CEO advisory

Leadership and strategy in the news Craig Henry

Craig Henry, Strategy & Avoiding acquisition pitfalls you to risks identified in due Leadership’s intrepid media diligence .... We’ve looked back over the last explorer, collected these examples thirty years of M&A to identify the 5. Gluttony: Just another wafer thin of novel strategic management root causes of the more epic mint? concepts and practices and disasters. These are the Seven impending environmental Beware the deal to end all Deadly Sins of M&A: the warning discontinuity from various news deals! signs that boards, CEOs and media. A marketing and strategy advisors can and must look out for 6. Wrath: “Anger is never without a consultant based in Carlisle, in the year ahead . . . reason, but seldom with a good Pennsylvania, he welcomes your one.” contributions and suggestions 1. Envy: The grass is always ([email protected]). greener. Great businesses have been destroyed by getting caught up Make sure that you do what is in the moment – by letting anger right for you, rather than simply take hold when the deck is mimicking what others have stacked against them .... done . . . 7. Sloth: Make the hard decisions 2. Pride: The final step before you now. fall. Don’t get too excited about Don’t believe too much in your closing the deal. own infallibility! Many, many serial acquirers have eventually “The Seven Deadly Sins of M&A”, come unstuck through Pottinger Perspectives, June 2016 remaining loyal to strategic www.pottinger.com thinking that didn’t evolve or simply believing they had the Cascading disruption and the magic touch when it came to Internet of Things choosing targets and closing transactions .... We are living in an era of bundling. The big five consumer tech 3. Greed: The long term starts companies – Google, Apple, tomorrow. Facebook, Amazon, and Microsoft – Don’t pursue a goal solely for have moved far beyond their original short term ends . . . product lines into all sorts of hardware, software and services 4. Lust: If it walks like a duck. that overlap and compete with one Pay attention to the due another. But their revenues and diligence. No matter how profits still depend heavily on enamored you are with a external technologies that are particular target, don’t allow outside of their control. One way to enthusiasm for the deal to blind visualize these external

PAGE 52 STRATEGY & LEADERSHIP VOL. 44 NO. 4 2016, pp. 52-56, © Emerald Group Publishing Limited, ISSN 1087-8572 DOI 10.1108/SL-06-2016-0053 dependencies is to consider the interfaces – could become the numbers (the new, seemingly infinite path of a typical internet session, master routers of the internet numbers the internet and social from the user to some revenue- economic loop, rendering many of media provides) what we couldn’t generating action, and then . . . the other layers interchangeable or solve with attention. And with every back again to the user: irrelevant. new set of eyeballs (or clicks, or views) we added, we diminished the When evaluating an internet Chris Dixon, “The Internet merit of what we made. And company’s strategic position (the Economy”, Medium, 29 April 2016 advertisers asked for more, because defensibility of its profit moat), you https://medium.com/@cdixon/the- those eyes were worth less. And we need to consider: 1) how the internet-economy-fc43f3eff58a#. made more. And it was less company generates revenue and j87tj4y2x valuable. profits, 2) the loop in its entirety, not just the layers in which the company Digital disruption and media Joshua Topolsky, “Your Media has products. vicious cycle Business Will Not Be Saved”, Medium, 25 April 2016, https:// Video will not save your media For example, it might seem medium.com/@joshuatopolsky/your- business. Nor will bots, newsletters, counterintuitive that Amazon is a media-business-will-not-be-saved- a “morning briefing” app, a “lean major threat to Google’s core search 1b0716b5010c#.x7v5qbaug business. But you can see this by back” iPad experience, Slack following the money through the integration, a Snapchat channel, or loop: a significant portion of a great partnership with Twitter. All Microsoft, LinkedIn, and the Google’s revenue comes from of these things together might help, future of work search queries for things that can but even then, you will not be saved by the magical New Thing that LinkedIn, the business-oriented be bought on Amazon, and the social-networking company that buying experience on Amazon (from everyone else in the media community is convinced will be the Microsoft acquired, this week, for initial purchasing intent to answer to The Problem. $26.2 billion, was founded on two consumption/unboxing) is premises. The first was that, even in significantly better than the buying I can tell you from personal the winner-take-all world of Internet experience on most non-Amazon experience . . . in the media world businesses, there would still be e-commerce sites you find via that there is a desperate belief that room for a niche company Google searches. After a while, The Problem can be solved with the (meaning, in this case, only four shoppers learn to skip Google and New Thing .... hundred million registered users, go straight to Amazon . . . The Problem is that we used to have and a hundred million users per Amazon’s vision here is the most a really neat and tidy version of a month). The second was that what it ambitious: to embed voice services media business ....Putsimply, means to work in a business is now in every possible device, thereby there were far fewer players in the profoundly different from what it was reducing the importance of the game with far fewer outlets for their in the Organization Man era. device, OS, and application layers content, so audiences were easy to White-collar employees . . . (it’s no coincidence that those are sell to and easy to come by. self-manage their careers, in part by maintaining online personal also the layers in which Amazon is Then digital . . . And all of a sudden networks .... the weakest). But all the big tech all those old, fixed channels started companies are investing heavily in falling apart .... Microsoft, which in its early days voice and AI. As Google CEO thought of itself as a A second thing happened Sundar Pichai recently said: consumer-facing company, seems alongside those foundational to be turning into the The next big step will be for the very publishing challenges: this industry business-to-business player among concept of the “device” to fade . . . began to cede its power in the the Big Five. With this acquisition, it away. Over time, the computer delivery and distribution process to is betting on the idea that millions of itself? – whatever its form factor – other people ....People who told people who work in business will will be an intelligent assistant them the answer wasn’t the best of pour personal information into the helping you through your day. We something, it was the most of network, in ways that are will move from mobile first to an AI something. economically useful to Microsoft. On first world. So over time, we built up scale in LinkedIn, people do these things This would mean that AI interfaces – digital to replace user value. We because they believe that it’s a which in most cases will mean voice thought we could solve with better career strategy . . . in the new

VOL. 44 NO. 4 2016 STRATEGY & LEADERSHIP PAGE 53 economy . . . . A recent study by two outcomes. As the tale goes, “I don’t in its demo for Home, a forthcoming leading economists, Lawrence Katz have to outrun the bear . . . I just voice assistant device meant to rival and Alan Krueger, shows an have to outrun you.” Except when it Amazon’s Echo, seemed to be able increase of nearly fifty per cent over comes to disruption, that strategy to handle such questions. Two the past decade in what they call merely buys time. If the bear keeps start-ups – Viv, which was founded “alternative work arrangements” – running, it will get to you, too .... by members of the team that freelancing, temping, and so on. created the original Siri app that One notable exception was former The increase has been especially Apple bought in 2010, and digital laggard Axel Springer. The large in fields like transportation, SoundHound have also unveiled German media company was “a education, the arts, and, counter systems that can tackle such mere Internet midget,” according to intuitively, government. A bet on the complex queries. Financial Times Deutschland, until it future of LinkedIn is, to some extent, leapt into action in 2005. It went on To handle these questions, an a bet on the continued expansion of a shopping spree, acquiring 67 assistant would need to pull that kind of work. digital properties and launching 90 information from multiple online Nicholas Lemann, “LinkedIn’s initiatives of its own by 2013.13 Like services ....Andthat would be Complicated Bet on the Future of Schibsted, it saw the value pools very useful .... Work”, New Yorker, 17 June 2016. moving to online classifieds and Voice interfaces could usher in a made the leap. The lesson is that new paradigm in computing, one incumbents can win even with a late that would break free of the tyranny Surviving disruption start, provided that they throw of apps on devices. They could get themselves in wholly. Today, digital As company performance starts to a lot done for us without much media contributes 70 percent of suffer, tightening up budgets, tapping and switching. Google, Axel Springer’s earnings . . . The established companies naturally Amazon and several start-ups seem core has become the periphery. tend to cut back even further on to be rushing headlong to build peripheral activities while focusing Chris Bradley and Clayton O’Toole such a system. on the core. The top decision “An incumbent’s guide to digital Farhad Manjoo, “Can Apple Think makers, who usually come from the disruption”, McKinsey Quarterly, Outside the Device?”, New York biggest business centers, resist May 2. having their still-profitable (though Times, 16 June 2016. more sluggishly growing) domains Agile innovation comes to starved of resources in favor of Apple and the device trap manufacturing unproven upstarts. As a result, Siri is still hopelessly tied to each leadership often under invests in new George Tome, a software engineer Apple device. Siri on your iPhone initiatives, even as it imposes high who had become a project manager doesn’t really know anything about performance hurdles on them. Legacy within Deere’s corporate IT group, Siri on your Mac or Apple TV. On businesses continue to receive the began applying agile principles in each device, Siri has different lion’s share of resources instead. By 2004 on a low-key basis. Gradually, capabilities: On your iPhone it can this time, the very forces causing over several years, software call an Uber, if you have the Uber pressure in the core make the development units in other parts of app installed, but Siri on your Mac business even less willing and able to Deere began using them as well. can’t. Siri on your Apple TV can address those forces. The reflex to This growing interest made it easier search YouTube for clips of conserve resources kicks in just when to introduce the methodology to the Stephen Curry, but Siri on your you most need to aggressively company’s business development iPhone can’t .... reallocate and invest .... and marketing organizations. If Siri is an intelligent assistant, why Further complicating matters, In 2012 Tome was working as a does she need to be tied to apps incumbents with initially strong manager in the Enterprise Advanced you have installed on your device? positions can take false comfort at Marketing unit of the R&D group Why can’t she call Uber from the this stage, because the weaker responsible for discovering cloud, regardless of which device players in the industry get hit technologies that could revolutionize you happen to be using? hardest first. The narrative “it is not Deere’s offerings. Jason Brantley, happening to us” is all too tempting The device-centric view gets the unit head, was concerned that to believe. The key is to monitor particularly limiting when you think traditional project management closely the underlying drivers, not about asking your assistant techniques were slowing innovation, just the hindsight of financial complicated questions ....Google, and the two men decided to see

PAGE 54 STRATEGY & LEADERSHIP VOL. 44 NO. 4 2016 whether agile could speed things Darrell K. Rigby Jeff Sutherland and to get into the Rickshaw Stop on Fell up. Tome invited two other unit Hirotaka Takeuchi “Embracing Street in San Francisco. This was managers to agile training classes. Agile”, Harvard Business Review, not like most nights at the funky But all the terminology and May 2016. music venue and bar; the people in examples came from software, and line weren’t waiting to see an indie to one of the managers, who had no Innovation and the shackles of band, or dance to music spun by a software background, they sounded expertise DJ. This night the entertainment like gibberish. Tome realized that Great innovators are not just smart, would be opera . . . of a sort. The others would react the same way, so they are curious. They are rarely evening, organized by the San he tracked down an agile coach purists or polemicists, but are Francisco Opera (SFO), was called who knew how to work with people courageous enough to venture “Barely Opera,” with the slogan without a software background. In outside their domain .... “This Isn’t Your Grandmother’s the past few years he and the coach Opera.” Complete with a “Wheel of have trained teams in all five of the In The Structure of Scientific Songs” that audience members R&D group’s centers. Tome also Revolutions, physicist Thomas Kuhn could spin to select the next song, a began publishing weekly one-page explained that discrete fields are live DJ, opera-themed drinks, and articles about agile principles and often poorly equipped to break new costumes for attendees to try on, it practices, which were e-mailed to ground because they get caught up was designed to remove the in paradigms designed to solve old anyone interested and later posted intimidation often felt by those new problems. To tackle new challenges, on Deere’s Yammer site. Hundreds to opera and introduce a younger, they need to undergo a paradigm of Deere employees joined the hipper audience to operatic music. shift and that usually entails discussion group. “I wanted to incorporating knowledge from a Barely Opera was the result of a develop a knowledge base about separate domain. project that was part of a course at agile that was specific to Deere so Stanford University’s Hasso Plattner that anyone within the organization Unfortunately, we design our Institute of Design (“d.school”) .... could understand it,” Tome says. organizations to do just the “This would lay the foundation for opposite . . . Like almost every non-profit organization, SFO has limited moving agile into any part of the Richard Foster at Yale University company.” resources ....Tosurvive and thrive predicts that, by 2020, three with the conflicting demands of Using agile techniques, Enterprise quarters of the S&P 500 will be performance excellence and Advanced Marketing has companies we’ve never heard of. So constrained resources, SFO has significantly compressed innovation it is unlikely that we’ll find the next developed a highly structured project cycle times – in some cases big thing in the same places we organization. by more than 75%. One example is found the last big thing. the development in about eight As a result of these factors, previous The truth is that we won’t find the “experiments” had typically been months of a working prototype of a next big thing in one of the existing meticulously planned, and executed new “machine form” that Deere has disciplines that we encourage our at extremely high levels of quality. not yet disclosed. “If everything bright young minds to pursue. The Given the drive for perfection went perfectly in a traditional place to look for breakthrough ingrained in its culture, the natural process,” Brantley says, “it would be innovations is not in one field or response to poor results was that a year and a half at best, and it another, but where domains the quality level had not been could be as much as two and a half intersect in spaces we have not yet sufficient, and other potential or three years.” Agile generated defined. other improvements as well. Team lessons were often lost. This blend Greg Satell, “Where to Look for the of perfectionism and limited engagement and happiness in the Next Big Thing”, Innovation resources meant that experiments unit quickly shot from the bottom Excellence, 9 June 2016 www. were rare events at SFO. third of companywide scores to the innovationexcellence.com/blog/2016/ top third. Quality improved. Velocity “Design thinking” is a hands-on 06/09/where-to-look-for-the-next-big- (as measured by the amount of work approach that focuses on thing/ accomplished in each sprint) developing empathy for others, increased, on average, by more generating ideas quickly, testing Even non-profits can innovate than 200%; some teams achieved rough “prototypes” that, although an increase of more than 400%, and On March 2, 2015, a line of people incomplete or impractical, fuel rapid one team soared 800%. stretching around the block waited learning for teams and

VOL. 44 NO. 4 2016 STRATEGY & LEADERSHIP PAGE 55 organizations. The two d.school The importance of this physical be relatively fleeting if its leaders students who worked with the Opera separation from the daily grind don’t simultaneously attend to the were Zena Barakat and Madhav should not be underestimated .... future and the past. It’s a balancing Thattai . . . Harvard professor Ronald Heifetz act that requires a unique mindset, calls this a “balcony moment”: the The SFO project began in January a particular set of skills and tools, imperative for leaders to leave the 2015. Zena and Madhav’s first step and a specific strategy. “dance floor” periodically and reflect was to take the SFO team working Continuously reinventing your on the patterns and movement on the d.school project to meet with organization doesn’t mean you have below .... people from outside the world of to start from scratch with each new opera. One was Christina Augello, Indeed, corporate academies innovation. Exploring new founder of the experimental EXIT provide an unparalleled opportunity opportunities is an incremental Theatre and organizer of San for employees to share experiences process that begins with sensitivity Francisco’s Fringe Festival. She with fellow participants and to to changes in the broader described the struggle of connect with company leaders. environment. These changes, often experimenting on a tight budget, Many best-practice corporate unclear and barely perceptible, something she considered to be an academies deploy their top foreshadow new trends in human essential part of the creative executives as visiting faculty; GE, for behavior, technology, and process – a sign on the wall read instance, has long used its most demographics. Futurists call them “No Risk, No Art.” senior leaders in many learning “weak signals.” programs. A major Asian oil and gas Bob Sutton, “Getting Comfortable company . . . includes the number of . . . New ventures should stand with Feeling Uncomfortable: days senior executives spend in alone to continue their experimental Innovation at the San Francisco such teaching capacities in their journey. If the venture is an Opera,” LinkedIn 15 June 2016 performance evaluations. The value acquisition, keep it separate from www.linkedin.com/pulse/isnt-your- of this interaction is particularly high your company’s main business. If grandmothers-opera-traditional- for companies that operate across organization-bob-sutton the innovation is developed within businesses and geographies. your organization, assign responsibility to a dedicated team. Corporate learning and the value Richard Benson-Armer, Arne Gast, of bricks and mortar and Nick van Dam, “Learning at the Vijay Govindarajan, “What Innovative speed of business”, McKinsey For all of the notable advances that Companies Can Learn from Keurig’s Quarterly, May 2016. digitization promises, Highs and Lows,” HBR blogs, 20 comprehensive learning cannot be June 2016 https://hbr.org/2016/06/ Innovation and “weak signals” based on the cloud alone. what-innovative-companies-can- Companies still have compelling Too often, leaders focus only on learn-from-keurigs-highs-and-lows reasons to locate significant current operations because it is the elements of corporate learning in performance engine that generates Corresponding author tangible, specialized educational the funds necessary to stay in play. Craig Henry can be contacted at: facilities . . . But an organization’s success may [email protected]

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