Business Strategy

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Meet Zheng and Qi, again

[using the updated English transliterations for cheng and ch’i]

A vivid example in today’s Wall St. J. illustrating how Toyota let its Lexus brand lose the magic it has had for 20 years.  Here’s the punch line:

Mr. Dailey found the interior of the BMW 328xi more to his liking, and bought one. “In the most basic of 3 Series you still feel a little pampered,” Mr. Dailey said. “In the Lexus, it was a different story” [referring to the “awful plethora of plastic trim” inside a comparably priced Lexus.]

The idea of zheng / qi is that you engage with the expected, zheng, while closing the sale with the unexpected qi.  This is the same pattern described in Chapter 5 of Sun Tzu’s Art of War, but applied in a way appropriate to business.

The zheng / qi pattern is an aspect of the ancient strategic principle of shih, and for a good introduction, you might consult David Lai’s short monograph, “Learning From The Stones: A Go Approach To Mastering China’s Strategic Concept, Shi,” available from the Army’s Strategic Studies Institute.

I explore some of the implications for business in chapter VI of Certain to Win.

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New study shows social pain is painful

“The study demonstrates that the same regions of the brain that become active in response to painful sensory experiences are activated during intense experiences of social rejection.”  http://www.physorg.com/news/2011-03-illuminates-pain-social.html

This is edging close to the Boydian framework. The full title of “Strategic Game,” for example, is Strategic Game of ? and ?, where the question marks are “interaction” and “isolation.”

Perhaps of more importance to business, Boyd puts huge emphasis on maintaining the moral ties that hold groups together.  For example, he suggests that “moral defeat” could be considered as “Triumph of fear, anxiety, and alienation over courage, confidence, and esprit when confronted by menace, uncertainty, and mistrust.” (Patterns 121)

To avoid “moral defeat,” organizations should work on improving their agility and internal harmony, while using such tools as Auftragstaktik to pump up initiative.  The result will be more cohesive, effective groups and a possibly less painful overall experience.

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The OODA loop: a new strategic

management approach for family business — Chapter 24 of the Handbook of Research on Strategy Process, edited by Pietro Mazzola and Franz W. Kellermans (Cheltenham, UK: Edward Elgar, 2010, ISBN 978 1 84844 044 9.  Also available as an e-book from their site.).  Coauthored by Joe Astrachan, me, Gaia Marchisio and George Manners, all of the Cox Family Enterprise Center at Kennesaw State University.  Look for it in an academic library near you.

Deep stuff — very academic — but covers the waterfront of the research (i.e., as distinguished from the speculation) on the process of strategy.  As the co-editors describe it:

While strategy content focuses on the subject of the decision, strategy process focuses on actual decision making and its associated actions.  Strategy process research examines the process underpinning strategy formulation and implementation. … Although aimed primarily at the academic community, many of the contributions speak to a wider audience.

Expensive, but if you’re into this sort of thing, probably indispensable.

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Interaction and Isolation

The “strategic game,” as Boyd called it.  It can be played on three levels — physical, mental, and moral — but victory at the moral level level usually trumps the other two.  There are few exceptions in war and practically none in business and politics.

Picture this:  You’re a grossly overweight state governor.  Fiscal times are the worst since the Great Depression.  Plus you’ve just given $800 million away to your richest constitutents.  How, then, do you take on a much larger group of citizens making an average of less than $70,000 per year?

No problem.

As Boyd would advise, you need to lay out a strategy that focuses on the moral level of conflict, that is, you want to get the majority of consitituents to identify with you and your cause not because you’re a brilliant orator and can win them over by logic (although that can work, too), but simply because they identify with you and feel you’re cause is right.

Boyd lays this out in Strategic Game, charts 46-57 and particularly charts 47-49 and 56.

With all that in mind, read “How Chris Christie Did His Homework.”  By the way, I’m not in the least interested in who’s “right” or “wrong” in this case but in who played the moral card the smartest (or, to put it another way, how the largest and most powerful union in New Jersey made every mistake in the book.)

There are strong lessons in this for business because business has a large moral component.

[All of Boyd’s materials are available at http://dnipogo.org/john-r-boyd/]

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More air bus

A colleague recently told me about a bus service between Calgary and Edmonton, Alberta, Canada, about 180 miles apart.

Red Arrow

On the Calgary – Edmonton run, the service costs $134 R/T and takes 3 hours, downtown to downtown.  Their slick web site says that if you’re at the departure location 15 minutes before departure, you’ll make the bus.  The leather / plush seats have power connections and offer 30% longer pitch, but the bus does not appear to offer wireless.  However cell is available and so it is probably possible to connect somehow.

What about air?  Air Canada is showing $194 R/T for their cheapest fare in mid-December.  Flight time is 50 minutes, gate to gate.  If you don’t live at the gate or don’t work there, add some extra time.  And don’t forget to add something extra if you need to check a bag.

Point is that airline service has become so expensive, and the experience — not all the airlines’ fault, of course — is so bad, that they are creating their own competition. For trips  up to around 300 miles, business-oriented bus is just the most obvious and requires the least capital to get off the ground.

The trick is going to be implementing a service-oriented culture within the organization so that the experience will appeal to the business or upscale leisure clientele.  In other words, you’d want to be UPS and not the USPS.  Might start with a long hard look at Southwest Airlines.

 

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Congratulations, Ford!!

As you all know by now, Ford has posted its best 3rd quarter net income in 20 years and gained 1.3 percentage points of North American market share, putting it ahead of Toyota for the year.

A couple of observations:

  • The investment rating services — those folks you told you that mortgage-backed securities were AAA, recall? — still penalize Ford for not declaring bankruptcy and stiffing its creditors, shareholders and employees
  • “Restructuring” still gets the credit.  Look at this from CNN: That success is due in large part to Mulally’s restructuring of the company that resulted in strong sales and reduced costs in North America.

“Restructuring” does not “result in strong sales.”  It may lower costs, but it does not produce products that customers want to buy.  If all you want to do is lower costs, eliminate R&D while you file for Chapter 11.

It may be a while before we understand the bases for Ford’s success, assuming that it is real success, that Ford continues to make money and gain market share.  But my preliminary assessment is that Alan Mullaly and the folks at Ford understand the Toyota Way better than the current crowd at Toyota.

For example, consider this from the Wall St. J.:

Ford’s mid-size, front-wheel-drive Fusion sedan is now the top-ranked model in Consumer Reports’ “family cars” segment—better than the Toyota Camry, the Honda Accord, the Nissan Altima and the Hyundai Sonata. Overall, Ford is now No. 1 among the Detroit brands.

Improving quality; containing costs — starting to sound like the Toyota Way to me.

Which raises an interesting question:  Look at the 14 elements of the Toyota Way, as revealed by Jeffrey Liker and think about Toyota’s current dilemma — has Mulally found something missing?

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Airlines: Do They Think We’re Stupid?

The answer is too obvious to dignify with a response.

AirTran, with the second largest number of departures out of ATL, announced today that it’s raising its fee for the first checked bag from $15 to $20.  Fair enough — if you don’t like it, don’t check a bag, or you could fly Southwest (not out of ATL,  of course … )

What I liked was the rationale they provided:

AirTran spokesman Tad Hutcheson said the airline is raising the fee because its fuel costs have been increasing.

BS.  They’re raising the fee because they can.  That’s the only reason any business ever raises prices.  Delta has opened up some headroom, and AirTrans absorbed some of it.  Delta is still $3 to $10 more expensive.

American, incidentally, also announced extra fees, in this case, if you want a seat in one of the first rows of coach plus the right to board right after elite level frequent fliers.  At least they didn’t insult us by making up some phony excuse — just a simple business proposition:  If you want it, you can have it, here’s the price.