The King Is Dead; Long Live the King

The King Is Dead
A muffled sigh of grief can be heard emanating from Detroit, as after 76 years as the world's #1 carmaker, GM has lost its crown to Toyota. What has caused the king to fall?

Arrogance, surely is a contributor - after 30 consecutive years of declining market share in the USA, GM still has not awakened to the realities of global competition. Slow to change, late with new models, lagging in innovation, and in quality ... the criticisms are easy to find. Surely behind all this is a mental problem; perhaps, in addition to arrogance, there is ignorance, or petulance, and perhaps some other "ances" too. The rules of the game changed and GM did not change adequately; it would appear that GM has a flawed mental model of the global auto market.

Long Live the King
Now, imagine it's 2083. Will Toyota still be the #1 auto maker in the world? Or will the company have fallen into the status of a mediocrity?

It's difficult to imagine that Toyota would lose it's grasp on leadership, as the one perhaps most distinguishing characteristic of the company as seen from the outside today is the clarity of its thinking. By all accounts, Toyota is characterized by a high degree of collaborative thinking, by an intense scrutiny and appreciation of the realities of the marketplace, by a commitment to innovation (by some accounts, 100 ideas per person per year is normal), and through it's hybrid technology, a positioning as more environmentally sensitive than other auto makers.

Should these qualities fade, then Toyota might fade with them. But what if the market shifts, perhaps suddenly, and "cars" no longer mean what they mean today. Could Toyota become the equivalent of today's typewriter manufacturer? It's possible, certainly; but really hard to imagine, just as in 1970 it was so hard to imagine that the typewriter could fade to irrelevance in a mere decade.

50 years after Toyota entered the American market it has achieved this milestone; what company - probably one that we haven't heard of yet - could displace Toyota? An Indian company? A Chinese one? Or perhaps a company that makes flying cars, rather than ground-huggers will become the leader. Perhaps we'll travel via teleportation by 2083, and cars will only be in museums.

Or here's a thought - perhaps it will be ... GM! Let us not underestimate the power of a global colossus, and if the hydrogen economy really does emerge, GM's investment of billions in that technology could catapult it back to #1. The pace of innovation is accelerating, and no company's lead is insurmountable.

It's Good to Be the King

Wal-Mart's $351 billion of sales in 2006 put it at the top of the Fortune 500 list again, just ahead of Exxon's $347 billion. The profit picture is somewhat different, however. Wal-Mart earned $11.3 billion, while Exxon showed a whopping $39.5 billion, 3.5 x greater. At 3.2%, Wal-Mart is doing great for a retailer - Safeway, by comparison, earned a more modest 2.1% net profit. Exxon is floating on oil at 11.3%.

Exxon's net is best in of US history. But now that most observers believe that we've passed the point of peak oil, how sustainable is Exxon's future? Equally pertinent is the question about the future of the oil economy, given the dire warnings about global climate change and petroleum's role as the provocateur. Both companies face massive challenges from inside and out.

Twenty or thirty years ago companies of such massive economic power would be kings of Wall Street, but in today's environment things are different. There are serious clouds on the horizon, and it's clear that both companies cannot continue just doing what they've been doing if they're going to sustain success.

Looked at more broadly, the combined Fortune 500 earned a stunning $785 billion in net profits last year, also a record. (And far more than the previous high of $444 billion in 2000.)

These are massive, intimidating numbers. The scale of the US economy is staggering; unfortunately it's staggering to the environment, also. Yesterday my son showed me how to measure my "environmental footprint" at http://myfootprint.org/, and the result was alarming. As a consumer, my lifestyle is significantly beyond Earth's capacity. (4.2x, to be precise, according to Earth Day Network.)

Wal-Mart and Exxon probably have many good years ahead of them, but they will endure for decades only as they develop new products and services that address the vast imbalance between the environment and the economy. They are currently on divergent paths, but we all know that in the end we cannot transcend what Earth is capable of supporting.

Worst Practices in Innovation Award Winner!

Circuit City gets the "Worst Practices in Innovation" award for this month.

In a major shoot-yourself-in-the-foot move, they recently announced that they're laying off 3400 of their highest paid hourly employees to reduce costs. These employees will be able to re-apply for their former jobs, at lower pay, in 10 weeks. (As if!)

Just when their competitors are trying to improve customer service, here we have a move that will likely do the opposite; not only do they lose the knowledge of 3400 experienced people, but they also blow a massive hole in company morale, as the message from management is clearly "Abandon Ship!"

According to published reports, starting pay at Circuit City is about $8 per hour, while top pay is apparently around $15. If my math is right, these layoffs therefore save them around $35 million per year.

Behind this move, of course, is the stark math of consumer electronics retailing, where margins are shrinking and competition is fierce. But my goodness, couldn't they come up with a more innovative approach than chop, chop, chop?

I would suppose, for example, that if they engaged the 3400 people in a creative conversation about how to improve the company and increase sales, they would get back a lot more than $35 million. The most innovative companies engage everyone in the organization in the search for great new ideas; the least innovative ones kill innovation from the top down.

Innovation at Play

Looks like a picture of some kids playing on a merry-go-round, right? That's what it is.

And it's also kids pumping water from the ground into that tank, providing clean water for their community.

Yes, innovation shows up in the most amazing ways. This is the mission of the non-profit called Play Pumps - to install these play structures that serve their communities.

A truly brilliant innovation.