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In the past 6 months have you led or corporate leadership conducted a discovering opportunity review?  In the past 6 months have you, corporate leadership or operation’s management conducted a monthly operation’s review?  Most likely, no to the first question and yes to the latter.  For the existing business monthly reviews (weekly, daily for day-to-day personnel) are critical to evaluate performance to plan.  To ignore discovering opportunities as a monthly requirement may limit the business for growth, increased profits and potential new markets.

The current conditions – economic, political, COVID scenarios, supply chain, office space, communication is it virtual or face-to-face, work remotely or at the office, education at all levels, labor force and others are certainly reasons to evaluate the external process within your industry.  Since January 2020 businesses have seen changes to processes, some are upside down and there are most likely more opportunities.  Some companies are innovating that will impact their revenue and profits positively.  Does your company, your employer have the resources to discover opportunities and drive them to revenue and profits?

I suggest that you consider two aspects for discovering opportunities – process need.  First, what to look for to identify the process need.  Secondly, what the corporate business model is to advance ideas and achieve revenue and profits.

What is required for discovering opportunities – process need in industry or service?  Peter Drucker in Innovation and Entrepreneurship presented some guidelines.  The ultimate objective is to identify and lead to increase revenues and profits.  You and all in the company are potential experts.  Are you on the hunt?

In order to identify a process need, what should you focus on?  According to Peter Drucker, it has these characteristics (p 69).

• “It exists within the process of a business, industry or service
• It begins with the job to be done
• Task focused
• Perfects a process that already exists
• Replace a link that is weak
• Redesigns an existing old process around new available knowledge.”

Let’s break this down into some specific requirements or details.  The clearest opportunity in process is based on a need that Drucker said, “the need must be felt,” and the need must be understood (p 74). Drucker provided further guidelines in the identification of a need with the following (p 73).

• “A self-contained process
• One weak or missing link
• A clear definition of the objective
• That the specifications for the solution can be defined clearly
• Widespread realization that there ought to be a better way, that is highly receptivity.”

Because process need is within an industry or service, everyone that works in them (you for example) are a potential candidate to identify, present, communicate and advance the idea.  Drucker noted, “everybody in the organization always knows that the need exists” (p 69).  Unfortunately, no one does anything.  Why?  There were reasons then (1985) and now.  One way to ensure for any idea’s success, there is a clear pathway to advance the idea.  Without a clear pathway, the obvious could remain dormant only to be discovered by some other company or an employee who leaves and takes the idea out the door.  William Connor was one example in the past. This is not to be another level of bureaucracy but an additional functioning segment.  It is specifically for discovering opportunities.

Several key elements for a corporation to discover opportunities of any kind includes a process – with responsibilities, accountability and expectations clearly defined, built upon an organizational structure that supports it, focused, simple and nimble; assigned employees (volunteers) who are committed with the professional skills required; provided the needed resources of funding, executive insight, governance, guidance, sponsorship, and compensated accordingly.  The purpose of the process model is to collect ideas, evaluate, document, recommend the idea to a review panel who are objective, unbiased and move forward to test, pilot, scale and commercialize.  A discovery opportunity model will prove in the long-run to benefit the existing business.

The organization structure for the discovering opportunities model needs to be separate from the day-to-day operations.  Direct reporting should be to the CEO or another C-level executive.  Otherwise, it will become lost in the existing business challenges or crisis for meeting customer expectations.  This is true for any innovation or new thing to the existing business as Drucker clearly explained based on his experience.

The right people in the right seats are imperative.  This group will have passion for new, embrace change, comfortable in an unscripted environment, discerning, leverage information and research, seeks out of the box ideas, relies on creative thinking, collaborative, decisive, willing to trust their team members, demonstrated ability to communicate with all levels of the organization, committed to deliver results and be held accountable.

The need for executive resources – governance, guidance, sponsorship, coaching and mentoring requires clear explanation, timely reviews, updates and those who are invested completely in the program’s objectives and outcomes.  The executives need to resist delegation for discovering opportunities or any innovation program because it generally leads to failure.  The executives need to recognize the team for their success and take/share responsibility for failures.  The funding and all resources need to begin small, budgeted, updated, monitored as any other investment or expenditure in the company.  However, to measure the value of the program can’t be the traditional metrics applied to the existing business.  The reason is because the dynamics of this specific program.  A one size fits all model is difficult because how this program unfolds in each company most likely will have nuances.  One thing for all companies that will promote the program and lead to success is an engaged, committed executive team who ensures needed resources, sets aside their own preferences, recognizes success and support for failure.

Drucker provided 3 specific guidelines to consider with discovering opportunities – process need

• The opportunity must be felt and understood. Understood so specifics for a solution can be defined, engineered, developed, presented and a clear response for the opportunity promoted to the market.
• Knowledge to meet the process need is required. If the knowledge is yet to be discovered then now is not the time to proceed.  An example of this is in the light bulb opportunity.
• “The solution must fit the way people do the work and want to do it.” People in 1985 and now appreciate simplistic solutions which is now highlighted because of technology, mobile apps.  A click away is a mainstay for advertising (pp 73 – 75).

With the rapid advance of knowledge, access through the internet, knowledge may not be the barrier it was in 1985.  However, barriers within any company remains when it comes to change of any kind or something new that impacts status quo.  Drucker clearly explained this in 1985 and it remains.  His example, it only takes one executive to say NO to the entire process for discovering opportunities or innovation and it all stops immediately.  I personally witnessed this and it unraveled long-term employees’ lives and destroyed momentum.  What the long-term implications are unknown to me.

Companies are generally not organized for discovering opportunities or successful at innovation from idea to commercialization.  Does your employer or the company that you lead include discovering opportunities regularly?  Have you discovered any opportunities?  Have you taken any action?  Is there an internal process established?  If not, should there be?

For the foreseeable future COVID scenarios and many other global economic conditions requires every company large or small to be on the hunt for discovering opportunities especially in the area of process need.  During COVID missing links or weak links were clearly displayed.

One metric for you to examine if you need to discover opportunities or innovate, what is the company’s annual revenue and profits from new products or services for the past 1, 2, 3, 4 and 5 years as a percent to the total?  Does the leadership identify a reasonable percentage target to achieve?  Should there be?

All the best in your opportunity journey.  Check out my website for more information on the existing business, discovering opportunities and innovation.

My next blog on Discovering Opportunities is on Industry and Market Structures.

This blog is the third in the series of Discovering Opportunities.

What we are looking at is most likely not going to be reviewed in a management report or discussed at a monthly executive meeting.  The purpose of the blog is to create questions, provide some examples but the answers for your business could be in front of you.  The questions are to encourage you to think, examine, learn and take action.

Discovering opportunities are not taught in business schools but there are professionals who are successful at it.  Is your company as effective to identify opportunities, leverage for future revenue and profits, conduct due diligence, pilot, scale, commercialize as improving the profitability of the existing business? If not, why?

Peter Drucker in Innovation and Entrepreneurship identified various categories to uncover opportunities.  The next area to look for opportunities is from your industry, market, process.  The general category is incongruities.

Incongruities, these opportunities are more visible to your company’s industry, market or process.  According to Drucker, “it is in front of them but overlooked.”  Drucker outlined some general areas and provided examples of opportunities, identified and commercialized.

What is incongruity between the economic realities of an industry?  This incongruity relates to if demand for production or service is growing steadily then performance should improve.  A lack of profitability in a growing industry suggests incongruity.  Several examples were identified and how it was taken advantage.

One example, large steel mills lacked profits in an industry that only made profits in time of war.  The opportunity “mini mills” concept emerged and changed the steel industry footprint and process of the large steel mill with success.  Over that past decades another opportunity was discovered from the brick-and-mortar retail model to the e-commerce model.  The latter continues to unfold with new technologies all on a cell phone.  You may think of others.

What is “the incongruity between the reality of an industry and the assumptions about it?”  This is about the misconception of reality based on incorrect assumptions.  We all make assumptions in every aspect of the company’s business model.  Here is one example of an incorrect assumption.

Ocean going freight companies concentrated on reducing operating costs and increased speed while in transit.  This created congestion in ports and longer delivery times and ships idled longer.  The exact opposite of what ocean-going freight needed.  Then, a better solution surfaced – “concentrate on the costs of not working (ship is idle, debt and interest still there) rather than on those of working.  The answer was the roll-on, roll off ship and the container ship.” (p 63).  Does this cause pause for you to step back and re-examine what your company is doing to increase productivity?  Will you re-examine the assumptions in your business model or product offering?

The best results for this incongruity from Drucker, “be small and simple, focused and highly specific,” (p 64).

Another incongruity to look for is what “incongruity within the rhythm or the logic of a process?”

Processes are built from logic; one observes a working process and identifies an opportunity.  For example, in the early years of lawncare, companies’ “products were promoted based on research, science and testing to ensure their product was the better choice for the best lawn.  There was a difficulty with this scientific approach that growing the best yard at your house is a precise, controlled and scientific process,” (p 67).  Until O. M. Scott and Company developed the Scott Spreader, no tool was available for the customer to apply this precise, controlled and scientific product.  Without the tool an incongruity existed in the logic of the process and customer.  As Drucker promoted, this tool fit the formula of small, simple, focused and highly specific.

This type of opportunity identification like all opportunity identification requires an organized and systematic approach, (p 68).  In your industry or market, now what are you going to look for that according to Drucker is in front of you?  Do monthly reviews include an opportunity focus, innovation focus or are they related to operational performance only?  Without a focus on opportunities, how successful do you think that you will be?

Now, what action will you take to identify opportunities?  It could be as simple as changing your monthly reviews to incorporate an opportunity session.  According to one executive, allowing an opportunity focus in the monthly process allowed for an entrepreneurial mentality to develop and spread in the company.

All the best in your opportunity journey.  Check out my website for more information on the existing business, discovering opportunities and innovation.

My next blog on Discovering Opportunities is on – process need.

Looking for the unexpected could put your company, your employer on a path to leverage opportunities for revenue and profit.  The unexpected category for opportunities as Drucker identified in his book Innovation and Entrepreneurship is one path to consider.  My previous blog on “Discovering Opportunities” was on “unexpected success.”  This blog will highlight the other two in this category – “unexpected failure and an unexpected outside event.”

As Drucker explained, the “unexpected failure” could result due to a couple of things – “mistakes, the result of greed, stupidity, thoughtless bandwagon-climbing or incompetence, whether in design or execution.”  On the other hand, if failure comes, “despite carefully planned, carefully designed and conscientiously executed that failure often bespeaks underlying change and with it opportunity.” (Drucker P 46)

For products and services, assumptions are made.  If failure for whatever reason is the result, the assumptions don’t fit reality.  The unexpected failure could be due to a market branching into other customers who purchase based on other requirements.  An understanding is important to know.  What is important to take away, “unexpected failure was a symptom of basic change.” (Drucker pp 46, 47)

A response for this unexpected failure, Drucker suggested “go out, look around and listen.”  Failure should always be considered a symptom of an “opportunity for innovation and taken seriously.” (Drucker p 49)

Did you grow up with the Edsel Story?  I did.  The story of this unexpected failure fell on Ford.  However, I did not hear the entire story.  Ford examined the results, failure against its assumptions, plan, strategy.  The result which I never heard and Drucker explained – the Ford Thunderbird.  The Ford T Bird allowed Ford to reclaim lost ground in the automotive industry.  The Ford T Bird is one example of failure turned into success by listening, going out, understanding and innovating.  (Drucker pp 50-52).

The unexpected outside event – Drucker defined this as “events that are not recorded in the information and the figures by which management steers its institution.” (Drucker p 52).   Drucker cited two examples – IBM’s personal computer and Book Store Chains.  While these are good case studies from 1985, let’s examine the characteristics of an unexpected outside event that you may use to filter information through for a benefit.

• IBM and Book Store Chains represents “genuine innovation and not diversification” (Drucker p 54). IBM remained in the computer industry and chain book stores remained in the retail industry.
• A success factor for an unexpected outside event – “it must fit the knowledge and expertise of one’s own business” (Drucker p 54).
• The event could “be an extension rather than a diversification” (Drucker p 55).
• The unexpected outside event requires innovation in product, service, distribution channels (Drucker p 55).

We all observed how companies, large and small, changed in response to a global unexpected outside event – COVID

• Honeywell – N95 respirator mask production, shifted 2 chemical manufacturing plants to produce hand sanitizer.
• Ford in partnership with 3M used modified auto parts from the F-150 to produce respirators.
• SC Johnson in partnership with DOW produced hand sanitizer.
• Brooks Brothers shifted shirt and tie production to masks and gowns.
• GM shifted production in partnership with Ventec to produce ventilators.

Source: https://www.triplepundit.com/story/2020/companies-retooling-operations-covid-19/88921

There are many more examples of companies, large and small, that shifted production in response to COVID.  Follow the link for the complete list: https://www.aei.org/multimedia/defense-production-act-production-tracker/

The unexpected outside event was obvious and many companies responded.  However, unexpected outside events may not be so obvious.  If not obvious, what can a company’s leadership and employees do?

• Leadership needs to seek out opportunities of all kinds on a regular basis.
• The search for opportunities of any kind requires organization, function within an established process, provide necessary resources, accountability, allow employees to present, innovate, test, pilot, present findings for acceptance, to leverage for revenue, profit and meet market demands.

Corporation’s monthly reviews should be a twofold process as I wrote in my previous blog on “Discovering Opportunities.”  One review is for operations and the second is focused on opportunities.  As I cover the various categories for opportunities from Drucker, you will have criteria to review for your specific company.  For now, specific criteria for unexpected success, failure, outside events has been provided.

Discovery analysis is not one dimensional but should be multi-dimensional around the company’s short-term and long-term objectives.  For this reason, Innovation Advantage LLC includes three areas with our Discovery Process to meet client’s short-term and long-term objectives.  Please check out our website and other blogs there for more information.

Next blog in discovering opportunities is on Incongruities.

All the best in your opportunity journey – identification, developed, piloted, scalable, commercialization.

Then, how are opportunities evaluated, selected, pursued, developed, piloted, scaled, commercialized to deliver revenue and profits?  Unfortunately, most companies are not equipped for opportunity analysis or successful in developing opportunities to commercialization.  What are corporations good at?

Corporations, large or small, focus on monthly, quarterly, annual performance results.  These are normally year-over-year, across all business units and down into the weeds.  The purpose is to ensure operational performance improvements.  Corporations are mostly successful in this process.

In my consulting journey, scorecards and dashboards were developed to identify any change in operational performance during the project.  The metrics captured a broad base of current data that was compared to an approved baseline.  These measurements demonstrated that the project was on track to deliver expected levels of operational improvements.

Managers/leaders in existing businesses have problems presented to them constantly and addressed at operational reviews.  The problems require action to eliminate and return to normal or higher performance levels. This most likely allows no room to see opportunities.

There is a balance between the existing business and what’s next.  They are inseparable.  Peter Drucker in Innovation and Entrepreneurship provided an example of the twofold review process that included the existing business performance and opportunity focus.  To implement a twofold review process will require management and leadership to undertake a process and behavior change.  The process change will require management/leadership to accommodate an existing performance and opportunity reviews in the same month.  The behavior change will necessitate that management/leadership focuses their vision on opportunities.  Drucker explained, “people see what is presented to them and what is not presented tends to be overlooked.”  Drucker cited an example of the twofold process in Innovation and Entrepreneurship.

The company held an operation’s review meeting twice a month.  This meeting focused on the typical operational results, the problems that impacted performance, the required action items and follow-up.  Another meeting was held monthly with a focus on opportunities: areas better than expected, any product sales growing faster than expected or orders for new products coming in from unexpected markets that the product was not designed for.  While these are important discoveries, the CEO stated, the meetings “are not nearly as important as the entrepreneurial attitude which the habit of looking for opportunities creates throughout the entire management group” (Drucker. p 157).

The opportunity practice requires specific follow-up steps.  The opportunities that are identified by an individual or team should be assigned specific responsibilities, accountabilities and deliverables to advance the opportunity to a decision point.  The company example included the following points (Drucker. p 158):

• Submit, in a reasonable time, “a working paper to the presiding senior and to their colleagues in the session, in which they try to develop their idea.”
• What would it look like if converted into reality?
• What in turn does reality have to look like for the idea to make sense?
• What are the assumptions regarding customers and markets?
• How much work is needed?
• How much money?
• How many people?
• How much time?
• Expected results?
• My personal point for management/leadership is to recognize, reward the individual or team regardless of outcome.

This type of opportunity falls under what Drucker called “unexpected success.”  From the standpoint of opportunity, these opportunities are with the least amount of risk.  Drucker identified six other opportunity categories to pursue by any company.  The additional six categories will be covered in the future.  A company should consider the importance of an opportunity focus analysis platform and accept it as a regular practice.

The review process is simple, bite size but carries significant steps and the reward could dramatically impact the existing business.  The commercialization of the opportunity needs to be the objective, revenue and profits in order for the company to be durable.

All the best in your opportunity journey – identification, developed, piloted, scalable, commercialization.

Please check out Innovation Advantage LLC Website for more information on compass heading, existing business and innovation.

The market no longer supports the same companies as in 1955 on the Fortune 500.  In 2014 only 61 companies were on the list from 1955 and in 2020 only 30 companies were on the list from 1955.  I have the details if you want to review.  The requirements for the Fortune 500 list are based on annual revenues for the US Companies that filed their 10K.  More than 1,800 American Companies have appeared on the list.  Investopedia listed several reasons why companies move on and off the list: M&A, shifts in production, bankruptcies, recession. I would add the lack of innovation.  Lack of innovation is a key reason for the list of company failures explained below.  The key metric for the Fortune 500 list is revenues (https://www.investopedia.com/terms/f/fortune500.asp).

Markets support your company if you provide what it requires.  The markets shift and now it shifts quickly.  How does a company stay relevant in a market?  They identify opportunities, invest in innovation to develop opportunities and deliver to the market.  Innovation is one important factor that delivers what the market needs.  But what is it?  From Peter Drucker’s book, Innovation and Entrepreneurship, p. 30 and 31, “Innovation is the act that endows resources with a new capacity to create wealth.”  “Whatever changes the wealth producing potential of already existing resources constitutes innovation.”

The existing business is important and needs to improve year-over-year.  It pays the bills, employs many, generates cash flow, return to shareholders dividends, stock price appreciation and funds the future.  Innovation because of investment from the existing business profits brings new products, services that the market can support to extend corporate longevity.

Two sources provide a list of 50 examples of corporations that failed to innovate             ( https://inquentia.com/50-examples-of-companies-that-failed-to-innovate/ and (https://www.indiehackers.com/@Taylor_Ryan/50-examples-of-corporations-that-failed-to-innovate-8b7baa56ca). Without innovation the corporation is at risk and your career is at risk.  Taylor Ryan identified a barrier in the list of 50 failed businesses.  “The majority of businesses listed went out of business.  They didn’t accept that to stay on top you need to take risks, adapt and open up to changing business climate.”   These failures demonstrate that to stay successful corporations must continue to identify opportunities, support, sponsor, fund and innovate.  However, corporations through the decades have demonstrated poor results with innovation.  Why?

Corporations to be successful at innovation need the right people in the right seats, leadership, strategies and accountability.  Peter Drucker expressed specifically that “the new, has to be organized separately from the old and existing.”  Another specific reason for corporates and their unsuccessful innovation programs, corporations are focused on operations, efficiency, meeting customer demand, handling the day-to-day crisis that develops and ensuring operations deliver products, services on time and at a profit.

Some reasons for corporation failures from the links are:

Kodak – “management did not see the potential of digital photography.   However, a Kodak engineer invented the first filmless digital camera in 1975.”

Nokia – focused on their hardware and not the use of data.

Xerox – first to invent the PC.  Management decided against digital because of the expense and avoid the risk.

Yahoo – in 2005 it was the online advertising leader.  Two deals escaped them because the leader was not willing to go through the process.  Google in 2002 and Facebook in 2006 when Yahoo lowered its offer.

MySpace – social network leader until Facebook surfaced.  Mark Zuckerberg offered to the CEO of MySpace, Facebook for $75 million.  MySpace CEO, Chris DeWolfe said no.

Toshiba – a classic example of a tech giant fall and become irrelevant in 10 years.

Motorola – declined because of a lack of innovation for the small phone market, Greg Brown, CEO stated, “failure was our fault, not the economy.”

Sony – the Walkman, 1979, was the gadget for teens in the 90’s.  Because Sony didn’t embrace technical innovations, digitalization and software development it missed the market opportunity.  Their management reason, “company afraid to test out something new, thinking it would threaten their compatibilities on the market.”

The failure of these corporations in their own industry/market is devastating and management justified the decisions at the time.  Unfortunately, the reasons are short sighted and the results painful for so many.  If your company, your employer is not innovating to meet market trends, what are the reasons.  You may want to compare the reasons to the ones in the link.

It is time leaders consider opportunity over risk, the future over the past, products have a limited life cycle, manage the risk, manage the innovation program for results, ensure accountability and capture market opportunities.  Then possibly the company will be successful and avoid failure.

You have heard the sayings; change is inevitable or the only constant is change.  This is true and innovation is inevitable or the company’s future is at risk and another company will seize the opportunity.

Phil McKinney, CEO, Cablelabs is quoted as saying, “without a robust and resilient innovation strategy, no company can survive.”  At the center of a robust innovation strategy is a mindset to look for opportunities and how to bring to them to full commercialization.

A search for opportunities is a journey we are all on.

Next blog is about opportunities and finding them.

Concrete plans in today’s world might be difficult because of uncertainty.  However, uncertainty has been around a long time.

Peter Thiel wrote in Zero to One, 2014 – “US companies are letting cash pile up on their balance sheets without investing in new projects because they don’t have any concrete plans for the future (p 77).”  The top 10 companies in the 2020 Drucker Institute Company Rankings are in order 1 to 10, first row then second row. For all the details of the Drucker Institute Survey follow the link: https://www.drucker.institute/programs/company-rankings/

Microsoft	Apple	IBM	Amazon	Alphabet
Cisco	Intel	P&G	J&J	HP

The total cash on their balance sheets in 2019, the last year reported numbers available for all is over $594 billion.  In 2014 when Thiel wrote Zero to One the amount for the same 10 companies was $99 billion.  What do you think about the increase?

What about the company that you lead or are an employee?  How much cash is on your company’s balance sheet?  What is planned?  What is leadership investing in for the durability of the company?  Any investment in new equipment, technology, innovation or facilities?

What new products or services have been introduced by any of these companies since 2014?  What new products or services have been introduced by your company?

Why are corporations allowing cash to sit on their balance sheets?  Is it for a rainy day?  If not for expansion, new products, services then what?  One concrete plan for corporations that they are communicating, stock repurchase.  What is the rationale for repurchase of stock?  Stock repurchase does not add to growth in sales or profits because of new products or services brought about by innovation nor does it optimize the existing business.  There are benefits to the overall repurchase plan.  Who benefits from re-purchased stock?

Investopedia stated this about a corporation buying back its stock.  “Companies issue shares to raise equity capital to fuel expansion, but if there is no potential growth opportunities in sight, holding on to all that unused equity funding means sharing ownership for no good reason.” This sounds a little like Theil, no concrete plans, let’s shrink the ownership base.  Is this the rationale?

How much stock has your employer repurchased in the past 5 to 10 years?  What new products or services has your employer introduced in the same period?  Are revenues and gross margin improving year-over-year?  Peter Drucker explained that the existing business needs to improve year-over-year to fund innovation which is the future.  If the corporation doesn’t have improving the existing business and innovation as part of the concrete plan, what future is there for your employer?

Peter Thiel recommended corporations avoid seeking a competitive advantage because it only leads to lower revenues and smaller margins.  What increases revenues and margins is new, completely new, zero to one.  Thiel described this in his book, Zero to One.  This leads to a market dominant position, increases in revenues and profits.

Let’s go back to repurchase stocks, what does it do?

• Reduces the number of outstanding shares. This alone could drive up the share price.  Apple for instance for the past 7 years has almost 1/3 of Apple shares removed from trading (2.5 billion shares/ $327 billion, average price $131 per share).  Apple has averaged 5.4% repurchase of its shares annually since 2013. (https://investorplace.com/2020/01/apple-stock-gets-boost-buyback-program/ and https://www.aboveavalon.com/notes/2020/4/23/apples-460-billion-stock-buyback.
• Microsoft from 2017 to 2019 repurchased 419 million shares for $35.7 billion https://markets.businessinsider.com/news/stocks/microsoft-stock-price-hits-record-high-on-buyback-dividend-plan-2019-9-1028538625?op=1
• Microsoft and Apple are #1 and #2 in the Drucker 2020 Rankings. The cash on their balance sheets in 2020 totals over $328 billion
• Through research, corporations will sometimes borrow money to repurchase shares of stock
• Less outstanding shares increases EPS
• The effects on dividends – same total amount of dividends paid equals more dividends per share
• Not mentioned in any article from research – if CEO compensation plan is structured with stock performance would this impact CEO overall compensation?

The existing business and innovation are two key elements for any company.  It takes work to improve the existing business year-over-year.  It is essential in order to fund the innovation for the future durability of the company.  Innovation is defined as “changing the yield of resources or changing the value and satisfaction obtained from resources by the consumer (Drucker. Innovation and Entrepreneurship. P37).”  Any company needs these both to be focused on results and part of the concrete plans going forward.  Otherwise, the future may not be long lasting.  What concrete plans for the existing business and innovation are underway at your employer or the company that you lead?

Innovation Advantage LLC helps clients with both the existing business and innovation.  Both are inseparable.

History recorded a password for George Washington.  This account is written in David McCullough’s book, 1776, pages 273 – 284.

Under Washington’s command – 1 victory at Boston, 4 defeats at Brooklyn, Kips Bay, White Plains and Fort Washington.  Fort Lee was abandoned without a shot fired as Washington called for another retreat to fight another day.  Fort Lee was abandoned leaving behind supplies of all kinds – guns, stores, tents, even breakfast cooking on the fire.

Joseph Reed wrote to Washington on December 22, 1776, it was time for something “aggressive, surprising, failure was better than sitting doing nothing.”  Washington already planned an attack on Trenton, NJ.  A victory was essential for the morale of the army and the country.

The account of the battle of Trenton is one for the ages.  They overcame setbacks, two supporting units weren’t able to proceed, shortages (coats, shoes), the army marched through the night on December 25^th, weather – a cold Northeaster bringing rain, snow, ice in the rivers and mud.  Upon arrival in Trenton, 3 hours behind schedule and in a snow storm, the army had to engage the Hessians whose accommodations and supplies were much better than Washington’s army.  In less than 1 hour, the battle of Trenton was over.  Hessians surrendered, their commander was killed, 900 prisoners and valuable supplies taken and not one American was killed.

Washington protected this battle with a password – VICTORY OR DEATH.

In 2021, do you have an event planned that is essential for you or your company?  Do you have it password protected?  I do, like Washington, I have an event and a password.

It is time to learn from our victories and defeats, plan a course of action, set the objective and password protect it.

Go ahead create your password now.

 

All the best

What is one word that would serve you as a driver for the entire 2021 year?

David McCullough’s book, 1776, (McCullough, David.  Simon & Schuster.  2005) has an interesting story. Joseph Reed wrote George Washington on December 22, 1776.  “It was time something was done, something aggressive and surprising, Reed wrote.  Even failure would be preferable to doing nothing (p 271).”  The story goes on and describes victory, but it comes with planning,  great risk, cold, wet, storms, army poorly supplied, delays, progress made, plan goes out the window because of events that were out of Washington’s control.  After an all-night march, there is a battle, gunfire, cannon fire, suffering, loss of life, but in the end – victory, momentum.  After this event, 6 ½ years more war.

The year 1776 was a horrible first year in the Revolutionary War.  The word then is maybe – determination.  Washington refused to see that the British had won (pp 271 – 285).

My word is clearly displayed and I see it constantly – action.

 

What is yours?  Would you share?

Business Strategists, Executive Directors, Finance Specialists, C-Level, VP’s, Sales, Partners, BOD, Owners – all employees.  Who doesn’t want a growth track?  Is your company in growth mode?  What does growth look like?  What are the factors of growth for your company?  What is a reasonable growth rate for revenues, profits, cash flows?  What are the implications for your business based on your answers?

This is all about your existing business, it is paying the bills for now and what’s next.  Therefore, it must continue to grow, continuous improvements, innovation, it is all a requirement.  The implications for all this are profound.

Let’s examine growth based on my research.  There are two separate markets that growth occurs in – market dominance and a competitive market.  Research that continues leads me to accept that one company could operate in both.  PAUSE – you decide, what market is your company in?  How do you decide?  What are the characteristics?  Knowing which one and what are the implications?  Is your company’s 2020 year a roller coaster year?  How difficult is it to see to the end of December 2020?  The 2020 year is not as clear a journey as a 2020 view would suggest.  Consumer buying is shifting, discretionary spending patterns are changing, priorities are different, companies are reducing cap-ex and operating costs.  This is attributable to COVID-19 and now add politics, election year.  Uncertainty has been around a long time but it appears on steroids now.  As a result of the uncertainty in US and Global Economies, many corporations no longer publish guidance for the balance of 2020.  The stock market swings are significant in September and affecting some of the companies included in this growth analysis.  The impact on business for the short-term and long-term is unprecedented and unpredictable.  You should be fully aware of your company’s compass heading.  The table below shows results for some of the companies included in this blog.  All information is from the company’s annual report.

With this in mind, let’s examine Market Dominance.  This particular growth model has specific characteristics.  These characteristics would be the ability to set your price, maintain strong margins and generate positive cash flows. In addition, Peter Thiel’s outlines 4 concepts:

• • Proprietary Technology
  • Network Effects
  • Economy of Scale
  • Branding

These were mentioned and detailed in my previous blog, “What direction is your company’s COMPASS pointing – Growth or Decline?”  At Innovation Advantage, I believe that this is the place to begin to understand your company’s macro view (check out our website for more details at https://innovationadvantagellc.com/).  The implications of this are significant – it impacts the company’s overall strategy.

Growth is a moving target.  These are unprecedented times. Product life cycle tests are imperative with consumer and business requirements shifting, your product/service that was once in demand may drop like a rock in water.  If no longer needed or greatly reduced, what are you going to replace it with it?  How will your company make it up?  What are consumer’s priorities shifting to?  Implications need an answer.  Bezos even highlighted in Amazon Annual Report 2019, the growing competition in the e-commerce space which Amazon has dominated now for years is threatened more and more.

My research adds an additional one in market dominance space.  A corporation required 25% of revenues to be from new products over the past 3 years.  Originally, it started out at 5 years.  How would that measure up in your company?  Would you meet that requirement or not?  If you did, how would it change your business, its financial results?

Let’s examine some examples of companies considered in a market dominant position.  These companies were some of the highest rated in 2019 Drucker Institute Survey for financial strength and innovation (https://www.drucker.institute/programs/company-rankings/).  You may want to gather your financial information for 2019, 2018, 2017.

Based on my research the following companies are listed as having a market dominant position.  This recognition is based on the points made so far.

• • Amazon – CEO appeared
  • Microsoft
  • Apple – CEO appeared
  • Facebook – CEO appeared
  • IBM
  • Alphabet – CEO appeared

So much as a dominant position, nearly monopoly that on July 29, 2020 four CEO’s appeared virtually before a Congressional Hearing on antitrust concerns.  I am not qualified to comment as an antitrust anything but these companies certainly appear to have a dominant market position.  However, other companies are challenging them.  The other factor to identify as a dominant position – is 25% of revenues from products or services introduced over the past 3 years, this information is not publically available.  They certainly check the boxes for proprietary technology, network effect, economy of scale, branding.  What do you see in your numbers?  Are revenues growing, are 25% of revenues from products introduced in the past 3 years, margins improving or net income up?  Can you check the boxes for proprietary technology, network effect, economy of scale and branding?

It is not just these companies that are in a market dominant position.  A list from (https://iot-analytics.com/the-leading-industry-4-0-companies-2019/) shows a potential list of companies who could develop into a market dominant position.  They are:

• • Hosting – Microsoft, already shown
  • Industrial IoT Platforms – Microsoft, GE, PTC, Siemens
  • Analytics – Uptake
  • Microchips – Nvidia
  • Sensors – Festo
  • Connectivity Hardware – HMS
  • Cybersecurity – Claroty
  • System Integrators – Accenture
  • Additive Manufacturing – GE
  • Augmented and Virtual Reality – Upskill
  • Collaborative Robots – ABB
  • Connected Machine Vision – Cognex
  • Drones/UAVs – PINC
  • Self-Driving (material transport) Vehicles – Clearpath Robotics

A factor for growth (as well as decline) is time.  Time will show the success of these companies in their pursuits.

Let’s examine the competitive market examples.  My research discovered some characteristics of competitive markets and companies in them.  Characteristics included revenues flattening or declining, margins falling over time, cash flow declines, market share could be declining, no differentiation in products.  As market share drops due to other competitors developing products or your products decline in meeting customers’ requirements, then, companies lower its price, sacrifice margin.  Peter Thiel expressed, if your company is in this space – find something to improve over other companies by a factor of 10 (innovate), leverage it and reap a stronger position. Thiel developed a business model in the early stages of electronic payments, improving the process by a factor of 10.  The result was PayPal. Amazon started with selling books, expanded the books available and improved what the competitors offered.

The automotive industry is in a competitive market.  Technology advancements in the automotive industry abound since Henry Ford.  Technology advances are a big part of the auto industry now.  Advertisements are all about the technology built into every model.  Tesla introduced new technology beginning in 2003.  Elon Musk invested in the start-up and served as chairman beginning in 2004.  In 2008, Tesla released it first car, completely electric.  In 2010, Tesla had an IPO.  The history of this company is controversial and performance lacks profits.

Tesla stock price fluctuates to position it at times more valuable than other manufacturers.  Will Tesla continue to be successful in this competitive market, achieving greater results than other automotive manufacturers?  Will Tesla differentiate itself from the pack?  Time will tell.  Tesla’s Q2 2020 shows a profit.  Tesla continues to pursue its automotive product in a competitive market and delivered an electric car that improves over its competition.  What other electric car is discussed in the automotive industry? Is your company in a competitive market, how are you going to differentiate?

Airlines represent another competitive market group with little differentiation between all airline companies.  The profitability is limited, stock performance fluctuates and now with COVID-19, airlines are suffering with existence decisions.  Recently, all airlines ended the practice of charging for changes in flights (in 2019- $2.8 billion).  Southwest never charged passengers if they changed their flight schedule.  Are there any secrets out there for an airline to discover that could differentiate it from the pack?  Are they looking?

It is essential for your existing business to continue to grow revenues, profits, cash flows, improve through purpose driven change in order for it to thrive and support what’s next.  What’s next should increase the company’s durability in either their market dominant or competitive environment it now operates.  What’s next comes about by innovation (find secrets, see my blog on this), it is the advantage companies have.

Your company in its dominant market position, its compass firmly pointing toward growth, will be challenged.  Amazon has led the e-commerce economy for years and it continues to expand, grow, improve. Yet, Jeff Bezos in May 2018 stated one day, Amazon could go bankrupt, fail (https://www.investopedia.com/news/why-jeff-bezos-saying-amazon-will-ultimately-fail/).  A continuing pursuit of excellence, maintain the market dominance position with strategy, proprietary technology, network effect, economy of scale, branding, identify and remove barriers and pursue excellence is essential.

Your company in its competitive environment can lead or even shift to a stronger position or differentiate itself from the pack by improving a slice of the business above the others.  Is your company #1 or #2 in your competitive market?  If not, evaluate your position, identify and remove the barriers, understand the gap of where you are and where you need to be, begin the journey to close the gap and differentiate your company from the rest.  It can be done as demonstrated by other leaders before you.

What will your company’s response be to these unprecedented times, challenges, business climate?  Your individual company’s circumstances are unique yet require a constant approach for excellence in your existing business to achieve durability.  Whether your company’s compass heading is pointing toward growth in a market dominant position or competitive market, excellence is imperative, innovation is essential or your compass can point into another direction, away from growth.

Innovation Advantage is looking to continue its research and is looking for sponsors to allow us to facilitate this important first step, Compass Heading, in our discovery process.  Contact us.

Enjoy the journey.

All Figures are in millions except Diluted EPS and from annual reports.

Amazon	YR 2019	YR 2018	YR 2017
Revenue	$281	$233	$178
Operating Income	$15	$12	$4
% Opr Income	5.3%	5.2%	2.2%
Net Income	12	10	3
% Net Income	4.3%	4.3%	1.7%
Diluted EPS	$23.01	$20.14	$6.15
Net Cash	$39	$31	$18
Microsoft
Revenue	$126	$110	$96
Operating Income	$43	$35	$29
% Opr Income	34.1%	31.8%	30.2%
Net Income	$39	$16	$26
% Net Income	31.0%	14.5%	27.1%
Diluted EPS	$5.06	$2.13	$3.25
Net Cash	$11	$12	$8
Apple
Revenue	$260	$266	$229
Operating Income	$64	$71	$61
% Opr Income	24.6%	26.7%	26.6%
Net Income	$55	$60	$48
% Net Income	21.2%	22.6%	21.0%
Diluted EPS	$11.89	$11.91	$9.21
Net Cash	$50	$26	$20
FaceBook
Revenue	$71	$56	$41
Operating Income	$24	$25	$20
% Opr Income	33.8%	44.6%	48.8%
Net Income	$18	$22	$16
% Net Income	25.4%	39.3%	39.0%
Diluted EPS	$6.43	$7.57	$5.39
Net Cash	$21	$15	$17
IBM
Revenue	$77	$80	$79
Operating Income	$10	$11	$11
% Opr Income	13.0%	13.8%	13.9%
Net Income	$9	$9	$6
% Net Income	11.7%	11.3%	7.6%
Diluted EPS	$10.63	$9.57	$6.17
Net Cash	$8	$12	$12
Alphabet
Revenue	$162	$137	$111
Operating Income	$34	$28	$26
% Opr Income	21.0%	20.4%	23.4%
Net Income	$34	$31	$13
% Net Income	21.0%	22.6%	11.7%
Diluted EPS	$49.16	$43.70	$18.00
Net Cash	$19	$17	$11
Tesla
Revenue	$25	$21	$12
Operating Income	($69)	($388)	($1,632)
% Opr Income	(0.3%)	(1.9%)	(13.6%)
Net Income	($862)	($976)	($1,962)
% Net Income	(3.5%)	(4.6%)	(16.4%)
Diluted EPS	($4.92)	($5.72)	($11.83)
Net Cash	$7	$4	$4
United Airlines
Revenue	$43	$41	$38
Operating Income	$4	$3	$4
% Opr Income	9.3%	7.3%	10.5%
Net Income	$3	$2	$2
% Net Income	7.0%	4.9%	5.3%
Diluted EPS	$11.58	$7.67	$7.06
Net Cash	$3	$2	$2
American Airlines
Revenue	$46	$45	$43
Operating Income	$3	$3	$4
% Opr Income	6.5%	6.7%	9.3%
Net Income	$2	$1	$1
% Net Income	4.3%	2.2%	2.3%
Diluted EPS	$3.79	$3.03	$2.61
Net Cash	–	–	–
Delta
Revenue	$47	$44	$41
Operating Income	$7	$5	$6
% Opr Income	14.9%	11.4%	14.6%
Net Income	$5	$4	$3
% Net Income	10.6%	9.1%	7.3%
Diluted EPS	$7.30	$5.67	$4.43
Net Cash	$4	$3	$2
Southwest
Revenue	$22	$22	$21
Operating Income	$3	$3	$3
% Opr Income	13.6%	13.6%	14.3%
Net Income	$2	$2	$3
% Net Income	9.1%	9.1%	14.3%
Diluted EPS	$4.27	$4.24	–
Net Cash	$3	$2	$1

Executive Directors, VP, CEO’s, Partners, BOD, Business Owners, Employees, why is it important to know the company’s COMPASS HEADING?  There is risk regardless of the direction. I invite you to read the following and let’s learn from them.  This summary presents recent results, decision, impact for a company falling through decline.  The outlook for its employees, investors and communities is not good.  This determination is based solely on public information and not any internal reports or documents.  Internal reports and documents provides another perspective into the company’s overall health.  Several attempts were made over the past year to contact the leadership in an attempt for them to sponsor research into their compass heading, but to no avail.  However, public information is most likely enough because Wall Street is not supportive as the stock price continues its decline.  From the highest stock price in 2014 to August 6, 2020, the drop is at 93%.

I followed this company for nearly 18 months – public financial information, news releases, analysts.  I loaded all the information into the Compass Model that my previous blog explained to determine what direction the compass was pointing.  Why is it important to know?  There is risk regardless of the direction.  This company’s heading is decline.  At what stage, I expected at least Stage 4 based on Jim Collins’ Five Stages of Decline.  The company is most likely now at Stage 5.  Here are some facts on the company which could demonstrate problems and implications of them on the company’s future.

Year-to-Date 2020

• Q1 losses at $19 million
• Q2 losses at $ 38 million
• Stock down 7% to 10% to August 6, 2020
• Cash on hand projected to run out before the end of the year
• Announced plans to close plants, layoffs, product reduction
• Attributed most recent results to COVID-19

Years 2016 to 2019

• Revenues at $ 2.5 billion
• Losses at $ 141 million
• SG&A, R&D Expenses at $ 1.4 billion
• Stock ended 2019 – 75% down for past 6 years

Years 2004 to 2019

• Accumulated Revenue $ 6 billion
• Accumulated Losses $ 684 million
• Acquisitions made 2013 to 2015 value $ 600 million plus stock
• Impairment charge $ 540 million
• R&D Expense $ 700 million
• One interim CEO in past 16 years had a year of profit, his only year as CEO.  All other CEO’s had accumulated losses over their tenure
• 6 CFO’s over 10 years
• 10 Senior Executives over 10-year period
• Company expanded products, services, plants, domestic and international

All the results point to a company in the final stage of decline.  Model was proven in research of other companies in decline.  The options for leadership with limited cash and in the  final stage is most likely two – capitulate or hang on until irrelevant/disappear.

Leaders, employees what direction is your compass pointing is one of the most important things to know because, there is risk for all employees, stockholders and communities.   I will continue to monitor their future.

All the best, get started and know – growth or decline.  Clock is ticking.