Preventing Systemic Failure (Things to Look Out For)

Over the last several years one of the nice things about doing the Corpwar newsletter are the conversations I've had with smart, influential people (most of them here in the States but also in the EU and a growing number in the Pac Rim and China). Occasionally they will send along books or papers or links to interviews they've done (Note: apparently being on The Daily Show isn't as much fun as you might think...).

One paper came as a result of a conversation with Bob Prieto. He was the chairman of Parsons Brinkerhoff (think Bechtel). Bob, a nuclear engineer by training, is one of those people you meet and realize, very quickly, you are probably not the smartest person in the room. At the time he was an SVP of Fluor Corporation and was part of the Fluor pitch group for doing work on widening the Panama Canal. That's the scale of Bob's world. Pretty big. Actually pretty huge.

I had called Bob for some advice and the conversation turned to the condition of our economy at the time (it was 2008) and how we got into that dire condition. His take was fascinating. After the call he sent me a paper that uses the construction industry as an analogue to the economy (and vice versa). It's intriguing, especially since it was written around the time the economy tanked. It makes you realize nothing really happens in a vacuum and not much is truly invisible before it becomes a huge, grotesque mess. If you Google Bob Prieto and Black Swans you’ll get a good taste of his insights which are remarkably impressive.

If you take the time to read the short paper it will likely make you think in terms of cause and effect in your own industry and business. When one thing happens, all potential outcomes are somehow effected and possibly remapped entirely. I find particularly useful the paper's framework of the “analogue” (understanding one thing to understand another).

Bob's paper, which at only six pages is very tightly written, addresses several categories of vulnerabilities inherent in highly engineered systems. But the thinking is remarkably portable to systems I guarantee you have, in some form, in your business as well (or your house for that matter).

For example, Bob discusses the vulnerability of tightly coupled systems that go unidentified as such by management. This is very scary because what may look like RANDOM EVENTS can actually be highly coupled. He provides a simple example of a fire in a small building outside of Chicago that disrupted telephone service for much of the country. Why? Because (to quote the paper) "It seems that most transcontinental land-lines passed through that single building and they were destroyed in the fire." Excuse me? How could somebody not know, or know and not do something about, that vulnerability? He gives another example of why the price of anti-freeze went up 300% a while back. Turns out ethylene glycol was made in only two places here in the States and one of them, a small plant in Idaho, burned down with the obvious price result.

Bob also discusses the risk of failing to KISS (Keep It Simple Stupid), inadequate core capacity (and lack of key redundancy), the danger of positive feedback loops (aka progressive failures—which, as an effective recruiter, I was often paid to induce at target companies) and other strikingly relevant concepts. So read the paper. It's short and punchy and can help you ask questions that could potentially save your company, your equity holders, and you.

Bob has graciously given me permission to "spread the paper around" so feel free to forward it. I guarantee it will lead to some interesting and likely useful conversations.

What We Seem to be Forgetting & Why We're in Trouble

AKA: If your head’s comfortably in the sand, just fire yourself.

A finance journalist, and reader of this occasional newsletter, called last week to ask what I thought about the $700 billion bailout plan. The conversation quickly expanded into a discussion of, "What happened?" He was referring to the larger picture, as in “What happened to us (the United States)?” Basically, he was asking what happened to Chrysler, Wall Street, Main Street, you and me, etc. In fact, as I write this on Monday the Dow is down 400 (four h-u-n-d-r-e-d) points.

Well obviously, it's complex. But I think a lot of it stems from 9/11 which was so classic it now seems grimly inevitable. I wrote about the tactic in a corporate setting in a Corpwar way back in 2003. Al-Zawahiri, one of Osama bin Laden's key strategists, knew the only way to bring us down, arguably the most “powerful” civilization in history, was to help us bring ourselves down. Aside from our spirit, America is also a business and as such we “behave” like a business. And all businesses have their weaknesses which are too often discernable to our competition (e.g. al-Zawahiri, or picture your own competition—there really is no difference). So al-Zawahiri helped come up with this cheap little plan, pretty crude really, and sent a huge arrow dead center into our economic heart. And, let's face it, it's been pretty rough sailing ever since. And if you don't think so, you and I don't live on the same planet.

If you think your business is any different you are part of the problem. You need to think better. You need to think stronger. We all work for our stakeholders. We OWE them our best, now more than ever, because things are starting to fall apart. And if we don't give them our best we should be replaced. Period. This is no time for dull, obtuse, thinking folks.

I've taken on the role of new business development for a candidate interviewing company (technically a spin-off) and have noticed a couple of alarming things. To put this in context the service does screening interviews of a client's "short list" of an open job's candidates and makes those recordings available to the hiring group so they can efficiently comment on whether or not they think a candidate would be a good fit to the position, the team, the company, etc. Pretty simple.

Now, managers that use the service typically love it because of the time savings but, conversely, some really hate it (actually loathe everything about it). When I drill in to understand why, it's usually because "things work well enough as they are". All I can say is, “Stop right there.” This is the kind of thinking that some clever guy in a corporate cave somewhere (a.k.a. your competition, some of whom you probably aren't even aware of) is waiting to exploit. This mindset insists "things are cool enough now, we'll survive". Really? Think again. If you're sitting around thinking your business is some sort of invincible fort I GUARANTEE you somebody, somewhere, is x-raying your walls to find weak spots. They are focusing on YOU, trying to find YOUR Twin Towers. And we all know the potential result.

Another thing I've noticed because of the interviewing service is the quality of many of the candidates (the resumes are supplied by the client's HR department, or retained recruiting companies, and we have no control over what we get). I do some of the interviews myself and listen to many of the others and I'm often shocked at what I hear. We typically interview 4-5 candidates per position and often 1 or 2, sometimes even 3 of these candidates are pretty poorly qualified for the position (even internal candidates up for internal transfer or a succession move). Sometimes egregiously so. 

It's just so vivid in the recording that they can't do the job you have to ask yourself, how did these people get on the short list? Sometimes, of course, our interviewing process lets somebody really shine that looks weak on paper (that's great when it happens, by the way), but more often we uncover expensive hiring mistakes waiting to happen. Often their only real skill is knowing how to game the hiring system. Thank god people like us help weed them out.

Look, you need to impress everybody around you, everybody in your company, that there are barbarians at the corporate gate, because functionally there really are. This is no time for lazy, yesterday thinking because competitors that need to eat are hunkered down trying to figure out how to steal your food.

This is capitalism folks. Your competition doesn't care if you starve to death.

Think hard about it...