Archive for the ‘Economics and Finance’ Category

My new book, Brilliant Manoeuvres: How to Use Military Wisdom to Win Business Battles, is now available for purchase through my website. It will also be available through all the major online retailers around the world.

It’s a bit more expensive if you order the book through me, but I will ship you a signed copy. If you’re in Canada, the shipping is included in the price. For bulk orders, just drop me a line at 514-453-3993 and we can discuss special pricing.

About the book

“There are quite a few books about parallels between military strategy and corporate strategy. Richard Martin’s Brilliant Manoeuvres makes a difference by not only focusing on the conceptual but also on the operational side of the equation. This book is a hands-on guide to a brilliant corporate strategy.”
Prof. Dr. Guido Quelle, Managing Partner, Mandat Consulting Group, Dortmund, Germany

Brilliant Maneuvers is Sun Tzu’s Art of War combined with Drucker’s The Effective Executive.”
Alan Weiss, PhD, Author of the bestselling Million Dollar Consulting and The Consulting Bible

“Richard explains the reasons behind the military concepts, backing them up with diagrams and historical and personal examples. He then shows how to apply them in a business context. I highly recommend Brilliant Manoeuvres to beginners and advanced users alike.”
Pierre Bergevin, President & CEO, Cushman & Wakefield Canada

Business executives and entrepreneurs see themselves as modern day warriors and generals, fighting off competitors and conquering new markets. They talk about attacking competitors, defending turf, firing warning shots, establishing beachheads, bypassing the competition, digging a protective moat, and so on. Brilliant Manoeuvres – How to Use Military Wisdom to Win Business Battles is for those executives and entrepreneurs who are looking to create and sustain competitive advantage and to lead their teams in the face of determined competition and rivalry. Based on the author’s experience as a soldier, a business consultant and an entrepreneur, the book explains how and why military leaders and planners actually think and operate. It then translates this into terms that business people can readily apply to their own reality so they can survive and thrive. In other words, this book is a practical guidebook, and not just another set of exhortations to “lead from the front” or to “win without fighting”. In particular it demonstrates how some military methods cannot be applied in management.

“With Brilliant Manoeuvres, Richard Martin has produced a guidebook that gets back to the basics of strategy, management, and leadership. We tend to forget the fundamentals because we think they’re too simple or that we’ve outgrown them. Richard demonstrates the linkages between military and business wisdom and shows that these concepts are fundamental and essential. In the process they gain a new relevance and freshness to help in meeting today’s business challenges.”
Louis Gabanna, President, Colas Canada

About the author

Richard Martin is founder and president of Alcera Consulting Inc. Prior to launching his consulting business, Richard attended the prestigious Collège militaire royal de Saint-Jean as an officer cadet and then served for 21 years as an infantry officer in the Canadian Army. Richard is the only member of Alan Weiss’s Million Dollar Consulting Mentoring Hall of Fame with extensive military experience. He brings his business and military leadership experience to bear for organizations and executives in both the private and public sectors seeking to exploit change, maximize opportunity, and minimize risk.

Regards,

Rich

Richard MartinPresident/Président
Alcera Consulting Inc./Alcera Conseil de gestion inc.
Author of the forthcoming book

Brilliant Manoeuvres: How to Use Military Wisdom to Win Business Battles
Published September 2012 by Global Professional Publishing.

Brilliant Maneuvers is Sun Tzu’s Art of War combined with Drucker’s The Effective Executive.” — Alan Weiss, PhD, Author of the bestselling Million Dollar Consulting

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This one is also known as ‘Sustainability’ in the British military. I guess they wanted to show they were environmentally aware. (That was a joke you know.) In any case, you may find it a bit odd to see administration (or sustainability) in a listing of success principles, and even more when they are based on the principles of military strategy. In actuality, though, it makes perfect sense.

Administration is about the identification, procurement, and maintenance of all the means of sustenance to carry out military operations. As Napoleon said, “An army marches on its stomach,” meaning that no military commander can hope to achieve his aims without thinking of supply, logistics, and all the planning and preparation that are required for successful campaigning. This is also why money was known in the Middle Ages and early Modern period of warfare as the ‘sinews of war.’ No money, no war. It’s as simple as that.

By the same token, no business can survive for any length of time without properly identifying and securing the resources it needs to carry out its plans and achieve its strategic objectives. Whether it’s a small start up company struggling to find cash to fund its growth or a large multinational that needs billions to feed its global expansion plans, companies need resources to fuel their growth and development. No matter how brilliant the strategy and tactics, if you can’t pay your people, invest in new products and services, create marketing and promotional plans, there will be NO business.

The two key resources, and the ones that underlie all the others are money and people. Money is needed to invest at the beginning and throughout the business’ development. It comes from two sources and two sources only: retained earnings, i.e. profits that are kept in the company; and fresh capital from outside investors. Borrowing is just that, borrowing from future profits and future outside investment.

The other key resource is people. Everything a company does comes out of the minds of people, either working individually or collectively. So, the next time you hear your company say that people is its most important asset, you should believe it, even though the company may only pay lip service to that assertion.

© 2012 Richard Martin. Reproduction and quotes permitted with full and proper attribution.

1. Big box book retailers make the local bookstore irrelevant.

2. Amazon starts selling books online.

3. People browse for books in the big box retail store and then order the book online from Amazon.

4. Big box book retailers start their own online retail operations.

5. Amazon starts free shipping for orders above a certain price level.

6. Big box book retailers are forced to do the same.

7. Amazon introduces the Kindle e-reader. People start buying e-books.

8. People browse for books at the local big box book retailer then order the Kindle e-book on their iPhone while continuing to browse other books. When they get home, the book is on their Kindle.

9. Publishers can’t predict how many physical books will be sold anymore.

10. Big box book retailers start selling candles and towels, resembling more and more a Bed, Bath and Beyond.

I’m not against oil per se, or any other energy source for that matter. However, developments in recent years lead me to question how long Western economies will remain dependent on oil, particularly gasoline to propel automobiles. Gasoline consumption in the US appears to have peaked a few years ago, and continues on its downward trend. Substitution of lower consuming cars is just getting underway: hybrids, plug-in electric vehicles, continuing increases in efficiency of gasoline engines, more diesel engines, etc.

As electricity becomes progressively more important in vehicle propulsion, we can expect demand for electricity to continue rising. That means more centralized electricity production. These plants will continue to be fuelled by (hopefully cleaner) coal, natural gas, nuclear, hydro, and possibly wind and solar sources (though not in any great quantity for the latter).

On the other hand, with the massive growth in Asia, they will take up the slack in oil demand and eventually surpass Western based consumption. Countries such as China and India will continue investing massively in oil production and development of reserves in the Middle East, Africa, and Southeast Asia. Russia will probably also supply their needs. So, we will have a block of economic juggernauts getting their oil from underdeveloped countries with authoritarian regimes. Neither side cares much about human rights, political freedom, or the environment.

© 2011 Richard Martin. Reproduction and quotes permitted for non-commercial purposes with full and proper attribution.

Every soldier in history has known that the defense is inherently stronger than the attack. As a general rule of thumb, attacking forces have to be at least three times stronger than defending forces. In many cases they should be even stronger, especially at the decisive point. However, the defense is rarely, if ever, decisive. It is only a temporary measure before resuming the offensive. In war and in business, there are three main reasons to go on the defensive:

To buy time or delay an attack until you can go back on the offensive. For instance, major broadcasters and cable companies in North America have invested in at least some level of Internet accessibility for their programming. This is a purely defensive move, protecting their right to control programming while they buy time until they can determine which way the market and industry will evolve.

To rest, reconstitute, and recover after offensive success. For example, when companies try to establish a presence in a new country, they will usually establish a “beachhead” and then reconstitute while they build their infrastructure there. The same often applies after a major takeover, which can be seen as a major offensive move. The buyer will take months, and sometimes even years, to integrate the takeover target. Consequently, the focus will become defensive rather than offensive.

To consolidate a new position that has been gained in an offensive. The iPhone was introduced in 2007, and it immediately disrupted mobile communications and computing. Other cell phone makers were thrown off balance. Apple has kept one step ahead of the competition since then by introducing annual upgrades. But what really allowed Apple to keep the competition off balance was the creation of the App Store in 2008. The App Store gave a marked advantage to Apple, because it allowed the company to consolidate its position by solidifying the loyalty of early adopters.

So what are the principles of business defense?

All around defense. Defensive positions should always be sited and laid out with the assumption that the attack could come from anywhere. Businesses should therefore be on the lookout for new products or services that completely undermine their existing market position. They should also be on the lookout for new entrants and competition from unexpected quarters.

Vital ground. Defenses should be sited to deny vital ground to the attacker and to cover key approaches and terrain. In business, vital ground can be equated with a business’s core customers, those who buy on a repeat basis and who evangelize on behalf of its products and services.

Mutual support. Defenses should be sited with mutually reinforcing strong points. That way, if one or more of them comes under direct attack, the others can bring fire to bear, either to quell the attack or to provide cover fire for a counterattack from another position. In business, this can be equated to products and services that are mutually supporting in the minds of customers and that provide synergistic value for them.

Defense in depth. Defenses should be sited in successive lines of fortifications and with obstacles to slow down and canalize the attacker. This is so an attacker doesn’t have an easy time of it after getting through the first line of defense. The business equivalent is to develop forms of exclusivity that make competition difficult, such as patents and other forms of proprietary information.

Forces in reserve. A savvy commander knows he must always keep forces in reserve to counter unexpected attacks or vulnerabilities. These should remain uncommitted as long as possible and reconstituted immediately after their use. Businesses should do the same by maintaining cash reserves to counter threats by competitors. They should also be prepared to reallocate resources from non-performing products and services to those that deserve protection and consolidation.

Active defense. Defenders should be prepared to counterattack to conquer lost ground, especially if it is vital to the defense. The best time to counter-attack is when the enemy has just finished his own attack and is trying to reconstitute or consolidate his position. This is the time of maximum vulnerability for an attacker. In business, companies should always counterattack thrusts by competitors. If a competitor introduces a similar product, then they should be prepared to stay ahead of them by introducing an improved version of theirs immediately after the competitor has introduced his copycat product. The competitor either must innovate faster than the incumbent or lower his prices. In both cases, margins are much lower for the newcomer and he will therefore remain more vulnerable to continued aggressive moves by the incumbent.

Richard Martin is founder and president of Alcera Consulting Inc. He brings his military and business leadership experience to bear for executives and organizations seeking to exploit change, maximize opportunity, and minimize risk.

© 2010 Richard Martin. Reproduction and quotes are permitted with proper attribution.

Netflix introduced video download services to Canada (21 September) and two days later, the US-based Blockbuster video rental service declared bankruptcy (23 September). It is a clear example of the power of creative destruction in capitalism. It is also a perfect illustration of how two companies competing for essentially the same customers can have distinct business models based on different driving forces, with, so far at least, highly divergent outcomes.

Blockbuster’s business model is basically to have a large number of neighbourhood stores to provide walk in clients with the opportunity to buy or rent videos. Prospective customers come into the store with the idea of renting a video, but not necessarily with a precise idea of which one. Blockbuster’s business model is entirely based on the method of sale. No stores, no business. It’s as simple as that. This requires an investment in store infrastructure to ensure that customers are able to purchase or rent videos.

However, with increasing competition from alternative sources (online video on demand, cable video on demand, and the Netflix model, i.e., home delivery of videos after online ordering), the physical costs of operating a chain of video stores became too onerous.

Netflix is one of Blockbuster’s main competitors. Its business model is built around a different driving force, one based on method of distribution instead of method of sale. Rather than operating a chain of physical store locations, it built out a distribution network to service subscribers ordering a list of movies through their online reservation service. Costs are easier to control because of the greater efficiencies inherent in a centralized distribution network. Presentation and merchandising costs are also eliminated because there is no physical location needed to attract and please walk in customers.

However, Netflix has even more of an advantage because the transition to other modes of distribution has less inherent inertia to overcome in order to introduce alternate viewing media. Netflix’s success is due to a mail distribution model for DVDs and Blu-ray discs. But this is just one way of getting video to the end user. Online distribution is an optional means of doing so, and there is less reason to resist changing to that model because the sunk costs of the mail order model are not as high as those of a video stores chain. There are also fewer employees, and no franchisees to contend with. (The challenge that GM has faced in reducing its number of franchisees over the years provides another illustration of the inertia such a model can present when a company wants to change or modify its business model.)

In the final analysis, Blockbuster’s bankruptcy shows that its business was built around a narrow definition of its value. Blockbuster was founded in 1985 and defined itself as a chain of video rental stores. The chain of stores was its raison d’être, but the customers didn’t care about the stores, only the videos. Blockbuster experimented with larger locations that offered a variety of in-store entertainment experiences, but this just showed that customers didn’t care to hang out in a glorified arcade, when all they wanted was to rent a video for an evening.

Netflix, on the other hand, defines itself by the service it provides – the possibility of watching a video without leaving the couch to order it. That’s the same value proposition as cable channels’ on-demand video service. However, the customer doesn’t need to lock in with a cable company. Now that Internet downloading and streaming are feasible and cost effective, customers have even less lock in. They can just use their existing computer and Internet connection. Smart phones also provide another vector for downloading or video streaming. The fact that Netflix has chosen to enter the Canadian market only with the streaming service indicates that the mail order model is obsolescent. The company will probably continue to offer it in its home U.S. market for the foreseeable future, but it is the Internet streaming model that is the way of the future for video viewing.

People know what videos they want to watch. Whether intentional or not, Netflix’s method of distribution driving force gives it greater flexibility in delivering a video watching experience to its customers. Mail order is one way to do so, but so is the Internet, or a smart phone for that matter. I predict that as long as Netflix remains flexible about its methods of distribution, it will continue to be successful. If, however, it becomes enamoured with one method in particular, it will probably experience challenges similar to Blockbuster’s.

Every company and non-business organization must examine its business model on the basis of its driving force. I’ve written more extensively about different driving forces in other articles. A good start is to ask, “What IS our driving force?” The next question should then be, “Should this even BE our driving force?” When senior management starts to ask itself these questions, the answers can sometimes be surprising and are always powerfully revealing.

© 2010 Richard Martin. Reproduction and quotes are permitted with proper attribution.

It’s a fallacy to think that war can be prevented by having intertwined economies. If it were, there would be no civil wars such as what happened in Yugoslavia in the 1990s. If anything, it can create even more animosity between countries because it can provide an excuse to claim inequality and victimhood, both good excuses for going to war.

© 2010 Richard Martin. Reproduction and quotes authorized with proper attribution.

Michael Beschloss wrote a book about the immediate post-WWII period called The Conquerors. There was a struggle between the forces of vengeance and the forces of enlightened self interest. There was no lack of government officials in the Allied camp who were more interested in punishing the Axis countries than in reconciliation and setting the conditions for democracy and wealth. Churchill thought the Nazi leadership should be summarily executed. Hans Morgenthau wanted to return Germany and Japan to agrarianism. Roosevelt’s leadership, and then Truman’s, was key in ensuring hasty reconstruction and a return to normalcy (which was quick given the circumstances).

To contrast with the Marshall Plan, the Soviets set up socialist workers paradises in all of the countries they liberated, and then proceeded to loot them, East Germany being the worst case. Amongst other things, they moved hundreds of factories lock, stock and barrel to Russia. The US and the other Western allies disarmed quickly and only left token occupation forces in West Germany. The Soviets kept millions of troops in Eastern Europe. They did the same in Korea north of the 38th parallel.

Which has been more successful in the long run?

© 2010 Richard Martin. Reproduction and quotes authorized with proper attribution.

Every once in a while I feel like ranting. This is one of those times. The object of my censure? Global warming. You read that right. I’m one of those people who actually questions whether, a) the earth is getting warmer and, b) whether humans are the cause of the warming. Don’t worry, I’m not going to get into the science or try to convince you. On the other hand, I do wish to point out what I believe are some fundamental fallacies in the debate.

I think it is critical that leaders in business, government and science take a stand against simplistic explanations and policy prescriptions that could be massively disruptive to our quality of life, now and in the future. Labelling as a “denier” someone who questions the policy prescriptions (some of which are decidedly moral in scope), or even the science, only serves to stigmatize people whose doubt is genuine and moves the debate further away from rational discourse about possible causes and consequences.

We’re bombarded by claims that the earth is getting dangerously warm, and will continue to do so for the next decades. We’re also being told that this warming is caused by humans’ excessive use of fossil fuels, because this causes us to spew too much carbon dioxide into the atmosphere. Carbon dioxide is a greenhouse gas, which means it has some part to play in keeping the temperature of Earth liveable, along with other greenhouse gases such as water vapour, methane and the nitrogen that makes up about 80 % of the atmosphere. To put things in perspective, the surface temperature of the planet would be about minus 18 Celsius were it not for the greenhouse effect.

We are told that there is a “scientific consensus” about anthropogenic global warming. There may indeed be a majority of climate scientists who think that the earth is getting warmer and that this may be caused by greenhouse gas emissions. But does that mean that there really is a consensus? That would imply that there is agreement on what is happening to the earth’s temperature over long timescales and this phenomenon’s implications for the atmosphere, biosphere, ice cover, oceans, continents, and humanity. My research leads me to the conclusion that there is actually very little scientific consensus about these matters. In fact, there seems to be healthy scientific debate, which is exactly the way things should be. I would go even further and assert that the concept of scientific consensus is bogus, because debate and disagreement are fundamental to science. If you take away the debate, doubt, and disagreement you get ideology.

There is also a principle in science that states that the simplest explanation for a phenomenon is usually the best and most accurate one. The hypothesis of anthropogenic global warming is indeed simple, but the explanation that is proffered must be weighed against competing theories. Just ask yourself this: If humans are causing global warming now, then what caused the glaciers to melt? Could there not be other theories of climate change that could explain the many climate changes in Earth’s history? There are scientists (usually not climatologists and more often geologists and astrophysicists) who have been proposing alternative hypotheses and theories for global warming which don’t necessarily involve human activity as the principal driver of climate change. They don’t say the latter isn’t possible, but merely that it isn’t likely given all the other potential explanations.

A vocal minority has taken control of the debate and is telling us that we have to consume less energy (not a bad idea in and of itself), that we should be paying taxes to penalize excessive fossil fuel use, and that we should be changing our civilization to make it “greener.” The problem is that many of the solutions to replace fossil fuels are not as reliable or efficient, are more expensive by orders of magnitude, and would take decades, if not centuries, to implement. New taxes or policies may be appear salutary in the short term, but they always have unintended consequences. Even worse though, are all the do-gooders who want to ensure that the poor of the world don’t have access to the same quality of life and wealth as we do by restricting their ability to benefit from a high-energy lifestyle. It’s no surprise that developing countries have opposed treaties to regulate greenhouse gas emissions. They know that doing so could hamper their economic development, just as it’s taking off.

What does this have to do with management and leadership? In a nutshell, I think that leaders in all fields must take the initiative in denouncing ad hominem attacks, overly emotional arguments, and calls for conformity. Humans have done an excellent job over the centuries of improving quality of life through new energy sources and uses for the power they provide. It is economic necessity and logic that will bring about more efficiency in our energy use, not global treaties and arbitrary taxes that are imposed by do-gooders and others who have nothing better to do than control others’ lives.

In other words, we need a global cooling of rhetoric, and a rational approach to energy use. I believe a healthy scepticism about totalising explanations and prescriptions, combined with scientific curiosity and the practices of sound management are what will give us the best approach to our problems.

© 2010 Richard Martin. Reproduction and quotes permitted with proper attribution.

Last week Canada’s biggest life insurer Manulife announced a major quarterly loss due to the poor stock market and low bond yields. Most of the analysis and management commentary centred on the hope that the markets could rebound favourably to Manulife. Some claimed that this wouldn’t have happened in the U.S., because they don’t have to follow the same accounting rules, as if that changes the underlying reason for the loss.

My take is that those Canadian rules are in fact uncovering the company’s potentially high-risk position. This seems to be affecting other top Canadian life insurers, though apparently not to the same extent. The real question, though, is this. Why is a major life insurer in the position of showing a loss due to poor stock and bond portfolio decisions? Manulife is a life insurance company; isn’t its capital supposed to be safe?

Of course, these are just accounting rules, but when the financial crisis started in 2007, it started with adjustments due to accounting rules showing that there was something fundamentally wrong. Would hedging and other “risk management” techniques truly enhance the company’s risk position, or just offset one accounting effect with another? If you go skydiving, you can reduce the risk of injury through proper training, safety measures, and wearing a helmet, but you’re still skydiving. I contend that these techniques might mitigate some of the risks, but they can’t counter all the effects of being improperly exposed to inherently volatile markets.

Richard Martin is founder and president of Alcera Consulting Inc. He brings his military and business leadership experience to bear for executives and organizations seeking to exploit change, maximize opportunity, and minimize risk.

© 2010 Richard Martin. Reproduction and quotes permitted with proper attribution.