You can listen to our conversation here.
I don’t encourage stalking, but where are you, what are you doing, what marketplace have you recently disrupted?
I’m in Chicago today and it is beautiful snowy 35 degree day. We have been looking at a lot of markets lately and helping some people make changes in how they approach fields like education, manufacturing of consumer products and helping them to rethink the origination, creation and management of brands with all of the new technology and social networking.
You are working to disrupt education and manufacturing. One is the foundation of our country and the other is our future.
In both of those areas, we have developed an approach for how we think it needs to be done, but that was created decades ago in a completely different environment, with different technologies. So today, what was once the greatest educational system in the world is no where near producing the best output of students. In the other, we have let mfg dissipate and shift and go to foreign countries. The reason is other people are adopting new things...new processes and solutions and we are falling behind. Our management is still stuck in an old era of industrial thinking.
Let’s talk about your book. I love it. Your writing’s crisp with profiles and data, all organized to support the points. What was your reasonable aspiration or hoped-for goal* with writing this book?
My goal was not reasonable. I started this project about 15 years ago to get my hands around why there were so many business failures. You would think with the tremendous increase in the amount of MBAs we are producing that more businesses would be successful. By every measure businesses are failing more and more. I found that everything that I had been trained in did not hold merit with today’s businesses. The old way of management did not apply.
The basis of competition is different. The source of value is different and how we manage has to be different. We are seeing some role models for change in some businesses. I am on my own personal mission that if we don’t change the way we manage, our entire company is at economic risk. We have market shifts happening as fast as possible: we are all online all of the time now.
People get and share information in a more immediate basis. This is a market shift. In a matter of weeks, things can change and if companies are only focused on “core” they will not see this shift and aren’t able to act and react to the changes. It is about understanding what goes into the market and keeping yourself on the roadway and moving forwards.
How will you know when you have reached it?
We have to look at business failures of both companies large and small. When we see the failures stop; businesses engaging their employees, customers, suppliers and shifting with the market, this will be the change we need to see.
How does your book disrupt the market for books on innovation?
Can we generate ideas and things that are different? Bring them to the marketplace. All of the failure comes from lock-ins to keep us from implementing.
Lock-in: when you are set on doing something in a certain way and it becomes an assumption.
The struggle with innovation is not with ideas. It is when people say that is a great idea but it is not my business. We have to attack this: get people to recognize that it is their own blinders that stop them from going where they want to go. Get beyond your filters and limits.
The purpose of business is to deliver to customers what they want and when they want it. You don’t want to “small down” your businesses, then you only limit yourself.
Your book is about disruption. Your business is disruption, ok in nice company you might say innovation. But really you’re disrupting people’s routines and reward systems, careers and identities, markets and industries And you’re good at it judging by the results and your book.
But in that process you encounter a bit of resistance. Maybe, just a bit. What resistance have you met to the ideas in your book?
Yes- that is why I tell people The Phoenix Principle will keep you growing inevitably forever. To do this it is 4 steps:
1. We have to understand we need to look at the future through the past. How can you do anything if you are only looking at last year? You need to develop scenario plans. Get focused on that. You almost have to create a movie of what is in the future.
2.Pay attention to competition. We tend to only pay attention to ourselves. You have to know what the other guy is doing. You need a real understanding of what the competitors can do to you.
3. Disruption is good.
4. Get involved. Now what do I do? If we think about the traditional methods – it is a waste of time. All of that analysis is all wrong. Nothing works except participating. Get on the field and make a difference.
Whenever we take that 4th step and learning what is happening in the market, we are able to modify our processes, procedures and product lines.
Is this resistance different than the resistance you met with Pizza Hut and opening home delivery stores?
Back in the 80’s Dominos Pizza had been struggling and had filed for bankruptcy three times. They were the first to try home delivery – finding out what was important to the custome fast service was key. Their pizzas weren’t the best, but they were doing great. Pizza Hut was more concerned with doing what they have always done. They had spent a lot of money on being the red roof restaurant, a dine in experience and not willing to change. The owner of Dominos became a billionaire and even has a town in Florida named after him.
You quote the authors of another book whose research found that ‘Built to last” companies regularly and systematically underperform in the market. Looking at over 1000 of America’s largest companies including ATT, Bethlehem Steel Polaroid, Digital Equipment...from 1962 to 1998 only 16% of these companies remained in the top 1000.
What are we missing? That’s a lot of failure to communicate by a lot of people over a lot of time. What’s the one thing they all shared?
The biggest issue is that everybody starts their business approach with how do I defend and extend with what I already know what to do? The only message we have ever received is to define yourself into a narrow area and be excellent at it. All this does is to ignore the fact that we are in a marketplace with a bunch of competitors and while we are busy trying to be excellent, they are finding out whole new ways to compete. People forget how they are going to evolve with new technology and changes. They have to see what shifts are out there.
What is Schumpeter’s Creative Destruction and why should business’s care?
He said all businesses end up in failure. There are competitors out there that go head to head and destroy each other. Then as they destroy each other, you get down to a handful of competitors and then this locks them in: like Ford, GM and Chrysler. Then innovators come along and they don’t compete the same way. They come out with a different approach. They are more creative using new technologies and systems which destroys the value of the other competitors. If we didn’t have this, we would have a Soviet world of central planning.
What did the 16% of those largest companies see differently that let them stay in the top 1000?
Again one of the critical issues of how they managed their planning process, they were planning from the past. These companies thought about what the marketplace would look like in three years.
What would happen to make their markets go away?
What new markets are emerging that I don’t compete in?
They start with the future then it is: how do I get there?
What is the fallacy of the S-curve theory of business lifecycle and why is it now accepted as dogma.
The reality is that it comes from how viruses propagate. A couple of Harvard Business School professors said that you can grow your business if you merely launch variations and extensions of your products. This became innovation but it doesn’t work. We now can look back over the past 50 years, it just doesn’t work. It really drives margin down. To jump the curve you have to have different business opportunities and white space.
What are the 5 stages of a business lifecycle reality?
- Infancy (Wellspring)
- Adolescence (Rapids) The market that is growing. You are with the current. Growth Market shifts and then:
- Maturity (Flats)
- Decline (Swamp) You hit the flats. The current slows and you stall. You are defending and extending. There is no more current. You are going nowhere.
- Old Age (Whirlpool) you disappear.
This is what happened with GM. The vast majorities are in the swamp – fighting for survival.
Where is our economy, right now?
As an overall economy, we have to realize we just finished the worst economic decade in the history of America. Many people don’t understand that.
Most people are looking at the world through a very short term lens. This is a cyclical change. The competition has shifted: things are different now. It is about delivering value and meet people’s needs.
Our economy is definitely in the swamp. We are stuck. We might get short term improvements. The question becomes how long can we continue to hold us in place. We have to change the way we compete and pay attention to the companies that are doing well. They are thinking about the future; how markets are developing.
Let’s talk about identity and strategy. I’ve read and blogged links to those articles that report that 80% of employees don’t care, have no idea what their strategy is and if they do they think the tactics will fail.
Success formulas are about your identity, strategy and tactics.
Consultants are bad about this. The first thing a consultant will tell you is to change your tactics. Then they say to change your strategy. These don’t help the company grown.
The starting place was identity: what the business is and what they sell. When you find yourself in these shifting markets, you have to question your identity. You have to address identity and attack it. Be willing to disrupt it to make yourself into something new and different.
Do you agree? How does a company sustain itself much less disrupt a marketplace if 80% of their employees don’t care?
People start thinking that employees are the army and they have to do what the general tells them to do. So we build those cultures. People go to things that make them comfortable- things that work.
Engagement works when you ask the people what they want, what they need to know. You will change when you are attracted to change. We have to get people engaged.At what stage of the lifecycle is lock-in an asset and at what stage is it a liability?
What are signs that signal your company has begun moving from the former to the latter?
When you are in rapid growth you need to improve your execution. The winners in the high growth phase will demonstrate execution skills. Those lock-ins are good. It becomes a problem when you are making decisions to preserve it. Anytime you make decisions that are based on the short term to protect how you do business today, you have a lock-in problem because you are making decisions to preserve lock-ins and not what is happening in the market.
You write that the dark side of success, defend and extend management, is the practice of reacting to business challenges and threats through the lens of historical practices.
I know we have to look forward. But, how realistic is it to expect people to NOT review threats through their lens of experience?
It is realistic to do, but you have to change the way you do things. We take feedback from customers and sales people, marketing and product development, but all these people have a lens. What we don’t do well is have a strong support system of external inputs. Many companies are cutting back and saying they don’t have money. They have just taken those independent eyes and ears and removed them. You need someone on the outside who don’t wear your lens. You need honest feedback.
What are three steps a business leader can take to avoid the dark side of success?
1. Who do you have as your advisors that are willing to challenge the way you think? Who will advise them, not patronize them.
2. Start spending time on thinking about the future.
3. Talk about the competition.
What is the Phoenix Principle for Business Success?
Disrupting lock-ins and utilizing white space is the Phoenix Principle I’s not about a one-time re-engineering, or rebirth. It’s about creating an evergreen business model, with a culture of enthusiasm, engagement, creating great places to work and partner with customers and vendors.
If you follow the 4 steps of PP, it always works. It is about keeping you in the market, aware of competition and it is all about growth. If you are thinking of the future, the marketplace, being in the whitespace, you are going to win.
What are the 4 steps of the Phoenix Principle?
- Stop the Defend and Extend management
- Attack your competitors’ lock-in
- Implement disruptions that overturn lock-in
- Implement white space to create a new success formula.
I have this idea that Defend & Extend exists because of ill-conceived rewards.
How does a management team disrupt and change rewards that encourage D&E?
We do have to address executive compensation. It is hurting our companies. This whole explosion of giant bonuses needs to be realigned. There is not much you can tie the compensation to. You have to manage the inputs and get away from the bonuses.
Thank you for the book. It was an excellent book! Thank you for the time to talk about your book and your very important solutions.
You can find Adam on the web at:
Twitter: Adam Hartung