Phoenix Principle Leadership – CIOMagazine & IT Leadership

How to Improve IT Performance and Deploy Technology
Faster

The “White Space” approach to innovation helps
to cut the time and cost of deploying new technologies.

That's the title of my first column, published yesterday, for CIOMagazine.  The four steps of The Phoenix Principle are as valuable inside a function as they are for running an entire business.  And for IT shops, the value of using White Space to implement new technologies and solutions is extremely valuable. 

This article overviews  how world class IT shops avoid getting stuck with most of their budget tied up supporting legacy (and aging) solutions by using White Space to keep their technology base, and user support, ahead of competition.  And the more they use White Space, the better they get at leading their companies to faster market reaction and superior rates of return.

Give it a read, you'll find it valuable for any function hoping to be an industry leader.

Here's a one minute video on the value of White Space – and how leading companies like Google master this capability:

Pay Attention to “Fringe” Competition – CraigsList, Google, Tribune Corporation

"CraigsList is for hookers."  That's what the General Manager at the Los Angeles Times told me in 2005.  In a meeting to discuss the newspaper's future profitability I pointed out that 1/3 of his newspaper's revenues came from Classified ads, and I had asked him if he was concerned about CraigsList.com.  As you can tell, he was not. 

At the same time, I asked him if he was concerned about on-line ads and the Google placement engine undermining his display ad business.  He assured me that the internet was all for bloggers and no reputable news reader would pay much attention to on-line news.  So no, he wasn't worried about internet competition to the newspaper sucking away this advertiser base.  He just needed to keep old customers focused on the value of newspaper ads.  In less than 6 months GM removed 70% of its newspaper ads – shifting all the money to on-line advertising – leading the auto pack on-line.  And movie companies moved nearly 75% of their newspaper ad budget to on-line, while more than half of real-estate ads went on-line.  Those happen to be the top 3 sources of display ad revenue for newspapers.

Today Tribune Corporation is in bankruptcy, and classified ads have dropped to a trickle for all major newspapers.  Meanwhile, things are going pretty well at CraigsList and Google:

Source: Business Insider

As can be seen, revenues per employee are phenomenal at CraigsList, and extremely good at Google.  Much better than at the Tribune Company newspapers such as the Los Angeles Times and Chicago Tribune – despite them shedding a high percentage of employees over the last 7 years!  

According to Gavin O'Malley, at OnlineMediaDaily of MediaPost.com in "CraigsList Revenues Soar: But Problems Loom" revenues at CraigsList may exceed $4M/employee/year!  Margins he asserts are in the range of 75-80%!  And revenues, while still small at about $125M, are growing at 25%/year (for what everyone thinks of as "free.")  Albeit, this is a small business.  But what if Tribune Company had paid attention back 5 years ago and invested hard in creating the world's best CraigsList – rather than ignoring it?  What would the possible revenues be today?  And margins?  And impact on Tribune Company growth in revenues and profits?

Most companies do only a surface analysis of competition.  They are so busy listening to, and reacting to, big customers it's all they can do to keep operations going and make the marginal changes to keep big customers happy.  As a result, maybe they look at 2 or 3 of their most similar competitors (like other newspapers in the local market for our example.)  And that will be cursory, examining total revenues, perhaps margins (if public and data is available) and a quick glimpse at impact on existing customers and any new products recently launched.  But overall, very little attention is paid to competition.

And practically none is paid to "fringe" competitors.  Those with different business models.  Polaroid ignored digital camera manufacturers (despite licensing them technology) until Polaroid went bankrupt.  Digital Equipment (DEC) ignored AutoCad – calling their CAD/CAM products "toys." Wang and Lanier said no big company would use a PC, rather than an integrated centralized system, for corporate word processing so they discounted Apple and Microsoft.  Motorola largely ignored Apple in mobile phones, even after doing a joint venture with them to create and launch the RoKR.  Failure lists are strewn with companies that simply ignored "fringe" competitors – saying they didn't understand the industry, the customers and how "the business works." 

Large or small size is not important when studying competition, it's the ability to change how customers buy that is important.  As we've seen in the case of companies like Google, Apple, eBay and Amazon we can see that fringe competitors can grow extremely fast.  They can alter the competitive landscape quicker than almost any traditional corporate planning group will give them credit.  Just ask the folks at Sears or Home Depot about he impact of Amazon and other on-line retailers (do you think either of those traditional retailers have anywhere near $1M revenue/employee like Amazon?)  Or ask Merrill Lynch about the impact of Schwab, eTrade and ScotTrade. 

The second step in The Phoenix Principle is to obsess about competition.  When you're "the big gun" in the industry it can be incredibly easy to ignore fringe competitors.  But do so at your risk.  When profits are something like $2M to $3M per employee (as in the case of CraigsList) there is a lot of resource to invest in growth.  And strong indications that the business is able to very profitably grow!  Ignoring "fringe" competition – especially because you are focused on existing large customers who are Locked-In to your Success Formula – leaves you remarkably vulnerable to rapid market shifts and a really fast demise.

Video:  Listen to Competitors

Phoenix Principle Power – Microsoft Stalling, Apple Growing

When will Apple have more revenues than Microsoft?  How about later this year?

Source:  Robin Bloor, Bloor Group, Reproduced in SeekingAlpha.com

Many of us remember the first Apple vs. Microsoft battle.  Apple pioneered much of the personal computer business, and led the innovation curve for years with its implementation of the mouse and on-screen graphics.  But eventually Microsoft successfully copied the innovations with Windows, and went on to drive Apple to the brink of bankruptcy at the turn of the millenium.  At that time, it was inconceivable that Apple would ever challenge Microsoft for sales domination.

But the impact of a decade of Defend & Extend Management has left Microsoft with little to no growth.  Its growth in operating systems now looks like it has been a single quarter event, with the OS7 launch which has done little to drive new PC sales.  Meanwhile, office automation products actually saw a net decline in revenue year-over-year last quarter.  Signs of a growth stall are imminent for Microsoft – and we all know that fewer than 8% of companies ever consistently grow at a mere 2% once revenues stall for 2 consecutive quarters.

It's not often we see a big company stall, and then falter.  But I've been predicting this for months through this blog.  Microsoft has been working at Defending its "base" but it has done too little trying to enter new markets and find growth.  As people shift to mobile devices – from the smartphone to ereaders – Microsoft simply is seeing its "base" in the PC market threatened.  How many PCs will be purchased in 2015?  Versus how many smartphones or iPads (there will be 12million iPads sold in 2010 alone). 

This inability to maintain growth translates into serious value deterioration for investors.

We now can see that Apple is entering new markets, and gaining revenue at 20-40% per year by moving beyond Defending the Mac.  Because Microsoft has not done something similar, preferring Defend & Extend Management applied to old markets rather than applying The Phoenix Principle and getting into new markets aggressively, not only is its revenue superiority threatened, but Microsoft most likely will have a lower market capitalization than Apple within a few months

If it seems like I'm beating this horse — well it's not often we see the kind of changes happen to competitors in such short time as we're seeing happen to Microsoft and Apple.  It takes more than a little courage to predict the demise of a behemoth (see "Microsoft's Dismal Future" at Forbes.com) that has had near-monopolistic power in a market the way Microsoft has. 

More importantly, more companies are behaving like Microsoft in 2008-2010 than acting like Apple.  And that is a shame.  Until management teams reverse their thinking, how can we expect America to successfully return to high industrial growth rates and job creation?

There is little about Microsoft to excite investors.  I'd go so far to say that there's little more exciting about Microsoft than there is at General Motors, or AIG.  These companies are huge, and were once great, but unending defense of their outdated Success Formulas is leaving them extremely vulnerable to decline and failure.

In the end, you have to ask yourself – do you want to be Microsoft in 3 years, or Apple?  Do you want to be working hard to maintain revenues and valuation – or growing and driving higher value?  I think most of us know which is better.  It's time we start

1. using scenario planning to develop future plans
2. obsess about competitors so we learn better ways to compete
3. implement Disruptions to move our businesses into growth markets and
4. use White Space teams to help us update into new Success Formulas. 

Companies that follow these 4 steps of The Phoenix Principle can expect to have a great 2011. They can perform like Apple, Google, Cisco Systems, Virgin, Nike, Johnson & Johnson.   For everyone else, we can expect growth stalls and, well, …..

White Space overcomes D&E – Apple and Microsoft

Apple's most recent earnings surprised almost everyone, to the topside. At SeekingAlpha.com "Apple Soars: Is this a Great Country or What" the author points out that all analysts are now calling for Apple's equity value to continue increasing.  Most expect prices to achieve $330 – $350/share.  Right now Apple is worth about $235B.  At $330/share it is worth $300B.  Microsoft is worth $273B.  That means within the next few months the expectation among investors is that Apple's value will eclipse Microsoft's.

Why?  Because Apple has much faster growing revenue sources than Microsoft.  Despite a plethora of products, Microsoft still depends for sales and profits on PC operating system and office automation products.  And that market simply isn't growing.  Even Microsoft optimists are depending upon a "PC replacement cycle" to drive more sales rather than any real growth in demand.

While Microsoft has spent the last decade Defending & Extending (D&E Management) its PC business, its value has been flat.  Meanwhile, Apple has developed other revenue sources:

Source:  Silicon Alley Insider

In 2000 Apple relied on Mac sales.  But now, it has 2 businesses that are as large as the computer business. While defending the Mac business has maintained its sales, using White Space to launch other businesses has more than tripled Apple's revenue.  Today the iPod/iTunes business is as large as the Mac business, and the iPhone business is as large as well.  Both are growing.  And with estimates that already a million iPads have been sold – with some estimates of reaching 6 million units in 2010 – who knows how big the publishing business could become for Apple. 

As SeekingAlpha.com points out in "Everybody Loves Apple but Who's Left to Buy It" there are ample reasons to forecast substantial revenue and profit growth for Apple – causing it to lure many more investors to own the stock.  Not only hardware sales are going up, but in both the music and smartphone business Apple has the envious draw of pulling follow-on download sales – songs, videos, and apps.  Thus, each device pulls a series of ongoing revenue bites. 

Readers should also note how fast this has happened.  What has happened to your business in the last decade?  In the last 3 years?  As we can see, Apple created a $20B/year business since 2007 just in the iPhone.  Another $16B/year business in iPod/iTunes during the last decade.  That's over $36B/year of revenue from new sources, all organic (no acquisitions) in under 10 years.  And that's the power of White Space.  Instead of planning how to defend an understood and predictable market (like Microsoft) Apple studied new market needs, then launched a product and gave the team Permission to do what it took to succeed – unencumbered by the  history of the Mac, or Apple or any of the Lock-ins that were part of the old Success Formula.  This White Space teams then spawned revenue streams that are envied by everyone.

My recent Forbes column (Microsoft's Dismal Future) portended this week's earnings announcement and the changing fortunes of these two companies.  Lacking White Space, Microsoft is an uninteresting company with limited growth forecasts and negligible value growth.  By using White Space Apple is growing much faster, and will soon have a higher value than "the world's largest software company." 

Effective use of scenario planning, competitor analysis, disruptions and White Space can launch growth in any company.  You don't need a "hot economy" to generate growth.  And Apple has been demonstrating this quarter after quarter for nearly a decade – with several more good quarters coming.

Compete to Win – Bloomberg, Wall Street Journal, News Corp.

News Corp. executives (and shareholders) need to be worried.  Really worried.  While they are busy trying to Defend their newspaper approach, including the planned move to charge everyone a subscription fee to access the Wall Street Journal on-line, there is a competitor ready to eliminate them.  Of course, if you've read the WSJ for years you may think this sounds ridiculous.  This competitor is vying to do the same to the Financial Times, a newspaper much more popular in Europe than the USA, which already charges for on-line access.  But this competitor is serious, and just might pull it off.

According to BusinessInsider.com, "Bloomberg Redesigns Web Site as it Tries to Kill Journal."  Hiring an executive from Yahoo, Bloomberg News is "pulling the gloves off" and preparing to take on old-line competitors as it steers a course to being #1.  And the odds are looking good for its success.

The market for business news has been shifting for years.  Once this market was dominated by two delivery mechanisms.  One was very expensive, costing thousands or hundreds of dollars per month, driving information to terminals sitting at desks of traders and brokers.  The other was a daily reporting of business news through the traditional business newspapers mentioned above.  Both businesses were very profitable.

But today, almost everyone can get almost everything the expensive terminals had simply by scanning the web.  And if you can get news real-time, why wait until tomorrow?  News Corp. bought Dow Jones and has been trying to Defend the terminal business, in the face of intense Bloomberg competition for traders desks and much lower cost competition for everyone else.  In an effort to shore up the P&L at Wall Street Journal the company has announced it will reverse all industry trends and start charging for WSJ content on-line.  They still haven't figured out how to effectively take advantage of Marketwatch.com as a viable delivery mechanism for WSJ content.  An admission they don't know how to develop a robust advertising model on the web and mobile devices that will support the publication.

Don't forget, News Corp. was early to the on-line world with its acquisition of MySpace.com.  But instead of letting the people who run MySpace.com do what they needed to do to become Facebook – or possibly to become the next Marketwatch.com – News Corp. leaders interceded.  They helped "manage" MySpace and applied News Corp. Success Formula parameters to it.  MySpace was not allowed to operate as a White Space project.  Now MySpace is a narrow site mostly for musicians and artists – missing the big opportunities in social media, business/financial news or even traditional news dissemination.  Had it been given permission to do whatever it needed to succeed, permission to create a new Success Formula, who knows what MySpace might have become?

Today's marketplace will not produce acceptable returns for the old Success Formula.  But the value of good business news is growing, as all investors want to know what traders know as fast as they know it.  And that is where Bloomberg.com is headed.  It is squarely directed at building a new business that is advertiser supported which will deliver the right news to the right place fast enough to capture those who want business news.

Bloomberg is now running 2 separate businesses.  They continue to allow the terminal business to work hard as possible at defending its turf.  Simultaneously they have established a White Space project that is designed to eventually obsolete the old business.  In the process they will cannibalize the terminal business.  But they also will very likely drive less agile competitors Dow Jones and Financial Times out of business.  In the process they could capture significant ad dollars while learning how to dominate the mobile device market as well as the traditional web.

When markets shift, nobody can win by trying to Defend the old.  Customers move on, and they abandon old solutions.  Returns decline.  The winner has to use Disruptions to overcome old Lock-ins to do whatever is necessary to profitably grow!  (like having a web site that looked like an old terminal screen with amber text on a black background) and establish White Space with permission to do what is necessary to succeed! Even recognizing this may create cannibalization – but in the process learning how to earn high rates of return while crushing competitors.

Kudos to the management at Bloomberg.  They are going for the jugular in the business news marketplace, and doing so by moving where the market is headed – while other competitors are trying to Defend & Extend old ways of doing business.  It may not take Bloomberg long to create serious damage to the old institutions in business and financial news.

Crossing the Re-invention Gap – News and Chicago Tribune

Is news dying, or are newspapers dying?  That's a critical question.  Most of us know the demand for news is not dying – and if you needed reinforcement a recent McKinsey & Company study verified that the demand for news has increased (McKinsey Quarterly "A Glimmer of Hope for Newspapers").  And a lot of the increase comes from people under 35 who are escalating their news demands.  Of course, most of this increase is coming from the web and mobile media.

Too often, however, we don't see our business growing.  Instead, Lock-in to old definitions make us think our business is shrinking when it is actually doing the opposite!  And that's the Re-invention Gap.  Manufacturers of small printing presses said demand was declining in the 1970s, when in fact demand for copies was exploding.  Only the explosion was from xerography instead of presses.  So A.B. Dick and Multigraphics, small offset press manufacturers, went out of business when demand for the output of their product was exploding!  The market shifted, but it kept growing, and they missed the shift.

Today we see this behavior in most news publishers.  Those who print newspapers and magazines are talking about how horrible business is.  Only the demand for news is growing more quickly than ever.  It's just not demand for print, which arrives too late for many customers.  And because print is too slow a distribution method for these customers, advertisers are abandoning print as well.  But only if you're Locked-in to printing do you say the market is horrible.  Because with demand for news growing, if you reposition yourself to serve the growing part of the market you should say business is great! 

Tribune Corporation, owner of The Chicago Tribune newspaper is still in bankruptcy.  And its future relies entirely on how well it will serve the needs of on-line news readers.  According to Crain's Chicago Business, in "Former Sports Editor Bill Adee Steers Chicago Tribune's On-line Strategy" print advertising revenues fell by 9% versus last year in the most recent quarter.  And according to a quoted investment banker, nobody would have much interest in the value of a print newspaper.  That business is destined to keep declining.

But simultaneously the volume of on-line ads tripled!  And that's what a business has to do to cross its Re-invention Gap.  It has to move from the old business into the new business – from the declining elements of its business into the growth elements.

What most businesses do wrong is try to apply their old business model to the new business.  The old Success Formula has Lock-ins to metrics, schedules, processes, frequent decisions, decision-makers, strategic plans, etc. which the leadership tries to apply to the new business.  For example, most newspapers are used to selling ads for several thousand dollars, based upon the number of subscribers.  These are pretty large price points.  But on-line, ads are sold per page view or per click.  Now we're talking pennies sometimes.  And to make money, you have to get a lot of views. Likewise, newspapers work on a 24 hour cycle of news accumulation and publishing, whereas the internet is 24×7 with the opportunity to change headlines and what's reported continuously.  If a newspaper tries to apply the old Success Formulas related to sales, pricing and editorial process they fail.

And that's why crossing the re-invention gap requires a big Disruption.  You have to get the organization to understand that while you are managing the old business, it is destined to eventually go under.  So you have to be prepared to Disrupt the Lock-ins, to discover a new way to do the business.  And that can only happen if there is a White Space team dedicated to building a business the way the new marketplace will pay for it.  Totally separated from the old business.  And exactly the opposite of what Tribune is doing by placing the team in the middle of the old newsroom!

At Tribune, one of the big problems is not only the ad pricing model and news scheduling, but the fact that the leadership is still trying to drive content like they did at the newspaper.  Over a decade ago Tribune took a direction of accumulating less news on its own, and as a result it republished lots of content.  But now on the internet republishing (or content aggregation as it is called on-line) is far less valuable because readers can go to the source.  There are thousands and thousands of aggregators – making competition intense and profits negligible.  Why page view a Chicago Tribune web page that's feeding info from the New York Times or Marketwatch or MSNBC when you can go directly to the New York Times or Marketwatch or MSNBC and get it yourself – possibly with other interesting sidebars?  Succeeding in the new market requires developing an entirely new Success Formula – which Tribune Company has not done.  It's still trying to find that magical "leverage" which will allow it to preserve its "history" (its old Success Formula) while tiptoeing into the new marketplace.

I don't know any newspaper or magazine publisher that has really attacked its Lock-ins, really Disrupted, or set up a true White Space team to explore how to make money in the growing new news market.  News Corp. had the chance when it bought MySpace.com, but failed as it destroyed the MySpace business by "helping" its leadership.  This market requires understanding how to get the news and report it cheaply and very fast, to computer and mobile device users.  That is necessary to obtain the traffic which would be valuable to advertisers.  And simultaneously the new team must package ad sales so as to maximize revenues from page views.  Most are far too reliant on single ad sales, and not effectively linking the right ads to the right pages to generate more click-throughs as well as views.

Re-invention Gaps emerge because we let Lock-in blind us to growth opportunities.  We define the business around the Lock-ins (such as printing a newspaper) rather than defining it around what the market wants (news.)  Then when revenues stumble, starting a growth stall, the energy goes into preserving the old Success Formula (and its Lock-ins) first with cost cuts, and later with efforts to "synergize" or "leverage" the old Success Formula into the new market.  And this never works.  The growing part of the market is entirely different, and requires developing an entirely new Success Formula.  That's why even in growing markets businesses fail, unless they commit to Dis
rupting the Lock-in and using White Space to move back into the growth Rapids.

More Microsoft in the Soup – Harvard Business Review getting it wrong!

Hi, two readings recently have really surprised me.

Firstly, Dawn Beaupariant from the public relations firm Waggener Edstrom contacted me regarding my Forbes column.  I learned this firm is the PR agency for Microsoft.  They took exception to my Forbes column ("Microsoft's Dismal Future").  But not because any facts were inaccurate. 

Rather, it was their point of view that because OS 7 is now the largest selling OS of all time that demonstrated it was a successful product.  Of course, when the television standard was changed in the USA to digital and everyone had to transition set-top boxes those also became big sellers.  But it wasn't because everybody wanted the new product.  More, it was the impact of a monopolist.  We all know Microsoft has had a near monopoly in PC operating systems (even though every year it is losing share to Linux), so the fact that they can force people to use a new one on new machines, or upgrade, is less than an enthusiastic market endorsement of the product.  For every "reviewer" who likes OS 7, there are 100 users saying "this gives me bells and whistles I don't need or want, and complicates my life.  Can I simply keep my old product, or do my work on my smartphone?"

The Forbes column didn't debate whether Microsoft was likely to remain dominant in PC operating systems – that is a foregone conclusion.  The issue is that markets are shifting away from PCs to mobile devices.  And Microsoft has lost 2/3 its market share in mobile operating systems.  And it is not developing a strong product.  If people keep shifting from PCs to Blackberry's, iPhones and Androids – and PC sales start declining – in 10 years Microsoft could dominate PC OS sales (and Office applications) but it may not matter.  Too bad the PR firm didn't get that.

Secondly, the PR firm claimed that Microsoft could put forward new products readily, leading to capturing dominant share in new markets.  Their one claim that Microsoft had accomplished this was xBox.  The PR person conveniently ignored the smartphone market, the Zune-style handheld market, the market for mobile applications (where Apple sold 2billion apps in its first 18 months), the search market (where Microsoft lags Google and would be nowhere without picking up Yahoo!'s declining business) and a host of other markets where Microsoft simply let the horse out of the barn.

To make matters worse, as Microsoft has invested to Defend the PC operating system and office products business, xBox is losing market share (exactly the point I made in the article – using the smartphone example instead)! According to IndustryGamers.com "PS3 'Steadily Increasing' Market Share Across the Globe" (Feb, 2010). Bad pick Dawn!

• The PS3 is dominant in Japan and Korea, and as of June 2008, has begun
  to outsell the Xbox 360 in Europe. It is also steadily increasing its
  market share in all other regions across the globe, including in the
  North American market
• PS3 sales have been surging (44%
  over the holidays) and SCEA senior vice president of Marketing and
  PlayStation Network, Peter Dille, recently insisted that PS3
  will eventually overtake Xbox 360

Most commenters have reflected my viewpoint, saying that they see Microsoft so horribly Locked-in to its old business that it is almost GM-like in its approach to new products and markets.  Not a good sign.  Those who defend Microsoft simply take the point of view that Microsoft is huge, has high share in PCs, and is very profitable in OS and Office Product sales.  Wow, just like people defended GM was in the 1970s comparing to offshore competitors!  These defenders completely miss the point that the marketplace is now rapidly shifting to new solutions, and the companies driving that shift with the most product are Apple, Google and Research in Motion (RIM)!  Microsoft may look like Goliath, but it would be foolish to ignore the slings of new technology being brought to the battle by these David's with their smartphones, Chrome O/S, mail products, etc.

I was struck this week at the backward thinking offered on the Harvard Business Review blog posting "Is This Innovation Too Disruptive for My Firm."  The author justifies companies sticking to their defensive positions, just as Microsoft is doing, simply because most companies fail at moving away from their "core."  He seems very content to offer that since most companies can't really move into new markets well, so they might as well not try.  Exactly what they are supposed to do as revenues dwindle in their "core" markets he never resolves!  I guess he'd rather management simply not try to grow, and go down valiantly with the sinking ship.

Quite concerning is that he takes up the mantle of "core capability."  He points out that most of the failures happen when companies move away from their "core" and therefore he recommends that all innovation remain close to the "core."  His big argument is that this is lower risk.  Well, Xerox remained close to core with laser printers – and how'd that work out for long-term value growth?  Apple remained close to its Macintosh core and was almost bankrupt in 2000 before jumping into music and smartphones.  Polaraoid stayed close to its core of instant film photography, and Kodak stayed close to its similar core.  Now one is erased from the marketplace and the other is a no-growth inconsequential competitor. 

Analogies are risky, but here goes.  For the HBR author, his arguement isn't a lot different than "Over the last 200 years we've noticed that ships which sail out past the horizon often never return.  Therefore, we recommend you never sail beyond the horizon.  Clearly, this is risky and returns are uncertain – so don't do it.  Ever.  Very likely, there is nothing out there you will ever capture of value."  Sort of sounds like those who wouldn't back Columbus – good thing he finally convinced Queen Isabella to give him 3 ships.

In 2008 and 2009 we've seen many great companies driven to bad returns.  Layoffs abound.  Growth has disappeared.  Listen to HBR, and behave like Microsoft, and you'll never grow again.  In 2010 we need a different approach – a different solution.  Companies must realize that focusing on "core" capabilities, customers and markets has rapidly diminishing returns these days.  You cannot succeed by focusing on Defending your business – even if it is a near-monopoly like PC operating systems!  Why not?  Because markets rapidly shift to new solutions that obsolete your products and even when you have high share, and high margins, sales can disappear really fast (like Xerox machine sales or amateur film sales – and probably laptop sales).  If you aren't putting a big chunk of resources into GROWING in new marketplaces, by using White Space teams to drive that learning and growth, you will eventually become an historical artifact.

Microsoft’s Dismal Future

"Microsoft's Dismal Future" is the title of my most recent column on Forbes.com.  In it I compare Microsoft with such formerly great, but now struggling, companies as Xerox and Kodak.  Looking at all the Lock-in at Microsoft, Balmer's complete unwillingness to Disrupt traditional Lock-ins, and the total lack of White Space for new market projects – Microsoft is a very likely candidate to follow Silicon Graphics. Sun Microsystems, DEC and a host of other formerly great technology companies into the history books.  And it could well happen in less than a decade.  Don't forget, in 2000 Sun was worth $200billion – and now the company no longer exists!

If I gave you $1,000 and told you keeping it required you invest it all in Microsoft or Apple, which would you pick?  For followers of this blog, there can be only one answer – it has to be Apple.  While Microsoft has a great past, it has not been using White Space to exploit technology developments in new markets.  All go-to-market projects have been around Defending & Extending the traditional PC market.  With products like Vista, OS 7 and now Office 10.  But reality is that all of us are using PCs a lot less these days.  Increasingly we use smart mobile devices to get out work done – eschewing even the laptop – much less the desktop machine.  Increasingly we are happy with PDF files and HTML text – not needing elaborate Excel Spreadsheets, or Word documents or flashy Powerpoint files.

Meanwhile Apple is a major participant in the new markets being developed!  It's iPhone is a leader in smartphones, where its mere 5% market share has allowed the company to sell 2 billion downloaded applications in the first 18 months!  And although digital music is becoming the norm as CDs disappear, iTunes maintains a very healthy 70% market share of digital music downloads.  And Apple is moving forward into digital publishing with the iPad launch, as well as hundreds of new applications for low-cost but highly functional tablets (a market Microsoft pioneered but exited.)

Many people invest by looking in the rear view mirror.  But Microsoft increasingly looks like a "has been" story.  Looking out the windshield, it's hard to place Microsoft on the future horizon.  Give the Forbes article a read and let me know what you think!

Listening to Competition – Healthcare

Amidst the brouhaha over health care legislation, Harvard Business Review has produced a report "Megatrends in Global Health Care."  One interesting statistic is that medical tourism – that's when someone leaves the USA to have a procedure like surgery performed in a foreign country – has risen from 750,000 in 2007 (more than you would have guessed, I bet) to about 1.2million.  Yep, people are going outside the USA for health care.

While everybody in the USA is asking "what do you want" for health care, there is a marketplace.  To recognize this you have to overcome myopia and think bigger than the U.S.  Anyone can have health procedures performed in Germany, France, Canada, Japan, Thailand, Mexico, Brazil, India – etc.  Of course you have to pay for it.  But in medical tourism instances, it is cheaper to have the care provided offshore, often with extensive after-event recovery assistance, rather than in the USA.  Even if you have insurance (which may have declined to cover the procedure because it is so expensive domestically).

While everyone is arguing about healthcare, some violently, it will be the marketplace that will determine what health care we get and how much it will cost.  People want good service at a good price, and they don't like "middle men" such as insurers or regulators, making the trade-offs for them.  They want options, and they want to know likely expectations, and they want to know the actual cost as well as the therapy cost, medicine cost and impact on work, income and life.  Then they want to make an informed decision.

The beauty of medical tourism is it provides a marketplace mechanism for those things to happen.  America has great health care, but it is wildly expensive.  Multiples of the cost in other countries. If you are uninsured, either you don't' get complete health care or you want someone to jump in and bail you out (like a government agency).  If you are insured, quite simply your healthcare is subsidized, and it is dictated to you by the terms of the insurance company – not really much different than a government program just a "privatized" bureaucratic group making the decision.  You aren't the payor, someone else is, so as much as you want to be the "customer" you really aren't.  In America the golden rule of health care applies "he who pays the gold gets to make the rules" and that would be your payor (which is either your insurance company – with guidelines from your employer – or medicare with government guidelines). 

But with medical tourism, you are the customer.  Nobody between you and the doctor, facility or other provider.  You get to hear options, and make decisions.  Gee, what an interesting approach.  This is now competition for the extremely expensive American health care industry.  If you don't like your drugs, go buy them in Mexico or Canada – why let a bureaucrat scare you into paying 5x or 15x more?  If you want a procedure, go get it Paris or Peking.  If you need extended therapy, do it at a spa in Thailand.  And all of this done at a price that is a fraction of doing it in the USA.  Smart providers will soon have to start paying attention, and find ways to compete!

A lot of people want to affix blame for the cost of American health care.  As long as there's no marketplace, then I guess blame fixing is what people like to do.  But if we instead focus on the competition we can see how rapidly things will change.  When a hospital is losing customers to Hyderabad, or a facility in Florence, how long will it keep tinkering with an approach that costs too much and is losing customers?  Real change  happens when people realize that they can fail if they don't change their old Success Formula.

The best thing about medical tourism is it creates a very real option, and very real competition.  If you aren't thinking about it, you should.  You would be surprised what you can have done, and at what quality, and the cost.  While you don't want to run to Damascus to see your doctor for a sinus infection, when it's time for a knee replacement Nice might just be the place to go.  Give it some thought, because your behavior will speak a lot louder than your words when it comes to creating real change in American health care provision and cost.

“Enterprise Customer” risk – RIM Blackberry and Apple iPhone

The second step of The Phoenix Principle is "Obsess about Competitors."  This doesn't rile people up much.  But when I tell them "I want you to dramatically cut the time you talk to and listen to customers – and invest that investigating competitors" then LOTS of people get riled up.  When I wrote a Forbes column on the topic ("Listen to Competitors – Not Customers") I was inundated with comments – most of them not too kind.  People were upset that I would attack the widely held notion that you can't spend enough time listening to customers.

There are lots of examples of companies led down the primrose path to disaster by listening to customers.  One of my favorites is that IBM got out of the PC business by the latter half of the 1980s because their customers – data center managers – told them that they could see no need for PCs and the product was a waste of resources.  IBM needed to renew its focus on data center (real computing!) needs and quit playing with that toy! 

We have another great example emerging right now in mobile devices. RIM (Research in Motion) has focused on the "enterprise marketplace" by selling hard to corporations that they should have Blackberry servers and Blackberry corporate applications which can be supported well and have the "right kind" of security and features for a typical "enterprise" IT department.  Because of this, RIM has really put all of its money into supporting "enterprise" customers, doing what they want.  But meanwhile, Apple has been busy changing the game – by giving the market what it wants and targeting the destruction of Palm rather than doing what the "enterprise customers" have asked for.

Source: Silicon Alley Insider

RIM's focus on its "core customer" the "enterprise customer" has been intended to make sure the Blackberry Defends & Extends its leadership position.  But that has not yielded many apps.  Even Adroid has 6x the RIM apps (and a likely launch an attack on "enterprise customers" soon.) Meanwhile, by focusing on the marketplace, and discovering unmet and underserved needs in order to wipe out Palm, Apple has developed 34X the number of RIM apps.

Source:  Silicon Alley Insider

As we can see, this difference in applications has let Apple blow right by Palm – and almost catch RIM.  And of course, that will now be the next market Apple will attack.  Just like the PC attacked the old data center, the iPhone (and iPad) and all its users will drive these products into every day business use.  While RIM was "listening to its customer" it missed a major change in the marketplace.  The requirement for multiple apps.  While RIM was attempting to Defend & Extend its market position – and probably bragging about holding share while Palm was getting creamed – it was letting Apple create the market shift that is soon going to overtake RIM and Blackberry.  Don't forget, you can obtain a Blackberry from almost any network provider – so what will happen when the iPhone and iPad become move beyond limited distribution to all network providers?

This customer-centric problem is most pronounced in "enterprise" solutions.  Like IBM, which was the #1 "enterprise" vendor for corporate computing.  The notion of selling to the "enterprise" connotes big sales, with big revenues to big companies – and it is assumed big profits will result.  Yet, what really happens is that often supporting the "enterprise" marketplace ends up being a never ending effort to make small improvements to existing products in order to help the "core customer" do one more small thing – making their life easy.  While the "enterprise" vendor is busy with this work, he ends up Defending & Extending his "base" product for his "base" customers – and the customers are trying to Defend & Extend their historical investment.  But eventually these "enterprise" customers shift – usually very fast.

Meanwhile Apple is in the marketplace, paying all kinds of attention to the weaknesses of competitors and picking them off – one by one.  First Palm, then RIM.  We spend too much time listening to customers, letting them convince us to Defend & Extend our products and solutions.  We need to spend a LOT MORE time focused on competition – figuring out how to ruin their day while developing fringe opportunities that change the marketplace and drive growth!