Friday, February 03, 2017

Eating the seed corn

Eating the seed corn is an old saying that at one time meant quite a lot, but probably has little import anymore.  When farming was about simply surviving from season to season, eating the seed corn literally meant eating the seeds of the future planting.  Each year farmers would save some seeds, or potatoes, or whatever they needed to plant for the coming spring.  If the winter was harsh enough, they might have to eat those plants or seed in order to survive.  Of course this left them weakened but alive, but when spring arrived they didn't have seeds to plant, and would have to either leave the land or borrow to buy seeds to plant a crop, simply driving an already weakened family further into debt, with the hope of a bumper crop to provide sustenance for the coming year, leaving enough aside to plan for future planting and the ability to pay off the borrowed seeds.  Eating the seed corn should be a last resort.

Did Target eat its seed corn?

I'm writing about "eating the seed corn" because of recent news stories concerning the sudden end of innovation projects at Target.  Other than what I read on the web, I have no further insight about what happened to these projects.  It could be that management decided the investment wasn't worth the cost, or that promised deliverables or outcomes weren't going to appear.  We'll never know, but from the outside looking in this looks like an attempt to cut costs and deliver a good profit margin in an otherwise flat revenue year.  One can either grow revenue or cut costs (or both) to create better margins:  it seems like Target management chose to cut costs.  But instead of cutting costs across the board, it seems to have simply hacked two rather large innovation projects where there was reasonably large investments.

Now I'm fairly sure that these projects don't represent all the innovation underway at Target.  At least I hope that's the case.  But reading between the lines it appears that both of these concepts were ready for release and scaling, so most if not all of the investment had been made.  Those costs were in the past - the ideas should start to generate revenue at this point.  Cutting them means that there will be little incremental organic or new growth from new ideas.  Even the management team admits that Target is going to "focus on the core".  When you hear that it means going back to the basics, back to best operating principles, cutting fat and inefficiency.  Can Target right the ship and remain competitive as Amazon starts to open brick and mortar stores?  Can Target shut down interesting, perhaps promising innovation projects at a time when competition seems very stiff, and Target's differentiation with Amazon and Wal-Mart seems to grow smaller every passing day?

What's perhaps even more interesting about this news

What's also odd about this news is that interesting, innovative ideas get killed all the time in large corporations, for a variety of reasons.  Sometimes the ideas simply don't play out.  Sometimes the ideas threaten to cannibalize existing revenue streams. Sometimes another senior executive stands to lose when another one backing the new idea wins.  Yet you rarely hear so much about the ideas and their promise, or find examples of a company forced to respond so publicly to the termination of innovative ideas that weren't launched.  Is this because the people behind the ideas felt that Target management was out of step with the demands in the marketplace for new ideas?  We don't know for sure, but this signals a very interesting new possibility:  that after hearing about the importance of innovation, people within companies start to believe that management is serious about innovating, and the innovators become convinced that their ideas will become products or services, and become far more frustrated and angry when they don't.  In the past, terminating these ideas wouldn't make news, because people would go back to their day jobs, a little sadder and wiser.  Increasingly, we may find that people don't go quietly into that good night, and challenge a management team they think is making the wrong decisions, openly and even publicly.  This new openness could create interesting signals to investors about who is serious about innovation, and who will follow through on the promises of innovation.

R&D as a metaphor for seed corn

The retail industry is a bit unusual, since it doesn't typically have an "R&D" component the way say a software company or semiconductor company would.  In these research oriented companies there's a constant battle to create new research and bring completely new products and services into the world.  Yet many industries lack a consistent team or purpose to generate really new solutions or ideas - they don't have a true "R&D" function, so innovation often is used as a stop gap measure to provide new ideas in the lack of a research capability.  But it's difficult to compare a true R&D team, which has processes and staffing and budgets that are relatively consistent, year in and year out, to pop up innovation teams that can be quickly started, and in the Target case rapidly extinguished.  Increasingly it's difficult to compete with a notion of research, of new development, of innovation, in any industry, and Target and others like it are missing an opportunity.  Whether they label it as "innovation" or R&D or some other label, companies and industries that for years or even decades have avoided these consistent investments can't compete effectively without them anymore.  Whether you call it R&D or consistent innovation or something else, every industry must be creating new products, services and business models on a consistent, predictable basis.  The pace of change and the emerging global competition is simply too fierce to wait.

We'll see about Target. Did they hunker down at exactly the moment they should reinforce innovation?  Can they sustain relevance and growth as Amazon enters the brick and mortar space, and as Alibaba casts a envious eye on the US market?  Time will tell, and it will be worth watching.
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posted by Jeffrey Phillips at 5:45 AM


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