Flying in the Face of History

At first glance, it looked like one of those stories that turn up from time to time railing about the fact that the US does not buy the things it needs and spends too much on things it doesn’t need. At second glance, it looked more like one of those defense industry stories about how some contractor or other is going to improve the nation’s defense against attack by weaving safety nets made out of actual dollars and then running their operations from a building made entirely out of gold and gullibility. And at third glance it looked like yet another story about how an aircraft that is older than I am is showing no signs of retiring anytime soon, provided we keep pouring money into it – which is actually a subset of the first two stories…

For those not familiar with it, the Boeing B-52 “Stratofortress” strategic bomber was originally designed and built over sixty years ago (first flight in 1952), primarily as a carrier for nuclear weapons during the Cold War. A lineal descendent of the famous “Flying Fortress” and “Superfortress” types of World War II, the B-52 combined a number of new design elements and new technologies to produce the largest, most powerful and most effective strategic weapons platform of its time. Since then, the aircraft have seen action in every major conflict the United States has fought in, slowly evolving from carrying giant thermonuclear gravity bombs to stand-off weapons, smart bombs, missiles, and anything else you could ask for. It even stepped in as a cruise missile launch platform when the B-1A was cancelled during the Carter Administration. Meanwhile, regular updates of its avionics and control systems have kept these airplanes flying decades after the intended end of their service life…

What usually gets lost in all of the shouting is that while the mission for which these aircraft was designed (e.g. dropping massive hydrogen bombs on the Soviets) has long since vanished, the utility of a large flying truck that can carry forty tons or more of assorted weapons to pretty much anywhere you might want them to be launched from has not. It’s debatable as to whether or not the B-52 could ever have accomplished its primary mission as designed (rather than simply being hacked out of the sky in droves), but as long as its systems are kept compatible with the rest of the military, and as long as you can still find things for it to carry, there’s no real need to build another huge, radar-friendly, gas-guzzling, smoke-spewing, noisy, ugly and incredibly adaptable flying machine…

The new story is really just another case of finding new things for the B-52 to carry. According to the press information on Boeing’sMedia Room page, the company has signed a small contract to develop modifications to existing launcher systems that will allow these venerable airplanes to carry the latest generation of “smart” weapons in their internal weapons bays, instead of having to carry all of them on external mounts. This will enable the aircraft to carry larger loads, or to avoid external mounts (and their attendant drag) and operate more efficiently. It won’t enable them to fly through contested airspace, ignore active threats, or do anything else they don’t already do, in fact. But if you just went off the original story headline (“Boeing to extend B-52 life span by increasing smart weapon capacity by half”) you could easily get the idea that this is a massive deal that will drive the company’s bottom line for decades to come…

Instead, we’re just looking at a $26 million upgrade to the airplane’s weapons stations – a nice project, and potentially very useful, but not particularly significant compared to the $33 billion in business that Boeing’s Defense, Space & Security division does in a year. I don’t know what the next big thing in manned strategic weapons platforms is going to be, if in fact there is every going to be one, but I can tell you with a fair amount of confidence that this isn’t it…

The Ethics of Honesty

As most regular readers of this blog (assuming I have readers) already know, I spent a number of years as a management consultant, working with small and medium-size organizations, both for-profit and non-profit, and helping new ventures to launch and existing firms to get better at whatever they were doing. Unfortunately, most people have no idea what that actually means. Even with the best of intentions, some people can’t seem to grasp that writing is different from typing, that operational analysis involves an in-depth examination of a firm’s activities and comparison to the rest of their industry, or that what I do requires years of experience and training. As a result, a lot of people apparently believe that I can take a brief look at what they are working on and somehow just know whether their idea will work, and what efforts will be required to make that happen, without any particular effort. Although it would seem that some of them also believe that the same functions could be handled by any bum from off the street – or a particularly bright two-year-old…

It’s a peculiar situation, in which people who would never consider asking for a free ride from a taxi driver or a free cake from a baker, or even for free legal advice from a lawyer, will assume that despite the fact that they have not the slightest idea what I do, it must be easy (and require no time at all). From time to time someone will call me up and ask me to read over their plans for a new venture of some kind and tell them what I think of the project, assuring me that this will “just take a minute” and that no one else can help them with it. The question at this point isn’t so much whether or not I should do it (I really shouldn’t, but no one is going to understand that, either), as it is what do I tell them. This is especially true when the concept I’m looking at is so deeply flawed that I can see multiple ways in which it could get the idea person behind it divorced, savagely beaten, publicly ridiculed, or completed bankrupted if they even admit to originating the idea…

On the one hand, I’m not actually the world’s expert on anything. I’m a competent, capable analyst with a lot of experience both operational and consulting in a wide range of industries, but that hardly makes me the final authority on every conceivable type of new venture. If I give a valuable idea a hearty thumbs-down there’s a real chance my “client” could give up on something that could make the world a better place. On the other hand, five years with a consulting firm, two more with the Small Business Administration (through the Small Business Development Centers program) and several additional years freelance, not to mention two Master’s Degrees in Business and 20 years in Corporate America means that I’m not exactly Captain Kangaroo, either. If an idea is flawed enough that I can spot major problems with it in a cursory reading, that probably means that it needs further development before the entrepreneur proceeds with his or her business plan. The issue then becomes, what do I tell them?

An idea that someone has nurtured for years is a deeply personal thing. Frequently, it’s the one brilliant idea that they are sure will catapult them to the big time without needing any of the tedious intervening steps; their generation’s answer to Microsoft Windows, or Facebook, or sliced bread. In other cases, it’s their personal vision of a better world to come; the Utopia that could exist if only people were willing to let go of their blindness and pre-conceived notions and listen. In either case, crushing that person’s hopes and dreams seems heartless – except when we consider that aforementioned divorce, ruin, grievous bodily injury and/or public humiliation, in which case failing to point out those critical flaws would be far worse…

So you tell me: what is the ethical choice here, for me – or any other management professional in an analogous situation? Should we fulfill our obligation to the client as we would with any other customer and tell them the bald truth, even though they are friends and/or family and our answer will have difficult emotional freighting? Should we refuse to take any case with a personal connection, the way a doctor or a lawyer might, knowing that our friend/relative would never be able to afford a professional analyst of reasonable quality, and our refusal could doom the project right off the bat? Should we try to divert the client into additional research and/or development when we know their idea will never fly and there is next to no chance they can find a fix for any of its problems? Do we attempt to point them toward existing ventures that already do something of this kind – assuming such ventures exist? Or do we tell the truth, the whole truth, openly and clearly, and let the chips fall where they may?

It’s worth thinking about…

Outrage in the Air

Looking back over my records I find that nearly 10% of all of the entries for this calendar year have involved airlines behaving badly; usually in some completely preventable way that inconveniences, endangers, monetarily damages or just outrages customers and potential customers. Some of these merely reflect momentary lapses of reason or cases of outright incompetence (such as failing to get an unescorted minor onto the correct flight), while others involve blatant criminal malfeasance (such as the employees accepting bribes to smuggle packages onto departing airliners), but nearly all of them are things so absurd that it passes understanding how a service-providing company can do them and remain in business. It’s almost enough to make you believe in collusion between the major companies in the industry – not to fix prices or to defraud the public, but simply to maintain service levels bad enough to convince the travelling public that one airline is much the same as any other…

Now, in fairness, operating a company that transports tens of thousands of people for billions of air-miles aboard complex machines that can be rendered completely inoperable in seconds by a single mistake by a single employee trying to park one of them is harder than it looks. To make matters worse, in recent years it has become increasingly difficult to differentiate one airline’s service from another, which has left many of the major carriers competing entirely on price. There was a time when it was possible to charge more for higher-quality food and drink, better services, or even (it has been done) more attractive cabin personnel, but today most carriers have to cut back on everything to remain competitive, which includes lowering expenses for recruiting, training, and especially salaries. What is less clear is how far one can lower staffing quality before the resulting lawsuits begin to eliminate any resulting savings…

Take, for example, the case of Angeline O'Grady, who was attempting to transport her late husband’s ashes to England for burial on a US Airways flight, when a TSA idiot insisted that since ashes aren’t a solid they had to go in her checked baggage. A competent airline might have tried to accommodate a customer during a difficult time, but US Airways gave away her seat reservation and forced Ms. O’Grady to pay for a business-class seat since she was delayed checking in by the aforementioned TSA idiot. That would merely be callous; however, when Ms. O’Grady landed in England she discovered that at some point during the flight, someone had opened her suitcase and stolen the urn containing her late husband’s remains…

As I have noted in earlier posts, a failure in operational security this severe has a very real chance of destroying the entire airline (as well as any aircraft that somebody manages to sneak a bomb onto because no one was paying attention). Here again, a competent airline might have considered apologizing for the theft, launching a serious investigation, calling on law enforcement agencies on both sides of the Atlantic to help them find out what happened, firing everyone who had access to the relevant baggage facilities during the time when the urn was stolen, or having all of the employees who could have stolen the urn arrested and letting the police/FBI/Scotland Yard figure things out from there. I’m not sure I have an adjective appropriate to describing an airline refusing to so much as explain what they think happened, and claiming they have no responsibility for the theft and did nothing wrong; calling this “stupid” would be an insult to stupid people. And that doesn’t even consider stonewalling the customer and attempting to tie up the case in court once the customer finally got a lawyer…

Here in one story we’ve got criminal negligence (leaving the baggage vulnerable to theft), criminal malfeasance (assuming it was a company employee who committed the theft), incompetent customer service (charging a bereaved widow for a more expensive ticket? Really?), incompetent public relations (saying things like “we’ve done nothing wrong” after losing someone’s mortal remains), incompetent operational management (letting things escalate to the point we found out about it) and incompetent senior management (not just quietly settling the case and moving on). And the company isn’t done yet; a few weeks ago attorneys representing US Airways filed a motion to move the case to Federal court, since this outrage took place on an International flight. That will hold up proceedings, make the whole case harder and more expensive to try, and might cause Ms. O’Grady to give up, but is almost certainly going to make a bad situation even worse for the airline…

To quote the late Frank Zappa: “It’s not getting any smarter out there, folks…” Keep watching the skies, everybody, because there’s no telling what kind of shenanigans will be going on up there next…

What Could Possibly Go Wrong?

Every so often you will run across a news story that makes you assume that either the reporter who wrote it has gone barking bad or you have; something so surreal that you find yourself looking for signs of Photoshop even when you know there won’t be any. Or, at least, that was my reaction when I saw the story headlined “Giant yellow duck explodes in Taiwan” at the head of an AP story featured on an Australian news site…

It turns out that the duck is the work of a Dutch artist named Florentijn Hofmann, and it’s a larger version of a 2007 piece (the original was 16.5 meters tall; the current duck is 18 meters tall) that made the news a few years ago when it got loose from its moorings and became stuck up against a large bridge in Europe, effectively blocking boat traffic along a river/canal system for several hours before it could be towed out of the way. Since then, the ducks have toured 13 cities around the world without significant incident, until a powerful earthquake in Taiwan knocked out the air pump filling the current duck, causing it to partially deflate. When power was restored and the exhibiters began re-filling the duck a combination of poor handling and unfortunate winds caused the duck’s rear to blow out and flatten the entire structure…

I have often heard people claim that all strategists are inherently pessimists, because of the time we spend trying to anticipate all of the things that could go wrong with any project we’re working on, and the effort involved in working out contingency plans for those events. People who have actually spent time developing or implementing strategy will tell you that they are realists, concerning themselves with what to do in the event that specific outcomes occur, rather than just assuming that something bad (or good) will happen because it can. We should probably admit that this does lend itself to spending a lot of time determining all of the things that can go wrong and working out responses to them, since it generally isn’t necessary to make contingency plans for coping with success. However, this doesn’t make the process any less important…

If we are working with any structure or installation that requires electrical power in order to function, including the electric air pumps needed to keep a giant duck construct inflated, then it isn’t unreasonable to take some time and consider what you should do in the event that the local electrical power grid goes down. This is especially important if the local grid is rendered less than 100% reliable because of faulty generating plants, government malfeasance, operational incompetence, or regular natural disasters (such as earthquakes) that interfere with power generation or power transmission. By the same token, we should probably consider what we will do if the water currents or prevailing winds are stronger than expected (or are going in an unexpected direction), what we will do in the event that the duck gets loose from its moorings, what we will do if the duck becomes stuck against a bridge or overpass, and how we will deal with the negative news stories, civil lawsuits, and public backlash against us and/or our duck…

Because the truth is that an 18-meter (60 foot) tall rubber duck construct is a wonderful and whimsical thing, and we should not permit minor challenges in operations or safety to interfere with the viewing public’s enjoyment of our duck. And while it isn’t strictly true that everything that possibly can go wrong does – sometimes there are multiple bad outcomes that are mutually exclusive, for example – it’s still our job to identify and plan for as many of those contingencies as possible...

Because if anything is certain in this world, it’s that there are more potential failures lurking behind the scenes than we have planned for so far…

The Doughnut of National Preference

One of the ideas I try to get across to my students in my Business Policy and Strategy class is that different people in different markets and segments want different things, and pretending that they don’t – pretending that everyone in the world wants exactly the same things – is just as absurd as pretending there is anything wrong with that. I’ve often pointed out that people are people wherever you go, and that when it comes to the really big things (survival, security, acceptance, community, acknowledgements) we all DO want the same things, but when we get down to issues like consumer preference we’re no longer talking about what it means to be human; we’re talking about things like how much sugar is produced within a given consumer’s home country. I often make that point using a short story about doughnuts…

When I was a graduate student (both times, actually) I was part of a study group that met every week to go over some of the more impossible aspects of our course of study, and we all took turns bringing snack foods to the meeting. When it was my turn I would usually bring doughnuts, because they are filling, taste good, and can be economically obtained in large quantities. However, I rapidly noticed that different members of the group had different ideas about what constituted a good pastry. My friends from China, for example, told me that American people put too much sugar on everything – which makes perfect sense when you realize that neither sugar beets nor sugar cane are native to China. Accordingly, there is no local equivalent to the gooey pastry beloved of Americans and some European nations. From then on I made a point of buying plain cake doughnuts, without frosting or filling, and our Chinese friends loved them; they said it was the best snack food we had in America…

Our Korean students loved the doughnuts with the thick white icing and colorful sprinkles; even some of the women who had never been known to eat junk food (or much of anything else, actually) could be counted on to have one or two of these. Some of the Northern Europeans like icing and frosting more than anybody else, and I made sure to have some for them, while the Eastern European nations go in more for light and flaky pastry and fruit fillings – powdered sugar doughnuts, lightly glazed doughnuts or occasionally jelly doughnuts or apple fritters went over big here. And, of course, my fellow Americans love anything frosted with sugar, chocolate, glaze, icing, filling, cream, maple syrup, or all of the above at once, which made it relatively easy to round out my order…

Over the years I’ve come to refer to this as Belin’s Doughnut of National Preference – which is a reference to Porter’s Diamond of National Advantage; a well-known construct developed by Dr. Michael Porter at Harvard to account for why some nations are more successful in international trade competition than others. Unlike the better known Diamond construct, I can’t back my Doughnut up with anything more concrete than many years of personal observation, but there was an article this past week that does seem to support my thesis. The Viral Nova website published at list of foreign snack foods, complete with pictures, and I call your attention to #5 – the Dry Pork and Seaweed Doughnut offered by Dunkin Doughnuts in China – and to #12, the Wasabi Cheese and Seaweed Cheese Doughnuts offered by Dunkin in Singapore. While certainly not conclusive, this information does appear to support my contention that different people have different ideas about what constitutes a good doughnut…

Now, I don’t mean to suggest that this observation is particularly deep or especially profound; in fact, it’s about as simple an explanation of National product preferences as you could ask for. But then, that’s the point: finding out what your customers in a specific country, state or city prefer is a painstaking activity that will require considerable research; recognizing that they have unique preferences, and that these may very well NOT be the same as your own preferences, is as simple as sharing doughnuts with your colleagues on a rainy afternoon and watching what each of them likes to eat…

The Ethics of Spite

In yesterday’s post I noted that it appears McDonald’s has allowed its collective animosity for rival company Burger King goad it into severing ties with a supplier with whom it has done business for over four decades – Heinz company, which once supplied McDonald’s locations with ketchup. It isn’t clear from the news stories, or from the other information about this action that are available online, whether there is some larger strategic move in play, whether McDonald’s strategic planning staff had already identified opportunities available in changing ketchup suppliers before the new CEO of Heinz was appointed, or if this really is just a spiteful reaction right out of a schoolyard squabble. What matters from our standpoint is whether an ethical company could countenance such a decision in the first place. I thought we should take a closer look…

We should begin by noting that procurement decisions like this one are usually made on the basis of complex calculations dealing not only with current conditions, but also with projected conditions in the future and assumptions regarding the most profitable choices available. If the decision to drop Heinz in favor of other suppliers turns out to be incorrect that is a matter for the usual mechanisms of corporate governance to handle, and if the decision turns out to be a truly incompetent move that creates actual financial damage to the stockholders there are a variety of legal remedies already in place. We should also note that if such a move were to be made for nefarious reasons there are already laws in place under which the perpetrators could and probably would be charged. For our purposes, we can assume that the decision we are discussing isn’t being driven by incompetence or malfeasance; what we must ask is what motives are actually driving it…

If, for example, members of the management team have reason to believe that their supplier’s new CEO is incompetent, irresponsible, negligent, or otherwise likely to commit acts that will threaten their own operations, then refusing to do business with that supplier would be entirely in keeping with their responsibility to their own shareholders. In the case of an executive who has for some years served as the CEO of a rival firm, the suspicion that such an individual would retain feelings of animosity from his previous position and thus not deal honestly or equitably with the company is probably baroque, but certainly understandable. If previous direct dealings with that executive, either as the CEO of the rival company or in some other capacity, have led management to have doubts about that individual, that concern would also be appropriate. Nor can we completely discount the possibility of animosity based on personality conflicts, interpersonal relationships or social interactions between this new CEO and members of the management team; however unfortunate this might be…

The truth is that however much we might prefer to believe that companies are run on a scientific basis by professionals trained in the finer points of both management science and also in the finer points of their specific industries, companies are still run by human beings, with all of the intellectual and emotional frailty that implies. It is quite possible that business dealings with someone with whom our company has been directly competing for an extended period will carry additional risks, either because that person does in fact harbor animosity towards us, or because we may be unable to suppress such feelings on our side. But absent some concrete evidence of that risk, can we reasonably act on that possibility, knowing that if we do so we run the risk of depriving our shareholders of the best return on their investment, costing employees of our existing supplier their jobs, and potentially damaging the economy of the states or countries where those companies do business?

Or, to put it another way, can we accept the possibility of causing all of this harm in order to protect ourselves from a threat that may or may not even exist? Alternately, can we accept the consequences of failing to take precautions if the threat does exist? How do we determine the course of action that will do the most good for the most people over the longest time while maintaining our primary mission of running our own company to the benefit of the shareholders who own it?

It’s worth thinking about…

Spite and Ketchup

Every once in a while you will run across a business story that reminds you of small children squabbling on a schoolyard, and you will reluctantly have to acknowledge that no matter how hard we try to be adults, professionals, and leaders of commerce, people don’t always change that much between the ages of five and fifty. This may take the form of business people sabotaging deals that would have earned them billions of dollars because a hated rival would have made millions on the same transaction, or of people refusing to work together because of something one of them said about the other decades before, and this past week it took the form of the world’s largest quick-serve restaurant chain severing ties with a valuable supplier because that supplier’s new CEO used to run a rival company…

If you missed the story on Reuters by way of Yahoo Business you can pick it up on the link, but the story is simple enough. McDonald’s announced this week that they are ending a relationship with the H.J. Heinz company, and will no longer purchase their ketchup, because the new CEO of Heinz is the former CEO of Burger King. Why exactly this would be a bad thing from McDonald’s point of view is not clear; certainly it doesn’t suggest that the executive in question is inexperienced in large-scale food service operations or that he wouldn’t understand how important condiments are to a quick-serve hamburger restaurant. It’s possible that the leadership at McDonald’s is reacting to some of the more outrageous (and stupid) management blunders Burger King has made over the past decade (the advertising debacles come to mind, as does Burger King’s insistence on treating its franchise-holders like crap); it is also possible that the leadership knows the new CEO of Heinz from industry functions and just doesn’t like him…

It’s also possible that someone associated with the McDonald’s organization has, or would like to have, a relationship with the Heinz company’s primary rival in the ketchup field, Hunt’s, which is owned by ConAgra Foods. Or, alternately, that someone at McDonald’s is concerned about Warren Buffet’s Berkshire Hathaway group purchasing Heinz, and wants to keep at arm’s length from the operation. These considerations may not seem all that important in the short run, but once we start considering corporate acquisitions in the $28 billion range it becomes much harder to dismiss these concerns as mere spite or simple defensive posturing...

In any event, the move should have minimal impact on your enjoyment of McDonald’s products within the United States, as only two domestic markets (Pittsburgh and Minneapolis) actually feature Heinz products as of this week. For some years now McDonald’s locations across the US have given out condiment packets marked, simply, “fancy ketchup,” and most of the in-store dispensers make no mention of brand names either. It’s possible that the leadership at McDonald’s has obtained a supplier contract that will lower their ketchup-related expenses outside of the US (which the company has been using Heinz products) enough to make up for any losses associated with dropping the name-brand product; it is even possible that the mention of possible rivalry and/or animosity toward the new CEO of Heinz is nothing more than a ruse to misdirect anyone who might be looking away from the details of that new deal…

And, of course, it’s also possible that the people running a multi-billion dollar company have just make a major purchasing decision on the same basis that you might have used in picking players for a dodge-ball team when you were nine years old. We should probably keep an eye on this one…