Monday, December 12, 2011

Some Basic Rules of Corporate Warfare

(Things to Include in a Corporate Warrior’s Toolkit)

Last week I was invited to dinner by two longtime readers of this newsletter that happened to be in town. Both are well known as being effective capitalists on a large scale. Both have, on occasion, been loudly criticized for being a bit on the savage side. Victors often are. That said, they have both done an outstanding long-term job of driving increasing equity holder value so, in my book, they are ok guys. I wrote about a meeting with one of them in How a Famous CEO Stays So Calm.

After agreeing on The Fundamental Rule ("Add value to the customer.") we got into a lengthy discussion about competitive behaviors and philosophies for competing to win in today's, and tomorrow's, marketplace. I started scribbling out notes and have put the tenets into the list below. It was an interesting and useful evening to say the least.

I encourage you to forward this to your staff since, eventually, the good of a competitive mindset, shared by all, reaches down and out to the tiniest roots in a world-class company and eventually finds its way out to the equity holders’ wallets.

This is a good basic list to pedal through while making any competitive decision. Keep it handy:

1.         Act according to a plan only after a thorough analysis of the possible outcomes.
2.         Minimize damage to the competition. Capturing him intact will typically maximize your gain (said from an M&A perspective but useful elsewhere).
3.         Maximize profit by minimizing the use of force, which is expensive. Force is more efficient when not actually used. The optics of known, but withheld force, are onerous.
4.         Weaken your competition before engagement (hire away his most valuable executives, disrupt his supplies, maybe spread around some FUD, etc.). This effectively strengthens you.
5.         Shape, or control, your competition. Make him do things he would not normally do (lure him into undesirable markets, force up his costs, make him trip). While often fun to do, these things should all be designed to increase your advantage and relate to a specific goal of some sort and not just to amuse you (Though that does have value. We work hard and life is short. Have fun. - Tal)
6.         Analyze every possible course of action for the advantages and disadvantages of every possible outcome. Endeavor to convert your own disadvantages into advantages, and your enemy's advantages into disadvantages.
7.         Use your enemy's own psychological and philosophical structures against him. Somewhat tough to do (and can backfire badly) but when successful this will rattle him and may have him gasping, “But hey, I thought we were the good guys!”
8.         When attacking/moving into a new market be extremely sensitive to any changes and adapt accordingly. "Be like water" (adapt to the terrain). Keep in mind you’re probably being watched so ask yourself “What do they see and what can they conclude from what they see?” Then ask, “How can I modify what they see to my advantage?”
9.         Attack with sufficient strength where you are not expected. Note: One of my hosts suggested using overwhelming force to debilitate the opposition. The other thought this would suggest you had misjudged the situation and thus wasted resources. I agree with the later. Less waste and destruction means more profit for you and yours.
10.      Try to achieve your goals via indirect methods your competition doesn't expect. Again, always be "unfathomable". If you are unfathomable your competition will have a very difficult time effectively planning and executing against you.
11.      Speed is everything. Always be asking yourself "How can I get this done quicker without more costs." Quicker wars (of all kinds, even with kids I’m still learning) are cheaper.
12.      Think it through. Never forget that battles are won or lost before they are fought.

The list is longer but these are the easy-to-deploy heavies. It's a quick list when you get used to the “mode of thinking”.

Think about it…

I had a useful sign made for my office wall: "Business Bullets are fast. Fire first." -T. Newhart

Thursday, December 8, 2011

Avoiding Your Own Charge of the Light Brigade



To paraphrase an ancient Greek writer: "Ten good shoulders, wisely led, Will beat a hundred without a head." -Euripides
"The famous Charge of the Light Brigade is a useful study because it broke so many classic rules of basic management. Inflated egos didn’t help things either." -Tal Newhart
Let’s look at the famous “Charge of the Light Brigade.” It happened on October 25, 1854 during the Crimean War with the British fighting the Russians. The disaster happened for the same reason a lot of businesses fail: bad communication brought upon by a lethal collection of inflated egos.

In an act that appears to be of unfathomable stupidity the British Lieutenant-General the Earl of Cardigan ordered his light brigade (the “light” was because they were lightly armed, as opposed to the “heavy brigade”) to attack the Russian artillery positions. Success was impossible. The charge was through a narrow valley a mile and a quarter long. Russian guns were at the end of the valley and gunners were on both sides, forming a classic death box. In fact, some of Cardigan’s men did manage to get through to the guns, but were then surrounded by the Russian troops. When they turned to retreat they were easy targets. The whole thing took about 20 minutes and cost about a third of Cardigan’s force. And of course there is the Tennyson poem to remind everybody about it forever (sort of like our modern social media…).

But what really went wrong, and why, it is vaguely familiar if you regularly read the Wall Street Journal.

As is often the case, there was a sequence of careless—and completely avoidable—mistakes. And they all came down to poor ‘corpcraft’ (see my definition of corpcraft elsewhere). A successful attack was clearly hopeless. That was obvious—as is almost always the case in war (and business), success or failure is decided before the battle. And again, as in business, after the “first stupid mistake” was made, management suddenly couldn’t get anything right and the situation (and equity holder value) disintegrated with shocking speed.

In a nutshell this is the famous story of The Charge of the Light Brigade. It’s amazing that generally intelligent commanders, which these gentlemen were, could make such foolish mistakes. But, just as in the corporate world, that happens. The real problem is that a single minor mistake can set off what around here we call a “negative cascade”. (As opposed to a positive cascade which is what you and your equity holders want: good events leading to good events, etc.) A negative cascade is simple: think dominos. Big expensive ones.

But here’s the detail and it is easy to compare this to something you’ve probably observed or personally experienced:

Lord Raglan, the English commander (a.k.a. the Boss here), looked across a broad landscape, and from his high vantage point on a hill, could see the enemy (the competition) in the distance trying to remove some captured English cannons. Since captured cannons were a metric of victory or defeat in a battle this was a Bad Thing. Raglan sent down another in a sequence of orders to Lieutenant-General the Earl of Lucan—who was in a position 600 feet lower in elevation and didn’t have the same view—to recover the cannons “immediate” [sic]. The order was given to another officer’s aide-de-camp, Captain Edward Nolan, for delivery—Captain Nolan was chosen because he was an accomplished horseman and would take a speedy, more direct route down to Lucan. He did this, probably loving it, because he was a known showoff.

So Nolan delivered the order to Lucan to attack and regain the cannons. Reading the order Lord Lucan was justifiably baffled and reasonably asked for clarification because he couldn’t actually see any cannons. Nolan, eager to see some “real cavalry action”, arrogantly waved his arm in the general direction of the Russian front and snapped “There, my Lord, is your enemy. There are your guns.” Nolan repeated that the order was to attack immediately then trotted off to talk to another officer. Lord Lucan, flawed by pride, and always at odds with the arrogant Nolan (Nolan had authored books on cavalry tactics and made sure everybody knew it), failed to ask Nolan for further clarification. Note: Like Lord Raglan, Captain Nolan had seen the location of the cannons that were obscured from Lucan’s view because of the topography. But Nolan didn’t accurately point to where the cannons were—he merely swept his arm across the landscape in the general direction of the Russians. As you can see, the cascade now accelerates towards preventable disaster.

Lord Lucan rode over to the commander of the light brigade, the Earl of Cardigan (and his trusty horse Ronald). Lucan and Cardigan hated each other (Cardigan had been married to Lucan's youngest sister but was now separated from her) and, again, there was no useful discussion. Lucan simply ordered Cardigan to attack ‘down the valley’ with his light brigade. Cardigan pointed out the fact there were numerous enemy positions in the vicinity to which Lord Lucan simply replied Cardigan should take the ride at moderate speed so as not to exhaust the horses (good news for Ronald). Lucan would follow up with the heavy brigade. The cascade continues.

So off they rode into “The Valley of Death”. Twenty minutes later it was over. Nolan died dramatically in the charge, ostensibly trying to ride forward to warn Cardigan he was headed in the wrong direction (some historians disagree with this interpretation—nobody argues he was the first to die). Lucan, seeing what was happening to the light brigade in front, turned the heavy brigade around uttering the famous line: “They shall not have the heavy.”

The high level military history view says that the attack was a perfect misapplication of the sound strategy of applying superior force at a position of an enemy’s weakness (e.g. your competition, also see the Southwest Airlines comments elsewhere in this collection).

But that’s the easy way out. What happened was that the functional CEO (Lord Raglan) made a terrifically dumb mistake (the cannons were clearly lost to the Russians). That mistake, foolish in itself, compounded itself through a sequence of unquestioning levels of management (accelerating the negative cascade). In the final analysis it was Cardigan who took the most heat because he led the actual charge straight into the cannon battery. Cardigan, of course, blamed Lucan. And Lucan, of course, blamed the dead Nolan for the vague delivery of the orders. Nothing’s changed. This happens with poor management all the time. Look around. Hopefully you don’t see it, but you probably do.
It all sounds uncomfortably familiar doesn’t it? How many boards and executive committees behave the same way?

Let’s take a look at this via a few very broad strokes:
1.     Underestimation of a major obstacle. Raglan, like a lot of successful CEOs, probably thought “I’ve figured this out. Nothing’s changed. Go get the cannons.” Raglan had convinced himself he was the “master of the universe” and that he knew everything. Toss in a little of the “I can do anything” syndrome and it spells disaster. It’s the same in the market place. In his mind Raglan saw only the cannons being recaptured. He failed to think of the process. Does the name Vivendi ring a bell (sorry Jean-Marie)?
2.     Faced with a rapidly deteriorating situation Cardigan continued his charge. A Great CEO sometimes has to admit that he or she is wrong. Sun Tzu said excess pride in a general is a bad thing (poor corpcraft) because they worry too much about what others think of them. Even smart CEOs sometimes continue to throw massive resources at projects (often pet projects) that can’t work. Consider Ross Johnson of R.J. Reynolds and his so-called smokeless Premiere cigarettes. Like Cardigan, Ross continued the charge to prove “he could do it”. It cost Ross a couple billion RJR dollars and Cardigan a couple hundred men. Great generals and great CEOs can admit that sometimes “you really can’t get there from here”. They can say it even though there’s always somebody like Captain Nolan who will say “You see! I knew he couldn’t do it!” Great leaders admit they made a mistake and move on, limiting the destruction. Good managers don’t compound their errors. (See the chapter about mistakes.)
3.     Another mistake Raglan made was his assumption of domination in a fluid state. Raglan thought he dominated the landscape (e.g., marketplace). But there were what amounted to “marketplace eddies” where he could be overpowered. Great generals and CEOs know that battlefield or market domination is a highly dynamic thing. They know that constant adjustment and tuning isn’t optional, it’s required.
4.     Lord Lucan failed to get clarification from Captain Nolan and Nolan failed to pass on relevant information. A Great leader knows he or she has to listen to—pursue, understand and act upon—any credible source of information potentially relevant to the survival of the company. In many cases information “doesn’t know where to go” in an enterprise. That’s a serious flaw in a company since sometimes tiny pieces of information can lead to the destruction of even a huge company. The challenge is that extremely vital information frequently first presents itself in remote places along the outer edges of the organization. The datum or event may seem innocuous to the casual observer but can, if not acted upon decisively, cripple or even collapse a major enterprise. But that wasn’t the case with the light brigade. Captain Nolan had the critical piece of information—he had seen the location of the cannons! But, in the heat of the moment he didn’t pass it along. And Lucan didn’t ask him to explain further because he felt Nolan was his inferior and Lucan himself would look bad or somehow weak by asking. Great leaders give, and get, the information needed. Lucan knew he had incomplete information but chose to act anyway. No greatness there. Just poor corpcraft.

So off they rode into “a mile long jaw of death.”

The real tragedy here is how senseless it all was. The biggest box in the failure matrix was simply poor communication. The same thing frequently happens on Boards of Directors. Board level things often don’t happen like they should because the board doesn’t function as a proper, fluid team (and this has nothing to do with Sarbanes-Oxley, that’s a downstream consideration).

Remember, in business the cannons are always there, somewhere. But there’s no reason to ride into them.

Think about it…
____________________
My thanks to the British Government for their help in this account. –TN

A CEO Talks about the Importance of Grokking

I had lunch last week with an author of two once best-selling business books. I was interviewing him on behalf of a client for a consulting job. I was brought in because the client wanted a good arm’s length interview they could easily pass around the C-suite. The writer had once run a very large corporation, did so famously, and wrote well about it. The recorded interview itself was telling and useful relative to the client's decision about whether or not to consider him further for the assignment. But it was the informal discussion later when he brought up a useful notion he said I could share with other Corpwar readers.

This notion is his very deep seated belief of something called "grokking". This was what he always looked for in his inner team members. He said it was an even denser form of value, to him, than what I call a "corporate warrior" (a phrase he considers a bit pop and superficial). I had never heard the term “grok” before so I asked what it meant to him in a functional, as well as philosophical, sense.

He answered, "It means the guy or gal is really inside the skill set of something. It's not an external layer. Most people with good skills wear them like good clothes. But it's still external. A layer on the outside. A person that groks something knows it so thoroughly it has become part of them. It has become their retina through which they see everything."

"Doesn't that singular focus lead to a kind of social dysfunction?" I asked having seen exactly that in software engineers, actuaries, etc., that I have been responsible for hiring.

"Sometimes. Those guys we just put into a nice corner with good tools and keep the place dusted for them. Everybody that’s properly employed adds equity holder value in their own way; if they grok something of value to the organization, and therefore the equity holder, then that value add is pretty high. You need to support it and use it. My ongoing goal, perfection really, is having our most important critical paths composed of these kinds of people doing what they grok. It's a beautiful thing to watch projects flash up those human chains once they are assembled."

I asked him what he grokked. He smiled and said "Well, that's simple. People."

I left the meeting asking myself what I "grok" in my professional life, if indeed anything. I concluded it would be recruiting in its various flavors, such as doing useful interviews and selling exceptional candidates that don’t want to move jobs; that it will improve their life in various meaningful ways to take that leap. It’s a fairly diverse skill cloud that, when brought to a singular focus, is actually somewhat limited, which I found humbling.

It might be beneficial to ask yourself the same question: "Do I grok at anything, and if so what?" After looking at your core team members with the same question in mind, suggest they do the same. And so on. It’s a useful exercise for accelerating things.

Think about it...