September 2, 2015, 8:21 pm
Like Eve’s apple, is creative destruction a good or bad thing?
Economist Joseph Schumpeter called waves of industry change “creative destruction.” He argued disruption of the current industry structures and companies built a nation’s wealth. Most economists agree, viewing creative destruction as a necessary ingredient for economic growth.
But Schumpeter was writing in 1942. Is creative destruction still a positive force in today’s world? Or are the benefits of creative destruction more nuanced and the costs far greater than Schumpeter argued?
As I reflect on this question, I observe three types of disruptions to markets: new-to-market capabilities, reshaping of the industry value chain, and consolidation. While all three create winners and losers, the net benefits to society differ.
New-to-market capabilities disruptions include examples like the steam engine, the telephone, the electric bulb, genetic profiling, and personal computers, creating industries that allow us to do things previously impossible. When an entrepreneur brings new-to-market capabilities to an industry, especially ones that solve costly problems or enable major increases in productivity, society wins alongside the innovator.
The second example – reshaping of an existing industry’s value chain – has occurred many times in recent years. Walmart and Amazon transformed retail. Google disrupted advertising. Uber and Lyft are more recent examples of value chain disruption. Consumers, in these cases, benefit through cheaper prices and convenient transport. But by replacing (versus adding to) an industry’s capabilities, dead bodies appear. Uber and Lyft hurt cab and town car business owners just as Walmart and Amazon hurt wholesalers, Main Street business owners, and the employees both treated as family members.
My observation is that when an innovation reshapes an existing industry, it often (but not always) gains its initial scale through some twist of the law, network effect, or another advantage. Uber bypassed regulatory costs and employer contributions to social security. Airbnb bypassed hotel taxes, at least for a while. Amazon did not pay local sales taxes for a long time. Walmart grew to dominate when its scale enabled it to import from China and squeeze manufacturers, increasingly dependent on Walmart’s order size. No other retailer could or (in Sears’ case) chose to do the same. Google dominated advertising, shifting dollars from print media, due to network effects.
Without these advantages, would these industry disruptors have gained the scale that enabled them to invest in yet other advantages? Because of the magnitude and speed of their disruption, my hypothesis is that entrepreneurs and investors gain a lot more value than the consumer, workers, or society at large. The situation is akin to an unfair monopoly – which economists cite as bad for society. Look at America’s wealthiest people (Walmart Waltons, Jeff Bezos, Google founders, etc.) to gain a sense of the wealth that industry value chain disruption creates for the disruptors.
The third and last category contains companies that consolidate industries by acquiring their competition. Health insurers like Aetna are acquiring competitors. Fisher Scientific consolidated the biotech tools and services industry, its most recent move the acquisition of $4B Life Technologies.
Where is the value in this kind of creative destruction? Under the guise of “lowering costs to benefit the customer,” consolidators are often using cash to buy revenue that holds up share prices. This action also increases the value of stock options C-Suite leaders and board members hold. Banking executives made fortunes this way, going from local to regional to national then global banks. Often, when you peek behind the curtain of these consolidated companies, you find that the best leaders of the acquired companies left the organization shortly before or after the acquisition. Innovation skills in the remaining team usually plummet. Does it matter? From society’s perspective, I’d argue it’s a bad thing as large companies have capabilities smaller ones lack, and great jobs are destroyed in the process at a time when we lack enough good jobs. This type of consolidation also contributes to the growing inequality in income, which economists argue curtails our long-term growth.
Schumpeter felt (as did Marx) that creative destruction would eventually undermine capitalism’s institutional frameworks, including people’s support for capitalism. As someone who loves capitalism, I fear some days that Schumpeter was prophetic.
It may not be desirable (and would be impractical) to try specifically to limit this type of economic turbulence. But if society is going to foster more true innovation and value creation, then we should take moves to encourage the development of more new-to-market capabilities and technological innovations over consolidations and abuse of laws. As to monopolies from network effects, we need a stronger FTC.
Do you agree with my assessment?
July 8, 2015, 10:46 am
Inconsistency not only creates confusion for customers – it destroys brand equity.
My husband and I had two choices of hotels for our stay last weekend at a destination wedding—Hilton Garden Inn or Best Western. The choice was a no brainer. More on that decision shortly, but first, let’s take a diversion into the history of brands.
My parent’s honeymoon story was a family favorite. Married in Pittsburgh after WWII ended, Bill and Bernie drove to Miami for their honeymoon. The first night, they stopped at a hotel and dad unpacked the car, bemoaning that mom had not packed one (smaller) overnight bag. Mom entered the room, looked around, and then said, “It’s neither clean nor lovely enough.” Five stops later they found an acceptable motel. The process repeated itself the second night. Thankfully, the marriage survived.
It’s no wonder then why Dad rejoiced when Howard Johnson’s motels popped up along turnpikes across America. He always selected them for our family’s one-night stays en route to the family summer vacation rental cottage. As one of the first national brands in the hotel industry, Howard Johnson’s promised clean rooms, a restaurant kids loved, and ample space for roll-away beds. It delivered. To pick a local motel risked a “honeymoon repeat.”
Flash forward to 2015 and the economy is full of national, indeed, global brands. Drive the outskirts of any city and it’s hard to know which city you are in as you pass Trader’s Joe’s, Starbucks, Marshall’s, Macy’s, Marriot, Olive Garden, etc. National expansion resulted in a larger market and economies of scale, both beneficial to shareholders. And we, as consumers, gained simpler choices and lower prices.
But a lot has been lost. Travelers spending twenty minutes in line at Starbucks at the San Diego airport miss the local outlet, Pannikin, with its shorter lines and far better tasting coffee and meal options. Macy’s destroyed the heart of soul of Marshall Field’s and many other regional department stores. Macy stores increasingly look like Sears — disorganized with discount signs everywhere.
The hotel industry is packed with brand names. Many, including Starwood, Hilton, and Marriott, have sub-brands that carve out market niches. It’s a perfect recipe for competition on price among similar-class properties. If you want to win with a national brand – in hotels or any category – you must have a powerful brand promise and deliver on it consistently.
Which takes me back to our no-brainer hotel choice. Best Western’s brand issue is the huge variability around its properties. Some are new and modern, offering a terrific value. Others are old and worn. The local property owners and managers benefit from the brand, as they increase bookings. But we as consumers have no idea what we’re getting when there is so little control over quality. So we have to invest extra time in Trip Advisors to figure out the experience for a specific Best Western property.
Hilton Garden Inn, on the other hand, delivers a more reliable and higher value (despite higher price) experience. The service level is friendly, the properties always up-to-date and clean, the breakfasts fresh and filling, and the exercise room adequate.
The formula for the brand is clear. It’s articulated so well, you can imagine how the business model design, processes, and measures flow directly from promised amenities.
When a brand gets the operations consistently right, they secure an additional differentiated benefit — the prospect of offering a guarantee. Hilton Garden Inn seizes this opportunity by promising, “to do whatever it takes to ensure you’re satisfied, or you don’t pay. You can count on us. GUARANTEED™.” That statement is one powerful hotel value promise.
And our experience in selecting Hilton Garden Inn was exactly as we expected. We left delighted, as did the new bride and groom who wisely chose the same hotel. As to sisters, parents, and a brother at the Best Western, they felt their sore backs returning home after two poor nights of sleep.
June 25, 2015, 5:40 pm
Ignore facts and you place your business at risk.
One of the hardest challenges facing leaders is making decisions in the face of uncertainties. To deal with the discomfort of uncertainty, some leaders turn their assumptions and beliefs into “facts” in their mind. That’s unfortunate. Stick blindly to ill-informed thinking, as some prominent leaders have done, and you’ve doomed your company to decline. Let’s look at some examples.
Ironically, it was a Kodak engineer (Steve Sasson) who invented one of the first digital cameras in 1975. Three decades later, Kodak’s leaders made decisions seemingly based on a belief that digital photography would have a slow uptake, even though by that time digital cameras dominated the marketplace. Why? Digital technology made saving and sharing photos effortless.
Blockbuster believed stores offered the most convenient video rental and purchasing experience. Its CEO turned down an opportunity to purchase Netflix in 2000. “Netflix doesn’t do anything we can’t… do ourselves.” Even if that was true, the company failed to invest in a way that would mobilize or capitalize on that capability.
My observation is that the more confidence you have about your assumptions concerning the external environment, the more likely it is you will be blindsided. And I suspect climate change is creating a long line of business leaders at risk. Case in point: Milwaukee BizTimes recently asked its readers, “Do you believe humans contribute to the causes of climate change?” Only 55% in the poll said yes.
The correct answer is “Yes.” It doesn’t take complicated models to prove mass industrialization increases world temperature. Fourier (1768-1830) discovered the principles of the greenhouse effect from laws of physics. Centuries of actual and derived data trends document the correlation between industrialization, CO2 levels, surface temperatures and rising ocean levels and acidity. Climate systems do adjust to achieve equilibrium, but these natural adjustments work at a far slower pace than we are increasing greenhouse gas emissions (2.3% last year). So nature can’t be counted on to minimize the impacts of global warming. It’s why 97% of scientists (and 57% of adult citizens) believe human activity is the leading contributor to climate change over the last century. (45% of BizTime poll respondents deny human activity is even a contributor.)
Admittedly, climate scientists do not fully understand how clouds, sunspots, and other factors impact a complex system. And it’s fair to note there is a stellar MIT expert in the tiny slice of scientific doubters. Even he agrees that industrial activity is increasing the earth’s surface temperature but predicts a far lower temperature increase than his peers.
When you ignore the fact that your beliefs about your business may be wrong, and you deny facts, you make three mistakes.
First, you miss risks to your business. Surely the executives of Sears Holdings would have made different decisions about resource allocation and investments if they had recognized that maybe, just maybe, people no longer put a high value on finding everything from hardware to appliances to underwear in a single store. Taxes and insurance costs will rise as climate changes. Carbon taxes may be imposed. Are you prepared?
Second, you miss the opportunities the changing marketplace creates. Forward-looking companies like Unilever advance sustainability agendas that lower costs and attract and retain today’s younger talent and customers. Milwaukee’s ZBB Energies exists to address storage issues of alternative energy sources. Companies can make money by selling carbon offsets.
Finally, when we deny the realities around us, we elect politicians who wear blinkers, the headgear that force horses to only see what is right in front of them. House Committee on Science, Space and Technology Committee Chair Lamar Smith (R-Texas) is one. He spent more time in his first year on the job holding hearings on aliens than on climate change. Far worse, he has proposed drastic cuts to NASA’s Earth Sciences research programs. Our nation’s future economic opportunities and our ability to understand and address climate change align directly with our investments in science. And we’ve got a closed-minded leader in a top spot.
The role of a leader is to anticipate changes in the external climate and make sure the leadership team is evolving its business model in light of these risks. In adopting an open mind, you better defend your market position, retain attractive margins and surface profitable growth opportunities.
Believe whatever you want to as a person. One-quarter of the US population (according to a recent NSF survey of scientific literacy) doesn’t accept the earth revolves around the sun. Thankfully, they’re not part of landing a probe on Mars. But as a CEO and business leader, remember that your people, your customers, and I’d argue your grandchildren deserve a reasoned and open mind.
June 15, 2015, 9:36 am
The following post is authored by Bill Kraus, a senior executive in the insurance business who served as Chief of Staff for GOP Governor Lee Dreyfus in Wisconsin. The message is so important I am posting it in place of my blog this week.
Former Governor Lee Dreyfus’s golden rule for politics: Those who have the gold make the rules.
The Wisconsin Democracy Campaign recently published the list of the top 20 “rule makers” in Wisconsin over the last 4 1/2 years [www.wisdc.org]. In total this group contributed $128,691,113 during that period to advance their interests by promoting ideas and candidates or by criticizing opposing ideas and candidates.
Many of the groups interests are obvious. The teachers union is on the list. It won’t be there long, however, since Act 10 shut down its revenue stream. The state’s largest business organization is also on the list. It doesn’t represent all the state’s businesses or even all of its own members, but it isn’t required to disclose which businesses contributed to its political communications. The National Rifle Association is, surprisingly, on the list. Who knew they needed to spend money to get their way.
Most of the spending was by groups with apple pie and motherhood names, including the biggest single spender The Greater Wisconsin Committee which put $27,600,000 into the game. The names We Are Wisconsin, The Club for Growth, Americans for Prosperity, and Citizens for a Strong America are only vague indicators of the interests of these contributing groups. The Democracy campaign’s release reveals a little or a lot about most of these organizations. One large player is the American Federation for Children which is headed by three former speakers of the Wisconsin Assembly and whose agenda is promoting and expanding education by voucher-supported schools.
The side effect of all this spending by well endowed interest groups is obvious. The comparatively small contributions by individuals don’t really count for much anymore. The game is increasingly rigged and it’s rigged to favor big money and what big money favors.
Despite the fact that small money doesn’t count votes are still the ultimate weapon. Votes count even more if they are cast against money and against the ] way the money wants them to be cast.
But to make votes count the voters must know more about the agendas and interests of those who are ruling by money. They also must know if the people they do vote for are really representing them or are beholden to the big money that they believe is what got them elected.
This is not all that easy to find out. The contributors to these monied organizations and interest groups are not disclosed like the contributors to candidates and their organizations are.
Disclosure legislation that is regularly proposed and just as regularly ignored by the incumbents who are the presumed beneficiaries of the golden rule would provide this information to voters
Voters who want to know who is really calling the shots these days can ask the candidates who are asking for their votes whether they support more disclosure from these new rule makers. A caution: only a “yes” answer to this question means yes; all other answers, no matter how positive sounding. like “it sounds good to me” or “my staff is looking into it” really mean “no.”
June 2, 2015, 3:14 pm
With all the attention on start-ups, perhaps it’s time to discuss scaling.
You’ve started your business and survived. Now, what? How do you move from struggling to established to growing consistently and profitably? The answer is scaling, a concept very different from lean thinking. The latter pulls out costs that do not add value. Scaling allows you to reduce the costs of processes that do add value thereby sustaining competitiveness and enhancing profitability.
Here’s one man’s story, that of Barry Fleck, CEO of Patterson Precast Concrete Supplies with whom I recently caught up. Fleck joined Patterson in 1982 when it was largely a manufacturers’ representative organization for manufacturers serving the precast-prestressed concrete industry. This industry designs builds and erects huge Lego-like structures for commercial buildings and concrete sidings that mimic real stone. Years back, I worked with 40 CEOs in this industry, Fleck included.
Fleck acquired the company in 2004 and has since increased its revenue over 5-fold, despite the 2008 downturn when Patterson’s sales, due to industry conditions, fell 45%. Listening to Fleck’s story I identified five important lessons on scaling. Whether you have a new company or a new business within an established company, the lessons apply.
Get the business model right
As a manufacturers’ rep company, profitable growth opportunities were few. By dramatically shifting the mix from being a sales force for other companies to distributing Patterson-branded products, Patterson had a business model that Fleck and his team could grow profitably. 70% of Patterson’s revenue now comes from its branded products, 20% from other brands it distributes, and only 10% from manufacturer representative services.
Focus on a niche where you can develop strong customer relationships
By focusing exclusively on a narrow market, Patterson was able to build stronger customer relationships than larger companies that serve multiple, diverse markets. Patterson’s relationships were critical to identifying new product opportunities and, in price-competitive situations, getting a last chance to counter a lower-priced competitor’s bid to win a price-sensitive contract.
Evolve the business model in light of market changes
Prior to the recession, Fleck anticipated that two major manufacturing suppliers in Patterson’s core category would start selling directly to customers during a downturn. Fleck, therefore, out-sourced from China a competitive line Patterson designed. The line was ready to go market when the suppliers terminated Patterson in 2010 and 2011. Today, Patterson holds the #2 position in this category. The focus on branded products also drove an expansion of Patterson’s offering into other categories and enhanced its value promise.
Build operations you can leverage then leverage them
Technology holds the key to efficiency. According to Fleck, “If you do not make technology investments you become uncompetitive from a price perspective.” Taking advantage of smaller operational needs during the 2008 recession, Patterson consolidated operations from five buildings into one. The savings allowed Fleck to invest in a new ERP and bar-coding system.
During the same time, Patterson acquired whole or part ownership of two companies (Nycon and Kraft Curing Systems) that offered products valued by Patterson customers. The operations technology – as well as marketing and back-office support – became variable costs to the acquired companies who, on their own, could not invest to the level Patterson offered. The acquisitions also created the opportunity for Patterson to sell its current products into complementary markets, such as Ready Mix.
“There is a difference between 20 years of experience and one year of experience 20 times,” shared Fleck. Scaling is like the former. We try to leverage people and processes, using technology to lower our costs and improve our service levels. We also find where our different companies have similar costs or services – like freight, insurance and IT – and combine them together to lower our costs. By scaling across multiple businesses, we can invest at levels direct competitors the size of one of our companies cannot afford. And it makes us more cost competitive against larger corporations while retaining our nimbleness.”
Complementary acquisitions will be a key part of Fleck and his team’s future. Indeed, successive acquisitions offer more revenue and cost synergies than prior acquisitions as they leverage a larger base. Companies like Life Technologies (now owned by Fischer Scientific) in biotechnology and GE Health in healthcare pursued this strategy successfully as they consolidated their industry.
Invest in advantage where it’s cheap to build it
Patterson hired an outsider to build its marketing capabilities into a competitive advantage. Fleck knew that this investment would require less capital but have more revenue impact than investing to build a manufacturing facility. The concept was similar to Apple, which choose a design and operational excellence over owning production assets.
A culture that hires talent and is highly supportive of its talent is also a crucial part of achieving sales/employee performance that is 30% higher than industry benchmarks. Now that Patterson is larger with the leverage of scale behind it operations, Patterson will at last manufacture its branded products, versus relying on contract manufacturers.
What other advice do you have for scaling a business once it’s established?
May 19, 2015, 7:23 pm
This word is important for both an individual and an organization. On an individual level, a calling is the driving force – moving through many roles – that brings meaning or deeper purpose to the totality of your work. I like to think of my calling as my True North. It captures how I put my unique background and skills to work to make a positive difference for others and realize more of my potential.
Goins’ The Art of Work helps you cut through the fog to find your way to more fulfilling work.
I recently read Jeff Goins’ The Art of Work: A Proven Path to Discovering What You Were Meant To Do (Nelson Books, 2015). Better than any other book I have read on the subject, Goins articulates that a calling is unearthed not decided. Furthermore, finding and acting on a calling is work any of us can pursue. But to succeed, we must step beyond the fear of failing and reach for a larger life. We must also avoid looking backward with regret (versus to find lessons), as doing so saps one’s confidence in the potential for a better future. “Who cares what the future might’ve been. It doesn’t matter. It can’t be. This is where we are at, and this is where we’re going,” states one of the everyday people Goins profiles to effectively demonstrate the process of pursuing a calling.
While “the journey looks different for each person,” Goins identifies key themes that consistently emerge in the pursuit of a calling. Here rests the wisdom of the book. The steps on the proven path are:
- Awareness that you can have a larger life and intuiting (from your experiences, reactions, and others’ comments) what life wants of you
- Apprenticeship through people and experiences that give you a hint at your calling
- Practice through intentional effort that teaches you new skills and ignites your inspiration
- Discovery by taking steps that build a bridge towards your calling (versus a leap from one flying trapeze to another)
- Professional, a period of growth in which you learn from failure and pivot past obstacles in order to act more forcibly and productively on your calling
- Mastery in which you apply a calling to a portfolio of activities, some earning and some giving, some learning, and some teaching
- Legacy in which you realize your calling is not just what you do but who you are as a person and what you are leaving behind to others
I cannot recommend this book more highly – for your college-aged children, recent grads, or for you, whether mid-career or ready to move to another career, retirement included. My marked-up copy is now in my 25-year old daughter’s hands.
As I read the book, I could not help but think of the parallels to an organization. All thriving organizations have a purpose or calling. And, like a young person, organizations can have a hard time nailing it down. The drive for survival can move attention from the long term to the short term and from purpose to profits. But organizations that listen for their unique purpose, discuss it regularly, and build a culture that acts on purpose achieve far more of their inherent potential than those that focus on financials alone. Apple, Inc. models how to shape culture to cause. It’s no wonder CEO Tim Cook topped Fortune’s 2015 Best CEOs list.
Goins makes a strong case that a calling is in service to others. So too is an organization’s purpose. It’s vital that in discussing purpose, leaders look past the “for-profit/non-profit” boundary in our minds. It’s not a real wall after all. And the market mechanism is at work on both sides; the distinction is merely about the use of profits.
To unearth organizational purpose and build a successful organization, look first to what a sizeable enough group sorely needs that your organization can best and ideally uniquely fulfill. Then design your organization to address this need.
Non-profits might find earned income approaches to fulfilling a need. Tom’s Shoes provides shoes to the developing world by selling shoes in the US, for example. For-profits might find profitable extensions of their capabilities to address social and environmental issues. The QTI Group, a staffing agency, worked with Goodwill in Milwaukee to place hard-to-employ workers with clients facing challenges in locating low-skilled workers. Unilever’s Lifebuoy magnifies the impact of its germ-killing soap by pursuing philanthropic activities that directly leverage its products and capabilities. It is improving global health and delivering an attractive bottom line.
What are you and your organization being called to do?
April 28, 2015, 7:53 pm
The McDonald’s clown should be said given last quarters financial report.
McDonald’s new CEO, Steve Easterbrook, accepted a huge problem as his to solve. The former darling of the fast food industry is losing customers. First quarter revenues fell 11 percent. And unlike IBM, which uses share buybacks to maintain earnings per share (EPS) growth in the face of declining revenue, McDonald’s EPS plunged over 25%. Meanwhile, McDonald’s ingredient costs, wages, and healthcare expenses are rising, thus making a quick turn-around challenging. As worrisome, franchise owners are rightfully upset.
So what happened?
McDonald’s failed to stay relevant to consumers, forcing the behemoth into catch-up mode. But being late to the party extracts a price. Former customers who had ruled the chain out as it fell behind might consider McDonald’s as a meal option again. But winning new customers’ will require more than closing gaps. McDonald’s is curbing antibiotic use in chickens, for example. It’s raising wages. But announcing the change after Tyson, Walmart, COSTCO, and others have set the standard reinforces McDonald’s as a profit-driven, uncaring laggard. This label is rarely good for a brand.
So what’s changed with the American consumer with whom McDonald’s longer-term issues are most serious? We’re pickier and more informed. Just like the desire for well-designed products moved from Fifth Avenue shoppers to Targét shoppers, food consumers today are seeking higher quality, healthier, and more environmentally friendly choices.
Culver’s Butter Burgers and table delivery won customers in Wisconsin. Chipotle Mexican Grill and Panera Bread have taken market share from McDonald’s in Wisconsin and across the nation. All offer higher quality ingredients and workers who appear to enjoy being of service. Smaller, local and regional burger chains are also growing rapidly and some have national ambitions, like In-N-Out. These chains offer burgers like I remember salivating over at the local burger shop on Main Street next to the miniature golf course in Williamsburg, NY where I lived as a child. (I can still smell those burgers!)
McDonald’s options are limited. Its opportunity to capture the high end (as Toyota did with Lexus) was lost when it foolishly sold its Chipotle shares. Perhaps it could buy a high-end burger chain with its own brand and outlets. There would be a lot of back-office synergies. Otherwise, McDonald’s needs to go back to its strength: a consistently good tasting and fast eating experience (and fun for kids if you want to stay) at an affordable price that meets today’s health demands. It should streamline the menu and make all its choices healthier (versus adding healthy options that only create kitchen complexity). Why is the King of Burgers for example not using whole-wheat (versus white) buns? Delete super-sizing and add Peanut Butter and Jelly on whole wheat bread for kids. And, to attract a new generation, move the tables and add a DJ for 9-12pm teen nights on Friday and Saturday. Teens and their parents will become loyal.
There is a larger story than hamburgers going on here. McDonald’s succeeded by turning fast food into a mass-produced manufactured product. Today, the American consumer seeks more authenticity and less mass-production. Craft is up; large brewery and distillery brands are down. American-made clothing is rising in popularity. Etsy, the global online craft market with 1.5 million active sellers and almost 20 million buyers raised a quarter of a billion dollars by going public. The inside aisles of the grocery store have less traffic, forcing a merger of Kraft Foods and Heinz.
Trends can make your business less relevant if you stick with the same old formula. Starbucks escaped this error by getting rid of its automated coffee drinks, helping it appear more authentic. (But when will it get rid of its stale-looking and tasting manufactured bakery products?) Capturing a trend early — or sensing an unmet need which, once addressed, will set off a trend — will make you look like a cousin of Steve Jobs.
To be fair, McDonald’s might have been lulled into complacency when the 2008 recession made its low cost meals an attractive choice. Post-recession, when taste matters more than cost for many, the brand lost its relevance to enough customers to create declining financials. At some point, fixing McDonald’s will require rightsizing — the corporation, not just the food.
Is your brand remaining relevant? Send an e-mail to email@example.com with WHITE PAPER in the message line. I will send back a white paper I co-authored with Bill Welter of Adaptive Strategies entitled, “How much business model innovation is enough?” The short read will help you keep your brand far more relevant as markets continue to change.
NYT article on franchises
April 6, 2015, 7:10 pm
The Badgers not only produce wins, but also leadership lessons.
(Photo from Beacherreport.com)
Excuse me for wanting to stretch Wisconsin’s glorious victory over Kentucky in the NCAA Basketball Final Four into another day. But I can’t resist. There are business leadership lessons for us to learn.
Kentucky is mostly a one-and-done school when it comes to basketball. Coach Calipari recruits young men ready for the pros to spend their requisite waiting-year in college. According to the coach’s website, “Since the 2008 draft, 24 of Coach Cal’s players have been taken in the NBA Draft, including 17 first-rounders.” For seven straight drafts, he’s produced a top-10 pick, something no other school has accomplished.
Bo Ryan, the coach of the Wisconsin Badgers, has had some future pro players but for the most part grooms the less talented in whom he sees terrific potential and a willingness to play Badger basketball. As a freshman, Frank Kaminsky looked nothing like the Big Ten and AP player-of the year he is today. By focusing on getting the little things right, in basketball and life, Ryan leads players to realize potential they did not know they had.
Two methods. Two terrific teams. Kentucky, some argued, more so this year as they entered their repeat match-up against Wisconsin with a truly rare 38-0 record. They also had five returning starters (an oddity for them).
Watching the game, it was clear the Badgers were the stronger team. They held large leads and regained any they lost. Why? I can’t dissect the game strategy, but I can explore this question as a strategic leadership coach who helps CEOs build winning businesses.
Confidence in your strategy and teammates ignites individual resolution. Who loses his confidence first when a ball keeps falling short of the basket? A player who is part of a team whose methods have been proven, with teammates who have had each others’ backs for years, each one able to rebuild momentum when needed? Or a player on a team built from and largely focused on individual talents?
Yes, individual talent matters. But a system’s success depends most on the alignment of parts not the talents of the separate parts. Give me a sales team that understands and executes a business’ strategy any day over a team of the “best” salespeople.
Agility is an valuable competency. Ryan trains his players to play in different positions. Cross training provided the flexibility his team needed to knock off giants en route to the Final Four. In business, a winning business model strategy is necessary but not sufficient. You also need agility in how to execute as market terrains change unexpectedly. And the more leaders understand each other’s roles, the more collaborative the team.
Culture matters. The Badgers have fun. It’s only a game after all (according to Sam Decker) and their looseness enhances their flexibility on court. Yes, they’re driven to be a national champion, but they want to win with teamwork, not individual talents. It’s why Kaminsky is such a generous player and why he returned for his senior year.
In business, your culture is how your employees experience their work. When it is uncivil, political, uninventive, and all about work with no play or profits at the expense of people, you get the lost opportunities you deserve.
Being presumptuous sets you up for failure. Individual confidence is an empowering force. It encourages you to take shots and to believe, when you lose the lead as Wisconsin did 6 minutes out, that you will regain it. But a few short steps removed from confidence lies presumptuousness.
Presumptuousness fuels arrogance, creating a mindset that makes you blind to your weaknesses. And it would not be hard to apply the adjective to the Kentucky team based on post-game observations of the team and the student body. (But perhaps we should excuse Kentucky freshmen starters whose memory of losing went back to high school.) Without accepting your weaknesses and closing strategic gaps, others can easily disrupt you. Which is what Kentucky defense did to teams all year and what Wisconsin’s offense did to Kentucky – found and exploited the weaknesses in the opponent’s game. For example, Kentucky switches guards. Badgers scored during the switches.
Enron, Tyco, Kodak, Blockbuster, Lehman Brothers, Citibank. These were presumptuous companies. Their leaders (and sadly employees) paid the price. Walker, Christie, Cruz, and Clinton are presumptuous leaders whom I suspect will experience their Kentucky moment.
What leadership lessons did you extract from (at least for Badger fans) such a joyous outcome? What can we learn tonight from Duke versus Wisconsin?
© Plantes Company, 2015
April 2, 2015, 8:13 pm
Are customers cheering to adopt or dump your brand?
Singer-composer Paul Simon’s classic song “50 Ways To Leave Your Lover” is about an emotionally torn man who “struggles to be free” of his wife. He learns, from his mistress, “The answer is easy if you take it logically.” Her advice? “You just slip out the back, Jack. Make a new plan, Stan. You don’t need to be coy, Roy. Just get yourself free.”
Companies usually don’t want to slip out the back, leaving their customers feeling dumped. But companies can unconsciously induce their customers to say goodbye to the company’s brands – in ways as swift and sure as the song’s recommendations.
I won’t bore you with fifty ways, but here are seven sure-fire mistakes leaders make that lead their customers to “slip out the back” or “make a new plan.”
1. Placing profits before people and customer experiences. Financial outcomes are a result – a lagging indicator – of making the right decisions on behalf of customers and the employees who serve them. Nevertheless, too many companies make profits the end-all and be-all. And they pay a price, eventually. Subscribers are exiting in droves as cable companies lose their monopoly status to disruptors like Hulu, Apple, Amazon, and Netflix. Had cable companies invested in terrific customer experiences, they would have retained more customers.
Customers today care about how a company behaves. Yes, people got angry about Starbuck’s suggesting a conversation over coffee about race. But they love that Starbucks’ CFO said the company would gladly give up profits to honor its belief that sexual orientation is not a basis for discrimination in marriage or customer service. Costco customers value Costco’s core values, especially in contrast to Sam’s Club.
2. Ignoring your fans. I am a United Airlines fan. (Don’t ask me to explain. I am.) I regularly give feedback to them and don’t shop for other fares. But when my miles went down last year, United dismissed all my past loyalty (700,000 miles worth) and lowered my privileges. They should have instead offered me inducements to fly more (versus use free miles) this year.
3. Losing your relevancy. Trying to milk an aging business model doomed Kodak, Blackberry, and Blockbuster. Their products and services simply are not relevant to a sufficient number of customers to sustain a business. The Internet of Things will create yet more shake-ups.
4. Offering too much choice. I saw so many versions of Crest toothpaste on the drug store shelf that I finally said, “Goodbye.” I’m feeling the same way about Charmin toilet paper. Nine types? Really? I’ve often wondered if customers select store brands in part because the choices are fewer, saving precious brainpower!
5. Presenting a tired image. Outdated visual imagery and an absence of social media presence in today’s world can suggest your company is not keeping up with the times. You give a new entrant an opportunity to look more vibrant, even if its underlying technology or service offering is not.
6. Changing the sizing. It’s OK for cars and kitchen appliances, even computers, to develop new models. But when my favorite running shoe, hosiery, and bra brands change sizing, it makes me scream. How often do you regret you did not buy two versions of something so that when the first wore out, you had another in your closet?
7. Losing your differentiating value promise. What was once a differentiating brand promise becomes a customer expectation because competitors copy what works. Product quality for example was once differentiating, and now it’s a requirement to be considered. Amazon-like customer experience is quickly becoming an expectation. I purchased Chubb Group insurance as I now live in the land of earthquakes and wanted the best coverage. I was disappointed when my website experience was anything but best-in-class. (My agent said Chubb plans to close the gap, soon I hope.)
The lesson here is that if you are not regularly evolving your business model to deliver more value to customers, you are running the risk of being commoditized. And only one company wins in a commodity-like market, and that is the one with the lowest cost structure.
There are times when you should dump a customer.
The pitfall of the customer-centric thinking is that not all customers deserve your loving care and investments. You must choose which customers to invest in or not. Choosing is strategy, as Richard Rumelt states in my all-time favorite strategy book, Good Strategy Bad Strategy
. Everything else is aspiration.
So here’s my advice when your company is emotionally torn about a customer:
“Hop on the bus” and leave behind crazy-making customers who steal spirit from your staff.
“You don’t need to discuss much” with consistently unprofitable customers. Raise their prices and they will exit voluntarily.
Tell customers in non-strategic target markets that demand things you cannot leverage in your strategic markets to “Just drop off the key.” Find them a better partner than you will ever be.
“And get yourself free.”
© Plantes Company, 2015
March 26, 2015, 10:14 pm
Fax technology and FedEx made working from home feasible in 1989.
In 1989, the CEO of my global employer allowed me to work from home rather than demand I move halfway across the US to be near corporate headquarters. Two technologies made his decision possible: Overnight delivery and an early fax machine. I was the first distributed worker other than our sales and product service representatives.
Flash forward to 2013. I worked for IBM where 45% of its global workforce (and growing) worked from home offices. Those of us already virtual referred to IBM as “I’m By Myself.” We used a shared on-line knowledge base so poorly structured that we often entered the IBM site pretending to be a customer—it was the fastest way to find the information that we needed to complete a pitch deck. Many a day, I thought I was working for a computer, not a company.
Distributed work is an unstoppable trend. But are we ready? My IBM experience suggested not. A recent MIT Enterprise Forum panel I facilitated provided some needed tips on how to deal with this trend.
The panel included three people: Lars Helgeson, CEO of GreenRope (#247 on the Inc 500 2014 list), an international Customer Relationship Management and marketing automation software firm. It has over one thousand clients in 20 countries, served by 18 employees and still no office. Lisa King, Director of HR Operations and PMO for CareFusion, has been involved in virtual teams throughout her long career and within the last ten years exclusively global, virtual teams. The third panelist was Morgan Tracy, the Director of HR at Mitchell International, a leading provider of property & casualty claims technology solutions. She supports a team of one thousand, over half of which work remotely from four countries.
The panel agreed that underlying economics gave rise to distributed work, and the trend is only getting stronger. Mergers and acquisitions created global companies. The Internet and global logistics services accelerated globalization, including in supply chains. Another trend is technology companies seeking to attract the best talent across the globe and keep development projects running 24-7. And workers increasingly desire work-from-home options to avoid commuting, a waste worsened by our nation’s underinvestment in infrastructure.
Is it any wonder then that tools have emerged to manage the geographic spreading of work? Video conferencing, e-mail, chatting, software solutions that replace in-person IT and HR support, mobile computing, and on-line collaboration tools for meetings and document sharing are now mainstays. Collectively, these tools have created a 24-7 work culture that demands still better tools.
But our new way of working raises many disturbing questions. US productivity growth is slowing considerably, despite the Internet’s promises. Are virtual teams less productive? Employee loyalty is plummeting. Is the virtual nature of the company connection to blame? Has our education about teamwork and management kept up with how we work today? Although CEOs site the need for more creative employees, can we create them? Technology allows (perhaps encourages) workers to put in more hours, but creativity demands time away from work. Finally, are the laws governing our workplace — be they about sexual harassment or IP — designed well enough for virtual and globally distributed teams?
The panel felt overwhelmingly that a distributed workforce is a net positive, but managers must work proactively to avoid its pitfalls. Distributed work can result in a singular focus on outcomes, versus relationships and the trust and openness they create. Communications are too often one-way instead of two-way. In face-to-face conversations, awkward silences are often vital, allowing people time to marshal their thoughts and then speak up. Online, silences are often closed quickly with, “I guess that means there are no comments or questions.” Trust is harder to build, as there is less time spent discussing shared aims and interests over coffee and meeting breaks.
The solution is to use the same kind of motivation-building actions that were so natural in pre-digital work settings. Schedule regular and virtual coffee breaks with each employee. Spend time as a team being off-agenda. Check-ins when a meeting starts help. Find out what motivates each employee. Use webcams as often as possible, so people see faces, not just hear voices. Find new measures of success — leading indicators of results — so you can ID a team in trouble and intervene before results decline. Teach cultural sensitivity. Greet people in their time zone: there’s nothing worse than saying “Good morning everyone” to a worker struggling to keep her eyes open before bedtime. Respect work-life boundaries. Rotate who gets the late night and early morning meeting times. Encourage team members to meet each other online, one-on-one. Finally, invest in in-person gatherings. They are not the “icing” so often deleted from budgets when profits are tight: these meetings are essential.
Helgeson closed the session with a challenge: “This is the new way of working. Jump on the wave and master it, or risk becoming obsolete as a leader or company.”
What best practices can you recommend?
© Plantes Company, 2015