Archive for the ‘On Target’ Category

BP’s woes in the Deepwater Horizon disaster in the Gulf of Mexico are consistent with its longstanding culture of risky behaviour and gambling. BP has had many costly accidents and incidents, with major losses in both money and lives. This is nothing new for BP. The company started in the early 20th century as the Anglo-Persian Oil Company, to exploit Iran’s oil resources. It has historically operated in the most dangerous and risky areas of the globe. After the fall of communism, BP invested heavily in Russia and has had numerous disputes with Russian partners and the Russian government. This shows just how persistent a corporate culture can be. BP’s strategy is to be at the forefront of the riskiest exploration and production plays in the world, presumably in order to access the biggest rewards.

Well, you can’t make high-stakes gambles consistently and not lose a few along the way. That is why BP has been dogged by controversy over the years, most recently with the Gulf of Mexico crisis. Most global companies with this much at stake are much more risk averse. They ensure that risky undertakings and outright gambles are only a small part of the business, or can at least be sequestered from their other operations and results. However, BP’s high-stakes culture means it has one of the highest corporate risk appetites in the world, and certainly in the already risky oil business. The rewards can be great, but eventually the cowboy mentality and cultural machismo of riskiness can catch up to you. I for one see major risks in the immediate future for BP, and ultimately when the full consequences of this disaster play out.

© 2010 Richard Martin

Decision-making and leading during a major crisis – such as the current catastrophe in the Gulf of Mexico – is difficult and stressful for a leader. George W. Bush probably went through a period on 9/11 and the immediate aftermath where he was uncertain of how to proceed. How could anyone be prepared for that? I think the same thing happened during Katrina, and was compounded by the obvious jurisdictional issues. I think it’s easy to downplay such influencing factors on the decision process. As for Obama, I believe he’s having a similar moment. We won’t know for a while if he can improve his style and ability to act, but for now I think he’s still trying to figure out what needs to be done and the best way to proceed.

As a former military officer, I have been in life and death situations that required immediate response and robust leadership, though certainly not with anywhere near the same level of responsibility, so I can sympathize to a certain extent with a leader in this context. All leaders go through periods of withdrawal and questioning, even the great ones. Churchill had numerous depressive episodes thoughout his career, and especially during the Second World War. Stalin reportedly became extremely depressed for a few days after the German invasion and withdraw into a cocoon. Once he got over it, he was able to take charge of the situation again, though I’m certainly not advocating imitating him in the detail.

© 2010 Richard Martin

Apple’s highly successful introduction of the iPad back in April illustrates two important principles of military strategy. The first is the that it is better to go around a fortified enemy position and take it from the flank, rather than trying to assault it frontally. Even better is to go around it completely and make it irrelevant. By introducing the iPad, Apple repeated its iPhone exploit. Instead of directly taking on makers of netbook computers and “lightweight” operating systems (and cellphones, in the case of the iPhone), Apple introduced game changing technology, essentially making the incumbent products irrelevant. The recent decisions by Microsoft, RIM, HP, Dell, etc. to cancel their existing tablet projects and start essentially from scratch shows just how disruptive the iPad is.

The second principle from military strategy is that the defence is always inherently stronger than the offence. This is because the defender chooses to fortify his position and takes on the enemy on ground and at a time of his choosing. By introducing the iPad, Apple is now in a strongly fortified position. Any challenger must take the company on in a frontal assault, or try to go around them. Both are extremely difficult, as Apple has the upper hand in terms of technology and product focus. In other words, they have chosen to fight their battle against competitors on ground and at a time of their choosing. Brilliant strategy if I say so myself.

© 2010 Richard Martin

BP’s Gulf of Mexico oil disaster and the wave of losses and government scrutiny that have washed over Wall Street in the last year and a half have something in common. Both situations demonstrate how the leaders of these companies – BP, Goldman Sachs, Lehman Brothers, and others – have been ultimately responsible for the creation and encouragement of a culture of risky behaviour without accountability.

As one of my NCOs used to say when I was in the army, “A unit runs the way the commander wants it to be run.” We therefore shouldn’t be surprised by the lack of ethics and “cowboy” mentality prevalent in some companies. The senior leadership of many, if not most, of these businesses has given license to key employees to behave in that way. If you expect and encourage needlessly risky behaviour, then you shouldn’t be surprised when that’s what you get. This is the antithesis of true entrepreneurship, which involves people that are risking their own capital and their own hide, but who are much more responsible in taking prudent risks, ones that can be justified to themselves, their families, their partners and their employees.

© 2010 Richard Martin

BP’s Gulf of Mexico oil well disaster highlights once more the fact that proper risk management is always needed, particularly in risky or dangerous undertakings.

The first part of the process is to analyze all activities and potential situations to determine what and how things can go wrong. The second part requires the identification and implementation of known methods of prevention to eliminate or reduce those risks. Robust contingency plans are also required to implement emergency measures that will attenuate or eliminate the causes of risks as they materialize, as well as to mitigate their most damaging effects.

Humans undertake many risky activities and it is completely impossible to eliminate all risks. However, prudent risk management can provide greater safety and security, and limit costs and damages when a disaster does occur.

© 2010 Richard Martin

MONTREAL (3 MAY 2010) – We are already hearing calls from environmentalists for a moratorium on oil drilling and exploration in coastal zones, with a definite “I told you so” attitude. Unfortunately, that would be drawing precisely the wrong lesson from the Gulf of Mexico oil disaster. It turns out that there are contingent risk reduction measures that BP could have put in place before the disaster. They wouldn’t necessarily have prevented the main well explosion and damage, but they would have potentially reduced the harm that is being caused.

I’m no expert on oil drilling, but it seems to me that BP, and government regulations, are at fault to some significant level. BP is apparently asking the Canadian government for a dispensation from building production wells in Canadian waters of the Beaufort Sea without drilling secondary safety wells in case of a similar accident to what has happened in the Gulf of Mexico. Here is the real lesson: risk management costs money and time and effort, but once there is a proven technology for reducing or better managing risks, then it is incumbent on decision makers to incorporate that measure into their plans, or at least consider it.

And further, assuming the Canadian government approves more exploration in the Arctic, what contingency plans, both governmental and corporate, will be in place to deal with potential risks, up to and including a major leak or spill?

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

Great leaders embrace competition and conflict in their teams. Unfortunately, many leaders prefer to surround themselves with weak subordinates. This condition stems from three fears. The first is the fear of being challenged or replaced by a more competent subordinate. The second is the fear of conflict, that there must be complete team harmony for it to function well.

The final one is probably the most common; it is the fear of being disliked. Who doesn’t want to be liked, appreciated, and accepted by others? In my military career, I had to learn the hard way that trying to be liked by your subordinates is the booby prize of leadership, especially if you’ve been handed a difficult mission or task. Leaders must keep a reserve of distance and perspective, but instead they often fall pray to compliments and flattery. They use their leadership position to stroke their fragile egos rather than to get the job done.

© 2010 Richard Martin

Here are some key questions that business owners and principals must be able to answer in order to ensure that there is continuity of leadership if the worst should happen.

What?
What jobs in the business are key and must be carried out no matter what? What processes and procedures must be maintained in the absence of the business’ principals and are essential to operations? As pointed out above, this could be as mundane as having alternate signing authority for company cheques and banking deposits. It could also include knowledge of insurance policies, important administrative and financial contacts, supplier lists, client lists, etc.

Who? Who can best fill each position in the absence of the incumbent? It is important to distinguish succession planning from relief planning. The former involves the selection and development of individuals to take over the key positions in a business at some point in the future. Relief planning however is distinct and aims to ensure that there is someone who can take over key positions in an emergency or crisis, especially in the event of an unplanned absence. The skills and qualities are not necessarily the same in both cases. For instance, a small business owner might wish his daughter to take over the business in the next five years and is grooming her with that objective in mind, but that doesn’t mean she would necessarily be ready to take over the business at a moment’s notice should something happen to the owner. That would be compounded by the familial relationship. She might be in no condition to manage a business if she is in distress or grieving. A long-time partner or associate may be more appropriate in those circumstances, at least until the daughter can take over.

How? How do we contact the replacements? What contingency plans do we have in place to activate the emergency recall plan? How do essential tasks and processes get carried out, and who does them? Are there important deliveries and projects that must be completed or continued in the absence of the key people? How should these be implemented?

As you can see, there is potentially a lot to think about. But there are also many benefits for the business. By getting information out in the open and keeping employees in the loop, they can be empowered to perform better and use their initiative, not just in an emergency or crisis situation, but also in normal circumstances. It is also a good way to reassure clients and suppliers, as well as an excellent means of identifying potential successors or future managers as part of a long-term succession or management development plan.

© 2010 Richard Martin

Airlines, airports, individuals, and nations are struggling with the implications of the volcanic eruption in Iceland and its disruption of air travel in Europe. Here is a proven process for considering the situation and creating a viable plan of action:
1. What is the objective? This step is so critical that the military considers selection and maintenance of the aim as the most important principle of command in war.
2. What are your assumptions? These are needed to get on with planning and can always be changed later as more information appears.
3. What is the decision framework? In other words, what factors must be considered in the decision?
4. What are the limitations on freedom of action? In other words, what things can prevent you from achieving your aim?
5. Consider a variety of scenarios and generate possible courses of action based on these.
6. Analyse and compare the courses of action and decide on the optimal one. The second best can be an alternative in case the primary one doesn’t work out.
7. Create the plan based on the preferred course of action and communicate the details to stakeholders.

© 2010 Richard Martin