How to be Master and Commander of your business in times of crisis and uncertainty
By Christopher J Tipler
Today, even large businesses could be forgiven for thinking that they are small ships at the mercy of unpredictable and unforgiving forces. Horrific natural disasters such as earthquakes and tsunamis in New Zealand and Japan; nuclear accidents, floods and wildfires; social upheaval and military conflict in the Middle East; on-going conflict in Afghanistan, all create great nervousness and anxiety.
The spectre of the GFC returning looms over us as we watch debt-ridden countries (and many American states) struggling to stave off economic collapse. We wonder whether the Chinese juggernaut will continue to carry the world economy, and at what price.
On a day-to-day basis, the steady breeze of the consumer markets that sustained product sales seems to have gone, replaced by light and fickle winds. Buyers now are cautious and always looking for a bargain.
Share markets lift and plunge like frightened horses. And, to maintain the nautical metaphor, the great ships of state – our national and regional governments – seem to be hopelessly ill equipped to respond on our behalf and to protect us; they seem to be part of the problem rather than part of the solution.
So, as business leaders, as masters and commanders of our vessel, what are we to do in the face of this new, apparently permanent, condition of crisis and uncertainty? This series of three short essays seeks to answer this question, based on my experience advising top managers over a period of almost 30 years, both in Australia and overseas, a period in which I have seen booms and busts and worked with all types of businesses in every imaginable condition.
The answer does not lie in trying to forecast what will happen. I do not know what lies ahead, any more than you do, other than having a general sense that the ‘good times’ are not likely to return anytime soon (and I may be wrong about this!). I am in the camp of the Roman philosopher Seneca, who said ‘you must reckon on everything, expect everything’. If this seems like cold comfort, remember that the great navigators such as Captain James Cook went on voyages across the world’s great oceans that lasted for years, in tiny vessels. They had no ability to foresee conditions, they encountered great obstacles and monstrous seas, yet they mostly survived and succeeded in their missions.
In recent years I have followed an interest in British maritime history that has encompassed much reading and visits to iconic destinations such as the dockyards at Portsmouth (it is extraordinary to stand on The Victory’s orlop deck where Admiral Nelson died during the battle of Trafalgar). The following vignettes reflect my assessment of the principles that Nelson, Cook and so many other great seamen, followed to be successful masters and commanders, and how those principles can be applied to the task of business management today. These almost universal principles have to do with fundamental competence and the ability to voyage to a clear destination with some certainty of arrival.
Part 1: “No sea can hurt her.”
Captain Cook once made this remark about the Endeavour, the ship that took him and 97 other souls to Tahiti and the New World in 1769. Yet the Endeavour was not much more than a cricket pitch in length – only 32 metres – and 9 metres wide; a tiny craft by today’s standards. Despite her size, she was clearly a well-founded ship, able not only to weather any conditions but also to make progress in all but the worst seas. This was true of thousands of other ships built in those times; ships that blockaded the French for years in the Channel ports; ships that crossed the Atlantic and rounded the Horn time and time again carrying cargoes or heavy cannon. What was it that enabled these small ships to carry out great tasks with such confidence?
We know that, by the late eighteenth century, the British Admiralty (and their French and Dutch counterparts) had virtually perfected the art of designing robust sailing vessels; ships that were strong and could be rigged flexibly for almost any sailing conditions (their oak hulls were sometimes more than a foot thick). We know also that the crews of these ships were generally very well trained; men who acquired the rank of able seaman had to pass many tests and be practised in most of the disciplines associated with sailing the ship. The same could be said for the gunners and marines on board, and promotion to the rank of officer was very hard-won and greatly valued. Naval ships carried just enough men to sail and fight the ship. Their crews operated under a regime of rigorous discipline, starting with the requirements of the Articles of War and extending to every detail of shipboard life. Finally, great attention was paid to the regular cleaning of the hull as the ‘skirt’ of weed that grew so readily could halve the ships sailing speed. The net result was that naval ships at the time of Napoleon were extraordinary machines, fit for purpose in almost every way.
In the above context, what does it mean for a business to be a ‘well founded ship’? The basic construction of a business starts with decisions about scope and scale that define the ‘hull’ – the size and shape of the structure that must sail through its market ‘ocean’. The balance sheet is the equivalent of the rigging and the level of gearing (debt to equity) is analogous to the sail area of the vessel.
Is the ‘hull’ of your business right-sized and strong? This is a question about strategy and many businesses today are so short-focussed, so pre-occupied with over-worked paradigms such as ‘governance’ and CSR, that their hull shape (their strategy) is hard to see. They do not know what they are and the shape of the business, whatever it may be, is fragile as a result.
These same vessels are arguably carrying too much sail for the conditions and have little flexibility to reduce it. What do I mean by this? It is simple really; master mariners know that in unpredictable weather conditions, where storms and squalls are likely, you reduce sail and exercise caution. It is not a time in business to be highly geared and debt should be reduced to levels that most analysts would call ‘conservative’. The ship may travel a little slower as a result (in the sense that the return on equity will be reduced) but the ship will weather the storms. The owners of the ship (the shareholders) will be pleased that their investment is intact. In this context it is useful to remember that our bankers find it hard to be our true friends and cannot be relied upon to support us in a storm. I will tell you why in the third essay in this series.
What then of our crews? Are they right-sized, well trained, highly disciplined? Most CEO’s, particularly those of larger businesses, would express reservations about this; they know that all is not well below decks. At the same time they might also say that businesses can’t exercise the same level of control over their people as the master of a ship, particularly when business crew members can take leave of the corporate ship anytime they like. This response is only partly valid; naval captains in the days of sail valued their crew highly and often tried to take the best men with them when they were given command of another vessel.
In chapter seven of Corpus RIOS I argue that many businesses are not obtaining more than about 50% of the energy ‘quotient’ of their ‘crew’ and that work is a bane rather than a triumph of existence for so many employees. As a result, the ship sails slower than it should and responds to the helm less readily than it should. Some of this is a result of having inappropriate crewmembers, or crews that are too large or too small for the task. Most of it is a result of the way the organisation works. In a time of crisis and uncertainty this situation puts the vessel at risk. We need a renaissance in this arena that goes well beyond current Human Resource paradigms and the RIOS model can help to bring this about. The time to start work on this challenge is right now; the uncertain times demand an effective and efficient crew.
Finally, there is the question of ensuring that our hull is clean so that our business ship can slide through market and industry waters cleanly. The business equivalent of weed on the hull is all of the fashionable clutter that we have attached to our ships – ‘corporate governance’ and ‘corporate social responsibility’ being the worst offenders. A focus on governance is a very poor substitute for a genuine focus on capability, and a focus on CSR is an equally poor substitute for a strategic approach to environmental and social matters – what Professor Michael Porter calls ‘shared value’. It is time to clean these weeds from our hulls and get serious about reshaping the ship so that it naturally sails swiftly, safely, and sustainably.
Allow me to recap by asking you four questions; questions that Horatio Nelson or James Cook might well have asked.
- Is your ‘hull’ the right shape and size and is it strong (have you got your strategy right)?
- Is your ship rigged for the conditions and carrying the right amount of sail (is your balance sheet sound and your level of debt prudent)?
- Is your crew well trained and highly disciplined (do you have the right people and is your staff engaged)?
- Is your ‘hull’ free from weed (are you focusing on genuine capability rather than ‘bolt on’s such as CSR)?
There is, of course, that marvellous admonition by Nelson to go ‘straight at em’, but I assume you are doing this!
In the next part of this series, entitled ‘Master Mariner’, I will explain why the navigational skills, and tools, of the masters of sail are so relevant to business strategy formulation today.