FUTURE RISK CAPABILITY: understanding opportunity and threat

minimising future risk       creating sustainable advantage       creating opportunity

EMPIRE BUILDING: THE REAL STRATEGIC BATTLES                  August, 2011

This article is the product of a conversation I had with a friend who is involved in leading edge, high value global financial services transactions. He was telling me all about the major business wins he was on the verge of making - extremely impressive by anyones standards. These are the type of business wins that change the world.

However ...

The great strength of the Roman Empire didn't lay in its military might. True, the Roman army was a well polished military machine that pushed the boundaries of the empire beyond any previously perceived limits. And this is important. The army was there to push the limits and to win new territory. However, what happens then? No empire, no army, can afford to continuously fight battles over the same territory. It is costly and it is wasteful and in the end simply isn't worth the price. No, the great strength of the Roman Empire was its ability to hang on to territory it had won, and integrate this territory, these people, and thereby secure the enlargement of the empire.

To be successful, the empire required an operational effectiveness. This is not about battles.

Who hasn't heard of the great tactical and strategic genius that was Genghis Khan? He created the largest empire in the history of the world through stunning military victories. Yet the great strength of Genghis Khan was his ability to hold on to and integrate territory won at the point of the sword. This is what made the empire. This required organisation and it required effectiveness and it required efficiency.

This is exactly the same in business.

Many organisations focus only on fighting and winning the commercial battles. They focus great resources, at great cost, to winning these battles as if the battles themselves are status symbols of their market leadership. But they aren't. This is short term, tunnel visioned, tactical leadership in a world requiring strategic genius. As a result, these organisations continuously fight the same battles time and time again - at great cost. And as we have seen, no empire can be created and sustained simply by fighting battles to secure territory. Once the battle has been won, there needs to be a system in place to secure and to integrate this new territory.

It is sometimes embarrassing to view the inside of market leaders, behind their marketing facade. What is often found is virtual chaos. Behind the sparkling public facing brand, there is squandering of resources and a weak operational and organisational effectiveness that significantly reduces profitability. The profitability drops because of this weak effectiveness and because, as a result, the battles at the edges of the empire need continuously to be fought. This resource hungry was of business life is NOT sustainable. This is not the way to build an empire. In fact, the only reason some of these major brands are capable of fighting the battles is because they have more resources than their competitors. This doesn't make it right. It makes it just as wasteful and pointless as the rest. And slowly, but surely, by constantly fighting battles all over the fringes of their empire, and through suppressed profitability, territory begins to be lost.

It is lost because of the lack of organisational effectiveness. It is lost due to the high cost of constantly fighting battles for little gain or simply to stand still. The weak organisational effectiveness is a real corporate killer. Honestly. Lack of flexibility, lack of co-ordination, lack of learning lessons, lack of foresight, lack of symbiosis, high internal costs, means that invariably, the smaller more nimble companies can nip away at the edges of market dominance - taking what are small bites for the market leaders, but large bites for the smaller companies. All companies understand market changes, but not all companies have the capability of moving and changing to take advantage of these changes. The large cumbersome companies with little operational effectiveness have real problems changing to keep up with a changing world, or to pre-empt changes and so gain a significant market lead. These are the companies who have to constantly fight their battles, who constantly suffer from suppressed profitability ... and whose empires are severely under threat.

The genius of empire building is in holding on to what you have won - and making the integration work for everyones benefit. When I look around, I can see only a few major companies who do this. The remainder are in a state of constant warfare, throwing massive amounts of resources into winning the next battle, running to stand still.

A perfect example is a company (who shall remain nameless) who at the first half of 2010 made a massive effort to increase sales. They increased revenue by 14% in the first 6 months. A great achievement. However ... in the same period, their overall profitability dropped by 1%. To be honest, this should've sent alarm bells ringing throughout the entire company ... but it didn't. What was happening was money came pouring in at the top from new sales wins, yet the organisation below was like a sieve, and the more money that came in, the more money flooded out through a complete lack of efficiency and added bureaucracy to cope with the new sales. As a result, the 14% increase in sales was completely squandered. But the company weren't too bothered. They were too transfixed on winning the battles and applauded themselves for such a great achievement. They won the battle because they had poured valuable resources into doing so, yet were losing the war because their resources were becoming depleted.

The genius of empire building is holding on to what you have won ... and not having to fight costly battles time and time again for the same territory. Think about it.

And as for my friend with the highly impressive financial sector business wins, I explained to him why he needed me to help him hold on to the money that was pouring in, to make his significant business success into a business empire. He was winning the battles yet I could create an empire for him.

Regards

JS

If you don't understand the risks, how can you prepare? Can you afford to let the issues be blurred?

The turbulent 21st century

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