Motley Fool Hidden Gems Investing - Motley Fool Money: 02.24.2012

Episode Date: February 24, 2012

Oil prices continue to climb. Johnson & Johnson makes a change at the top.  Wal-Mart and Home Depot report earnings. And Apple debates how to deploy its cash.  Our analysts discuss those stories and share three stocks on their radar. Plus, we talk innovation with Dartmouth College Professor of Business Ron Adner, author of The Wide Lens: A New Strategy for Innovation.   Learn more about your ad choices. Visit megaphone.fm/adchoices

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From Fool Global Headquarters, this is Motley Fool Money. Welcome to Motley Fool Money. Thanks for being here. I'm your host, Chris Hill, and joining me in studio this week for Motley Fool Stock Advisor, Jason Moser, for Motley Fool Inside Value, Joe Mager, and for Million Dollar Portfolio, Ron Gross. Gentlemen, good to see you. Good to see you, too. We have got earnings from Walmart, JCPenney, and more. After a decade of market-losing returns, Johnson & Johnson has finally decided it's time to get a new CEO.

And as always, we've got a few stocks on our radar, but we will begin with the big macro. And guys, let's talk oil. Oil prices hit a nine-month high this week. it's trading at over $108 a barrel. Joel, I'll just start with you. When you look at oil writ large, what are you thinking as an investor? Well, I think that there's a lot of risk with this in terms of our recovery, because there are a lot of ripple effects with oil. On the demand side, higher oil prices translate to higher gasoline prices. So, you're either going to drive less, or you're going to have

less pocket change that you're going to spend in a discretionary way. And on the supply side, you're going to see cost increases, because companies suddenly have more expenses flowing through of their own, they're going to raise prices, and ultimately that hurts consumers in the market. O' Ron? Yeah, I think that's perfectly right. High gas prices are thought of as a tax on the consumer, and an economy that is teetering on the edge here, we don't need another tax, especially for low-income households that will have to choose between filling up a tank

and perhaps going into a Walmart or a store to buy goods, that's not what we need right now. Jason? Yeah, I mean, we've seen what higher oil prices do to gas prices, and we know the effect that it has on consumers. And I think even one step further there, I think it's interesting to see the disparity between high oil prices and very low natural gas prices. And then the names and the companies that come out from the whole natural gas argument, with T. Boone Pickens' effort to really spearhead the natural gas movement for the trucking industry, to try to ease up some of the oil price concerns for consumers and their vehicles.

That's an interesting disparity, I think, to consider as well. Well, historically, natural gas has traded about one-sixth of the price of oil, and there's a reason. It's because there's actually an energy relationship between how much you can get out of natural gas and oil. But now, it's completely ballooned out. Natural gases at $2.80 per mcf, which is what natural gas is measured in, versus $1.08 a barrel in oil. The irony is that high oil prices are actually hurting gas prices right now, because we're getting more natural gas as a byproduct of heavy drilling for oil in the U.S., so it's a very unusual situation. We talk frequently about the big players

in the oil industry, Exxon Mobil, Chevron, etc., but I'm curious, you guys as investors, you look at oil over that $100 a barrel mark, what are some companies that are sort of off the radar a little bit for investors to consider, sort of hidden winners when it comes to $100 oil? Joe? Yeah, well, I wouldn't be looking at oil companies, because oil is already at a high price. So, oil companies have already moved. I'd be looking at companies that would benefit from a substitution of oil, and I think natural gas has a logical play on that. Now, another degree separated from that is electricity producers, and one that I really like is Exelon.

It's the U.S.'s largest nuclear power producer. And they've been hit really hard because of low electricity prices, because natural gas prices have fallen. But, it's a very stable business, pays a 5.3% dividend yield, and if you're patient, I think you'd do really well with it. Ron? Yeah, Fool analyst Alex Pape recently wrote an interesting article about the intermodal transportation industry, which is kind of the middleman between people that want to ship things and the railroad companies. So big companies like J.B. Hunt or the Hub Group are the big players here, and railroads get increased activity because they're cheaper

than trucking, for example, when oil prices rise. So these intermediaries could really be the beneficiaries. Jason? Yeah, I think Joe makes a lot of sense there in kind of steering away from the oil companies, so to speak. We know that deep water drilling is expensive and risky. I'm very interested in the natural gas aspect of this. We see names from Navistar to Cummins to Westport Innovations all coming together with Clean Energy Fuels and T. Boone Pickens in order to try to push that natural gas infrastructure onto the highways for the trucking industry.

To me, those are some more obscure names that people might not hear every day that I think over the long run could really benefit. Shares of Walmart down this week after revenue and earnings came in lower than expected for the latest quarter. Ron Gross, this is a stock you own in a million-dollar portfolio. What's your take? So, our thesis is that the international division of Walmart will be the growth driver, and that the U.S. business kind of just needs to stabilize, because they've really had some significant missteps. We are seeing that. We're seeing some stabilization from the U.S.

business, though, as a result of the fact that the company had to lower prices to lure customers in, which hurts margins, which is not great. The international thesis remains perfectly intact, however, and we're happy to see that. So, I think it's a fine company. It's not dirt cheap right now. We have it on hold. I see maybe about 10% upside from here. Pays a 2.5% dividend yield. There's a ton of competition out there. But, you know, It's Walmart. They produce a lot of free cash flow, and it'll be a fine stock to own, but don't expect market-crushing returns. Joe, we were talking earlier in the week on our daily podcast, MarketFoolery, about

the earnings and about the competition. This is a company that's obviously facing competition from the likes of Target, but also the lower-end retailers like Dollar General. Where do you think Walmart is right now as a company? Well, I think they're struggling to define themselves. And I agree with Ron that the international story is very interesting. If it was a pure play business, I would be pretty interested in actually diving into it. But when you look at the bigger picture, it's only 28% of sales coming from international Walmart. And, you know, here in the U.S., they're really getting tripped up by those guys at the low end where people who are really value conscious are really looking for super cheap goods. And people who have a little more pocket change are going to the likes of Costco or Target or Amazon.com. And Walmart is just kind of stuck in the middle there. And it almost reminds me of this classic, you know, holiday and marketing textbook example from college where basically when you're the guy in the middle, that's the last place you want to be in terms of differentiation.

Jason? I'm going to reach back to our MarketFoolery podcast a little earlier this week. The question you asked, if Walmart could eliminate one competitor out there, who would it be? We were all kind of having some trouble coming up with a name, and Joe made a really good point there. I think if they could destroy someone, it would be the internet, you know? They'd unlock it. Yeah, I mean, it's incredibly competitive, just general retail. They're phasing it from every direction. And then, when you have companies like Amazon out there that

can really add in their power of internet world domination and prime free two-day shipping, I think it makes it very difficult for Walmart to really, you know, it's a nice defensive play, it'll bring you some nice dividend income, but I don't imagine a terrible amount of growth left in that stock. And we talk about the challenges that bricks-and-mortar retailers are having, whether it's in general retail like this, or bookstores like Barnes & Noble, that sort of thing. But we did see earlier in the week, Joe, bricks-and-mortar retailer Home Depot report a really strong quarter, and that's a company that really seems to be doing well. Yeah. Well, this is one that a few people had written off a few

years ago because Bob Nardelli, former CEO, had kind of diversified the business. They were doing HD supply. Diversified? Diversified. They were trying to do more things than they should and branching out when really their core business is just serving customers well, having people on the floor and having people come in, have a great experience. They leave happy and they tell their friends. And Home Depot totally screwed up that equation. And they spent the last few years turning that around and focusing on those simple things. And, you know, ironically, you see Walmart kind of struggling in other directions there. And, you know, they've got a lot of big picture challenges. And then you've got Sam's Club under that umbrella, too. And whereas Home Depot is just

a very simple business and they're just executing nicely. Ron? Yeah, two things I liked about Home Depot's recent earnings report is that they're seeing their higher end transactions increasing. So people are spending $900 or more. Those types of transactions are increasing. And the professional contractor business is coming back a bit, which I think bodes well as an economic indicator. So happy to see those things. JCPenney's latest earnings, not so great. The company lost $87 million in the fourth quarter due to charges to revamp the company. Jason, last month, The CEO, Ron Johnson, announced a new pricing structure, plans to convert the stores, the look of them. How's it going so far?

Yeah, I mean, the loss this quarter wasn't really a surprise. I mean, typically when you see companies restructuring or taking a new tack, so to speak, they have to undergo these sorts of costs to do that. On the one hand, we know that turnarounds don't always really work out so well. And JCPenney has been dealing with some really tough times over the past decade or more. Retail is obviously very cutthroat. I think that Ron Johnson is the guy for this job. If anyone's going to pull it off, I think he's got definitely the track record behind what he did with Apple and their retail store and the Genius Bar there. I think that they're trying to turn JCPenney into a store where people can see it as more

of a consistent everyday option versus a shot in the dark, maybe I'll go here and get a deal kind of a thing. So, they're revamping the image, the stores, the brand. Like you said, they're advertising like crazy on Hulu Plus. I don't know if you've seen any of those. So, they're definitely getting the word out. I don't know that I'm all that really high on the stock itself. I mean, again, it's really cutthroat. The stock has done well thus far this year. It's beating the market. But still a lot of room to go here, I think. Yeah, because if you're buying JCPenney stock, you're essentially betting that Ron Johnson's strategy is going to work.

Yeah, you're placing a bet on a turnaround there, that his strategy is going to work. And we've just been kicking this around, how difficult retail is. It's not like there aren't plenty of substitutes out there for JCPenney. Ron, how does the stock look to you? Yeah, I haven't spent much time actually valuing it, but I'm just not sure we even need another JCPenney out there. Even in a better state, in a turned-around state, it's too cluttered the market. There's too many retailers at all different price points. They don't all survive. So many retailers go bankrupt, they eventually come back, they go bankrupt

again sometimes. It's just too crowded. O' But not Walmart, right? Ron hit on an important point with Walmart in regard to their gross margin taking a hit because of price cuts and everything. JCPenney saw the very same thing. A significant decline in gross margin over the quarter due to all of the restructuring and price cuts. making deals to get inventory out the door. And so, that's what we see. We saw the same thing with Best Buy, gross margin taking a big hit because they're just cutting prices to get stuff out the door. These are not the companies that can last long-term as the low-cost

provider. They just can't. And so, they're going to have to turn that around at some point, and time is only going to tell. Coming up, Apple's got more cash than it knows what to do with, and fortunately, we just happen to have a few suggestions. Details in a moment. This is Motley Fool Money. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. Welcome back to Motley Fool Money. Chris Hill here in the studio with Joe Mager,

Jason Moser, and Ron Gross. Guys, William Weldon, the CEO of Johnson & Johnson, will step down in April. Alex Gorski, who heads up the medical device and diagnostics business, will be the new CEO. Weldon is going to remain as chairman of the board. Joe, it's kind of been a long time in coming, yes? Time to go. Time to go. J&J's had so many product recalls over the past couple years on medical devices, on the consumer side with brands like Chilton Tylenol. It's been tough for the stock. It's hurt sales. It's hurt their expenses. And it's hurt the reputation of the company. And that's hurt the stock, ultimately. And Weldon had to go. He's been

there for a decade in that seat, and eventually, you are the guy who's got to accept ownership for these kind of quality problems that were systemic throughout the business. And yet, despite all of those problems, I still feel like this is a company that's relatively bulletproof. It's going to be around in 50 years. It's this highly diversified, huge, and from the standpoint of investors, still a safe stock to invest in. Would you agree with that? Yeah, I'm a big fan. It's actually A best buy now at inside value, I love the stock, I own a good bit of it, and I do think it has a great long-term record ahead of it, but you're just going to have to be a little

patient, but I'm certainly willing to be that guy. In terms of that category, Johnson & Johnson, this large, relatively safe, highly diversified business, for investors who are looking to get into a stock like that, as opposed to buying an index fund, what's a company in that category that you like? I'll go with Warren Buffett's Berkshire Hathaway, which actually owns shares of Johnson & Johnson. Berkshire's a very diverse business, extremely well-run, and I think it's very cheap right now. Ron?

Lucadia. L-U-K is the symbol, known as the mini Berkshire Hathaway. Ooh, deep hole! Oil and gas, gaming, real estate, medical products, wood and lumber, I mean, they're everywhere. Jason? Yeah, Johnson & Johnson is bulletproof. I think people are still going to buy infant Tylenol in 20 years from now, but I would probably pick 3M. I mean, they go everywhere from post-it notes to electric wiring. So, it's a pretty diverse company, good company.

Apple CEO Tim Cook said this week he believes his company has more money than it needs. During a Q&A session on Thursday, Cook said that he and the rest of Apple's board are nearing a decision on what to do with the $98 billion it has. Frankly speaking, said Cook, it's more than we need to run the company. Let's just go around the table. What is the likely scenario of what they do with this cash, and give me one dark horse scenario. Not pie in the sky, like they're going to build a colony on the moon, but something that is possible, but probably not in the forefront in terms of possibilities. O' So, by pie in the sky, you mean not buying everyone in the world an iPhone?

Right, exactly. O' Okay, alright. Free iPhones! O' I think the likely scenario is a dividend. I think that you can see Tim Cook turning this company in a little bit of a different direction post-jobs. Whether that's a special dividend or a recurring dividend is up in the air, I think it would be recurring because they obviously have enough cash on the balance sheet and generate enough cash every year to do that. The dark horse in my book would be that they would possibly buy

Netflix. I think that would be an interesting play there because they've already integrated Netflix into their world in some capacity just with their Apple TV product. And we know that there's an ITV somewhere on the horizon. Netflix is about a $6 billion company today, so they could double the offer and still get it for probably a steal. Ron? I think they'll do both, a one-time dividend and then institute a recurring dividend. They certainly have enough capital to do that, that shouldn't be a problem. And, pie in the sky, how about they acquire Sprint, and they bring the network in-house, and they say goodbye

to AT&T and Verizon, and they all just get it done. Interesting. Joe? Oh, I think they're going to start paying a quarterly dividend. I think they should just pay a special dividend instead. I'm the only person in the world who seems to think that consumer electronics isn't a great long-term story, other than Bruce Greenwald. But yeah, I think a dark horse here is buying Twitter. Apple has struggled on social, and I think tighter integration with Twitter could be really compelling in terms of making the product offering better. And it would also steal them away from Google, who could make more money

with Twitter. And I think, ultimately, it's going to be the one that goes after them. All right. Let's get to the stocks that are on our radar. Jason Moser, you were up first. Stocks on my radar are Carbo Ceramics, ticker is CRR. They make profit for fracking companies, companies like Halliburton. And I'm pretty bullish on energy in general, the fracking movement in general. And Carbo is one of the leaders in the clubhouse there in the profits they provide. Ron? Going back to the well on Zipcar, Z-I-P, a car-sharing business. Market just doesn't like it. It's off over 50% from its 52-week high, but the metrics are going in the right

direction. Business is growing. They're moving into new markets early in the story, but we think it'll be great long-term. Joe Maker? Goldman Sachs. Really? It's a great, great franchise and business. It survived all sorts of events and calamities. that's selling at a discount to its tangible book value, which is code for super cheap. I think it has big upside. Steve Broido, welcome back from Mexico, my man. Thank you very much.

Of the three stocks you've just heard, what's one you like? Well, I have to say Zipcar, I don't fully understand. I actually do understand it. I just never really liked the business. It just seems so complicated. What could go wrong with thousands and thousands of depreciating automobiles driving around? You have no vision, my friend. Come on.

You've got to embrace the future. But a lot of people love it. I'm going with the Carbo fracking business. Hey, now. You got your head wrapped around that one instead? Yeah, that's easy. Card sharing, if possible. Fracking just sounds awesome.

The more you can say fracking, I think, the better off you are. On that note, Jason Moser, Ron Gross, Joe Mager. Guys, thanks for being here. Thanks, Chris. Thank you. Coming up, how can great companies do everything right and still fail? We'll look at innovation through the wide lens with our guest, Ron Adner. Stay right here.

This is Motley Fool Money. I've got 90,000 pounds in my pajamas. I've got 40,000 French francs in my fridge. Welcome back to Motley Fool Money. I'm Chris Hill. So how can companies do everything right and still fail? Here to tackle that question and more is Ron Adner, a professor at the Tuck School of Business at Dartmouth College

and author of the new book, The Wide Lens, A New Strategy for Innovation. Professor, welcome to the show. Thanks for being here. Thanks for having me. Let me just start with the basic question. Why did you write this book? I wrote this book because what I spend my time doing is studying how companies innovate and teaching how companies innovate.

And what's become clear to me is that the message of, oh, you need to, the need for innovation is now known by everybody and their brother. And the need to listen to their customer is also well known. And what we're seeing is companies who are listening to their customers, developing innovations that look spectacular and still failing. And so the question was, why? Why are we seeing this happen? And the notion was to try to figure out, well, what are the blind spots that are still taking us by surprise?

And that's the theme behind this book. Let me spot you up with some of the examples from your book of these innovation blind spots and have you elaborate on them. And the first one is sort of in, frankly, what I consider to be one of the more interesting business battles taking place. And that's in mobile phones where you've got companies like Research in Motion. And in your book, one of the things you cite is Nokia spending millions to be the first to market with a 3G handset. Right. So there are two fundamental blind spots that come up when we move into this world of ecosystems. The first one is what I talk about in terms of co-innovation risk. And here the question is, do you need to innovate?

But besides you, who else needs to successfully innovate in order for your innovation to matter? And so the story with Nokia, which we're seeing repeated again and again, back at the turn of the millennium, with the advent of third-generation handsets that were going to unlock all this value, kind of put the Internet in the palm of your hand, Nokia and Ericsson were in their classic race to who's going to get to market first with their handsets. And they invented and they invested fortunes. Nokia got there first and what they realized is that

unlike the race for 2G with 3G the first to market was the first to wait because the notion the value proposition behind the third generation handset was that you'd be able to use all these applications and services

on the handset Nokia got to market with the handset but then they needed to wait around for these applications to show up by the way we're seeing the exact same thing today with the race for a 3D TV, right? Samsung, Toshiba racing ahead to be out there with the 3D TVs, and then they're just sitting there waiting for content to show up.

So even though they succeeded in delivering on their innovation, the innovations that they were counting on to actually unlock the value didn't show up on time. You're listening to Motley Fool Money, talking with Ron Adner, author of the new book, The Wide Lens, a new strategy for innovation. I want to ask you about electric cars, because there's certainly a lot of attention paid to the future of the automobile, and electric cars, rightfully so, are getting a lot of attention in their own right. You say that the Chevy Volt and the Nissan Leaf, two of the most, if not the most, well-known electric

cars. You say they're both destined to fail. Why? I hate to be the bearer of bad news on this, but if the expectation is that these electric cars hit the mass market, that is, they're not serving the niche for super, super high-end buyers, the 1% of the 1% who are going to be buying teslas um then the then the the way in which the electric car is being approached um cannot succeed and it's not for the usual reasons you know so the the usual critiques leveled against the electric cars one it's very expensive because the battery is so expensive and then the answer to that as well but battery technology is getting better so the batteries are going to give you greater distance they're going to become cheaper well but you know where

you going to charge them? Where's the infrastructure? You know, the answer to that is, well, the government's investing and putting out all these charge spots. What's missing is, and then there's the distance factor, right, that you can't drive them very far before needing to recharge. The real problem for me with the electric car is the battery. And the battery getting better over time is great news for everybody who hasn't bought an electric car. But if you have an electric car, think about the implication of resale value. You've got this component in the car that constitutes 50% of the vehicle cost. So on the Leaf, which sells for $33,000, half the price is the battery.

Half of the price of the car is the battery? Yes. I mean, that's the irony of the electric car. It's cheaper to manufacture an electric car in terms of all the systems but for that battery. And now you've got the most expensive part of your car depreciating faster than anything you've seen in the history of automotives. Right? Because think about it. So if battery technology gets better and better, so the $16,000 battery that you've got in a Leaf today that takes you for 100 miles into 2012,

now by 2015, you can get a battery that for $12,000 will take you 200 miles. That's great battery innovation. But what does it mean to your ability to sell that car back to the market? The battery is the notion of the resale value of a car. For the vast percentage of the market, resale value of cars matters a lot. Suddenly, selling a car back to the market looks less like selling back a used car than a used computer. unless this problem can be solved and the way you would solve it is by taking the battery out of the consumer's consideration um this can't be a mass market proposition which means anybody

counting on a mass market car is going to fail so if you were a betting man who would you be betting on to solve this problem would it be one of the big automakers like ford or gm or Toyota, or would it be a company like Tesla, which is completely focused on electric cars? Well, as far as I can see, they're all pursuing the same strategy at different tiers of the market. The company that I really like, that I spent a lot of time analyzing in the book, is a company called Better Place, which essentially starts out with a completely different view of how to construct this ecosystem. That is, they take these constraints as a starting point, particularly this idea of needing to separate the battery from the car.

And then they build an entirely new approach to the ecosystem in terms of, so essentially what these guys do is they follow what looks like a mobile operator model, where, you know, so you ask how is it possible for somebody to give you this battery, this $60,000 battery, essentially for free. And the answer is, well, the same way that that is possible for AT&T to give you a $400 phone for free. It's not really free. They lock you into a multi-year plan. And that's what this company is doing.

And what's interesting about them is that they're doing it not in the obvious market, but the obvious place to sell an electric car is California, because California is where there are people who really care about the environment and also have a lot of money. But the problem with California is that the constraints of the electric car, particularly the notion of distance, really matter. Needing to recharge a car every 100 miles is harder in California than a lot of other places. And so what Better Place is doing is they're starting in these traffic islands. They're launching in Israel and in Denmark, which are really small countries with really small geographies, where much of the driving is happening within their borders.

And so through a series of kind of adjustments to the ecosystem, to the way they're targeting their market, they're systematically going through all these ecosystem constraints and finding a new strategy for managing them. So if I were to bet, that's where I would put money. Coming up, we'll get Ron's thoughts on Apple and play a round of buy, sell, or hold. You're listening to Motley Fool Money. I need some money to buy the groceries, and I need some money to pay the milkman. Nickel, dime, quarter, dollars, money. You're driving me crazy. You're listening to Motley Fool Money, talking with Ron Adner.

His new book is The Wide Lens, A New Strategy for Innovation. It seems like there are some businesses that have to rely on innovation to a far greater degree than others do. So, for example, a company like Apple, for all the success that Apple has had, it relies very heavily on innovation. If Apple doesn't innovate, they're not nearly as successful. Whereas a company like Costco appears to be a company that is heavily dependent on execution. There's not a tremendous amount of innovation happening at a big retailer, membership club like Costco. But as long as they're executing well, they're going to be okay. And it seems like the bar is raised for companies like Apple that not only have to execute well, but they have to innovate or they're going to be in trouble.

Well, I'll probably disagree with that on one and a half fronts. So the first front is if you look at a company like Costco, there's a ton of innovation taking place within Costco. It's not product innovation necessarily that's observable to us, but innovation is a change of some sort for some new value creation. So, I mean, the sorts of magic that these guys are working in their back office, the things that are invisible to us but that allow them to clear their inventories so quickly, to keep track of everything, to know how to sell, what to whom, there's a ton of innovation back there. Much of it happens with their suppliers and within their own internal ecosystem.

But I wouldn't say that they don't have a big innovation engine. What I'll say about Apple is I think a lot of people, So for me, there's a fundamental misunderstanding, a mischaracterization of the way Apple innovates. What's remarkable about Apple since its resurrection, since the launch of the iPod, is that with the exception of the iPad, they've actually been a late mover in all their other big markets. They were a late mover with MP3 players. They were a late mover with smartphones. phones, the way that they innovated has been, for me, has been with the way in which they've

leveraged and created ecosystems around their products. Not so much the products themselves. I know a lot of attention is paid to their fabulous design, fabulous products. But you know what? You can't look at an iPad and say, it's gone. Ten times the market share of its nearest rival and explain it to me because it's ten times as good. They might be twice as good, but that doesn't account for that huge delta.

You know, the world of MP3 players, the same story, the world of smartphones. There are tremendous phones out there, but Apple is still dominant. And for me, the real motor of innovation that we see them, but we perhaps don't appreciate them engaging, is the way in which they've built ecosystems around their products. What surprised you the most when you were working on the book? I think two things. The first is, one, how hard it is to get people to learn from failure and just how sad it is that they don't.

So the poster child for that is high-definition TV, where in the 1980s we saw Philips practically lose their shirt for being too early and not having high-definition content in place. And then we saw that again five years ago with high-deficiency TV. Same industry, same product. And once again, companies are racing to be first and then waiting at the starting line. And then four years later with 3D TV. So the challenge that companies have, and I think a big part of that, by the way, has to do with the absence of tools,

the absence of a grammar for people to talk about, well, why is this time different? And then the other is the way in which people attribute success, that they look at success and they say, oh, it must be because it was a better product, when often it's not the better product. So the Kindle versus Sony story is Sony had the better product, but Kindle had a better solution. As long as we obsess over finding the win at the end customer level and ignore the way in which the firms are constructing wins for all of their partners, we'll be misattributing success, which means firms who are trying to follow these leaders as exemplars will be allocating their resources the wrong way. and making mistakes and failing. And the reason that matters is because, you know, we talk about them in the abstract as firms and products,

but at the end, you know, people are working at these companies. These are jobs at stake. These are families being dislocated, and the world needs more successful innovation. And that's, you know, the hope is if we can expand our perspective, if we can use this, quote-unquote, this wider lens, we can increase the likelihood of success. What's been the biggest shift in your thinking

about innovation, successful innovation, since you first started teaching? I'm far less convinced by people who talk about gut feel and intuition. A lot of people like to talk about entrepreneurship, it's all about persistence. I think the need and the benefit of taking more time to make sure that if you're going to persist, you're persisting in the right direction, is huge. That there are innovation failures that really couldn't have been predicted,

but there are others that are avoidable. And I'm increasingly convinced that given the right tools, managers in organizations, large or small, and I have seen this at work, they can come to better decisions. And I'd say in the same way that we saw, as I said in the beginning, the transition that we saw with supply chains. But there was more than an intuition. We started developing an actual set of tools, almost a science, for how to manage supply chains. And once that became distributed, the world became a more efficient place. I think that we can do the same thing with these other kinds of innovations.

You're listening to Motley Fool Money, talking with Ron Adner. His new book is The Wide Lens, A New Strategy for Innovation. All right, let's wrap up with a round of Buy, Sell, or Hold. Let's start with Buy, Sell, or Hold, the future of satellite radio. The satellite radio as a field, not as the companies. Exactly, just as a concept. I would hold. Why is that?

Because I think we can imagine the rise of lots of substitutes to that technology. As data networks become more and more widespread, it's just going to be easier for people to get signals in other ways. Wireless data networks. I guess, if anything, I would tend towards cell. On the other hand, there are certainly going to be parts of, there are going to be geographies. It's going to be a while before they get service, so they can sustain the stream there. Buy, sell, or hold the future of Twitter? oh interesting you're you're on twitter so i'm assuming you're you're at least a hold on this

one you know i i'm on twitter as of about six weeks ago so i'm still figuring my my way there um i i will surprise myself by saying bye really yeah um i think as a as a dissemination platform It's actually, I think, less useful for most of us, but as a way of keeping track of things, I find it incredibly powerful. So I preface it by saying this is still an under-informed opinion, but I am much more positive about it than I thought I would be. And finally, like you, this guy spent some time at Dartmouth and has a big influence on young minds. Buy, sell, or hold Dr. Seuss? Oh, big buy. Big buy.

Timeless and always a winner. Theodore Geisel, class of 25 at Dartmouth. I'm just curious. Is his presence obvious to anyone who visits the campus? Is there like a statue, a plaque, or is it just like, no, he was here, but that was a long time ago? Well, I think he's definitely present at the gift stores. The book is The Wide Lens, A New Strategy for Innovation. It goes on sale March 1st.

Ron Adner, thanks so much for being here. Thanks. And if anyone's interested, they can get the first chapter of the book for free on the book webpage. If they follow you on Twitter, can they get that? Well, they can get, certainly. I mean, you're talking about the dissemination platform. I'm assuming you're putting that out there on Twitter. um yes that's an even better sell if you wanted to go directly just go to the wide lens book.com

but i would be delighted if they followed me there as well thanks so much ron thank you for video highlights of this week's show you can go to fool tv.com get video highlights of motley fool money and market foolery our daily podcast which you can check out every weekday at marketfoolery.com and on itunes that's it for this edition of motley fool money Our engineer is Steve Broido Our producer is Matt Greer I'm Chris Hill Thanks for listening

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