Lessons I Learned from Snow Skiing that Apply to Business

I have loved skiing ever since I first started 40 years ago. When I first started I thought the aim was to go straight down the mountain as fast as you could; however, a broken leg soon cured that misconception. Still today I see many people bragging about how they skied down this difficult run or the other, but having seen them on the slopes I realize that they are getting down with little style or ability, and gravity is the main contributor. While they have survived, the chance of doing this repeatedly is small. In business as in skiing, the key is to be able to do the successful things repeatedly.

Continuously adjust to changing conditions

Looking at great skiers, they move effortlessly down the mountain. All you see is the fluidity of their movement and their rhythm. What you never notice is the changing slope of the mountain and changing snow. When watching lesser skiers, you can tell when the conditions change – in the moguls, their rhythm abandons them and on ice they flail around. Thus the differentiating factor better a good skier and an average skier, in my opinion, is the ability to adjust continuously to the changing conditions below your feet.

In the corporate world those companies that can maintain the company’s performance through the continuous changing and challenging business and economic conditions are the great ones. They appear to make it effortless in their performance, but it is not, it requires great skill and the ability to anticipate and react to changing conditions. Coca Cola, well known as the largest provider of a number of soft drinks and beverages, manages to maintain its market leadership in Japan where there are over 7,000 different soft drinks and over 1,000 new products are launched every year. Coca Cola maintains that leadership by continuously introducing new products and adjusting to the changing conditions and tastes of it consumers.

Upper body is still, the skier looks ahead and the legs adjust and absorb.

Watch skiers as they ski the moguls, they are looking 2 to 3 turns ahead (remember where your eyes go your body follows) down the mountain. Their upper bodies are relatively still, while their legs are moving like pistons, absorbing and extending through the moguls as they guide their skies.

To me, the upper body is the strategy of the company, still focused ahead on the goals and plotting the best course ahead to achieve them. The legs are corporate tactics that are required by the environment to realize the strategy. Like the business environment, the mountain is never constant; success requires continually adjusting to the changing conditions by changing and adjusting tactics to reach the corporate strategic goals.

When skiing moguls, if you sit back on your skis, you lose the ability to steer the skis and so lose control and will crash. Often the solutions when you do start to sit back has been described as effectively throwing your body down the mountain so that your center of gravity will pass your feet and you can regain control of the skis and steer them. Companies often “sit back” and then are in trouble as the industry changes and they have no ability to change direction with it. An example of this, I would describe as Apple prior to Steve Job’s return. The company was sitting back not controlling its direction in the industry. To save it, it had to throw itself ahead and gain control of its direction in the industry.

“If there is no snow on your ski jacket you are not improving”

Phil Maher, the great US skier once told me this, and I have always appreciated it. What is meant by this statement is:

• If you don’t have snow on your ski jacket you haven’t fallen.
• If you haven’t fallen you are not pushing yourself outside your comfort zone; and
•  If you don’t push yourself outside your comfort zone you are not growing.

The same is true of companies, if you don’t take risks you cannot succeed. Many writers have covered the thesis that the opposite of success is not failure, but not succeeding. Strategies that make companies successful are the same strategies that make them failures it just depends on how the future unfolds (See “The Strategy Paradox” by Michael E. Raynor). The tradeoff is that most strategies are built on specific beliefs about an unpredictable future, but current strategic approaches force leaders to commit to an inflexible strategy regardless of how the future might unfold. Thus success or failure is often up to chance. To be successful you have to commit to a strategy that has risk, but at the same time be flexible and adaptable. Regardless, there are times when the company will “fall”. If the company cannot fall, it must play it safe so as not to fail; however, nor can it cannot succeed, it just exists in constant state of mediocrity leading to a slow demise.

Many companies and management teams play it safe as they will still receive their compensation but not face risk. A recent McKinsey article suggested that companies should innovate more but behavioral bias is stopping them and they are too risk adverse (http://bit.ly/oC5XyU). Taking risk implies there will be failure, but often that growth and sometimes the failure can take the company in a new direction which was not anticipated leading to greater success. However, failing to take on risk stops the organization and its management growing. When they stop growing they lose the ability to adjust to change effectively and the ability to take risk, as behavior, is weaned out of the company. At time like that many companies try to buy their way out of trouble, acquiring new technologies and clients at excessive multiples which often just delays the death spiral. That is because the risk taking culture and learning through growth has gone, and so while the company adds products and clients, the underlying behavior doesn’t change so the decline continues.

Copyright 2011 Marc Borrelli

Lessons I Learned from Waterskiing that Apply to Business

A champion skier once told me a few things that have stuck with me:

• ·   slalom skiing is very easy, you set your position, accelerate across the wake, slow the ski down turn around the buoy and repeat six times;
• ·         a dedicated ski boat’s V8 engine will always beat you in a tug of war no matter how strong you are; and
• ·         where your eyes go, your body will follow.

How does these relate to business?

Something that is repeatable

First, many things in business appear “easy” and repeatable, but to succeed you have to do them well. However, not everything is as easy as it appears; many hours of practice have been done so that it looks effortless. Watch Steve Jobs give a presentation – it seems effortless, few or no slides, no notes and he captivates the audience. Why? Because he practices each presentation until he gets right and appearing effortless.  Many sports pros believe that you need to do something 10,000 times to be able to do it effortlessly. To quote an old golfer:

“The more I practice, the luckier I get.”  Garry Player

Many top sportsmen claim that when they reach a certain point of proficiency, time seems to slow down. This because the body and brain are so in tune with what is being done, the brain has the ability to take in other outside stimuli. Therefore practice the things you want to do well until they are second nature and you can see what else is happening in the market, rather than just focusing on those things that have to be done.

Furthermore, not only do you have to do something exceeding well through practice, but you have to be able to do all the steps of the process as well. Using the skiing example above, if you cannot slow the ski down, it becomes irrelevant on well you can set your position and cross the wake as you will end up coming into the buoy later and later as you go down the course, and eventually not be able to complete it. You have to do all the steps well, and it is better to do all of them at a good level of proficiency rather than one exceedingly well but the rest mediocrely. To quote the old adage, “a chain is only as strong as its weakest link!” I once worked with a company that had one of the best Merger and Acquisitions due diligence teams I had ever come across and they knew all there was to know about the target; however, their integration process was very weak. As a result, few of their deals ever realized the expected benefits.

In the current business environment, corporations have downsized and let many of the employees go, giving more work to the remaining employees. What is becoming apparent is that current corporate employees are overwhelmed with the load of work they have, they don’t have time to look up and see what is happening in the market around them or think strategically. As a result, the company’s ability to anticipate and adjust to changes is diminished and one can expect them to face much larger problems in the future.

Don’t fight a battle you cannot win.

It is true, you cannot beat the boat in a tug of war, so don’t try. The success in skiing comes from setting the right position and using the acceleration as the boat pulls you to increase your angle of attack to the next boy. If your position is not set or you get pulled out of position, you cannot pull your way back. Thus understand the power the boat has and use it efficiently to achieve your goals. In business, understand what variables you can and can’t influence, and focus on the ones you can influence. If your competitor has developed a production process which produces the product for a price you cannot match, don’t tie your company in knots trying to match that price. Rather develop a sustainable competitive advantage that takes price out of the equation and focus on that. The best example I have seen of this is a local wealth management firm which differentiates itself not on it performance (since most wealth management companies have similar performance) but on tying financial goals to life goals. In this case their competitors have a hard time competing as financial performance is has been removed from the equation.

Look where you want to go

Finally, this lesson I have found applies across all sports. When trick skiing or jumping look up not down otherwise you will find your body quickly heading down into the water. In slalom skiing you need to look ahead of the buoys since you want to start turning before you reach them. If you look directly at them, you will ski right up to them and then be out of position to turn. In business, you need to look at the end goal at all times. There are many things that will arise during the course of business which are very important and require a response; however, look at them and determine their relevance to the company and its end goals. The best way that I have found to do this is as follows:

(i)                  Does this item impact our sustainable competitive advantage (“SCA”). An SCA are those activities which provide high value to the customer and a strong ability to beat competitors. If the item doesn’t impact the SCA, it may be important, but it is not essential ;

(ii)                Will our client’s care about its resolution? If not, the again its importance is diminished and it moves further down the list; and

(iii)               What impact will it make on our goals or Key Performance Indicators? This helps us rank it among all the other priorities.

Thus practice, practice, practice is the key. Keep practicing all steps of your processes until the firm very proficient at all of them.  Know what battles you can win and where you can’t change the dynamic that removes your weakness from the equation. Finally focus on where you want to go, and don’t get distracted by the daily issues that arise.

Copyright 2011 Marc Borrelli

Does a Good Legal System Jeopardize International Joint Ventures

Having done business around the world, especially mergers and acquisitions and joint ventures, it has become apparent to me that the better the legal system in the home environment and more comfortable people are with it, the more likely the failure of cross border dealings.

Looking at legal systems as a continuum, starting with the US and UK at one end and moving from the developed world to the emerging world at the other end, the quality of the legal system declines. The decline is due to the differences in the legal systems (this occurs even between developed countries, i.e. USA and Italy), independence of the judiciary, and political and local corporate influence.

Relationships

Due to the decline in the legal effectiveness of their legal systems, local businesses move from a contractual basis for any agreement to a relationship basis. If the legal system cannot protect you, then you need to be sure of your partner and so building a strong personal relationship enables you to keep the venture successful.

This is where the process starts to break down for many western businesses. A personal relationship is not a business relationship derived from negotiating across as table and sharing a strategic vision, but it is getting to know each other personally. In my experience, US businesses do not encourage socializing with work colleagues outside of work or with people in the industry. This trend is increasing as corporations terminate people for what they have posted on social networking sites with regard to their beliefs and values. 

As a result, many US executives do not invest the time to build personal relationships when operating in foreign countries. Furthermore many senior executives that are responsible for hundreds of millions/billions in revenues do not see the foreign company owners as equals because the foreign business is a fraction of the size. However, to the foreign owner, in their country they are just as important and expect to be treated as equals. Failing to do so dooms the relationship from the beginning.

For good information on relationships I would recommend reading:

• Understanding Cultural Differences -Germans , French & Americans -  Hall & Hall
• Kiss, Bow , or Shake Hands - How to do business in 60 countries - Morrison, Conaway, & Borden (published by Adams Media corporation)

As the negotiations proceed, one of two things typically happens to the deal.

Roadblocks

All of a sudden issues start to arise. The issues make little sense to the transaction and much time is spent trying to spent resolve them. Once resolved, another one emerges and the transaction slows and frustrations arise which can damage the relationship if the deal gets done.

A quote I once heard that seems to apply in such situations is, “The problem is not the problem, but there is a problem.” The problem often is that the other party has not developed a relationship with you to the point that they are comfortable with entering into a business agreement. These issues are a way of slowing down the process so that they can spend more time building that relationship and getting comfortable.

When situations like this arise, it is wise to slow down, spend time on the relationship and allow the other party to get comfortable as it will lead to a more successful long term relationship.

Nothing

Nothing! "The simplest form of denial is delay", a Chinese proverb. Nothing here means that the negotiations just continue as though everyone was in the UK or the US. These can be the worst situations as it often implies the following:

·         The other side has little interest in the deal and is just going through the motions to learn as much about you, your company, your products, processes and prices as they can or just to save face. As a result, a lot of time and money is spent negotiating a transaction, only to have it fail to close for reasons that are never fully understood.

·         The other side has all the power in their jurisdiction and so the negotiations are largely irrelevant. There are so many examples of this, but a few to think of are the issues BP has recently had in Russia and Rio Tinto had in China; or

·         The other side sees a contract merely as reflection of where the negotiations were at specific point in time. However, negotiations are expected to continue post signing. This latter point I have encountered often in China.

An example of this arose when discussing a US company’s global expansion plans with its Chief Financial Officer (“CFO”).  This company was successful in the US with sales in excess of a billion, but according to the CFO, it international joint ventures had all failed to meet expectations to date. However, the company was negotiating a joint venture in China which it expected to become a substantial part of its future business due to the potential growth of the Chinese market. The CFO added that a major international law firm was handling the negotiations and document preparation for them.  Obviously they would have a good contract for the joint venture, but the concerns rose when the CFO said the following:

·         Neither he nor the CEO had been to China to meet their opposite number in the Joint Venture; and

·         The Chinese joint venture party was a wholly owned subsidiary of the City of Shanghai, so it was powerful enough to deliver the expected benefits.

My immediate concerns were that the US executives had built no relationship with its joint venture partner, so how was going persuade its partner to do what it wanted when difference arose. In addition, how were disputes going to be resolved? While the legal agreements would lay out the remedies if a dispute arose, could the US company win a lawsuit in China against the City of Shanghai; and if it could, could it enforce it any judgment. More success in its international joint ventures would surely have come from spending time in these foreign countries building closer relationships with their partners and a greater understanding the markets and its sphere of influence in the joint venture.

Recommendations 

Therefore, for many companies looking to do joint ventures or acquire companies in some of these jurisdictions, you should:

1.       Build strong personal relationships

This needs to be between the business operators and not just the joint venture/M&A teams.One dinner does not a relationship make! Especially not if the dinner is the closing dinner. Get to know the people and their families. In many of these countries, if you haven’t been invited into their home, you don’t have a personal relationship.

2.       Get on plane

Regardless of the desire to keep corporate expenses low, you cannot build a relationship over the phone or e-mail. This is done face to face, and often over meals. Understand their culture and history. You will be build relationships quicker if you know about their country, culture and history and especially as they see the world, not through the eyes of your own domestic media.

3.       Understand the domestic power structures

Who controls your joint venture partner? If it is a local government entity or as is often the case in China, the army, how do you protect yourself and what do you do to limit the downside risk. Build relationships with people further up the chain of command and in the controlling vehicles. Also if you want to take the business somewhere they don’t want to go, don’t be surprised if you are harassed. Be prepared for it.

4.       What you take in you leave

In many countries, the protection of intellectual property is low and so be prepared for whatever you take into the country will be copied or sold with your logo by a third party. Be aware of such situations and determine how to protect your intellectual property and YOUR BRAND.

Legal Documents
Don’t ignore the legal documents, have good ones prepared by good lawyers, but don’t solely rely on them, the other side isn’t. However, have a good local attorney to support your domestic attorney to help you with the unwritten rules.

The best corporate strategy is usually common sense?

“The best corporate strategy is usually common sense” is an online discussion theme that I recently came across, and which got me thinking.  As I reflected on the statement I thought the best place to start was with a definition of “common sense” which I found in Merriam-Webster Online as:

“. . . beliefs or propositions that most people consider prudent and of sound judgment, without reliance on esoteric knowledge or study or research, but based upon what they see as knowledge held by people "in common" . . . “

Considering the above definition, I find that I have six issues with the statement.

Most people

The definition refers to “most people” and knowledge held by “people in common”. This definition would exclude just about all strategy planning sessions I have been involved with as all the people in the strategy team usually have a level of knowledge about the industry, competitive environment and market vastly superior to “most people.”  However, even if the definition is narrowed to include knowledge held by the strategy team in common, then all strategies, both good and bad, must meet the definition as strategies embarked upon are rarely deemed to lack common sense at the time of formation by those who have developed them.

No reliance on esoteric knowledge or study or research

Most strategy sessions I have been involved with have involved research and a superior of knowledge of the industry which would exclude them from this definition. To undertake a strategy plan without any esoteric knowledge or research, to me would be bound to failure, as was shown but the failure of the GM Nova in Mexico. Surely, a little research by the team would have shown that the name was not going to help the car sell. A great deal of success in many strategies has been tied to a good understanding of the local market, which often requires extensive research.

Ex-ante and ex-post perspectives, or “unknown unknowns”

All strategies are graded in an ex post world.  In the ex-ante world of strategy development, the strategy could be have determined to excellent, well thought out and perfectly executed; however, in the immortal words of Donald Rumseld, “unknown unknowns” occur which cause the strategy to fail. But in the ex-post world of strategy grading, these events are no long unknown unknowns and many are deemed them to be obvious. The benefit of hindsight allows us to question why certain industry changing events or market reactions were not deemed obvious or “common sense” to the team, and the strategy is determined to have lacked common sense. However at the time of formulation, it was based on common sense given the knowledge of the time.

Opposite of Success is not failure

Often the opposite of a successful strategy is believed to be one that fails. However, the characteristics of a successful strategy are those which require more risk in order to generate greater than normal returns. As a result of the increased level of risk, the risk of failure is much higher and thus many successful strategies share the same characteristics as those that fail. However, we all tend to ignore the effect of randomness in life and often the events that cause the “successful” strategy to become a “failed” one are nothing more than “timing”, a slight change in reality from the assumptions or some other externality.

Team Bias

Falling back on the definition of knowledge held by “people in common” this statement reinforces the notion that common sense includes all the biases that we all hold. These biases prevent us from seeing the real risks in the strategy and acknowledging its risk. Biases can be further reinforced by “group” think. Many assumptions are taken as given due to bias, and this cause a strategy based on “common sense” to fail. While it is hard to remove bias from strategy formulation, it is a must in order to succeed and doing so often requires us to face the fact that “common sense” assumptions are not correct.

Execution

While I don’t think execution falls under common sense, many excellently thought out strategies fail due to bad execution. Once more grading the strategy in a ex post world, it is deemed to have failed from lack of common sense, but in reality, it was the lack of execution that resulted in its failure.