Trumping Uncertainty

You think you’re above average (we all think we’re above average). For argument’s sake, let’s say you are. More, you’re brilliant, generally regarded as tops in your field. Will that save your bacon if your “field” implodes? Are you prepared to function in the midst of  severe, unanticipated disruptions in your industry, profession or employment?

You can be brilliant and still fail if you have no method for dealing with uncertainty. You may say there is no way to deal with the unexpected, so you are just going to do the best you can and if that’s not good enough, so be it. Good luck, then, because smooth sailing is not normal. Chaos, the totally unexpected, and challenges more severe than you can imagine is normal, especially now.

In Great by Choice, the new book by Jim Collins and Mort Hansen, the authors argue that Americans, lulled into complacency over the latter years in the last century, should understand that unstable environments, characterized by big forces, out of our control, fast moving and potentially harmful, are far more normal than what we experienced in the extended period of good times that came to an end in the new millenium. Our best shot, they suggest, is to mimic the behaviors of the rare companies and individuals that have already proven themselves in extreme conditions.

Out of a universe of over twenty thousand companies, Collins and Hansen found nine businesses that have the right stuff to deal with the unexpected. The researchers were able to isolate the methods they use to survive and flourish. These tools can be applied in most situations to significantly improve the chances of a company’s survival. They can also be used by individuals, whatever their occupation, for the same purpose.

The first example Collins and Hansen cited was Southwest Airlines. No industry had more unexpected shocks than the airlines from 1972, the startup year for Southwest, to 2002. The price of oil, the most important cost factor in the industry, soared from $2.50 to $50 a barrel. Interest rates, the second most important element in this capital intensive industry, nearly tripled in the first ten years. Then there was the highly disruptive air traffic controllers strike.

The most bedeviling factor of all was deregulation, which resulted in a competitive nightmare, driving  a number of companies into bankruptcy. During the early nineties, the entire industry lost $13 billion and furloughed over a hundred thousand employees. Southwest made a profit in thirty out of thirty years and never laid off one employee. The stock was a steady gainer during the period: $10,000 invested in its stock in 1972 was worth $6 million in 2002, outperforming WalMart, Ge, Johnson & Johnson and Walt Disney. According to Money Magazine, Southwest produced the #1 return to investors of all S&P 500 companies during that time.

What did Southwest do that was so special? Ironically, it was not innovation. When the founders were contemplating a regional airline for Texas, it was the model invented by PSA, the California regional that they copied. They even got PSA to train them and their staff. With the PSA model, Southwest flourished throughout the period. PSA, on the other hand, flailed, was rendered irrevelant, and was taken over by another carrier just before going under.

After a careful study of Southwest, Collins and Hansen found a trio of characteristics: Fanatic Discipline, Empirical Creativity, and Productive Paranoia, undergirded by extraordinary (Level 5) ambition for the company. In addition, they crafted an operating recipe that was Specific, Methodical and Consistent (SMaC). This recipe was an all weather formula, so good it changed very little through all the chaos and changing times the company went through. These same principles were present in the operations of the eight other companies that made the grade.

The explanations and descriptions of Southwest’s operations, as well as the operations of the eight other companies are to be found in Great by Choice, which is as must-read as anything I’ve run across in a long time.

Observations

I am certain that many of you will find that you have already implemented some of these principles, indicating that you are on the right track. This is good, because any cursory reading of the news these days should be confirming evidence to long time readers that the Wave Principle’s forecast for more tough times ahead is on target. I’m a one man shop, so I have one copy of the book to study. If I had associates, I’d have a copy for each of them and we would meet regularly to discuss the implementation of the ideas in the book.

Cheers,

Rod

 

 

 

 

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