declines in services.  What had been a virtuous circle became a violently destructive whirlpool.

Detroit's business leaders failed to invest in programs to drive more new jobs in non-auto, non-industrial, business development.  As competitors hurt the local industry, Detroit (and Michigan's) leaders kept trying to invest in saving the historical business, while the economy was shifting from an industrial base to an information one.  It wasn't just autos that were less valuable as companies, but everything industrial.  Yet, leaders failed at attracting new technology companies.  The economic shift - the market shift - was unaddressed, and now Detroit is bankrupt.

Much as I like living in Chicago, unfortunately the story is far too similar in my town.  Long an industrial hub, Chicago (and Illinois) enjoyed the benefits of growing companies, employment and taxes during the heyday of industrialism.  This led to well paid, and very well pensioned, government employees providing services.  The suburbs around Chicago exploded as people migrated to the Windy City for jobs - despite the brutal winters.

But Chicago has been dramatically affected by the shift to an information economy.  The old machine shops, tool and dye makers and myriad parts manufacturers were decimated as that work often went offshore to cheaper manufacturers.  Large manufacturers like Western Electric and International Harvester (renamed Navistar) failed.  Big retailers like Montgomery Wards disappeared, and even Sears has diminished to a ghost of its former self.  All businesses killed by market shifts. 

And as a result, people quit moving to Chicago - and actually started leaving.  There are now fewer jobs in Illinois than in the year 2000, and as a result people have left town.  They've gone to cities (and states) where they could find jobs in growth industries allowing for more opportunity, and rising incomes. 

Just like Detroit, Chicago shows early signs of big problems.  Crime is up, with an unpleasantly large increase in murders.  Insufficient income and property tax revenues led to budget crises across the board.  Dramatic actions like selling city parking meters to shore up finances has led to Chicago having the most expensive parking in the country - despite far from the highest incomes.  Property taxes in suburbs have escalated, with taxes in collar Lake county higher than Los Angeles! Yet the state pension system is bankrupt, causing the legislature to put in place a 50% state income tax increase!  Meanwhile the infrastructure is showing signs of needing desperate work, but there is no money. 

Like Detroit, Chicago's businesses (and governments) have invested insufficiently in innovation.  Recent Chicago Tribune columns on local consumer goods behemoth Kraft emphasized (and typified) the lack of new product development and stalled revenue growth.  Where Bay Area tech companies expect 50% of revenues (or more) from new products (or variations), Kraft has admitted it has relied on stalwarts like Velveeta and Mac & Cheese so much that fewer than 10% of revenues come from anything new. 

Culturally, too many decisions in the executive suites of both the companies, and the governments, are focused on what worked in the past rather than investing in innovation.  Even though the vaunted University of Illinois has one of the world's top 5 engineering schools, the majority of graduates find they leave the state for better paying jobs.  And a dearth of angel or venture funding means that start-ups simply are forced coastal if they hope to succeed.

And this reaches to our national policies as well.  Plenty of arguments abound for cutting costs - but are we effectively investing in innovation?  Do our tax policies, as well as our expenditures, drive innovation - or constrict it?  It was government programs which unleashed nuclear power and gave us a rash of innovations from putting a man on the moon.  Yet, today, we seem obsessed with cutting budgets, cutting costs and doing less - not even more - of the same. 

Growth is a wonderful thing.  But growth does not happen without investment in innovation.  When companies, or industries, stop investing in innovation growth slows - and eventually stops.  Communities, states and even nations cannot thrive unless there is a robust program of investing for, and implementing, innovation. 

With innovation you create renewal.  Without it you create Detroit.

Dell - Take the Money and Run! Innovation trumps execution.

Michael Dell has put together a hedge fund, one of his largest suppliers and some debt money to take his company, Dell, Inc. private.  There are large investors threatening to sue, claiming the price isn't high enough.  While they are wrangling, small investors should consider this privatization manna from heaven, take the new, higher price and run to invest elsewhere - thankful you're getting more than the company is worth.

In the 1990s everybody thought Dell was an incredible company.  With literally no innovation a young fellow built an enormously large, profitable company using other people's money, and technology.  Dell jumped into the PC business as it was born.  Suppliers were making the important bits, and looking for "partners" to build boxes.  Dell realized he could let other people invest in microprocessor, memory, disk drive, operating system and application software development.  All he had to do was put the pieces together. 

Dell was the rare example of a company that was built on nothing more than execution.  By marketing hard, selling hard, buying smart and building cheap Dell could produce a product for which demand was skyrocketing.  Every year brought out new advancements from suppliers Dell could package up and sell as the latest, greatest model.  All Dell had to do was stay focused on its "core" PC market, avoid distractions, and win at execution.  Heck, everyone was going to make money building and selling PCs.  How much you made boiled down to how hard you worked.  It wasn't about strategy or innovation - just execution. 

Dell's business worked for one simple reason.  Everybody wanted PCs.  More than one.  And everybody wanted bigger, more powerful PCs as they came available.  Market demand exploded as the PC became part of everything companies, and people, do.  As long as demand was growing, Dell was growing.  And with clever execution - primarily focused on speed (sell, build, deliver, get the cash before the supplier has to be paid) - Dell became a multi-billion dollar company, and its founder a billionaire with no college degree, and no claim to being a technology genius.

But, the market shifted.  As this column has pointed out many times, demand for PCs went flat - never to return to previous growth rates.  Users have moved to mobile devices such as smartphones and tablets, while corporate IT is transitioning from PC servers to cloud services.  iPad sales now nearly match all of Dell's sales.  Dell might well be the world's best PC maker, but when people don't want PCs that doesn't matter any more.

Which is why Dell's sales, and profits, began to fall several years ago.  And even though Michael Dell returned to run the company 6 years ago, the downward direction did not change.  At its "core" Dell has no ability to innovate, or create new products.  It is like HTC - merely a company that sells and assembles, with all of its "focus" on cost/price.  That's why Samsung became the leader in Android smartphones and tablets, and why Dell never launched a Chrome tablet.  Lacking any innovation capability, Dell relied on its suppliers to tell it what to build.  And its suppliers, notably Microsoft and Intel, entirely missed the shift to mobile.  Leaving Dell long on execution skills, but with nowhere to apply them.

Market watchers knew this. That's why  Dell's stock took a long ride from its lofty value on the rapids of growth to the recent distinctly low value as it slipped into the whirlpool of failure.

Now Dell has a trumped up story that it needs to go public in order to convert itself from a PC maker into an IT services company selling cloud and mobile capabilities to small and mid-sized businesses.  But Dell doesn't need to go private to do this, which alone makes the story ring hollow.  It's going private because doing so allows Michael Dell to recapitalize the company with mountains of debt, then use internal cash to buy out his stock before the company completely fails wiping out a big chunk of his remaining fortune.

If you think adding debt to Dell will save it from the market shift, just look at how well that strategy worked for fixing Tribune Corporation. A Sam Zell led LBO took over the company claiming he had plans for a new future, as advertisers shifted away from newspapers.  Bankruptcy came soon enough, employee pensions were wiped out, massive layoffs undertaken and 4 years of legal fighting followed to see if there was any plan that would keep the company afloat.  Debt never fixes a failing company, and Dell knows that.  Dell has no answer to changing market demand away from PCs.

Now the buzzards are circling.  HP has been caught in a rush to destruction ever since CEO Fiorina decided to buy Compaq and gut the HP R&D in an effort to follow Dell's wild revenue ride.  Only massive cost cutting by the following CEO Hurd kept HP alive, wiping out any remnants of innovation.  Now HP has a dismal future.  But it hopes that as the PC market shrinks the elimination of one competitor, Dell, will give newest CEO Whitman more time to somehow find something HP can do besides follow Dell into bankruptcy court.

Watching as its execution-oriented ecosystem manufacturers are struggling, supplier Microsoft is pulling out its wallet to try and extend the timeline.  Plundering its $85B war chest, Microsoft keeps adding features, with acquisitions such as Skype, that consume cash while offering no returns - or even strong reasons for people to stop the transition to tablets. 

Additionally it keeps putting up money for companies that it hopes will build end-user products on its software, such as its $500M investment in Barnes & Noble's Nook and now putting $2B into Dell.  $85B is a lot of money, but how much more will Microsoft have to spend to keep HP alive - or money losing Acer - or Lenovo?  A billion here, a billion there and pretty soon it adds up to a lot of money!  Not counting losses in its own entertainmnet and on-line divisions.  The transition to mobile devices is permanent and Microsoft has arrived at the game incredibly late - and with products that simply cannot obtain better than mixed reviews.

The lesson to learn is that management, and investors, take a big risk when they focus on execution.  Without innovation, organizations become reliant on vendors who may, or may not, stay ahead of market transitions.  When an organization fails to be an innovator, someone who creates its own game changers, and instead tries to succeed by being the best at execution eventually market shifts will kill it.  It is not a question of if, but when.

Being the world's best PC maker is no better than being the world's best maker of white bread (Hostess) or the world's best maker of photographic film (Kodak) or the world's best 5 and dime retailer (Woolworth's) or the world's best manufacturer of bicycles (Schwinn) or cold rolled steel (Bethlehem Steel.)  Being able to execute - even execute really, really well - is not a long-term viable strategy.  Eventually, innovation will create market shifts that will kill you.

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Sell Microsoft NOW - Game over, Ballmer loses

Microsoft needed a great Christmas season.  After years of product stagnation, and a big market shift toward mobile devices from PCs, Microsoft's future relied on the company seeing customers demonstrate they were ready to jump in heavily for Windows8 products - including the new Surface tablet.

But that did not happen. 

With the data now coming it, it is clear the market movement away from Microsoft products, toward Apple and Android products, has not changed.  On Christmas eve, as people turned on their new devices and launched their first tweet, Surface came in dead last - a mere 2% compared to the number of people tweeting from iPads (Kindle was second, Android third.)  Looking at more traditional units shipped information, UBS analysts reported Surface sales were 5% of iPads shipped.  And the usability reviews continue to run highly negative for Surface and Win8.

This inability to make a big splash, and mount a serious attack on Apple/Android domination, is horrific for Microsoft primarily because we now know that traditional PC sales are well into decline.  Despite the big Win8 launch and promotion, holiday PC sales declined over 3% compared to 2011 as journalists reported customers found "no compelling reason to upgrade."  Ouch!

Looking deeper, for the 4th quarter PC sales declined by almost 5% according to Gartner research, and by almost 6.5% according to IDC.  Both groups no longer expect a rebound in PC shipments, as they believe homes will no longer have more than 1 PC due to the mobile device penetration  - the market where Surface and Win8 phones have failed to make any significant impact or move beyond a tiny market share.  Users increasingly see the complexity of shifting to Win8 as not worth the effort; and if a switch is to be made consumer and businesses now favor iOS and Android.

Microsoft's monopoly over personal computing has evaporated.  From 95% market domination in 2005 share has fallen to just 20% in 2012 (IDC, Goldman Sachs.)  Comparing devices, in 2005 there were 55 Windows devices sold for every Apple device; today explosive Apple sales has lowered that multiple to a mere 2! (Asymco).  Universally the desire to upgrade Microsoft products has simply disappeared, as XP still has 40% of the Windows market - and even Vista at 5.7% has more users than Win8 which has only achieved a 1.75% Windows market share despite the long wait and launch hoopla. And with all future market growth coming in tablets, which are expected to more than double unit volume sales by 2016, Microsoft is simply not in the game.

These trends mean nothing short of the ruin of Microsoft.  Microsoft makes more than 75% of its profits from Windows and Office.  Less than 25% comes from its vaunted servers and tools.  And Microsoft makes nothing from its xBox/Kinect entertainment division, while losing vast sums on-line (negative $350M-$750M/quarter).  No matter how much anyone likes the non-Windows Microsoft products, without the historical Windows/Office sales and profits Microsoft is not sustainable.

So what can we expect at Microsoft:

1. Ballmer has committed to fight to the death in his effort to defend & extend Windows.  So expect death as resources are poured into the unwinnable battle to convert users from iOS and Android.
2. As resources are poured out of the company in the Quixotic effort to prolong Windows/Office, any hope of future dividends falls to zero.
3. Expect enormous layoffs over the next 3 years.  Something like 50-60%, or more, of employees will go away.
4. Expect closure of the long-suffering on-line division in order to conserve resources.
5. The entertainment division will be spun off, sold to someone like Sony or even Barnes & Noble, or dramatically reduced in size.  Unable to make a profit it will increasingly be seen as a distraction to the battle for saving Windows - and Microsoft leadership has long shown they have no idea how to profitably grow this business unit.
6. As more and more of the market shifts to competitive cloud businesses Apple, Amazon and others will grow significantly.  Microsoft, losing its user base, will demonstrate its inability to build a new business in the cloud, mimicking its historical experiences with Zune (mobile music) and Microsoft mobile phones.  Microsoft server and tool sales will suffer, creating a much more difficult profit environment for the sole remaining profitable division.

Missing the market shift to mobile has already forever tarnished the Microsoft brand.  No longer is Microsoft seen as a leader, and instead it is rapidly losing market relevancy as people look to Apple, Google, Amazon, Samsung, Facebook and others for leadership.   The declining sales, and lack of customer interest will lead to a tailspin at Microsoft not unlike what happened to RIM.  Cash will be burned in what Microsoft will consider an "epic" struggle to save the "core of the company." 

But failure is already inevitable.  At this stage, not even a new CEO can save Microsoft.  Steve Ballmer played "Bet the Company" on the long-delayed release of Win8, losing the chance to refocus Microsoft on other growing divisions with greater chance of success.  Unfortunately, the other players already had enough chips to simply bid Microsoft out of the mobile game - and Microsoft's ante is now long gone - without holding a hand even remotely able to turn around the product situation.

Game over. Ballmer loses. And if you keep your money invested in Microsoft it will disappear along with the company.   

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The Day TV Died - Winners and Losers (Comcast, Disney, CBS)

Remember when almost everyone read a daily newspaper? 

Newspaper readership peaked around 2000.  Since then printed media has declined, as readers shifted on-line.  Magazines have folded, and newspapers have disappeared, quit printing, dramatically cut page numbers and even more dramatically cut staff. 

Amazingly, almost no major print publisher prepared for this, even though the trend was becoming clear in the late 1990s. 

Newspapers are no longer a viable business.  While industry revenue grew for almost 2 centuries, it collapsed in a mere decade.

Chart Source: BusinessInsider.com

This market shift created clear winners, and losers.  On-line news sites like Marketwatch and HuffingtonPost were clear winners.  Losers were traditional newspaper companies such as Tribune Corporation, Gannett, McClatchey, Dow Jones and even the New York Times Company.  And investors in these companies either saw their values soar, or practically disintegrate. 

In 2012 it is equally clear that television is on the brink of a major transition.  Fewer people are content to have their entertainment programmed for them when they can program it themselves on-line.  Even though the number of television channels has exploded with pervasive cable access, the time spent watching television is not growing.  While simultaneously the amount of time people spend looking at mobile internet displays (tablets, smartphones and laptops) is growing at double digit rates.

Chart Source: Silicone Alley Insider Chart of the Day 12/5/12

It would be easy to act like newspaper defenders and pretend that television as we've known it will not change.  But that would be, at best, naive.  Just look around at broadband access, the use of mobile devices, the convenience of mobile and the number of people that don't even watch traditional TV any more (especially younger people) and the trend is clear.  One-way preprogrammed advertising laden television is not a sustainable business. 

So, now is the time to prepare.  And change your business to align with impending new realities.

Losers, and winners, will be varied - and not entirely obvious.  Firstly, a look at those trying to maintain the status quo, and likely to lose the most.

Giant consumer goods and retail companies benefitted from the domination of television.  Only huge companies like P&G, Kraft, GM and Target could afford to lay out billions of dollars for television ads to build, and defend, a brand.  But what advantage will they have when TV budgets no longer control brand building?  They will become extremely vulnerable to more innovative companies that have better products and move on fast lifecycles. Their size, hierarchy and arcane business practices will lead to huge problems.  Imagine a raft of new Hostess Brands experiences.

Even as the trends have started changing these companies have continued pumping billions into the traditional TV networks as they spend to defend their brand position.  This has driven up the value of companies like CBS, Comcast (owns NBC) and Disney (owns ABC) over the last 3 years substantially. But don't expect that to last forever. Or even a few more years.

Just like newspaper ad spending fell off a cliff when it was clear the eyeballs were no longer there, expect the same for television ad spending.  As giant advertisers find the cost of television harder and harder to justify their outlays will eventually take the kind of cliff dive observed in the chart (above) for newspaper advertising.  Already some consumer goods and ad agency executives are alluding to the fact that the rate of return on traditional TV is becoming sketchy.

So far, we've seen little at the companies which own TV networks to demonstrate they are prepared for the floor to fall out of their revenue stream.  While some have positions in a few internet production and delivery companies, most are clearly still doing their best to defend & extend the old business - just like newspaper owners did.  Just as newspapers never found a way to replace the print ad dollars, these television companies look very much like businesses that have no apparent solution for future growth.  I would not want my 401K invested in any major network company.

And there will be winners.

For smaller businesses, there has never been a better time to compete.  A company as small as Tesla or Fisker can now create a brand on-line at a fraction of the old cost.  And that brand can be as powerful as Ford, and potentially a lot more trendy. There are very low entry barriers for on-line brand building using not only ad words and web page display ads, but also using social media to build loyal followers who use and promote a brand.  What was once considered a niche can become well known almost overnight simply by applying the new dynamics of reaching customers on-line, and increasingly via mobile.  Look at the success of Toms Shoes.

Zappos and Amazon have shown that with almost no television ads they can create powerhouse retail brands.  The new retailers do not compete just on price, but are able to offer selection, availability and customer service at levels unachievable by traditional brick-and-mortar retailers.  They can suggest products and prices of things you're likely to need, even before you realize you need them.  They can educate better, and faster, than most retail store employees.  And they can offer great prices due to less overhead, along with the convenience of shipping the product right into your home. 

And as people quit watching preprogrammed TV, where will they go for content?  Anybody streaming will have an advantage - so think Netflix (which recently contracted for all the Disney content,) Amazon, Pandora, Spotify and even AOL.  But, this will also benefit those companies providing content access such as Apple TV, Google TV, YouTube (owned by Google) to offer content channels and the increasingly omnipresent Facebook will deliver up not only friends, but content -- and ads. 

As for content creation, the deep pockets of traditional TV production companies will likely disappear along with their ability to control distribution.  That means fewer big-budget productions as risk goes up without revenue assurances. 

But that means even more ability for newer, smaller companies to create competitive content seeking audiences.  Where once a very clever, hard working Seth McFarlane (creator of Family Guy) had to hardscrabble with networks to achieve distribution, and live in fear of a single person controlling his destiny, in the future these creative people will be able to own their content and capture the value directly as they build a direct audience.  A phenomenon like George Lucas will be more achievable than ever before as what might look like chaos during transition will migrate to a much more competitive world where audiences, rather than network executives, will decide what content wins - and loses.

So, with due respects to Don McLean, will today be the day TV Died?  We will only know in historical context.  Nobody predicted newspapers had peaked in 2000, but it was clear the internet was changing news consumption behavior.  And we don't know if TV viewership will begin its rapid decline in 2013, or in a couple more years. But the inevitable change is clear - we just don't know exactly when.

So it would be foolish to not think that the industry is going to change dramatically.  And the impact on advertising will be even more profound, much more profound, than it was in print.  And that will have an even more profound impact on American society - and how business is done. 

What are you doing to prepare?

 

 

Irrelevancy leads to failure - Worry for Yahoo, Microsoft, HP, Sears, etc.

The web lit up yesterday when people started sharing a Fortune quote from Marissa Mayer, CEO of Yahoo, "We are literally moving the company from BlackBerrys to smartphones."  Why was this a big deal?  Because, in just a few words, Ms. Mayer pointed out that Research In Motion is no longer relevant.  The company may have created the smartphone market, but now its products are so irrelevant that it isn't even considered a market participant.

Ouch.  But, more importantly, this drove home that no matter how good RIM thinks Blackberry 10 may be, nobody cares.  And when nobody cares, nobody buys.  And if you weren't convinced RIM was headed for lousy returns and bankruptcy before, you certainly should be now.

But wait, this is certainly a good bit of the pot being derogatory toward the kettle.  Because, other than the highly personalized news about Yahoo's new CEO, very few people care about Yahoo these days as well.  After being thoroughly trounced in ad placement and search by Google, it is wholly unclear how Yahoo will create its own relevancy.  It may likely be soon when a major advertiser says "When placing our major internet ad program we are focused on the split between Google and Facebook," demonstrating that nobody really cares about Yahoo anymore, either. 

And how long will Yahoo survive?

The slip into irrelevancy is the inflection point into failure.  Very few companies ever return.  Once you are no longer relevant, customer quickly stop paying attention to practically anything you do.  Even if you were once great, it doesn't take long before the slide into no-growth, cost cutting and lousy financial performance happens. 

Consider:

• Garmin once led the market for navigation devices.  Now practically everyone uses their mobile phone for navigation. The big story is Apple's blunder with maps, while Google dominates the marketplace.  You probably even forgot Garmin exists.
• Radio Shack once was a consumer electronics powerhouse.  They ran superbowl ads, and had major actresses parlaying with professional sports celebrities in major network ads.  When was the last time you even thought about Radio Shack, much less visited a store?
• Sears was once America's premier, #1 retailer.  The place where everyone shopped for brands like Craftsman, DieHard and Kenmore.  But when did you last go into a Sears?  Or even consider going into one?  Do you even know where one is located?
• Kodak invented amateur photography.  But when that market went digital nobody cared about film any more.  Now Kodak is in bankruptcy.  Do you care?
• Motorola Razr phones dominated the last wave of traditional cell phones.  As sales plummeted they flirted with bankruptcy, until Motorola split into 2 pieces and the money losing phone business became Google - and nobody even noticed.
• When was the last time you thought about "building your body 12 ways" with Wonder bread?  Right.  Nobody else did either.  Now Hostess is liquidating.

Being relevant is incredibly important, because markets shift quickly today. As they shift, either you are part of the trend going forward - or you are part of the "who cares" past.  If you are the former, you are focused on new products that customers want to evaluate. If you are the latter, you can disappear a whole lot faster than anyone expected as customers simply ignore you.

So now take a look at a few other easy-to-spot companies losing relevancy:

• HP headlines are dominated by write offs of its investments in services and software, causing people to doubt the viability of its CEO, Meg Whitman.  Who wants to buy products from a company that would spend billions on Palm, business services and Autonomy ERP software only to decide they overspent and can never make any money on those investments?  Once a great market leader, HP is rapidly becoming a company nobody cares about; except for what appears to be a bloody train wreck in the making.  In tech - lose customesr and you have a short half-life.
• Similarly Dell.  A leader in supply chain management, what Dell product now excites you?  As you think about the money you will spend this holiday, or in 2013, on tech products you're thinking about mobile devices --- and where is Dell?
• Best Buy was the big winner when Circuit City went bankrupt.  But Best Guy didn't change, and now margins have cratered as people showroom Amazon while in their store to negotiate prices.  How long can Best Buy survive when all TVs are the same, and price is all that matters?  And you download all your music and movies?
• Wal-Mart has built a huge on-line business.  Did you know that?  Do you care?  Regardless of Wal-mart's on-line efforts, the company is known for cheap looking stores with cheap merchandise and customers that can't maintain credit cards.  When you look at trends in retailing, is Wal-Mart ever the leader - in anything - anymore?  If not, Wal-mart becomes a "default" store location when all you care about is price, and you can't wait for an on-line delivery.  Unless you decide to go to the even cheaper Dollar General or Aldi.

And, the best for last, is Microsoft.  Steve Ballmer announced that Microsoft phone sales quadrupled!  Only, at 4 million units last quarter that is about 10% of Apple or Android.  Truth is, despite 3 years of development, a huge amount of pre-release PR and ad spending, nobody much cares about Win8, Surface or new Microsoft-based mobile phones.  People want an iPhone or Samsung product. 

After its "lost decade" when Microsoft simply missed every major technology shift, people now don't really care about Microsoft.  Yes, it has a few stores - but they dwarfed in number and customers by the Apple stores.  Yes, the shifting tiles and touch screen PCs are new - but nobody real talks about them; other than to say they take a lot of new training.  When it comes to "game changers" that are pushing trends, nobody is putting Microsoft in that category.

So the bad news about a  $6 billion write-down of aQuantive adds to the sense of "the gang that can't shoot straight" after the string of failures like Zune, Vista and early Microsoft phones and tablets.  Not to mention the lack of interest in Skype, while Internet Explorer falls to #2 in browser market share behind Chrome. 

Chart Courtesy Jay Yarrow, BusinessInsider.com 5-21-12

When a company is seen as never able to take the lead amidst changing trends, investors see accquisitions like $1.2B for Yammer as a likely future write down.  Customers lose interest and simply spend money elsewhere.

As investors we often hear about companies that were once great brands, but selling at low multiples, and therefore "value plays."  But the truth is these are death traps that wipe out returns.  Why?  These companies have lost relevancy, and that puts them one short step from failure. 

As company managers, where are you investing?  Are you struggling to be relevant as other competitors - maybe "fringe" companies that use "voodoo solutions" you don't consider "enterprise ready" or understand - are obtaining a lot more interest and media excitment?  You can work all you want to defend & extend your past glory, but as markets shift it is amazingly easy to lose relevancy.  And it's a very, very tough job to play catch- up. 

Just look at the money being spent trying at RIM, Microsoft, HP, Dell, Yahoo............

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Hostess' Twinkie Defense Is a Failure

Hostess Brands filed for liquidation this week.  Management blamed its workforce for the failure.  That is straightforward scapegoating.

In 1978 Dan White killed San Francisco's mayor George Moscone and city supervisor Harvey Milk.  The press labeled his defense the "Twinkie Defense" because he claimed eating sugary junk food - like Twinkies - caused diminished capacity.  Amazingly the jury bought it, and convicted him of manslaughter instead of murder saying he really wasn't responsible for his own actions.  An outraged city rioted.

Nobody is rioting, but management's claim that unions caused Hostess failure is just as outrageous. 

Founded in 1930 as Interstate Bakeries Co. (IBC) the company did fine for years. But changing consumer tastes, including nutrition desires, changed how much Wonder Bread, Twinkies, HoHos and Honey Buns people would buy -- and most especially affected the price - which was wholly unable to keep up with inflation. This trend was clear in the early 1980s, as prices were stagnant and margins kept declining due to higher costs for grain and petroleum to fuel the country's largest truck fleet delivering daily baked goods to grocers.

IBC kept focusing on operating improvements and better fleet optimization to control rising costs, but the company was unwilling to do anything about the product line.  To keep funding lower margins the company added debt, piling on $450M by 2004 when forced to file bankruptcy due to its inability to pay bills.  For 5 years financial engineers from consultancies and investment banks worked to find a way out of bankruptcy, and settled on adding even MORE debt, so that - perversely - in 2009 the renamed Hostess had $670M of debt - at least 2/3 the total asset value!

Since then, still trying to sell the same products, margins continued declining.  Hostess lost a combined $250M over the last 3 years. 

The obvious problem is leadership kept trying to sell the same products, using roughly the same business model, long, long, long after the products had become irrelevant.  "Demand was never an issue" a company spokesman said.  Yes, people bought Twinkies but NOT at a price which would cover costs (including debt service) and return a profit. 

In a last, desperate effort to keep the outdated model alive management decided the answer was another bankruptcy filing, and to take draconian cuts to wages and benefits.  This is tanatamount to management saying to those who sell wheat they expect to buy flour at 2/3 the market price - or to petroleum companies they expect to buy gasoline for $2.25/gallon.  Labor, like other suppliers, has a "market rate."  That management was unable to run a company which could pay the market rate for its labor is not the fault of the union.

By constantly trying to defend and extend its old business, leadership at Hostess killed the company.  But not realizing changing trends in foods made their products irrelevant - if not obsolete - and not changing Hostess leaders allowed margins to disintegrate.  Rather than developing new products which would be more marketable, priced for higher margin and provide growth that covered all costs Hostess leadership kept trying to financial engineer a solution to make their horse and buggy competitive with automobiles. 

And when they failed, management decided to scapegoat someone else.  Maybe eating too many Twinkies made the do it.  It's a Wonder the Ding Dongs running the company kept this Honey Bun alive by convincing HoHos to loan it money!  Blaming the unions is simply an inability of management to take responsibility for a complete failure to understand the marketplace, trends and the absolute requirement for new products.

We see this Twinkie Defense of businesses everywhere.  Sears has 23 consecutive quarters of declining same-store sales - but leadership blames everyone but themselves for not recognizing the shifting retail market and adjusting effectively. McDonald's returns to declining sales - a situation they were in 9 years ago - as the long-term trend to healthier eating in more stylish locations progresses; but the blame is not on management for missing the trend while constantly working to defend and extend the old business with actions like taking a slice of cheese off the 99cent burger.  Tribune completey misses the shift to on-line news as it tries to defend & extend its print business, but leadership, before and afater Mr. Zell invested, refuses to say they simply missed the trend and let competitors make Tribune obsolete and unable to cover costs. 

Businesses can adapt to trends.  It is possible to stop the never-ending chase for lower costs and better efficiency and instead invest in new products that meet emerging needs at higher margins.  Like the famous turnarounds at IBM and Apple, it is possible for leadership to change the company. 

But for too many leadership teams, it's a lot easier to blame it on the Twinkies.  Unfortunately, when that happens everyone loses.

 

Wake Up! Ballmer's driving Microsoft off a cliff!

This is an exciting time of year for tech users - which is now all of us.  The biggest show is the battle between smartphone and tablet leader Apple - which has announced new products with the iPhone 5 and iPad Mini - and the now flailing, old industry leader Microsoft which is trying to re-ignite its sales with a new tablet, operating system and office productivity suite.

I'm reminded of an old joke.  Steve the trucker drives with his pal Alex.  Someone at the diner says "Steve, imagine you're going 60 miles an hour when you start down a hill.  You keep gaining speed, nearing 90.  Then you realize your brakes are out.  Now, you see one quarter mile ahead a turn in the road, because there's a barricade and beyond that a monster cliff.  What do you do?"

Steve smiles and says "Well, I wake up Alex."

"What?  Why?" asks the questioner.

"Because Alex has never seen a wreck like the one we're about to have."

Microsoft has played "bet the company" on its Windows 8 launch, updated office suite and accompanied Surface tablet.  (More on why it didn't have to do this later.)  Now Microsoft has to do something almost never done in business.  The company has to overcome a 3 year lateness to market and upend a multi-billion dollar revenue and brand leader.  It must overcome two very successful market pioneers, both of which have massive sales, high growth, very good margins, great cash flow and enormous war chests (Apple has over $100B cash.) 

Just on the face of it, the daunting task sounds unlikely to succeed.

But there is far more reason to be skeptical.  Apple created these markets with new products about which people had few, if any conceptions.  But today customers have strong viewpoints on both what a smartphone and tablet should be like to use - and what they expect from Microsoft.  And these two viewpoints are almost diametrically opposed. 

Yet Microsoft has tried bridging them in the new product - and in doing so guaranteed the products will do poorly.  By trying to please everyone Microsoft, like the Ford Edsel, is going to please almost no one:

• Since the initial product viewing, almost all professional reviewers have said the Surface is neat, but not fantastically so.  It is different from iOS and Google's Android products, but not superior.  It has generated very little enthusiasm.
• Tests by average users have shown the products to be non-intuitive.  Especially when told they are Microsoft products.  So the Apple-based interface intuition doesn't come through for easy use, nor does historical Microsoft experience.  Average users have been confused, and realize they now must learn a 3rd interface - the iOS or Android they have, the old Microsoft they have, and now this new thing.  It might as well be Linux for all its similarity to Microsoft.
• For those who were excited about having native office products on a tablet, the products aren't the same as before - in feel or function.  And the question becomes, if you really want the office suite do you really want a tablet or should you be using a laptop?  The very issue of trying to use Office on the Surface easily makes people rethink the question, and start to realize that they may have said they wanted this, but it really isn't the big deal they thought it would be.  The tablet and laptop have different uses, and between Surface and Win8 they are seeing learning curve cost maybe isn't worth it. 
• The new Win8 - especially on the tablet - does not support a lot of the "professional" applications written on older Windows versions.  Those developers now have to redevelop their code for a new platform - and many won't work on the new tablet processors.
• Many have been banking on Microsoft winning the "enterprise" market.  Selling to CIOs who want to preserve legacy code by offering a Microsoft solution.  But they run into two problems. (1) Users now have to learn this 3rd, new interface.  If they have a Galaxy tab or iPad they will have to carry another device, and learn how to use it.  Do not expect happy employees, or executives, who expressly desire avoiding both these ideas. (2) Not all those old applications (drivers, code, etc) will port to the new platform so easily.  This is not a "drop in" solution.  It will take IT time and money - while CEOs keep asking "why aren't you doing this for my iPad?"

All of this adds up to a new product set that is very late to market, yet doesn't offer anything really new.  By trying to defend and extend its Windows and Office history, Microsoft missed the market shift.  It has spent several billion dollars trying to come up with something that will excite people.  But instead of offering something new to change the market, it has given people something old in a new package.  Microsoft they pretty much missed the market altogether.

Everyone knows that PC sales are going to decline.  Unfortunately, this launch may well accelerate that decline.  Remember how slowly people were willing to switch to Vista?  How slowly they adopted Microsoft 7 and Office 2010?  There are still millions of users running XP - and even Office XP (Office Professional 2003.)  These new products may convince customers that the time and effort to "upgrade" simply means its time to switch.

Microsoft has fallen into a classic problem the Dean of innovation Clayton Christensen discusses.  Microsoft long ago overshot the user need for PCs and office automation tools.  But instead of focusing on developing new solutions - like Apple did by introducing greater mobility with its i products - Microsoft has diligently, for a decade, continued to dump money into overshooting the user needs for its basic products.  They can't admit to themselves that very, very, very few people are looking for a new spreadsheet or word processing application update.  Or a new operating system for their laptop.

These new Microsoft products will NOT cause people to quit the trend to mobile devices.  They will not change the trend of corporate users supplying their own devices for work (there's now even an IT acronym for this movement [BYOD,] and a Wikipedia page.) It will not find a ready, excited market of people wanting to learn yet another interface, especially to use old applications they thought they already new!

It did not have to be this way.

Years ago Microsoft started pouring money into xBox.  And although investors can complain about the historical cost, the xBox (and Kinect) are now market leaders in the family room.  Honestly, Microsoft already has - especially with new products released this week - what people are hoping they can soon buy from AppleTV or GoogleTV; products that are at best vaporware. 

Long-term, there is yet another great battle to be fought.  What will be the role of monitors, scattered in homes and bars, and in train stations, lobbies and everywhere else?  Who will control the access to monitors which will be used for everything from entertainment (video/music,) to research and gaming.  The tablet and smartphones may well die, or mutate dramatically, as the ability to connect via monitors located nearly everywhere using ---- xBox?

But, this week all discussion of the new xBox Live and music applications were overshadowed by the CEO's determination to promote the dying product line around Windows8. 

This was simply stupid.  Ballmer should be fired. 

The PC products should be managed for a cash hoarding transition into a smaller market.  Investments should be maximized into the new products that support the next market transition.  xBox and Kinect should be held up as game changers, and Microsoft should be repositioned as a leader in the family and conference room; an indespensible product line in an ever-more-connected world. 

But that didn't happen this week.  And the CEO keeps heading straight for the cliff.  Maybe when he takes the truck over the guard rail he'll finally be replaced.  Investors can only wake up and watch - and hope it happens sooner, rather than later.

Sorry Meg, Your Hockey Stick Forecast for HP Won't Happen - Sell

If you're still an investor in Hewlett Packard you must be new to this blog.  But for those who remain optimistic, it is worth reveiwing why Ms. Whitman's forecast for HP yesterday won't happen.  There are sound reasons why the company has lost 35% of its value since she took over as CEO, over 75% since just 2010 - and over $90B of value from its peak. 

HP was dying before Whitman arrived

I recall my father pointing to a large elm tree when I was a boy and saying "that tree will be dead in under 2 years, we might as well cut it down now."  "But it's huge, and has leaves" I said. "It doesn't look dead."  "It's not dead yet, but the environmental wind damage has cost it too many branches,  the changing creek direction created standing water rotting its roots, and neighboring trees have grown taking away its sunshine.  That tree simply won't survive.  I know it's more than 3 stories tall, with a giant trunk, and you can't tell it now - but it is already dead." 

To teach me the lesson, he decided not to cut the tree.  And the following spring it barely leafed out.  By fall, it was clearly losing bark, and well into demise.  We cut it for firewood.

Such is the situation at HP.  Before she became CEO (but while she was a Director - so she doesn't escape culpability for the situation) previous leaders made bad decisions that pushed HP in the wrong direction:

• Carly Fiorina, alone, probably killed HP with the single decision to buy Compaq and gut the HP R&D budget to implement a cost-based, generic strategy for competing in Windows-based PCs.  She sucked most of the money out of the wildly profitable printer business to subsidize the transition, and destroy any long-term HP value.
• Mark Hurd furthered this disaster by further investing in cost-cutting to promote "scale efficiencies" and price reductions in PCs.  Instead of converting software products and data centers into profitable support products for clients shifting to software-as-a-service (SAAS) or cloud services he closed them - to "focus" on the stagnating, profit-eroding PC business.
• His ill-conceived notion of buying EDS to compete in traditional IT services long after the market had demonstrated a major shift offshore, and declining margins, created an $8B write-off last year; almost 60% of the purchase price.  Giving HP another big, uncompetitive business unit in a lousy market.
• His purchase of Palm for $1.2B was a ridiculous price for a business that was once an early leader, but had nothing left to offer customers (sort of like RIM today.)  HP used Palm to  bring out a Touchpad tablet, but it was so late and lacking apps that the product was recalled from retailers after only 49 days. Another write-off.
• Leo Apotheker bought a small Enterprise Resource Planning (ERP) software company - only more than a decade after monster competitors Oracle, SAP and IBM had encircled the market.  Further, customers are now looking past ERP for alternatives to the inflexible "enterprise apps" which hinder their ability to adjust quickly in today's rapidly changing marektplace.  The ERP business is sure to shrink, not grow.

Whitman's "Turnaround Plan" simply won't work

Meg is projecting a classic "hockey stick" performance.  She plans for revenues and profits to decline for another year or two, then magically start growing again in 3  years.  There's a reason "hockey stick" projections don't happen.  They imply the company is going to get a lot better, and competitors won't.  And that's not how the world works.

Let's see, what will likely happen over the next 3 years from technology advances by industry leaders Apple, Android and others?  They aren't standing still, and there's no reason to believe HP will suddenly develop some fantastic mojo to become a new product innovator, leapfrogging them for new markets. 

1. Meg's first action is cost cutting - to "fix" HP.  Cutting 29,000 additional jobs won't fix anything.  It just eliminates a bunch of potentially good idea generators who would like to grow the company.  When Meg says this is sure to reduce the number of products, revenues and profits in 2013 we can believe that projection fully.
2. Adding features like scanning and copying to printers will make no difference to sales.  The proliferation of smart devices increasingly means people don't print.  Just like we don't carry newspapers or magazines, we don't want to carry memos or presentations.  The world is going digital (duh) and printing demand is not going to grow as we read things on smartphones and tablets instead of paper.
3. HP is not going to chase the smartphone business.  Although it is growing rapidly.  Given how late HP is to market, this is probably not a bad idea.  But it begs the question of how HP plans to grow.
4. HP is going not going to exit PCs.  Too bad.  Maybe Lenovo or Dell would pay up for this dying business.  Holding onto it will do HP no good, costing even more money when HP tries to remain competitive as sales fall and margins evaporate due to overcapacity leading to price wars.
5. HP will launch a Windows8 tablet in January targeted at "enterprises."  Given the success of the iPad, Samsung Galaxy and Amazon Kindle products exactly how HP will differentiate for enterprise success is far from clear.  And entering the market so late, with an unproven operating system platform is betting the market on Microsoft making it a success.  That is far, far from a low-risk bet.  We could well see this new tablet about as successful as the ill-fated Touchpad.
6. Ms. Whitman is betting HP's future (remember, 3 years from now) on "cloud" computing.  Oh boy.  That is sort of like when WalMart told us their future growth would be "China."  She did not describe what HP was going to do differently, or far superior, to unseat companies already providing a raft of successful, growing, profitable cloud services.  "Cloud" is not an untapped market, with companies like Oracle, IBM, VMWare, Salesforce.com, NetApp and EMC (not to mention Apple and Amazon) already well entrenched, investing heavily, launching new products and gathering customers.

HPs problems are far deeper than who is CEO

Ms. Whitman said that the biggest problem at HP has been executive turnover.  That is not quite right.  The problem is HP has had a string of really TERRIBLE CEOs that have moved the company in the wrong direction, invested horribly in outdated strategies, ignored market shifts and assumed that size alone would keep HP successful.  In a bygone era all of them - from Carly Fiorina to Mark Hurd to Leo Apotheker - would have been flogged in the Palo Alto public center then placed in stocks so employees (former and current) could hurl fruit and vegetables, or shout obscenities, at them!

Unfortately, Ms. Whitman is sure to join this ignominious list.  Her hockey stick projection will not occur; cannot given her strategy. 

HP's only hope is to sell the PC business, radically de-invest in printers and move rapidly into entirely new markets.  Like Steve Jobs did a dozen years ago when he cut Mac spending to invest in mobile technologies and transform Apple.  Meg's faith in operational improvement, commitment to existing "enterprise" markets and Microsoft technology assures HP, and its investors, a decidedly unpleasant future.