Review – Getting Started in Consulting

Getting Started in Consulting, 4th ed

by Alan Weiss, published 2019

Estimate costs to reasonably support yourself and your family for 1 full year and set this money aside as initial startup costs for consulting

10 Key Traits of Successful Consultants

  1. Humor and perspective
  2. Influence
  3. Confidence and self-esteem
  4. Fearlessness/honesty
  5. Rapid framing (identifying the problem)
  6. Value generation (offering ideas and resources without jealousy)
  7. Intellect
  8. Active listening
  9. Instantiation
  10. Responsiveness

Finding space

  • Needs to be dedicated, private, spacious; need to be able to leave your stuff
  • Don’t want to incur large expense; consider professional service firms with unused space for rent (accountants, lawyers, designers, marketing)
  • Minimize commute
  • Need access at all hours

Startup equipment

  • Laptop, speed and capability for 3 years minimum
  • Copier
  • Postage meter + scale, online Stamps account

Necessary specialist help with professional staff, entrepreneurial bent, accessible, resourceful, same risk-profile:

  • Legal; incorporation
  • Accounting, finance, tax; deductions of reasonable expenses such as medical fees, director’s fees, director’s meetings, salaries to household members for assistance, business credit, withholding and payroll tax strategy, office + equipment, memberships and subscriptions
  • Business banking; a relationship manager to handle questions, expedited banking services, small biz surfaces, SBA-related assistance and opportunities, manage the relationship with the banker and trade business opportunities
  • Designer; letterhead, logo, brochure + publicity materials, media kit, web design
  • Insurance broker; disability, E&O (malpractice), liability, property, major medical and health, term life insurance, umbrella liability, long-term care, etc.
  • Payroll assistance
  • Bookkeeping

Marketing, develop market gravity through:

  • Press kit
    • Client Results/Expected Benefits, what do they get?
    • Testimonials, what have people said about you?
    • Biographical sketch, who are you? accomplishments, credentials and background
    • Position papers/white papers, 2-6 pages outlining ideas or opinions on relevant topics to your consulting work (copyright it)
    • Reference list + contacts, try to fill a page
  • Stationary, letterhead, secondsheets, envelopes, address labels, business cards
  • Networking involves providing value to others to generate reciprocity and becoming interesting to others so they’ll direct others to you; try to do something networking-related at least once per week
    • Buyers
    • Media people
    • Key vendors
    • Mentors
    • Recommenders to buyers
    • Endorsers
    • Bankers
    • Key advisors
    • High profile biz people
    • Trade association execs
    • Community leaders
    • Execs planning conferences and meetings
  • Pro-bono work should be confined to visible, connected non-profits that engage you with potential paying clients who are also donating their time

Advanced marketing

  • Website, as credibility builder, not sales builder or ad
    • clear image about expertise
    • reasons to return (changing content, newsletter)
    • credibility of self and firm
    • personal contact
    • expected results
  • Commercial and self-publishing
    • find publications your target audience reads
  • Media interviews, print, web, radio, TV– PRLeads.com
  • Speaking engagements, National Trade and Professional Associations of the United States
  • Newsletters

Key principles of consulting sales

  • Clients come from relationships, not sales
  • Relationships exist with people, not organizations
  • Think from the buyer’s perspective
  • Focus on outcomes, not methodology
  • Trust comes from convincing people you have their interests at heart
  • Provide value to build trust

Gaining conceptual agreement

  1. What are the objectives to be achieved through this project?
    1. How would conditions improve as a result of this project?
    2. Ideally, what would you like to accomplish?
    3. What would be the difference in the organization if this was successful?
    4. How would your customers be better served?
    5. What is the ROI/ROE/ROA impact you seek?
    6. What is the shareholder impact you seek?
    7. How will you be evaluated in terms of the results of this project?
    8. What keeps you up at night?
    9. What are the top 3 priorities to accomplish?
  2. How will we measure progress and success?
    1. How will you know we’ve accomplished the objective?
    2. Who will be accountable for determining progress and how?
    3. What info would we need from customers, vendors and employees to measure our progress?
    4. How will the environment or culture be improved?
    5. How frequently should we assess progress and how?
    6. What is acceptable improvement? What is ideal improvement?
    7. How will you prove to others the objective has been met?
  3. What is the value or impact to the organization?
    1. What would be the impact if you did nothing at all?
    2. What would happen if this project failed?
    3. What does this mean to you personally?
    4. What is the difference for the organization’s customers/employees?
    5. How will this affect performance or productivity?
    6. How will this affect profitability/market share/competitive advantage?
    7. What is this currently costing you annually and what might you gain or save?

Focus on developing “small yeses”

  • Initial contact, hear background, read some material, agree to second contact
  • Second contact, brief meeting
  • Brief meeting, form relationship, substantiative meeting
  • Second meeting, conceptual agreement
  • Proposal, acceptance and initiation

7 Elements of Great Proposals

  1. Situation appraisal (linkage to previous discussions)
  2. Conceptual agreement components
    1. Objectives
    2. Measures of success
    3. Expression of value
  3. Methodologies and options (provide a menu)
  4. Timing, when does the project begin and end
  5. Joint accountabilities
  6. Terms and conditions
  7. Acceptance
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Review – The Medici

The Medici: Power, Money and Ambition in the Italian Renaissance

by Paul Strathern, published 2017

The history of the Medici family might best be summarized with the phrase “from dust to dust.” As if to emphasize how they were destined for greatness and nobility, the family started out as a bunch of Tuscan hillbillies who could trace their lineage to a legendary knight of the Holy Roman Empire who settled near Florence in the 8th or 9th Century. From there and then, no one heard much of these people until some of the clan moved into Florence proper in the early 1300s and formed a small money-changing business.

Using conservative business practices and investing in roles of civic responsibility, eventually a Medici was elected to the position of gonfaloniere, the primus inter pares of the Florentine Republic. From this position the dice were carefully loaded in the favor of subsequent Medici generations by artfully forming governing coalitions that cemented their public position while creating leverage across their business and investment portfolio through the tactical use of subsidy, official privilege, insider information and regulatory capture wielded against competitors and opponents.

The story of the “overnight success” of the Medici begins here. The first great head of the Medici family and Medici bank, Giovanni de Medici, had jockeyed for favor with the newly appointed (anti-)Pope John XXIII in order to secure a role as the personal banker to the Papal Curia upon his ascendancy, which was then granted. For much of the 14th Century and Renaissance period in general, the papal revenues and banking needs were equivalent to managing the treasury function for the modern era’s most wealthy and complex multi-national corporations. To gain this trust was not only a measure of unique esteem valuable in and of itself, but a responsibility that carried with it priceless information and irreplaceable business franchises throughout European Christendom and even the Levant.

However, Pope John XXIII soon became embroiled in the Great Schism in which he and 2 other rival popes were called before the Holy Roman Emperor and summarily dismissed, to be replaced with his appointment, Pope Martin V. At his son Cosimo’s urging (whom he had sent to be his representative at the delegation attending the papal conference) the Medici’s continued to support the defrocked pope, even helping to pay his ransom for his release from imprisonment. Rather than being a financial disaster, this loyal support of the former pope led to a new lucrative banking relationship under Martin V, because in return for bartering his release the former Pope John XXIII agreed to support the nomination of Martin V and participate in the reconciliation of the Schism, leading to greater legitimacy for the new pope.

As a major political player on top of his business responsibilities, Giovanni left three apocryphal warnings for his descendants:

  1. focus on business, not politics
  2. do not be ostentatious
  3. don’t oppose popular will, unless it is aimed at disaster

It seems as if it should be unnecessary to say that in time this advice was forgotten and eventually, so, too, were the Medici.

But the dissolution of the Medici was a ways away yet. After Giovanni came Cosimo as head of the family and the Medici bank. He faced a disastrous and unpopular war between Florence and Lucca (backed by Milan) which threatened to ruin the Florentine treasury and which had pitted the various leading families against one another. Subscribing to Rule #3, Cosimo opposed the conduct of the war and worked to hide the bank’s assets outside of Florence to avoid expropriation in the war’s aftermath.

For these maneuvers and others, Cosimo was recalled to Florence and imprisoned in the bell tower of the Palazzo Vecchio by a faction led by the rival Albizzi who had plans to execute him for treachery. However, Cosimo’s far flung banking business and participation in the geopolitics of Western Europe had led him to a series of alliances and power relationships with foreign entities such as the Venetian Republic and the Papal States which he utilized to create a kind of diplomatic protection for himself, pressuring his enemies to choose exile over execution as his fate.

In the meantime, he used bribes and the threat of invasion of the city by his own mercenary forces outside its walls to add to the diplomatic pressure and engineer a favorable outcome for himself, all while behind bars.

Shaken but not stirred, Cosimo came to rule Florence through the intervention of the Pope and Venice, but vowed that “he would rule, but he would not be seen to rule” going forward. He had learned his lesson about bearing personal responsibility when it came to matters of state. Further, he was coming to understand that it was easier to wield power when others weren’t watching.

According to one supporter, “Whenever he wished to achieve something, he saw to it, in order to escape envy as much as possible, that the initiative appeared to come from others and not from him.” One policy he pushed for through his crony network was the use of the “catasto”, which had originally been levied to pay for the war, as a punitive tool to crush his political and business opponents through ruinous taxation. While he was forcing his enemies into exile to avoid financial ruin, purchasing and redistributing their former property to his supporters on a bargain basis, he simultaneously used inflated personal balance sheets to hide his income and appear to be bearing the heaviest personal tax burden on a relative basis.

But Cosimo was far from poor:

Between 1434 and 1471, Cosimo spent 663,755 gold florins supporting public works, by comparison, total assets of the Peruzzi bank at its height were 103,000 florins from Western Europe to Cyprus and Beirut.

If he was able to spend 6X the total assets of a well-known competitor at the height of its powers on public works, his total assets and wealth must have been a multiple of that amount. Normal banking and family secrecy aside, the Medici wealth at this time seems to have been nearly incalculable. It is no wonder, then, that one of Cosimo’s key strategies in building and wielding power was to always return favors with favors.

Following Cosimo, who was once to have said that “Trade brings mankind together, and casts glory on those who venture into it” his son Piero and Piero’s son, Lorenzo began to venture the family increasingly beyond the scope of banking and business and into the realm of politics and social standing via nobility. Depending upon how you interpret the events that followed, Piero and Lorenzo were either some of the most “magnificent” leaders of the Medici banking and political enterprises or they were equivalent to the decadent dissipators of the true talent and generational thrift of their greater ancestors.

Either way, the local power of the Medici in and around Florence was successively traded for inter-regional power and influence within the royal families of Europe. As the Medici gained a queen mothership in France, they lost their rule over the Florentine Republic to foreign invasion and intervention and increasingly squandered the capital of their banking and related enterprises. By the early 18th Century the Medici had failed to produce a male heir and had ceded their Grand Duchy of Florence to the Holy Roman Emperor and ceased to be a meaningful business or political entity forever.

Review – The Bonfire Of The Vanities

The Bonfire of the Vanities

by Tom Wolfe, published 1987

During a these days rare dinner with friends our conversation turned to the time men spend away from home and their families, working their jobs. In this era it has become fashionable for women to work jobs and make money as men do, but save for a few standouts who are either childless outliers or work from pure necessity due to a failed relationship and mounting obligations, women do not “work as men do.” They don’t spend as much time at it and they certainly are not existentially defined by it. You may fall on either side of this line in your suppositions and beliefs, but where I fall is that this is the nature of man and woman.

In this role of provider, of striver, it becomes difficult if not impossible for a man to dissociate himself from his work such that he can stand independently apart from it without falling down on top of himself. He can always find a way to justify spending just a little bit more time at the office, or networking on the golf course, or catching up on emails after hours and so on, rather than reading to his kids or helping with household chores or kissing his wife on the forehead. Not because he’s trying to shirk his “duties” — far from it, for a man’s duty is to work! — but because in so prioritizing his time he is more fully expressing and embodying himself and defining who he is through his productive ambition.

There are two terrifying prospects then for men– to have no productive work to throw oneself into, or worse, to have work that doesn’t matter, to the man, to his family and to the world.

“Bonfire” is a story of the undoing of many characters. Great and small, main characters and side acts alike, each person is ultimately undone in this story in various dreadful ways, like the cuckolded Arthur Ruskin who succumbs in a plate of his fancy food at a French-dining scene. But the most terrible undoing of all, at least as far as a man is concerned, is the undoing of Sherman McCoy.

The major drama of the story follows McCoy in the criminal aftermath of his hit-and-run in the Bronx. But this drama serves only to distract the unobservant reader from the more existential moment when McCoy tries to explain to his six year-old daughter what he does for a living. In that moment, he learns that his work is inexplicable and meaningless.

Though touted by himself and others as a “Master of the Universe” at a major bond trading firm, Sherman McCoy comes to the understanding that he is at best a lowly salesman and at worst a janitor. He makes his money by trying to convince other people to buy and sell things and the residual value of these transactions, though large in absolute terms to an individual, are nonetheless like so many “golden crumbs” to be swept up from the table or floor of even more gluttonous organizations and actors.

Although seemingly talented, good at what he does and maybe even in a sense born to do it, it is essentially menial work and McCoy is replaceable, not strategic. He experiences this fact tangibly when, as his personal drama percolates, he witnesses the ways in which his former world goes on happily without him. This is the truly crushing blow for him, when he begins to have trouble sleeping and contemplates an existential way out of his misery.

Though cast as a social satire and an attack on financial hotshots and others of privilege, the book is perhaps better understood as a warning to men in general. That warning might be to anchor your work in your self and not to anchor your self in your work; as long as you are alive you will have your self, but you may not always have your work, at least in the way you’ve always understood it.

Review – Brunelleschi’s Dome

Brunelleschi’s Dome: How a Renaissance Genius Reinvented Architecture

by Ross King, published 2013

The cathedral of Santa Maria del Fiore, known far and wide as Florence’s Duomo, took nearly 150 years to construct, beginning in 1296 and ending in 1436 with the completion of its massive dome under the direction of capomaestro Filippo Brunelleschi. The quinto acuto arch of the dome was an engineering marvel constructed without stabilizing buttresses and without a wooden centering to hold it in place as it was built. It defied the imagination of the civic leaders responsible for building the cathedral at the time and the methods and architectural rationale behind it were made purposefully obscure by the paranoid and secretive master “Pippo”.

Fast forward over 500 years of history and the principles by which the dome was constructed appear to be no less mysterious. From the post-war era onward numerous attempts at magnetic imaging and other sounding methods have been made to try to ascertain the precise materials and methods used with most returning a Magic 8-Ball-esque  answer of “Reply hazy, try again.” Many lesser domes had been constructed in earlier history in the West and the East, but Brunelleschi’s dome was the greatest span and the highest height achieved since the Hagia Sophia in Constantinople and before that the Pantheon of Rome. Few have attempted anything nearing its proportions since and it seems apparent from the text that even if some modern had an inkling to they’d be hard pressed to figure out how to accomplish it without “cheating” in some way by use of innovative new materials or other supportive techniques.

But the grandiosity and secrecy of the dome’s construction is just one of the many wonders involved. Another is that Brunelleschi was not a trained architect but a goldsmith. Of course, goldsmiths of his era were considered the master craftsmen and technicians of their time (the book mentions how most significant architectural works in the West predating the Florence cathedral failed to record the name of the architects responsible for designing and raising them, so lowly was their perceived status) and the task before Brunelleschi was not simply to design the dome but to coordinate its construction via teams of specialized handiwork guild members as well as to manage the logistics of supplying the building materials, much as a film producer is responsible for pulling together writers, actors, financiers, set locations, film teams and so on. Still, it seems to demonstrate the virtuosity of the man’s mind that he was responsible for building something which was essentially an amateur attempt given his background.

Another wonder of the raising of the cathedral and the dome is the fact that this was one of many simultaneous grand public works built over the time. The city had organized a well-financed oversight committee, the Opera del Duomo, led by the most esteemed woolen cloth guild (a key pillar of Florence’s economy and regional importance), the Arte della Lana, which hired contractors to complete the cathedral and numerous other churches, sculptures and edifices around the city. Today we might think of an economic boom period lasting a decade but it seems that Florence’s skyline was littered with cranes, booms and scaffolds for the better part of two centuries.

Besides innovating architecturally, Brunelleschi also created numerous ingenious tools and machines to aid the construction process. One was an enormous ox-powered materials hoist which rose to the height of the roof of the cathedral from the floor of the nave and had changeable gearing such that the ox team could raise and lower materials in a controlled fashion without being removed from harness and changing direction, an enormous time savings over the life of the project. He also invented specialized cranes, pulley systems and other machines for traversing materials across the expanse of the open dome while it was under construction. Getting multiple hundred-ton slabs of marble, hardened timber beams and iron chains and clasps up the 20-story height of the cathedral was only half the battle as once there they needed to be moved across numerous axes in a precise, controlled fashion before being lowered into place, all while gusts of wind, rain and sometimes even snow obstructed the workers’ efforts.

As impressive and awe-inspiring as structures like Santa Maria del Fiore are and were, I couldn’t help thinking about the monumental waste of these projects compared to alternative uses for the materials and labor and ingenuity involved. Most of the space created by the cathedral is empty by design– this heightens the sense of majesty of the house of God. And this is partly why the building was so complex and expensive to create. The mere fact that the people of this era could construct something like this is a demonstration of their wealth, organizational capabilities, technical know-how and culture of productivity. I just wonder if they weren’t filling up multiple city blocks with empty temples made of the finest construction materials, what could they have built instead that isn’t there?

Ironically, it was these “wasteful” decisions that are the primary source of Florence’s modern tourist economy, so in that sense it was a far-sighted decision by the early city masters to invest in their descendant’s future well-being. And some have even made the case that the splendors of Florence’s Renaissance urbanity were enough to protect it from destruction during World War II.

Florence in the Renaissance was something like New York City today, a wealthy center of commerce and banking, confident in its own power and influence, a great patron of culture and the arts and continually raising great structures in honor of itself. But whereas you can walk amongst the streets of Florence today and see a Medici palazzo or a fine church built half a millenium ago, it’s hard to imagine walking the streets of New York City five hundred years from today and finding the remains of yesteryear still standing and still full of wonder and delight.

 

Review – American Icon

American Icon: Alan Mulally and the Fight to Save Ford Motor Company

by Bryce Hoffman, published 2013

As I read this book, three questions ran through my mind. The first question was “Was Ford Motor Company worth saving?”, the second question was “What do we mean by ‘save’ and what would have happened to Ford Motor Company if the effort was unsuccessful?” and the final question was “Why was Ford savable but GM and Chrysler were not?” But before I share my thoughts on those three questions I will try to summarize my understanding of how Alan Mulally did it.

Prior to being headhunted for the CEO role at Ford, Alan Mullaly had not spent any time in the international or US auto industries. While he had a nostalgic interest in Ford products rooted in his childhood memories like many Americans of his generation, Mullaly was an aeronautical engineer by education and trade and had made his name climbing the ranks of Boeing’s commercial aviation division. He was known as an able executive manager from that experience but many people inside the company and in the wider business world were skeptical that he’d be able to make an impact without understanding the unique intricacies of Ford’s automotive operations.

Besides questions about the applicability of his experience and skillset, Mulally faced the problem of the “bench”– by recruiting an outsider to run the company, Bill Ford was signaling that there was no one within the company who was up to the task. Further, there was a belief within the company and shared by other business strategists that Ford’s culture was broken and it couldn’t be fixed by continuing to employ the very leaders who were responsible for it being what it was. People expected Mulally to come in and make a number of dramatic public executions but no one could predict how he’d repopulate the executive ranks with fresh faces when the company was going through a crisis and faced a nightmare in attracting talent to a sinking ship.

Mulally’s solution, then, was both simple and unexpected. He treated his lack of industry knowledge as irrelevant in favor of installing proven management practices he developed at Boeing; and he endeavored to let the individual members of the leadership team come to their own conclusions as to whether they had what it took to change the culture and save the company– he created a new standard for performance and accountability and expected everyone to rise to the occasion or else fold under the pressure and leave on their own.

The cornerstone of his management practice was a weekly business plan review held on Thursdays with the global leadership team. Each VP was asked to run through a number of preformatted slides and color-coded KPIs in front of their peers, indicating the state of their operations against plan and projected five years out. The goal of the meetings was to publicly acknowledge challenges and to generate awareness that could lead to group problem-solving in follow-up special review meetings. Bringing visibility to problems created opportunities for the team to consider solutions that might originate outside a specific operating unit and it also allowed them to avoid compounding mistakes by adjusting operating plans in light of new challenges in related divisions.

This practice addressed one part of the corporate governance problem Ford had. The other part was addressed by restructuring roles and divisions themselves. Mulally implemented a matrix approach to management hierarchy and reporting which not only increased the number of VPs reporting directly to him, solving the problem of information silos or lack of accountability through problems hidden by bureaucracy, but it also organized more functions on a per-project basis which increased the likelihood of successful resource coordination within the boundaries of the project.

When most people think about strategy, they think about competitive strategy meaning what kinds of decisions does the company make with regard to its customers or its competition? But there is another layer of strategy which is often more important in a very large, very complex organization such as Ford, which is corporate strategy– how will the internal resources of the company be organized to maximize scale, efficiency and coordination? Mulally definitely made adjustments to Ford’s competitive strategy (such as his insight that their product lineup was too complex and fractured and needed to be radically simplified to fewer competitive models, or his commitment to raise the quality and durability of Ford’s products) but it appears the biggest impact was made through his corporate strategy rooted in new corporate governance initiatives.

Every social organization faces coordination problems. Without successfully solving these coordination problems, which are unique to each entity based upon its history, size and competitive position, there is chaos inside the company which results inwardly in waste and outwardly in a weakened competitive position. It is therefore entirely possible that something as simple as creating more effective meetings (which increase the quantity and quality of information-sharing across the organization, improving coordination) and restructuring roles and responsibilities (which empowers the “right” people to act on certain information, or else creates new responsibility for action that otherwise did not exist) can have a dramatic impact on the fortunes of a multi-billion enterprise.

Of course there were other key initiatives that took place either at Mulally’s behest or on his watch which played critical roles in how the story turned out, including a major renegotiation of the company’s union contracts as well as a massive refinancing of the company’s debt and capital structure. But from my reading of the text, these things would’ve at best given the company a bit more rope with which to hang itself. Fixing corporate governance and leveraging the company’s corporate strategy was the real coup de grace that Mulally delivered. For an amateur executive manager such as myself it is both inspiring and a bit unnerving to think of how poorly managed so many major and minor enterprises alike are given this insight.

Now that I’ve offered my interpretation of how Mulally pulled it off, let’s explore the three higher level questions I wondered about as I was reading. I’ll take them in reverse order.

The book doesn’t make it clear why Ford could be saved while GM and Chrysler could not. (Along the lines of the “rope to hang with” logic, while Ford had an incipient existential crisis aggravated by the Global Financial Crisis of 2008, GM and Chrysler remained happily/deludedly oblivious to their own until the GFC arrived.) One answer might be that Ford still had significant private family ownership while GM and Chrysler had already been converted into unfamiliar, faceless corporate automatons by that point and so there was no individual impetus to save them. This reason, if true, represents a different kind of corporate governance problem that extends into the realm of social governance.

Another reason might be that GM’s and Chrysler’s problems were too deep. Even if someone was aware they needed saving, and wanted to save them, they couldn’t be. It would’ve been futile. So no one even tried. A final argument I considered is based upon scarcity. There was only one Alan Mulally in the world, he could only save one legacy American automobile manufacturer and so once he was called upon to save Ford there was no one left for the other two. I consider this to be the least likely circumstance but it could be true.

In any case, it might not be an important question to answer. We might consider why in trying to answer the second question, “What do we mean by ‘save’ and what would’ve happened if the effort was unsuccessful?” Things get sticky here. If Ford Motor Company collapsed, as many American and international nameplates collapsed over the years ahead of it, life would go on just as it did when the others fell. Some of the physical assets, such as plants and parts inventory, would be purchased by surviving manufacturing entities and others would be scrapped or abandoned. Some employees (and managers) would find work in the same field under different ownership and others would find work in new fields unrelated to automotive. Some of the brands, technology and IP of the company might be purchased by third parties and in that way the Ford brand might be “kept alive” indefinitely. Or it may have been the case that a failure of that magnitude killed the value of this historic franchise and the Blue Oval would be buried for good.

If anything Ford did had value and utility in the marketplace, it would likely continue to have such value and utility whether “Ford” was responsible for producing it or not. And to the extent it did not (in whole or in part) there’s really no reason why such activity should continue under Ford’s aegis if it wouldn’t under anyone else’s. Nostalgia by itself is only worth so much and it turns out that is not very much.

So “saving” Ford really means keeping a certain collection of assets under the control of a certain collection of financial and management interests and retaining certain contracts with employees and a certain ecosystem of vendors and distributors. There’s nothing magic or eternal to this and the evidence for this fact is contained by the knowledge that Ford itself had agglomerated into itself other foreign brands such as Volvo, Mazda and Jaguar-Land Rover. If some brands can die and others can live on under Ford’s ownership, certainly something similar could happen to the Ford brand and organization without cosmic repercussions. The dramatic tension of the story loses a bit of gusto when we consider all of this.

The final question is a moral question. It implies a “should”. Should Ford Motor Company have been saved? Asking about its worth begs the question “Worth to whom?” And you could insert many answers there: its employees, its suppliers, its customers, politicians with Ford operations in their districts, “society” at large, and so on. But because Ford Motor Company is and was a public company owned by a collection of shareholders and operated with the intent of earning a profit and thereby generating wealth, I want to focus this question on the members of the Ford family, who were its controlling shareholders and thus primarily responsible for the strategic governance of the company.

The book makes it clear that aside from Bill Ford and one or two other direct descendants of Henry Ford, the Ford family as shareholders were not deeply involved in the management or operations of the company and in fact many of them might be what are politely termed “trust fund layabouts.” That is, many of the existing Ford family members did little through their own efforts to contribute to the enhancement of the value of the Ford Motor Company nor any other personal enterprise they might be associated with and instead enjoyed a comfortable life of easy wealth and leisure thanks to the luck of being born into an inheritance.

Personally, I see no moral evil in that, though many people do. Some people will be rich and some people will be poor and the fact that some people are rich simply because they had a successful relative isn’t their fault. If anything, we should protect these privileges as a social obligation because the wealth they enjoy was rightfully created by one of their heirs and that individual, because they created it, has every right to do whatever it is they want to do with it up to and including giving it away to charity, giving it away to relatives or burying physical manifestations of it in a giant pit.

That being said, because it is not a moral evil for them to have it it’s also not a moral evil for them to lose it. They’re certainly not entitled to it and they don’t seem to have any real capability to make anything out of it beyond a means of personal amusement. Why Ford Motor Company should be “saved” to protect them from the follies of the world is a question with no objective answer. If it wasn’t them who owned this wealth it would be someone else, so why worry so much if their ownership claim dissolves in a pool of historical mismanagement and transfers to some other person or persons with a better idea of what to do with it? That sounds like progress, to me.

In fact, it sounds not just like progress, but like Thomas Jefferson. We might but repurpose a few words from his famous correspondence to have something rather fitting for this occasion, as seen here:

What signify a few fortunes lost in a century or two? The tree of economy must be refreshed from time to time with the wealth of trust fund layabouts & shiftless public shareholders. It is its natural manure.

Review – Corporate Strategy

Corporate Strategy: Tools for Analysis and Decision-Making

by Phanish Puranam, Bart Vanneste, published 2016

What is corporate strategy and how is it any different from business strategy? That was actually a distinction I hadn’t made in my own mind when I picked this title up. I was generally interested in exploring “strategy” in an economic or business competition sense and this book was one of many I selected for further research. It was a happy accident then to realize there is a difference and this book is all about explaining what it is and why it’s different.

Business strategy aims at creating competitive advantage in a firm-against-firm struggle within a given industry. It flows outward from customer behavior through organizational structure and management practice to policies and processes surrounding marketing, sales, production, distribution and customer service.

Corporate strategy aims at realizing synergies from the joint ownership of different businesses. Synergies can be realized between businesses competing in the same industry but with common ownership (and perhaps diverse geographic territories), the case of a “corporate HQ” utilizing economies of scale in back-end or administrative functions to lower their cost or raise their quality across the individual customer-facing businesses. Synergies can also be realized between businesses operating in distinct industries but where coordination between actors in these industries allows for new products or services to be bundled, consider a bank and an insurance company owned by one corporate parent which can then offer a full range of financial services to customers.

One interesting takeaway from the book is that all public equity investors who do not have 100% of their investments in a single company (ie, they own a portfolio of stocks) are engaged in corporate strategy. However, as the book advises, passive investors are not able to realize synergies which those in control of these businesses can through exerting influence over their management. So, a passive equity investor could have an insight about the unique value of owning a complimentary basket of businesses representing corporate advantage, but they do not have the means to act upon it unless they are able to successfully agitate for M&A activity or have enough resources to get voting control over the companies in which they can sway management to extract the synergies they’ve spotted.

Another concept that was interesting to me was the irony that by bringing businesses under common ownership, a corporation destroys its own best benchmark for valuation (ie, the individual market prices of each business) and thus it is trapped in a perpetual game of trying to evaluate whether it’s coordination of economic activity within the corporation is synergistic and creating value, or wasteful and destroying it.

Warren Buffett as a conglomerator par excellence is an interesting case because, at least nominally, he does not provide managerial oversight to operations of the businesses he owns and has never claimed he has purchased a business for synergistic reasons for corporate strategy. Rather, he purchases businesses ONLY because he considers them to be available on a bargain basis, that is, he thinks they are available for less than their intrinsic value.

The entire point of corporate strategy, according to the book, is to be able to pay market or “fair” prices for assets and businesses, but still realize a profit from owning them, because of the ability to manage or exploit them differently under a joint ownership structure. So, Buffett is NOT a corporate strategist, although he is a really great investor.

And if you can realize synergies AND buy at bargain prices (AND apply leverage safely…) then you are really cooking with gas!

One of the great ironies of the (public) business world is that many managers (they are hardly ever significant shareholders themselves) think they can spot synergies all over the place, which either they or their investment bankers use to rationalize their acquisition activity. But the data demonstrate that few synergies ever appear to be realized– acquiring companies usually overpay, their stock falls on the announcement of an acquisition and the target company’s stock rises. Further, these acquisitions are often followed years later by goodwill writeoffs or divestitures of the previously acquired business or assets.

On average, a corporate parent that divests a business increases shareholder value.

In fact, one of the strategic suggestions of the authors is the always be on the look out for someone who is a better owner of a business or asset than you (ie, willing to pay you more than it’s worth to you to continue owning it) and selling things seems to be one of the most reliable ways for corporate strategists to create corporate advantage. It’s a pity, then, that most corporate strategists are buyers, not sellers!

If some other corporate parent has even stronger synergies with a business than you do, you should consider divesting.

Divesting when you can, and not when you have to is usually preferable.

Imagine that, starting today, the two businesses would be moved into separate ownership and would be operated completely independently, with no communication or exchange of any kind between the two. How would the value of the businesses be effected?

If one thinks one is smart enough to beat the odds, the authors suggest four places to look for synergies from joint ownership and operations for corporate strategists:

  1. Consolidation, creating value by rationalization across similar resources from similar value chain activities by eliminating redundancies, affects mostly costs and invested capital
  2. Combination, creating value by pooling similar resources from similar value chain activities, such as combining purchasing to obtain volume discounts or acquiring a competitor then raising prices for customers, impacts either costs or revenues
  3. Customization, creating value by co-specializing dissimilar resources in order to create greater joint value, results in improved value in production or consumption and involves modification of resources, the transfer of best practices can create unique value
  4. Connection, generates value by simply pooling the output of dissimilar value chain activities, for example customers may value being able to buy a bundle of different products and services together, the product development of one business is being connected to the distribution channel of another

Here are some other major strategy risks that are common:

One common negative synergy is brand dilution, ie, does the brand apply? Another is complexity. Another is market rivalry, this is a significant concern in the advertising industry, where when two firms who serve rivals merge, the chances of keeping both their clients is low.

Governance costs act as taxes that eat into the potential benefits from synergies when they are attempted to be extracted. [ie, the price you pay to operate an acquired business effectively.]

When an autonomous business becomes a division within another, the incentives of the owner and managers are necessarily diluted.

Synergies likely to generate significant transaction costs are less likely to be successfully realized in arms length relationships between independent firms than under common ownership.

I particularly appreciated the discussion about the corporate advantage that can be achieved through thoughtful design of the organization and its management.

One should be able to read the corporate strategy of a company in its organization chart: what kinds of activities does the top management feel are essential to integrate?

While all organizational structures represent a unique combination, there are three “pure form” ways to structure the corporation and its management structure: by activity, by output, by user/customer.

The authors recommend that corporate strategists “Think about the multi-business corporation as a collection of value chain activities” and look for synergies accordingly. But, being economic entities, there are necessary tradeoffs to beware of with each choice:

Grouping similar activities together emphasizes economies of scale at the expense of economies of scope, whereas grouping different activities together does exactly the opposite.

Every grouping arrangement emphasizes certain interactions but excludes others, which show up as opportunity costs and bottlenecks.

Further, if the innovation literature and hundreds of years of business history haven’t beat it into your head yet, things change. That means that the “right” structure (the synergistic one) is likely to change over time. “No structure is permanent.” Corporate strategists should always be considering the possibility that the ideal economic structure for managing the company has changed in reflection of new competitive dynamics, customer tastes and habits or advancements in technology, culture and society. A good rule of thumb might be that the appropriateness of the corporate structure needs to be reconsidered every time a major acquisition or divestiture occurs.

There were two other nuggets of corporate strategy wisdom that stood out to me. One was that most multi-business firms have capital allocation decision-making on auto-pilot. Either every request gets granted, or every request gets denied, or every business gets to keep whatever it generates. The corporate strategist can grab some low-hanging fruit by being thoughtful about capital allocation decisions within the portfolio and providing a critical voice about whether capital should be redistributed amongst divisions or even outside the company (ie, dividend or acquisition activity).

The other was in the author’s description of the typical M&A process (which includes not just execution of the acquisition transaction but also successful completion of the post-merger integration process). The most overlooked, and final, step in the process is Evaluation, which “refers to a post-transaction review of what went right and wrong” and analyzes the economic impact of the transaction on the entire firm. Were synergies realized? In the amounts predicted? Did costs materialize that were surprising? Did any other kind of disruption or distraction that was not anticipated earlier occur during the course of the merger? From my personal experience, it is difficult for management teams to take the time to look into the rear-view mirror like this, and even harder for them to be honest about what they see!!