[Rushtalk] Wrong Assumptions Create Lousy Results
John A. Quayle
blueoval57 at verizon.net
Sat Sep 27 17:45:23 MDT 2014
Wrong Assumptions Create Lousy Results - Sony, McDonald's, Radio Shack, Sears
Sony was once the leader in consumer electronics.
A brand powerhouse whose products commanded a
premium price and were in every home. Trinitron
color TVs, Walkman and Discman players, Vaio PCs.
But Sony has
money for all but one quarter across the last 4
years, and company leaders just admitted
company will lose over $2B this year and likely eliminate its dividend.
McDonald's created something we now call "fast
food." It was an unstoppable entity that hooked
consumers on products like the Big Mac, Quarter
Pounder and Happy Meal. An entire generation was
seemingly addicted to McDonald's and raised their
families on these products, with favorable
delight for the ever cheery, clown-inspired
spokesperson Ronald McDonald. But
has hit a growth stall,
sales are down and
generation has turned its nose up creating
serious doubts about the company's future.
Radio Shack was the leader in electronic before
we really had a consumer electronics category.
When we still bought vacuum tubes to repair
radios and TVs, home hobbyists built their own
early versions of computers and video games
worked by hooking them up to TVs (Atari, etc.)
Radio Shack was the place to
the company is one step from bankruptcy.
Sears created the original non-store shopping
capability with its famous catalogs. Sears went
on to become a Dow Jones Industrial Average
component company and the leading national
general merchandise retailer with powerhouse
brands like Kenmore, Diehard and
Searsâ debt has been rated the lowest level
junk, it hasnât made a profit for 3 years andÂ
store sales have declinedÂ while the number of
stores has been cut dramatically.Â The companyÂ
by taking loans from the private equity firm its Chairman controls.
Sears store closing
How in the world can companies be such successful
pioneers and end up in such trouble?
Markets shift.Â Things in the world change. What
was a brilliant business idea loses value as
competitors enter the market, new technologies
and solutions are created and customers find they
prefer alternatives to your original success
formula.Â These changed markets leave your
company irrelevant and eventually obsolete.
Operational excellence is insufficient to succeed
Unfortunately, weâve trained leaders over the
last 60 years how to be operationally
excellent.Â In 1960 America graduated about the
same number of medical doctors, lawyers and MBAs
from accredited, professional university
programs.Â Today we still graduate about the
same number of medical doctors every year.Â We
graduate about 6 times as many lawyers (leading
to lots of jokes about there being too many
lawyers.)Â But we graduate a whoppingÂ 30 timesÂ
as many MBAs.Â Business education has
skyrocketed, and it has become incredibly normal
to see MBAs at all levels, and in all parts, of corporations.
The output of this training has been a movement
toward focusing on accounting, finance, cost
management, supply chain management, automation
all things operrational.Â Stuff easily taught,
and with a bias for historical data analysis.
We have trained a veritable legion of people in
how to âdo things betterâ in business,
including how to measure costs and operations in
order to make constant improvements in âthe
numbers.âÂ Most leaders of publicly traded
companies today have a background in finance, and
can discuss the P&L and balance sheets of their
companies in infinite detail.Â Managementâs
understanding of internal operations and how to
improve them is vast, and the ability of leaders
to focus an organization on improving internal
metrics and generating short-term profits is higher than ever in history.
But none of this matters when markets
shift.Â When things outside the corporation
happen and make all that hard work, cost cutting,
financial analysis and machination pretty much
useless.Â Because today most customers donât
really care how well you make a color TV or
physical music player, since they now do
everything digitally using a mobile device.Â Nor
do they think consistency is comparable to
quality, or accept high-fat and high-carb
previously frozen food products when they can
find tastier, fresher, lighter
alternatives.Â They donât care about the
details of whatâs inside a consumer electronic
product but they can buy a plethora of different
products from a multitude of suppliers with the
touch of a mobile device screen.Â And they
donât care how your physical retail store is
laid out and what store-branded merchandise is on
the shelves because they can shop the entire
world of products and a vast array of retailers
a and receive deep product reviews
instantaneously, as well as immediate price and
delivery information, from anywhere they carry their phone 224Ã7.
âGet the assumptions wrong, and nothing else
mattersâÂ is often attributed to Peter
Drucker.Â Youâve probably seen that phrase in
at least one management, convention or
motivational presentation over the last
decade.Â For Sony, McDonaldâs, Radio Shack and
Sears the assumptions upon which their current
businesses were built are no longer valid.Â The
things that management assumed to be true when
the companies were nicely profitable 1 or 2
decades ago are no longer true.Â And no matter
how much leadership focuses on metrics,
operational improvements and cost cutting or
even serving the remaining (if dwindling)
currennt customers the shift away from these
companiesâ offeringgs will not stop.Â Rather, that shift is accelerating.
It has been 80 years since Harvard professor
Joseph Schumpeter described âcreative
destructionâ as the process in which new
technologies obsolete the old, and the creativity
of new competitors destroys the value of older
companies. Unfortunately, not many CEOs are
familiar with this concept.Â And even fewer ever
think it will happen to them.Â Most continue
hoping that if they just make a few more
improvements their company wonât really become
obsolete, and they can turn around their presumably short-term bad situation.
For employees, suppliers and investors such hope
is a weak foundation upon which to rely for jobs, revenues and returns.
Trends matter more than history
According to the management gurus at McKinsey,
today the world population is getting older.
Substantially so. Almost no major country will
avoid population declines over next 20 years, due
to low birth rates.Â Simultaneously, better
healthcare is everywhere, and every population
group is going to live a whole lot (I mean a
WHOLE LOT) longer.Â Almost every product and
process is becoming digitized, and any process
which can be done via a computer will be done by
a computer due to almost free computation. Global
communication already is free, and the bandwidth
wonât stop growing.Â Secrets will become
almost impossible to keep; transparency will become the norm.
These trends matter to every single
business.Â Many of these trends are making
immediate impact on sales and profits in 2015.
All will make a meaningful impact on practically
every business by 2020 even yours.Â And these
trends change the assumptions upon which every
business certainly every businness founded prior to 2000 demonstrably.
Are you changing your assumptions, and then your
business, to compete in the future? If not, you
could soon look at your results and see what the
leaders at Sony, McDonald's, Radio Shack and Sears are seeing today.
That would be a shame.
Connect with me
Lampert's management of Sears has been "lipstick on a pig"
it was clear America was not shopping Sears
McDonaldâs recent growth stall portends long-term disaster
case that Sonyâs demise is inevitable from 2012
myths are born, and how they kill companies
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