Right Place @ Right Time

The interesting question about Microsoft latest entry into music and video is where it places the company’s business model.
Considering that the very diverse business models of Walmart and Microsoft now compete in the same space with Google and Apple we can conclude that we are in more of a mature or defensive lifecycle than an innovative lifecycle of these companies.
There are many winning business models and most companies in their lifecycle go through many of these models.
In our approach that links competitive business models to dominant life cycles of the organization the following stages exist:

• Innovation Stage - business model differentiation that may include differentiation of product, channel, brand. In this stage the key metric is time to market and cash burn rate.
• Growth Stage - the focus shifts to revenue growth and structured sales / marketing / channel driven business models. The focus and key metric is revenue growth.
• Optimization Stage - is all about earnings maximization. In this stage any elements of the business model (products, divisions, channels, customers) can be eliminated in the process of earnings growth. The focus is increasingly short term and innovative or potentially high growth model elements get eliminated. The focus is earnings maximization.
• Defensive Stage - is the phase where most elements of the company’s business model is under competitive pressure and the organization has to eliminate many parts of the model to defend the remaining core, which again may be tangible or intangible advantage. The key focus is back to maintaining profitability and optimizing cash flow.

So where does that place Microsoft? Most of us involved in technology would like to think that high tech companies are in a perpetual innovation stage but that is simply not true. This is the current landscape in our assessment

Innovation stage companies are for example YouTube, mySpace,
Growth stage is represented by Google, Salesforce, Apple’s media business
Optimization stage has companies like Microsoft
Defensive stage is dominant for firms like PC OEM manufacturers

Successful companies have multiple business models active in the organization and are able to shift resources to enable future growth. Companies even in a defensive stage may have successful business models brewing inside. Whether they have the ability to make the shift to the new model is the difference between a DEC and Apple.

Optimization and Defensive stage companies with an incubated innovation or growth stage business model:

General Motors with Saturn
Apple with media (iTunes)
Ebay with Skype

The question is where it places Microsoft and more importantly what are the real innovation stage business models at Microsoft.

Technorati Tags: business models, success, value creation

Today’s article from the Journal makes you wonder what core competency is at Microsoft. Is it software development, innovation, platform, distribution? Fortunately Verizon may help them reduce that potential list by striking software development. As the Journal writes:

….during the two years the project has been in development [Verizon] became so frustrated with delays and technical glitches with Microsoft’s technology that it replaced some of Microsoft’s personnel and software with its own…

OK so the core maybe innovation. At least that is the promise of Zune taking on the iPod. You can always win a competitive battle with a couple of wasted billions especially if shareholders do not hold you accountable for returns.
Forbes writes:

The Xbox game console is hot, but its division has lost $4 billion in four years and isn’t yet in the black. The mobile-software division, also moneylosing, has just a sliver of the market for cell phone handsets. Microsoft Business Solutions, after acquiring Great Plains Software for $1.1 billion and Navision for $1.4 billion, is supposed to deliver $10 billion in sales by 2010. With its 6% growth rate, MBS will attain that goal in 43 years.

Like Xbox, Zune may take on Apple at 5-10 times the cost of their peer’s R&D budget and since Microsoft shareholders really do not seem to practice any governance over the questionable ROI on R&D spend, I would bet on Microsoft grabbing a good chunk of the market. The sad fact is that in their midlife crisis, Microsoft stocks are even outperformed by Utilities. Maybe the stock is now the new safe haven of orphans and widows… Maybe that is Microsoft’s new Core.

Technorati Tags: business models, zune

Many companies never stop and reflect on what makes them great. So most of them exist in continuous improvement (”we need to be better”) or continuous arrogance (”we are the best”). In my years of consulting the answer to the question “what is it you really do well?” always astounded me. But not as much as the silence I got or the “not so sure”. Companies that win really go beyond empty mission statements to actually sharing their operating models with the world stating this is how we work and what we do well.

Answerthink publishes their business model on their website. Nike is famous for organizing strategic supplier summits and saying “this is our strategy help us execute better”. They know what they do well (design, marketing) and what others should do better (manufacturing, supply chain).
Maybe it is the decade in Silicon Valley that makes me believe that competition is the warfare of business models and not products and services.

Anyone venturing into business should know their business model cold. There is a fascinating study from University of Pennsylvania called Business Model Warfare on how companies create and sustain market leadership. Very interesting read.

GE Healthcare CEO, Joe Hogan recently published their strategic direction. This should be on example to all CEOs on clarity of vision and eloquence of communication.

Technorati Tags: success, value creation

A post by Guy Kawasaki reminded me of our change management practice at my old firm. It was amazing to watch how the most admired companies had the right (mostly clear vision), reasonable results but it you set foot inside it was the living Dilbert world.

We used the term of Corporate Self Sabotage to describe how middle management structurally disconnects corporate strategy from field execution.

• Consensus is mostly a middle management illness. CEOs mostly have the wherewithal to direct their staff in no uncertain terms and the same happens to be true on the shop floor. Not a lot of team building between plant supervisors and machine operators.
• Fuzzy performance measurement in the middle. CEOs are focused on growth, earnings or innovation (depending on your industry and stage of maturity). The other end, well let’s just say operations typically have the most metrics in a company. And the middle? I would challenge you to ask 10 mid-level managers you know on what makes them successful and how their work impacts the company. I rest my case.
• Lack of passion is a dominant attribute. Why is it normal that so many people hate what they do all day? It is impossible to get anything done unless everyone puts in the extra 10%. Startups have this ingredient and larger companies rarely do. Especially (you guessed it) in the middle.

Technorati Tags: success