Dominos Winning Strategies [PDF]

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DOMINOS WINING STRATEGIES MANAGEMENT LESSONS FROM FAMOUS DOMINOS TACTICS



HISHAM SABRY



TO MY BELOVED WIFE, MY CHILDERN JUDI, ADHAM, OMAR, AND ALL MY FAMILY



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TABLE OF CONTENTS INTRODUCTION ..................................................................................................................................... 5 CHAPTER 1: I'VE GOT THE GOOD CARDS IN A TWO PLAYERS' GAME ............................. 7 CHAPTER 2: I'VE GOT THE GOOD CARDS IN A MULTIPLAYER GAME ..............................11 CHAPTER 3: WHICH CARD SHOULD I PLAY FIRST? ............................................................13 CHAPTER 4: I HAVE GOT BAD CARDS .......................................................................................... 15 CHAPTER 5: DO NOT BE EXPECTED .............................................................................................. 17 CHAPTER 6: FIRST MOVER ADVANTAGE .................................................................................... 19 CHAPTER 7: SUDDEN DEATH TECHNIQUE.................................................................................. 21 CHAPTER 8: DO NOT BET ALL ON ONE NUMBER ..................................................................... 23 CHAPTER 9: PHYSIOLOGICAL WAR.............................................................................................. 25 CHAPTER 10: THERE IS NOTHING CALLED WIN - WIN SITUATION ................................... 28 CHAPTER 11: YOU MAKE YOUR OWN LUCK .............................................................................. 30 CHAPTER 12: PREDICT YOUR COMPETITOR NEXT MOVE .................................................... 31 CHAPTER 13: THINK FAST, PLAY FAST ........................................................................................ 34 CHAPTER 14: LOSING A ROUND, NOT LOSING THE GAME .................................................... 37 CHAPTER 15: FINISH HIM ................................................................................................................. 39 CHAPTER 16: DO NOT IMITATE ...................................................................................................... 41 CHAPTER 17: HIDE YOUR CARDS ................................................................................................... 42 CHAPTER 18: NEVER UNDERESTIMATE OTHER PLAYERS ................................................... 44 CHAPTER 19: THE "I DON'T HAVE THIS NUMBER TACTIC" ................................................. 46 CHAPTER 20: CHOOSING YOUR ALLIANCE ................................................................................ 50 CHAPTER 21: TAKE THE RISK ......................................................................................................... 52 CHAPTER 22: SILENCE IS GOLD ..................................................................................................... 55 CHAPTER 23: YOU ARE NOT THE BEST PLAYER ....................................................................... 56 CHAPTER 24: WEAR A MASK ........................................................................................................... 58 CHAPTER 25: YOU CAN NOT WIN EVERY GAME ....................................................................... 58 CHAPTER 26: THERE ARE ALWAYS NEW TACTICS ................................................................. 66 CHAPTER 27: BE AWARE OF THE NEW PLAYERS ..................................................................... 69 CHAPTER 28: GET RID OF THE HEAVY CARDS .......................................................................... 70 CHAPTER 29: MAKE NO MISTAKES ............................................................................................... 71 CHAPTER 30: STAY HUMBLE ........................................................................................................... 72 CHAPTER 31: GO FOR IT ................................................................................................................... 74 CHAPTER 32: KILL THE SCCS .......................................................................................................... 75 CHAPTER 33: CONTROL THE FLUCTUATIONS .......................................................................... 78 CHAPTER 34: SUPPORT OTHER PLAYERS ................................................................................... 80 CHAPTER 35: PRIMARY PLAYERS AND SECONDARY PLAYERS .......................................... 82 CHAPTER 36: WHAT IF I PASSED ON ............................................................................................. 83



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CHAPTER 37: DIVIDE YOUR COMPETITORS ALLIANCES ...................................................... 85 CHAPTER 38: STUDY THE GAME CIRCUMSTANCES ................................................................ 85 CHAPTER 39: DO NOT REPEAT YOURSELF ................................................................................. 88 CHAPTER 40: DO NOT KILL YOUR OWN NUMBERS ................................................................. 91 CHAPTER 41: BUILD ON OTHERS' TACTICS ............................................................................... 96 CHAPTER 42: MAKING ONE GOOD MOVE IS NOT ENOUGH .................................................. 98 CHAPTER 43: MORE THAN ONE STRATEGY AT A TIME ......................................................... 99 CHAPTER 44: CREATE YOUR OWN INFORMATION INDEX .................................................... 99 CHAPTER 45: COMPROMISE .......................................................................................................... 101 CHAPTER 46: FAST WINNING ........................................................................................................ 107 CHAPTER 47: COMMON SENSE ..................................................................................................... 110 CHAPTER 48: TWO VS TWO ............................................................................................................ 111 CHAPTER 49: THE THEORY OF PROBABILITY ........................................................................ 113 CHAPTER 50: THE THEORY OF CONSTRAINS .......................................................................... 115 CHAPTER 51: IT IS NEVER TOO LATE ......................................................................................... 121 CHAPTER 52: DEFEAT THE SECONDARY PLAYER FIRST..................................................... 122 APPENDIX A: THE 36 STRATAGEMS ............................................................................................ 128 APPENDIX B: MASTER SUN TZU'S "THE ART OF WAR" ........................................................ 133 APPENDIX C: SILICON VALLEY STARTUPS .............................................................................. 139 APPENDIX D: TRIZ UNIVERSEL INNOVATION PRINCIPALES ............................................. 145 APPENDIX E: THE GOOGLE'S STORY ......................................................................................... 151 APPENDIX F: GENERAL ELECTRIC AND JACK WELCH ........................................................ 156 APPENDIX G: 4 PS OF MARKETING ............................................................................................. 165 APPENDIX H: CHANGE MANAGEMENT...................................................................................... 167 APPENDIX I: THE SEVEN LAWS OF INNOVATION .................................................................. 172 APPENDIX J: LEAN MANAGEMENT ............................................................................................. 179 BIBLIOGRAPHY ................................................................................................................................. 182



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Introduction



I have been playing Dominos for more than 15 years as a funny game. It was a great way to spend good times with your friends and family. However, when I entered the business world, I couldn't help but to notice great resemblance between the tactics used in Dominos and those used in the Business. I have decided to write this book to share some of those tactics with everyone, hoping I can help developing more professional Dominos player and more great business men. Dominos, like playing cards and dice, are something of a generic gaming device. They are simple building blocks that can be assembled in innumerable ways to create a large variety of games, ranging from the simple to the complex, from games in which the game play is almost mechanical, to games that require great skill and strategy. Dominos evolved from dice. In fact, the numbers in a standard double-six domino set represent all the rolls of two sixsided dice. A set of Chinese Dominos contains all the possible combinations (including duplicates). European dominos use only the unique rolls (and add in the blanks). Dominos are believed to have originated in China in the 12th century, though Egyptian or Arabian origins are also theorized. Dominos appeared in Italy in the early eighteenth century, and spread to the rest of Europe throughout the remainder of the 1700's, becoming one of the most popular games in both family parlors and pubs alike. The following is a quote from The Dictionary of Daily Wants (1859), describing English Dominos: DOMINOS. – This game is played by two or four persons, with twenty-eight pieces of oblong ivory, plain at the back, but on the face divided by a black line in the middle, and indented with spots, from one to a double six, which pieces are a double-blank, aceblank, double-ace, deuce-blank, deuce-ace, double-deuce, troisblank, trois-ace, trois-deuce, double-trois, four-blank, four-ace, fourdeuce, four-trois, double-four, five-blank, five-ace, five-deuce, fivetrois, five-four, double-five, six-blank, six-ace, six-deuce, six-trois, six-four, six-five, and double-six. Sometimes a double set is played with, of which double twelve is the highest. At the commencement



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of the game, the Dominos are well mixed, with their faces downwards. Each person draws one, and if four play, those who choose the two highest are partners, against those who draw the two lowest; drawing the latter also serves to determine who is to lay down the first piece, which is reckoned a great advantage. Afterwards each player takes seven pieces at random. The eldest hand having laid down one, the next must pair him at either end of the piece he may choose, according to the number of pips or the blank in the compartment of the piece; but whenever any party cannot match the part, either of the domino last put down, or of that unpaired at the other end of the row, then he says “go,” and the next is at liberty to play. Thus they play alternately, either until one party has played all his pieces, and thereby won the game, or till the game be blocked; that is, when neither party can play by matching the pieces when unpaired at either end, then that party wins who possesses the smallest number of pips on the pieces remaining. In playing this game it is to the advantage of the player to dispossess himself as early as possible of the heavy pieces, such as a doublesix, five, four, &c. Sometimes when two persons play, they take each only seven pieces, and agree to play or draw, that is when one cannot come in or pair the pieces on the board at the end unmatched, he then is to draw from the fourteen pieces in stock till he find one to suit. The work "domino" appears to have derived from the traditional appearance of the tiles - black dots on a white background - which is reminiscent of a "domino" (a kind of hood) worn by Christian priests. Today, Dominos are played all over the world. It is particularly popular in Latin America, where Dominos is considered the national game of many Caribbean countries. There are domino tournaments held annually in many countries, and there are numerous local domino clubs in many cities around the globe.



Hisham Sabry



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Chapter 1: I've got the good cards in a two players' game



When you get seven good cards and by good cards I mean you have got more than 3 cards with similar numbers that does not mean you have won the game yet. Your opponent may have got good cards too. And if you have many similar numbers, keep in mind that you are limited with only 7 resources (cards), meaning that you lack other numbers that may be with your competitor. In a two player game, you have seven cards and your competitor has seven cards while the rest of the cards are left (Free Cards) aside so any of you can select from them when you need a certain combination that you do not have. Remember that the free cards are back facing you so you do not know the combination on each card you withdraw.



Limited resources will always be limited even if you have the best resources in the market. For example, what if a bank has only one branch but in that branch they have the greatest banking minds ever, would you do business with them? Or would you rather work with another bank with many branches that will give you flexibility even if does not have the greatest economical minds out there. One of the greatest examples of companies that dealt with limited resources was Toyota. After WWII, the Japanese economy was suffering. Establishing a car factory in that time was considered a pure madness, who can compete with Ford and General Motor's mass production especially with such limited resources as Japan? But Toyota did not have similar numbers on its Dominos' cards, but it had a good combination. The limited resources have inspired Toyota to invent the Lean Production, aka Toyota Production System TPS. With limited resources and different numbers on your Dominos' cards, you can not afford to have any waste in your process. You need to make sure that you are using the right card at the right moment. This thinking have lead to many waste reduction systems like "Just In Time", "Kanban", "Value Stream Mapping" and other Lean Management methodologies that enabled Toyota to build high quality cars with much less cost than Ford and GM did. But again limited resources will always be limited. Toyota had to withdraw from the free cards. Toyota had to hire western quality and 7



production experts and consultants to help in establishing its new business. Withdrawing from free cards are not always bad, remember that you may get a good combination that will bring you back to the game and you will also reduce the number of resources out there for your competitor. In The Machine, Jim Womack, Dan Jones, and Dan Roos (1991) introduced the term lean manufacturing—doing more of everything with less of everything. It described a production system that was better, faster, and cheaper; required less space, less inventory, and fewer labor hours; and avoided wasteful practices So, with good minds, great hard working culture and outsiders experts, Toyota have won the game, not by having similar numbers but by having a good combination of numbers. Good Dominos' cards are like strategic positions in the battlefield. There are several types of strategic high ground to hold. They can be positions that are the most profitable in the industry, allowing you to build resources. They could be technology chokepoints that ensure you competitive advantage. They may be positions on industry boards and organizations that enable you to influence the future direction of the industry. They may be strongholds created by attracting key decision-makers in the customer's buying process. The positions that are the most profitable are those that provide the most value to the customer. For example, the explosive growth of the Internet in the mid-1990s offered several opportunities for companies to find positions of value. Companies that created user interfaces to search the Internet for information were seeking a place to provide value. Other companies focused on compressing huge amounts of data for travel over the infobahn, offering security to users of the data, supplying the information itself, or giving people with the ability the opportunity to conduct business electronically over the Internet. Owning key technology, such as controlling crucial patents, also allows you to shape your competitors. When the invention of "instant" photography created a new market segment, Polaroid was able to force Kodak out of it by owning and controlling ten crucial patents. Hewlett-Packard's success in inkjet printers was facilitated by holding numerous, important patents in that arena. Rigorous research and development combined with patenting as many findings as possible gave Hewlett-Packard control of a very



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strategic position. As Japanese competitors tried to catch up to Hewlett-Packard's lead in inkjet technology, they were stymied time and again by Hewlett-Packard's lock on key patents. For example, as Citizen Watch Company moved to develop better print heads, they ran into fifty patents already held by HewlettPackard in that sub technology, forcing them to go back to the drawing board several times to find a way around this strategic bottleneck. Obviously, this caused them to fall further and further behind as Hewlett-Packard continued to perform more research and capture new patents. Another tactic for utilizing a strategic position is to capture a key decision-maker in the buying process. Federal Express does this by earning the loyalty of corporate secretaries through a periodical called "Via FedEx." The free magazine has over one million readers and is focused on helping secretaries improve their job performance. Corporate secretaries are a strategic customer set to capture, since they are often the ones who determine when a package should be sent overnight and which carrier to use. This move by FedEx appears to have paid off; a third of those who read it say they have increased their usage of Federal Express as a result of the magazine. Owning retailer shelf space is another way to hold a strategic position. Because of the strength of its brands, Anheuser-Busch sales representatives can often convince stores to shelve its products widthwise rather then lengthwise. This gives products such as Budweiser 50% more "facing" to the customer than its competitors. You can also box in your competition by repositioning them and turning their strengths into weaknesses. Coke's strength was its identity as the classic American soft drink, formed by decades of advertising and market presence. Pepsi turned this strength into a weakness by coming out with the "Pepsi Generation" theme. This positioned Pepsi as the drink of the young (and fashionable) and Coke as something that only older (and not so fashionable) people drank. Coke's reputation as America's traditional drink was used against it. By this method Pepsi was able to gain share at Coke's expense. Another means of controlling a strategic position is to hold a dominant place on a board or commission that influences the future



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of your industry. For instance, Herb Kelleher, CEO of Southwest Airlines, is the most prominent member of a congressional commission created to chart the future of the airline industry into the next century. Certainly this puts him in a position to fashion the future to the benefit of his company.



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Chapter 2: I've got the good cards in a multiplayer game



When playing Dominos with two or three other players, the only difference is that there are no resources left out there (Free Cards). You now have to work your way with just the cards and numbers you have. By understanding your available resources, and after the first round of cards, you will have a good guessing about the points of strength and weaknesses of your competitors. Your direct competitor is the player playing after you, you are always attacking him to make him either pass on to the next player or waste a really good card. But you still have to be alerted from the player before you, he is also trying to attack you with the same techniques. Similar numbers in this case is a very good advantage it is mostly like working on monopoly basis. You are controlling the game. But again that does not mean you have won the game, the other players may join forces just to bring you down in the battle, after all if you lost this battle with those good cards, you may not have the same luck in the next round. Microsoft was really working on monopoly basis. They were controlling the software market with very good cards. Windows, Hotmail, MSN, IE and many other products have given Microsoft the market dominance and most of them were free. These behaviors are illegal in most countries because they breach competition or antitrust laws safeguarding fair and open market competition. They also enrage consumers whose interests they adversely affect. The relevance to builders of virtual monopoly is that just as pricing and certain forms of collusive agreement can breach antitrust, so can abusive behaviors involving intellectual property. One challenge for business based on virtual monopoly therefore becomes to develop awareness of antitrust and consumer concerns, and to keep on the right side of the line. Microsoft's competitors in the software game have joined forces to bring it down in the Internet Browser IE battle. The ongoing Microsoft case in the US Supreme Court has brought the issue of antitrust to the attention of the business community and the public at large. Microsoft is one of the true creative pioneers of intellectual property. This is one of its real strengths and a key



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contributor to its success. In part, the Supreme Court case is, however, concerned with the extent to which that intellectual property has been used to control the market. The eventual outcome of the case is likely to have industry-wide consequences. Microsoft was really thrilled with its good similar combination of cards that it did not pay much attention to what the other players were doing. You must always remember that you are not playing alone or with your imaginary friend, there are real players eager to win your market. So pay a good attention to what other players are doing. Study the market conditions and understand your customers need. Again, Japan is a great example. After the 1973 war between the Arab and Israel, the oil prices went as high as the sky. All the American automobiles were big strong cars designed to consume enormous amount of gas which was not a problem in the time as the gas prices were relatively low. But after the sudden increase in the oil prices, Japan automobile manufactures jumped in with smaller cars running on a much smaller amount of gas. And for the first time, the American automotive industry felt threatened. Toyota and other Japanese cars are having an increasing volume of sales in the US. Toyota has been paying attention to what was going on and they mad a great job in understanding their customer's needs. Understand your strengths, understand your competitors' weakness, and understand the game and only then, you will win the game.



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Chapter 3: Which card should I play first?



First take a look at your cards, identify the similar numbers in your combination and if you have more than three with one card of them having the same number on its sides, then you have to throw this card first.



The point is that you will force your competitor to play a card responding to yours and thus wasting one of his resources. You are being given a good chance to control the game by always making your competitor play on reaction basis. Do not give him time to make strategies, keep him busy with responding to your moves. The rivalry between Pepsi Cola and Coca-Cola is almost as old as time itself. Pepsi have always been No. 2 but they certainly rocked the boat when they introduced the ‘Pepsi Challenge’—blind tasting to see if consumers could tell the two brands apart. Much to the horror of Coca-Cola's senior executives, most participants preferred Pepsi's sweeter product. The bait was set. In the 1980s Pepsi continued their assault by not only taking the Pepsi Challenge global but also further strengthening their position with the help of celebrity endorsements aimed at the younger end of the market. Coca-Cola was losing ground not only to Pepsi but also to other drinks in the market. The problem as far as Coca-Cola was concerned came down to taste—the Pepsi Challenge highlighted that time and time again— so Coke took what could be seen as a logical next step… they decided to change the recipe.



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What Pepsi had succeeded in doing was to bait Coca-Cola into competing on the one issue they wouldn't win. Coca-Cola started work on a new formula and on 23 April 1985 ‘New Coke’ was launched. A few days later production of the original Coca-Cola stopped. This two-pronged decision has since been referred to as the biggest marketing blunder of all time. Consumers demonstrated their outrage by boycotting New Coke. Even Pepsi realized the magnitude of the error before Coke did and exploited the situation. They ran a TV advert featuring an old man sitting on a park bench looking devastated, staring at his can of coke: ‘They changed my Coke; I can't believe it!’ Coca-Cola seriously underestimated the power of their brand. Coke, it seemed, had a passionate, loyal and committed market that didn't care whether Pepsi tasted better or not—they would never switch. On 11 July 1985, Coca-Cola chairman Roberto Goizueta announced at a press conference: ‘We have heard you!’ New Coke was scrapped. The reinstatement of the original recipe was considered so significant that it appeared in a newsflash on ABC News and other US networks and has not been touched since. Coca-Cola was baited into fighting a battle it never even needed to enter. It was, after all, ‘the real thing’.



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Chapter 4: I have got bad cards



Whether you are in a two player game or multiplayer game, getting bad cards is confusing. As we said, getting good cards does not automatically declare you as a winner, similarly getting bad cards does not mean you have lost it. Getting bad cards means having more than two Similar Combination Cards SCC (Cards with the same number on both sides), or having seven cards with no repeated numbers. Now, for the first case, when you have many SCCs, just try to do your best to get them on the playing board. Do not look for wining here, but look for minimizing your loss. After all, the points that will remain in your hands at the end of the game will be added to your competitor score, so you need to try to minimize his winnings by minimizing your losses. In the other case, if you do not have repeated numbers look at the bright side, you have high probability to respond to each play and never passes on to the next player. Many SCCs is like inventory of an obsolete product. You are not going to get profit out of them; all you can aim for is to minimize your loss. A very good example is the consumer electronics market. You may have just bought the latest cell phone and paid a fortune, then after may be a month, the price of your device fells with 25%, then wait longer and it will drop by 50 to 60%. What is going on? Big manufacturers in this field like Nokia, Apple, and Motorola know that these types of products are ever changing and are ever developing. Every day you may find a new product with new added features in the market. So, in order to coop with that trend, they overprice their product in the first phase, and then as they go along, they gradually decrease the price until they reach a reasonable price that will still gain them profit (see figure 1). And by then, they start the cycle again by offering a more advanced device with a higher price and so on. So there pricing strategy is very similar to the SCC described strategy, just avoid having inventory in your hands.



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Figure 1



Having unrepeated cards is also something you can benefit from. A great story is the rising of General Motors against Ford. Ford did really own the automobile market in the early twentieth century by inventing and applying the mass production system. Most of the cars in the market were coming out of Ford's factories. However it was only one Model and one color, the Black T- Model Car. When General Motors started working in the field, they decided to go differently with manufacturing different models of cars. They simply segmented their customers and designed a model for each segment. From Pontiac to Chevrolet, their diversity supported their reaction to any changes that may occur in the market.



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Chapter 5: Do not be expected



The order in which you play your cards is crucial. Some players, when have similar numbers, tends to play these number quickly one by one and thus – as they think – they will put their competitor under siege and makes him surrender. But this is not always the case. If you are playing with a really good player, adopting the previous strategy will help your competitor to predict your moves and adopt his strategy accordingly. Always try to keep your next move a secret by adapting an unpredictable playing strategy. Learning how to control perception may be important on the battlefield but it’s essential in business. Big business spends millions manipulating the public perception of their brand. And small business should spend as much as possible projecting an image of professionalism and sustainability. One of the biggest mistakes small business makes is producing marketing materials that look more like something their eleven-year-old niece would do than the professional face of a thriving business. Edward L. Bernays mastered the art of spin before there was even a term for it. He honed his craft working in propaganda during WWI. Bernays went on to start the first public relations firm in America in 1919 and reputedly still consulted with clients beyond his 100th birthday. He was asked by American Tobacco Company to come up with a campaign that would encourage more women to smoke, which he did very successfully. His promotion was, ‘Reach for a Lucky instead of a sweet’ – implying that smoking would keep you slim. Sales of Lucky increased threefold in twelve months. However, the real challenge was that smoking for women was still taboo. In response to this Bernays took up arms declaring it an emancipation issue. He organized a march down Fifth Avenue with women brandishing their ‘torches of freedom’. Rules were changed as a result and, needless to say, American Tobacco Company was delighted with the results. Granted, Bernays wouldn’t get away with that now – blatant lying is no longer allowed in advertising. Remember, too, that this was a time when smoking was not considered harmful. Hopefully, had he 17



been aware of the damage that smoking does cause, he would not have manipulated his audience quite so brilliantly.



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Chapter 6: First mover advantage



Being the first mover in the domino's game is always an advantage. Not just because you will have a bigger chance of finishing your cards first, but because it will help you control the game. First-mover advantage is often cited as a benefit for business. The best way to become a strong brand is to be first to arrive in a new territory – then dominate it. Take the humble Post-it, for example. For nine years the weak adhesive developed by Dr Spencer Silver at 3M’s central research department sat on the shelf looking for a purpose. Arthur Fry, a new product developer with 3M, sang in his local church choir. He used slips of paper to mark his place but they kept falling out. Hence, he dug out Silver’s adhesive and eureka – the Post-it made its debut. After demonstrating them in offices across the country, Post-it’s caught on and 3M created a new market. A market they have dominated ever since. Similarly, Häagen-Dazs, was the first to occupy the luxury ice-cream market and has maintained its eminence despite stiff competition. Too many scoops could well have contributed to the creation of another industry. A first mover advantage is also a part of the Blue Ocean Strategy. The blue ocean strategy analytical model – with the practical tools it presents – offers a new and inspiring way to look at strategic innovation. It proposes techniques for developing new markets based on what proponents call value innovation – innovation linked to what buyers actually value. The blue ocean model categorizes innovations as falling into either red or blue oceans. •



Red ocean - The red ocean symbolizes the known market space. Red ocean strategies are for companies that want to brave the shark-infested waters crowded with both large entrenched companies and eager young companies. In the red oceans, rules and boundaries are defined and 19



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unquestioned and each entrant is trying to beat out its opponents for a larger share of the available business – a bigger piece of the pie. Blue ocean - Blue oceans are the unknown market space. Companies that enter blue oceans simply avoid the predators altogether by diving in to the wide open areas. Unlike red oceans, blue oceans have untapped market space, allow demand creation, and have high growth and profit potential. Instead of trying to beat the competition as in red oceans, the competition is made irrelevant. Blue oceans are not defined by boundaries, rules, and limitations.



The only place that first-mover advantage doesn’t work so well is in the technology sector. Here consumer behavior is often way behind technological breakthroughs. Sometimes the companies themselves are slow to realize the power of the technology at their fingertips. The rapid adoption of SMS messaging for example took most European mobile phone companies totally by surprise – so much so that many didn’t even explain the facility in their instruction booklets. Coca-Cola is able to build continuous success and domination based on a secret recipe. But technology can often be replicated. New technology can be developed or modifications can be made to circumvent patents and it’s not long before the competition is nipping at the first mover’s heels. Remember Betamax? That said, being first in the field is usually an advantage – and especially so if your product isn’t a gadget.



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Chapter 7: Sudden Death Technique



Sudden death technique is one of the most famous and widely used techniques. It is used when you force the both sides of the cards to require a certain number that all its combinations are already on the play ground. As illustrated in the below diagram, the next required moves is to play any combination of the number Six. However, all the combinations are already there.



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So when should you use this techniques? First you must make sure that you have both repeated numbers (More than three) and also a good combination. Second, make sure that the number of points you have is much less than those with your competitor as in the cases of sudden death games, the player with the less points wins. A similar case in market is when companies force the market into a saturation zone. A high degree of imitation turns products into commodities, "permanent fixtures," attracting new entrants, especially in automobiles and electronics industries: "In industry after industry, bright ideas quickly become permanent fixtures. Today's leading edge is tomorrow's condition of entry. In the car market, anti-lock brakes were heralded as a major step forward. BMW trumpeted its invention. Now, anti-lock brakes are no longer an advantage, and BMW has moved to ‘telematics' in joint venture with Motorola." Compounding the problem of imitation, market saturation, especially in mature countries, leaves little room for growth in highly globalized industries. In short, rapid imitation and market saturation are an integral part of global industries. Successful products, processes, and business models are quickly replicated by the competition. Other companies play it smarter. Saturating the market with a certain product and then just before the market reach a complete saturation, they present another product and start the same cycle again. This is a famous concept in marketing called killing your own product before someone else does.



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Chapter 8: Do not bet all on one number



You may have four cards with combinations of the same number which is typically a great set of cards. However, you do not know what your competitor has in his hands, so always be ready with a plan B. The second count of repeated numbers represents your plan B. lets say that you have four combination of the number "3", this is your plan A, and you have two combination of the number "4", this is your plan B. Having two plans gives you more flexibility in reacting to the changing game circumstances. One of the greatest organizations in the world adopting this methodology is P&G. if you have noticed, for every family of products; P&G have at least two brands competing with each other. "Pert Plus" vs. "Head and Shoulders", "Ariel" vs. "Tide", "Camay" vs. "Zest" and so on. The benefits of this strategy are: ▪ Acquiring bigger market share ▪ Creating a competition between your people to improve the products continuously. ▪ If one of the product faces down time, the other product will likely stay profitable. ▪ Giving your competitors hard time as they will now be fighting against two brands not just one. If you’ve proven the business model, your product works and you’ve got a loyal customer base, so why settle for one product? Yes, there’s a cost involved in redesigning products, marketing fees and the setting up of new companies – but, in the grand scheme of things, considering that all of the content/products/reviews/knowledge is already collected and documented – how hard would it be to re-invent yourself as your own competitor? I know it sounds a bit daft, but think about it: you’re always going to have to share the market with somebody, so why not make it your alter ego?



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Here’s the deal. You’ve got a product/service that works. Launch it again, only alter the pricing structure – you can go higher or lower (I would try the former first!). A new brand, a new-look site, a new marketing campaign: in effect, two completely different websites selling similar products. Lo and behold, you’re both competing for the top spot on Google for certain keywords – not a problem – and you’ve forced a competitor onto smaller share of the cake… It doesn’t really matter whether the user decides to buy from product number 1 or number 2; they’re both you under different names. – Own the product, don’t just sell it…’



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Chapter 9: Physiological war



Dominos is a perfect game to master the physiological mind manipulation games. Try to always comment on each move your competitor makes. Saying phrases like "Ha Ha, what an expected move", "Oh, you have just knocked yourself out", "Ha, You will regret such a move". Striking your cards strongly creating a boom sound on the playing board creates a sense of threatening within your competitor making him less concentrating on wining and more afraid of loosing. Playing mind games with your competitor is not an easy task. You must in some cases prove that what you are saying is true and in minor cases just do not play hard to prove it. Again this helps you to avoid being expected. There is an old proverb says "To be known as powerful is as equal to being really powerful".



Hitler's strategy in WWII was based on this. He used his legendary minister of Media Joseph Gobles to make the Germans believe in his thoughts and to raise their morals. Not only doing this, he also used his media machine to break the morals of his enemies. Google recently have done the same. Google has planted a common feeling among all the internet users that they own the internet. Google made us believe that all future internet innovative ideas will come out from their HQ building in Silicon Valley. Steve Jobs with Apple is doing the same. The market is always waiting for the next big thing from Apple, the next innovation. Some people are dreaming with wild products like 3D satellite TV imbedded within your wrest watch, and apparently many other wild products, however they all share one thought, they know Apple will deliver it. In matters of war, the strength of numbers is obvious. In business, size also has its advantages in terms of resources and sustainability. Corporate history is littered with the carcasses of small businesses spat out by big rivals.



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Yet thankfully there are enough examples of entrepreneurs willing to take on the big guns to give hope to generations to come. Take for example the story of Häagen-Dazs ice-cream. As a widowed Polish immigrant, Reuben Mattus' mother sold home-made fruit ice and ice cream pops from a horse-drawn wagon in the bustling streets of the Bronx. As a nineteen-year-old, Reuben followed where his mother left off and in 1932 he started Senator Frozen products. His ices were distributed through drug and grocery stores and he built a successful business. Soon supermarkets were springing up all over America and with their superior refrigeration facilities and convenience Mattus saw a way for his products to be sold all year round. His most popular product was an ice cream called Ciro's. Unfortunately, Mattus was not the only one to recognize that ice cream was no longer a seasonal product and the big dairy companies moved into his market. With greater distribution networks, larger production capacity and increased negotiating muscle they soon squeezed Ciro's out of the market. Size it seemed did matter. But thankfully for ice cream aficionados everywhere Mattus was a determined character committed to making ice cream of superior quality. Undeterred he turned his attention to creating a luxury ice cream using only fresh cream, real fruit and natural ingredients. In a twist of marketing genius he decided to give his product a Scandinavian-sounding name and Häagen-Dazs was born. The idea that the large will always defeat the small is still often accurate; certainly the larger businesses have more money and resources to survive a struggle than do smaller concerns. However, with the advent of the internet this idea perhaps more than any is outdated when it comes to business. It's now possible to go headto-head with big business and win. Global markets have opened up through technology and it is speed and willingness to embrace that technology that will set businesses apart. As Rupert Murdoch—a man that knows a thing or two about business—says, ‘The world is changing very fast. Big will not beat small anymore. It will be the fast beating the slow.’ You're interested in winning and using power and influence, and for that you need a reputation as someone who uses power and has influence. It's hard to get noticed, and there are hundreds of people who like to be quiet achievers. Few of us want to be associated with



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attributes like ruthlessness. But, when there's cruelty that needs to be done in the service of a greater good, your ability to continue to be a leader rests on ‘whether cruel deeds are committed well or badly’. Al Dunlap, for example, was not a man consumed by self-doubt. The title of his autobiography says it all: Mean Business: How I Save Bad Companies and Make Good Companies Great. Actually it doesn't say it all, because I've missed out one third of his name. To a generation of business leaders, Dunlap was known as ‘Chainsaw’ Al Dunlap, the downsizer's downsizer, the man who slashed his way through Scott Paper and Crown Zellerbach, saving them from going out of business by cutting waste, closing factories and slashing the payroll. He wasn't a ‘nice’ man. He wouldn't claim to be. But for good or ill (and eventually his Ramboesque style went out of fashion), he did what he claimed to do. His last major job was running a company called Sunbeam-Oster. He made thousands redundant, closed half the factories, and embarked on a sales push that almost shoved the product into retail stores (when they didn't meet sales targets, he still moved the products out of the factory and parked them in warehouses until retailers needed them, while still booking them as sales which—eventually—people noticed). The conventional argument is that he brought about the end for Sunbeam-Oster through his unconventional tactics. But the company was more or less dead when he took it over. For our purposes it might be more relevant to ask how anyone managed to keep it going. The answer to that is that he was ‘Chainsaw’ Al. If a less confrontational CEO had taken over, the company might have limped on — but it needed radical surgery. No one enjoyed what he did, but few of the company's shareholders could have been surprised when he did it. Texans have an insult for someone who talks too much: ‘all hat and no cattle’. If you're a rancher, it's preferable to have the cattle before you get the hat. In the world of leadership, if you haven't got the cattle just yet, the first step to getting them is to get yourself a big hat. Image, for the modern corporate leader, isn't just a vanity. It's a way to change things. ‘Chainsaw’ Al celebrated his image, because it



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opened up the route for the sort of radical action he was hired to perform. You don't always need to make friends to lead people.



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Chapter 10: There is nothing called Win Win Situation



In Dominos game, there is nothing called Win Win situation, you either win and your competitor loses or it is the opposite. There is always a winner and a loser. When there is a withdraw, it is a lose lose situation. So you must keep in mind that in the cases where you need to minimize your loss, the other player will eventually win.



In the market there are many similar cases of people declaring that they have reached a Win Win situation but if you take a deeper look, it is an obvious Win Lose situation. Was the settlement of Microsoft's IE a Win Win? Think about it, it is simply against human nature, people always need a winner and a loser. It is not cruel to aiming high. Take two examples from the technology industry. While there are many internet browsers that compete with Microsoft's Internet Explorer, you don't find them on your computer's desktop—because Microsoft supplies Internet Explorer with Windows, and you want Windows with your PC. In this relationship, Microsoft is much more powerful than the computer manufacturers. If you wanted to conquer the browser business you would have to do it without the manufacturers' help. Contrast this with the PC microprocessor market, where Intel has long been just as dominant as Microsoft has been in the software business—but in which it is easier for manufacturers to change supplier, as they are constantly bringing out new products. In the last few years, Intel rival AMD has made serious inroads, and had captured about one quarter of the PC microprocessor market by the end of 2006. After a prolonged price war in 2007, Intel, aided by an aggressive innovation programme, has recently been recapturing market share…



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Chapter 11: You make your own luck



Although many people believe that part of the Dominos games are luck, however professional players know that this is not always true. Instead, they know that according to your level of skills, you can make your own luck out of any cards combination that you get. Psychologist Richard Wiseman conducted thousands of interviews of ‘lucky’ and ‘unlucky’ people to try to find a pattern. What he found was that attitude is the key, with those who see themselves as lucky often turning out to be people with a will to turn bad luck to good and make the best of a bad job. He also found that ‘lucky’ people are simply those who are open to possibility—they see opportunities that are there for everyone but which other people aren't aware of enough to see or grasp. Wiseman draws a major distinction between chance and luck. His point is that chance events, like winning the lottery are things we have no control over and don't consistently happen to the same person. He says that chance events have less impact than we like to think: "You might say, ‘Fifty percent of my life is due to chance events.’ No, it isn't. Maybe 10% is. That other 40% that you think you're having no influence over is actually defined by the way you think." The trick is to be open to new experiences. Another of Wiseman's findings was that ‘unlucky’ people are stuck in routines. "When they see something new, they want no part of it. Lucky people always want something new. They're prepared to take risks and relaxed enough to see the opportunities in the first place." Tempting though it is to bemoan bad luck, it's all too often an excuse for poor application, or an inability to see the good side of developments. Smiles says: ‘We have heard of a person of this sort, who went so far as to declare his belief that if he had been a hatter, people would have been born without heads! There is however a Russian proverb which says that Misfortune is next door to Stupidity.’ Believers in bad luck would do well to open their eyes.



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Chapter 12: Predict your competitor next move



Knowing what your rivals have in their minds is as equal as all the previous lessons together. By monitoring all their moves and analyzing them, you can have a semi clear picture of what they have in their hands and can predict their next move and their overall playing style. Some players for example tends to get rid of the cards with big numbers (5 & 6), or their SCC cards (66, 55, 44, 33, 22, 11, 00). These give you an idea that you playing with someone who is not a risk taker, he prefers to minimize his loss rather than taking a risk of wining. Other players tend to drag the game to a sudden death by throwing similar numbers to the board. Keeping attention to such patterns of playing helps you to predict the game direction and thus helping you get the most out of it. Foreknowledge is very important in business world. There are big organizations that have complete dedicated teams to collect as much information as they can from their competing companies.



In July 2007, McLaren escaped any immediate penalty after their chief designer was found in possession of a secret 780-page technical dossier of their arch rivals, Ferrari. Needless to say Ferrari wasn't happy with the ruling. However, McLaren still faced a championship ban and were later clobbered with a massive fine. Ferrari would have been none-the-wiser had they not received a tipoff from the employee of a photocopy shop who had been asked to copy the document. How they knew what they were looking at is perhaps even more of a mystery! Another business that got into deep trouble for the unethical collection of information is British Airways. When Richard Branson entered the skies in 1990 with Virgin Atlantic he was British Airways' only UK competitor on long-haul routes. British Airways launched a secret war on Branson. Branson soon realized something was wrong and he became convinced there was a ‘dirty tricks’ campaign against him. Eventually he was forced to go to court to prove it.



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Evidence mounted against BA. Virgin, along with a few other small airlines, rented space from BA on their central reservation system, BABS. Unknown to Virgin, BA were gaining unauthorized access to Virgin flight details in an attempt to manipulate the threads and squeeze Virgin out. A secret unit called ‘The Helpliners’ was set up in Room 1278, a small windowless room inside Gatwick's north terminal. The information was fed into the ‘Virgin Project’—the aim of which was to discredit Branson personally and do anything possible to win back customers. One of the tactics used was ‘switch-selling’. BA staff would look at Virgin reservations and target upper-class passengers, either meeting them at their gate or calling beforehand and offering them incentives to move to British Airways. In the end, justice was served and Virgin won the court case. BA was ordered to pay £610,000 to Virgin for libel; £500,000 to Branson personally. British Airways also paid the costs, which were reliably estimated at £4.5 million. And, most importantly for Branson, they were forced to apologies in open court. Gathering information may well be the leader's most precious faculty but it must be carefully and ethically obtained. On November 21, 1970, American Special Forces troops attacked a POW camp in North Viet Nam with the mission of freeing U.S. prisoners. After weeks of preparation, the raid on Sontay went like clockwork; total time on the ground was only twenty-six minutes. The guards were quickly dispatched and the only casualty in the strike force was a badly sprained ankle. Quite a success. However, there was just one problem—the prisoners had been moved out of the camp weeks before. A lack of intelligence preempted what could have been a major coup for the American forces in Viet Nam and instead led to failure. Information technology is essential for gaining real-time control and understanding of how your company is operating since it can be used to gather large amounts of information and assist in analyzing it. The speed and pervasiveness of computer technology are factors Sun Tzu, living in a time where beating drums and waving flags were used to signal commands, may not have comprehended. However, if he were familiar with their capabilities, he would easily see ways of deploying them for competitive advantage. For example, there's a company called S-K-I Limited, in Killington, Vermont. As its name implies, S-K-I Ltd. operates ski resorts.



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However, it is not your typical ski resort company. It employs information systems not only for mundane things like payroll but to gain real-time operational control for competitive advantage. S-K-I Ltd. has weather monitoring equipment placed on key slopes to determine the optimal mixture of air and water for their snowmaking machines and then monitors the machines from a central control room. They use bar-code scanners to keep track of customers as they move between different slopes and various resort bars and restaurants, and then deploy employees to where the action is. They have a database to track 2.5 million skiers, slice and dice the information to understand where their skiers live, the kinds of slopes they like to ski, and the amenities they seek at a resort, and then go after them with direct mail to attract them to S-KI Ltd. facilities. Lastly, they can generate reports that tell them on a weekly and even daily basis which resorts and departments are making money and which aren't. They can then take appropriate action. S-K-I Ltd. has used this information system to achieve excellent financial results. S-K-I Ltd. had thirty consecutive years of profit growth between 1959 and 1989 and hit record revenue high in 1994 of $99 million. Lest you think that S-K-I Ltd. only uses computers to get a handle on its business, I should mention that it's a requirement for managers to hit the slopes early and often. As CEO Preston Smith says, "It's a way of sharing the customer's experience."



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Chapter 13: Think Fast, Play Fast



Quick thinking is a major advantage in Dominos games. Thinking quicker thinker than your opponent enables you to make your next move fast and thus putting some stress on the other player who will try to act as fast as you are and lose his concentration on wining the game. In accordance with his penchant for secrecy, Master Sun Tzu states in his famous strategy book "The Art of War" : ‘In making tactical dispositions, the highest pitch you can attain is to conceal them; conceal your dispositions, and you will be safe from the prying of the subtlest spies, from the machinations of the wisest brains’. Don't broadcast your plans. In a lesson on both speed and secrecy, there can be few better examples than the merger between Sweden's Asea and Switzerland's Brown Boveri. Founded in 1883 and 1891 respectively, the 50:50 merger announced on 10 August 1987 took the corporate world by surprise. Not only did the merger create a $30 billion giant but it was also done with incredible speed and simplicity. When Percy Barnevik, Asea's CEO, approached Brown Boveri, he no doubt appreciated what Wall Street did not. This was not as they reported afterwards a merger ‘born out of necessity not love’ but a perfect match. Brown Boveri was international but didn't excel in management. Asea was not international but had strong management. Another famous story is the story of Chris Galvin. As Chris Galvin rose through the ranks of Motorola, the company founded by his grandfather in 1928, his determination and decisiveness impressed those around him. Unfortunately, according to analysts, those skills deserted him once he took on the role of CEO in 1997. In the fastmoving technology sector, speed and conviction are essential ingredients for success. Galvin took eighteen months to finalize the sale of its semiconductor component business despite being told by the president of the division that the sale would return the business to profitability.



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It was the same with Iridium, a portable phone system that would work anywhere thanks to sixty-six satellites orbiting the globe. The business, given the go-ahead by Galvin's father in 1991, was, some say, fuelled by ‘techtosterone’ and had already cost Motorola $5 billion plus. Iridium didn't catch on. By late 1999, all of his most trusted advisers were telling him to get out. The business had already filed for bankruptcy protection, yet it took a further year and an estimated $200 million before he did. Galvin himself denies being indecisive: ‘When people bring high quality of thought on a proposal or an investment and all the questions are answered, we make decisions in nanoseconds.’ Galvin is not the only Motorola CEO to drag his heels. Gary Tooker, Galvin's predecessor, stuck to his analogue guns and missed digital. Initially there were three competing standards and with no certainty over which one to back he waited. Motorola had developed the microchip for Apple years earlier and perhaps didn't want to find themselves backing the wrong horse again. Unfortunately for Motorola, however, Nokia and Ericsson didn't wait. By 1998, Motorola's market share in the US had slipped to 34%, down from 60% four years earlier. Their refusal to embrace digital technology quickly enough was a serious mistake. There is nothing more frustrating than a leader who won't make decisions. Morale is affected and enthusiasm soon gives way to lethargy and frustration. By moving faster than the competition, one can make up for scarce resources. For instance, if your salespeople can perform a sales call in a half hour while your competition takes two hours, you may need only one-quarter of their sales personnel to match them. If your company can produce a product in half the time of the competition, you need but half of their assets and personnel. Greater speed equals fewer resources, which in turn equals better return on investment. In 1993, IBM's personal computer plant in Greenock, Scotland, cut its manufacturing time for each unit from five days down to eight hours by splitting its single, monolithic production line into six minilines. This action contributed to an increase in output of 50% even as the number of workers dropped 30%. In addition, quality improved and unit costs dropped significantly. By becoming faster,



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IBM's European PC operations improved profitability, shortened delivery times, and regained market share. Baxter Health Care Corporation, the largest distributor of health care products in the United States, reduced their order-processing time by 78%, their order-receiving time by 85% and the number of steps in one key process from 103 to 41. This enabled them to reduce inventories by 66% and cut the number of warehouses required from 34 to 24, all while sales were increasing. These are not unique instances. It is well documented that companies significantly faster than others in their industry have returns on investment anywhere from two to five times those of their competitors. They also grow at a much faster rate. For instance, Wal-Mart was clocked at being 80% quicker than its competitors, enabling it to grow three times faster. Thomasville Furniture Company was estimated to be 70% speedier than others in its industry, allowing it to achieve a return on assets ratio double that of its competition.



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Chapter 14: Losing a round, not losing the game



Dominos game is like war. As war is formed of battles, a Dominos game is formed of rounds. Losing one round does not mean you have lost the whole game. You can always come back again even in the last round and even if you are a way behind your opponent. The most important thing is not to lose focus. Keep focusing on wining. You only lose when you stop trying. One of my friends first went riding with a well-known horseman who leapt a high fence on their first outing. Presumably he was showing off to the new boy, but if he was then he picked the wrong audience because my friend immediately tried to do the same thing. He fell off, unsurprisingly, but he goes on to tell us that he wouldn't give up. ‘Without saying a word, he remounted, made a second effort, and was again unsuccessful, but this time he was not thrown further than on to the horse's neck, to which he clung. At the third trial, he succeeded and cleared the fence.’ Similarly is the tale of a missionary called Carey who fell out of a tree he was climbing when a boy, breaking his leg in the process. ‘He was confined to his bed for weeks, but when he recovered and was able to walk without support, the very first thing he did was to go and climb that tree.’ We all know the maxim of getting back on the horse that has thrown you, but don't always apply it to ourselves. In some cases a fear of failure stops us from even beginning to attempt something we perceive as difficult. Presentations leap to mind as an example. It might feel like dodging a bullet to get out of doing a presentation but in reality you've as good as fallen off the horse without even mounting it. Cultural issues also play a part in the fear of failure and the response to it. In the UK, for example, it is still seen as shameful to have launched a business only for it to fail. In the US the failed businessperson is more likely to be seen as a good bet second time around since the presumption is that they have learned from the lesson and have the courage to get up, dust themselves off, and have another go. In professional training, I have often observed that those who struggle with a skill, but stick with it until they master it, 37



often become better at it than the naturals who have never had to focus on overcoming a handicap. So, look that horse firmly in the eye and get back. Look at Japan after WWII; they were suffering of all kind of opposite development circumstances. Radiation victims, there land were concurred by the Americans, no resources of what so ever. However, what is their situation now? They have managed to beat the West in every single product and services, from Automotive to Cartoons and comics.



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Chapter 15: Finish Him



When you sense that your opponent is lacking a certain number, try to drive the both ends of the game towards that number as in the case of sudden death. However in this case you will force him to start withdrawing from the free cards and then if you have the last combination of that number, you have finished him. We need to be opportunists in business. Business can throw up some unlikely hurdles: sometimes those hurdles are external, through changing legislation or shifting market conditions; sometimes they may be the result of an accident or an internal error. Whatever the reason, you must realize that if you falter your competition will step in. Conversely, if your competition falters you must be on hand to capitalize on the error. In 1985, the UK Central Public Health Laboratory made the connection between Farley's instant milk and salmonella. The company issued an immediate recall at a cost of £8 million but food scares relating to babies are hard to recover from. Farley's was put into liquidation and sold to Boots for £18 million. Boots tried to resurrect the brand but the health scare had effectively opened the door to Farley's competitors and two of their main rivals had rushed in. While Farley's was off the shelves, Cow & Gate and Wyeth both increased production to meet the gap left by their rival. By the time Farley's was ready to come back, their customers had gone elsewhere. Farley's was sold to Heinz for £94 million in 1994. Farley's Rusks, popular with generations of British kids, have even enjoyed a renaissance. Paul Wieand had been the president of Independence Bancorp, a $2 billion bank outside Philadelphia, for four years and, at thirtyseven, was about to become one of the youngest big-company CEOs. He flew off to Paris with his wife to celebrate but while he was enjoying frogs' legs and a nice drop of red his competitor moved in for the kill. Although his rival had admitted defeat and congratulated Wieand before his departure, as Master Sun points out, ‘peace proposals unaccompanied by a sworn covenant indicate a plot’. In Wieand's absence, his rival lobbied the board and got himself voted in as CEO. When he returned, Wieand was met with



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his own resignation letter and his high-flying corporate career was over. Thankfully this jolt moved him on to a more rewarding path but it is a good reminder about the importance of closing all the doors behind you.



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Chapter 16: Do not imitate



When playing Dominos, make sure to build your playing strategy according to your available resources and the game circumstances. Avoid being dragged to side games to prove that you play faster than other players. Again, it is not who finishes faster who wins, but who finishes his opponent. Do not imitate the moves of other players in the game as this may be what the other players want you to do, to make your moves on your behalf for their own good. In the market, you should have your own brand image and character as well; remember the Pepsi-Coca cola fight over taste described in chapter 3. Many Chinese products are built on imitating business. You can get a lot of look alikes products for much lower prices compared to its original. From Laptops to Shirts, even the Roles Royce was imitated. But one thing you are sure of, nothing can beat the original.



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Chapter 17: Hide your cards



Do not under any circumstances make your cards viewable to your competitor. Always keep your cards near your chest. One may think that this is an obvious role, but you will be surprised of the amount of people not obeying to it. In business, too, it's considered advisable to play your cards close to your chest—as Gerald Ratner would no doubt attest. Ratner had joined the family business as a young man and became chief executive in 1984. He had taken the jewelry retailing business by storm and successfully built an impressive empire. The business grew under his stewardship and expanded from 130 stores and sales of £13 million to a public limited company with 2,500 stores, 25,000 employees and with sales of £1.2 billion. It was no wonder, then, that he was invited to speak at the Institute of Directors. In 1991, in front of 6,000 business people—and, unfortunately for Ratner, several journalists—he delivered his now infamous speech. He joked: ‘We also do cut-glass sherry decanters complete with six glasses on a silver-plated tray that your butler can serve you drinks on—all for £4.95. People say, "How can you sell this for such a low price?" I say, because it's total crap.’ The journalists present jumped on the story and within twenty-four hours the business was in freefall. He wasn't drunk or nervous and had added the jokes in at the last minute—a decision that wiped an estimated £500 million off Ratner's share value. He was eventually forced out of the family business after a very difficult eighteen months. He obviously did not keep his cards to himself. Although his name is now synonymous with speaking out of turn, Gerald is by no means the only senior executive to ‘do a Ratner’. Barclay's chief executive Matt Barrett suggested that astute consumers would do well to steer clear of his product. He admitted that he advised his four children not to ‘pile up debts on their credit card’. Giving evidence to the Commons' Treasury Select Committee on credit cards, he said he did not use credit cards from Barclaycard because they were too expensive.



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Or what about Topman brand Chief David Shepherd? He suggested his target market was, ‘hooligans or whatever’, whose purchase of a Topman suit would be, ‘for his first interview or first court case’! Even though it could certainly be argued that the statements were true, they were not sensible and, even if they were taken out of context, they serve as a reminder that good leaders stay quiet; they maintain a dignified silence and never mock their product or their customers, privately or publicly.



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Chapter 18: Never underestimate other players



One important lesson one should know is to never underestimate the skills of other players in Dominos games. Always keep in mind that wining Dominos games depends somehow on luck. So even if you are playing with a less skilled player, always watch out, the luck may be his alliance in this one game. Unfortunately, McDonald had to learn this lesson the hard way. Helen Steel and Dave Morris would stand outside their local golden arches happily dishing out a London Greenpeace pamphlet called What's wrong with McDonald's In 1990, four years after the offending leaflet was first published, McDonald's sought legal action against Steel and Morris and three other activists. While the others backed down and apologized, Steel and Morris saw an opportunity to get their views heard by a much larger audience than their local Maccers and chose to fight. The McLibel trial turned into the longest in English history, with an incredible 313 days in court, over seven years. One hundred and eighty witnesses were called to the stand and McDonald's were hauled over the coals for everything from food poisoning charges to staff pay and conditions to bogus recycling claims. They were even accused of infiltrating the ranks of London Greenpeace. Considering the offending brochure was quite obviously written from a meat-is-murder vegetarian perspective, it is questionable how much notice those emerging from the North London restaurant after wolfing down their Big Mac really cared about the issues being raised. It may be a valid point of view to those presenting it but it's a minority view that barely warranted a full-on assault by a corporate giant. What surely started off as a fly in the McDonalds ointment turned into the ultimate David and Goliath battle. McDonald's came across as the corporate bully. Here was a company with thousands of restaurants located across the globe catering for forty million people every day picking on two little veggies from London. Catapulted from relative obscurity to front page news, the original leaflet



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became a cult collector's item with more than three million copies in circulation in the UK. The internet proved lethal in disseminating information, with countless websites dedicated to following proceedings and unraveling what was becoming a legally complex case. Books and TV documentaries only served to rub salt into McDonald's wounds. In June 1997, McDonald's were able to claim victory, albeit a hollow one, when Steel and Morris were ordered to pay damages of £60,000. This case serves as a costly reminder about the importance not to underestimate your opponent. It is also a pivotal case in terms of demonstrating the power of the internet in leveling the playing field. Corporate misbehavior can turn from inside story to viral email in a heart beat.



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Chapter 19: The "I don't have this number tactic"



One of the most famous tactics, yet it needs long time to be mastered. It depends on deceiving your competitor to think that you are lacking a certain number and thus makes him build his whole strategy on that weak point that does not actually exist. To play it, you try to simulate that you are avoiding playing on a certain number, let's say "5" for example. By doing so, your opponent will make an assumption that you simply do not have this number and will start to get both the ends requiring this number. The trick is when your opponent him self plays his last card with "5" just to make you start withdrawing from the free cards. You can imagine his surprise when you simply play one of your cards and finds himself withdrawing from the free cards. By leaving the Trojan horse abandoned outside the walls of Troy and supposedly sailing away, the Greeks deceived the Trojans into bringing the horse within their city. After night fell, the Greeks emerged from the horse and sacked Troy. By using his cavalry to screen his quick movements and deny his enemy knowledge of his intentions, Robert E. Lee kept the Union's numerically stronger Army of the Potomac on the defensive for most of the Civil War. By setting up a fake Army Group under General George Patton with bogus camps and radio traffic, the Allies deceived the Germans about the location of their invasion of Europe. Success in conflict is indeed based on deception and companies can find the selected use of deception effective.



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The Trap



We may recall the famous battle of D- Day in WWII. The British intelligence MI 5 made a trick on the Germans to make them think that their troops will be landing in Italy. The Germans fall for it and they sent most of their troops there. And while they were waiting in Italy, the British troops were landing on Normandy in France. Study in the use of deception takes us back to Hanson PLC's hostile takeover of Smith-Corona, also known as the SCM Corporation. Sir Gordon White first moved to acquire SCM with a formal tender offer of $60 per share. SCM's management, interested in buying the firm itself, offered a bid of $70 per share to stockholders. In response, Hanson PLC increased its bid to $72 per share. In an effort to shake Sir Gordon loose, SCM management gave Merrill Lynch the option to buy two of its best divisions at a large discount if Hanson PLC gained control of the company. White promptly withdrew his tender offer, which on Wall Street meant that he was giving up. Like the Greeks, he appeared to have boarded his ships and sailed away. SCM management thought the battle was over so they let down their guard. However, it was far from over. Contrary to Wall Street custom, White instead purchased 25% of SCM's shares at $73.50 per share on the open market,



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thereby increasing Hanson PLC's stake to 27% of the total shares outstanding. SCM management was furious and launched a lawsuit. Hanson PLC counter-sued and won on appeal. White then purchased even more stock and now held almost 33% of the outstanding shares, thus stopping SCM management's leveragedbuyout plan, which required approval by two-thirds of SCM's shareholders. After more moves, countermoves, and lawsuits, Hanson PLC ultimately took over SCM and made out handsomely by selling off pieces as mentioned earlier. However, the key to Hanson PLC's success was that Sir Gordon knew that he could not let his competition know where and how he intended to give For instance, if you are planning to come out with a new product whose capabilities will surprise your competitors and you are asked by the press if these are your plans, do not feel constrained to disclose everything. That is proprietary information. Instead, give answers that leave open many possibilities or conclusions. On the other hand, if competitors expect you to come out with an offering in a certain market but you are not planning to, it may be to your advantage to encourage their belief. They will then waste resources preparing for an attack that will never come. When asked about the strengths of your company do not list them all or tell everyone how you do things. You may as well give away your products or services for free! Instead, be opaque about the workings of your firm and hide the secrets of your success. In the 1970s and early 1980s IBM was a very security-conscious company. In its research and development labs, badge-readers stopped people at the door, security personnel ensured that all desks were locked at night, and only a limited number of employees were allowed to talk to the press or even to customers. In the late 1980s, in an effort to become more open with its customers, IBM allowed much more liberty to employees and greater access to its labs. Although increased openness was beneficial, at times the liberty to talk to the press was abused. Employees from different divisions publicly attacked each others' products. Too many employees were allowed to give their view of IBM strategy. The result was confusion for customers and employees. Furthermore, IBM's competitors were able to pick up on and exploit the



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weaknesses that had been brought out into the open by employees. The openness had gone too far. After taking over IBM in 1993, Louis Gerstner observed that at times IBM had been its own worst enemy. Using a more disciplined approach to communications, Gerstner worked to put his house in order by stopping the public infighting, emphasizing teamwork, and ensuring that only approved messages go out. Although for reasons we'll discuss next, large companies such as IBM cannot intentionally mislead people about their strategy, the use of simple methods shows that a company can deliver a clear and consistent story to its customers while stopping leaks about its weak points to competitors



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Chapter 20: Choosing your alliance



When you are playing against more than one player, sometimes you will need to join forces with one of the other players to bring another player down. You may agree on playing certain cards in a specific order in which will make the targeted player pass on his move to next player.



In the early 80s, IBM owned the PC hardware and software market, they were ahead of the game in every sense. However, a new rival aroused on the top, Apple. With wild dreams and a brilliant CEO such as Steve Jobs, Apple was really threatening the throne of IBM. IBM had to make alliance with other players in the game, and those players were Microsoft and Intel.



Bill Gates was acquainted with IBM's design. IBM believed they were king of the hill and that Microsoft posed no threat—after all, what good was the Microsoft software without the IBM hardware? Bill Gates, though, recognized that the computer world was on the brink of a paradigm shift, a shift that would see software not hardware rule the roost. As a consequence he was more than happy to form an alliance with IBM. He married his strategy with that of IBM and created a synergy that has made him the richest man in the world. IBM, on the other hand, did what many a business consultant would have advised them to do—focus on what they do best and outsource the rest. Ironically, it was Apple's refusal to make alliances and license their system that resulted in Microsoft's dominance. Even now and after all these years, Apple main problem is that they live alone. In order to use one of their products, you must have a whole set of other Apple's compatible products. Another good case, although infamous, is the merge between a two Korean companies, Lucky and Goldstar, I am sure you are not familiar with the names but I am sure you are familiar with their new brand name, LG. LG is now controlling over 60% of the Korean market in many different product families from electronics



to clothes. LG has also become a world giant in the LCDs, Cell Phones, and laptops. Know what you want, be sure you know what your allies want and button that down in writing so there is no wriggle room on either side.



Mutual interest was the driving force behind several mergers and alliances between telecommunications companies and computer companies to build the infrastructure and content for the information superhighway. Mutual interest was also the driver behind mergers between companies who have strong balance sheets combining with companies with weaker balance sheets to "deleverage" the latter and create new value. On September 30, 1993, Hanson PLC combined with Quantum Chemical Corporation. Quantum, which was losing money and had only a BB debt rating, was a prime acquisition for Hanson, whose debt rating was A. By refinancing Quantum's 8 to 11% debt at Hanson's 4 to 5% rates, Hanson saved about $70 million. Although there were other parts of the deal that made it attractive, the debt reduction was an essential part of making it pay off. One must also know when to end an alliance. This is actually very simple. You must do so when the mutual interest that created the alliance no longer exists. If mutual interest fades, yet the alliance is continued, the arrangement will still eventually end, often with acrimony and bitterness. As in all business deals, one should end an alliance as gracefully as possible but end it nonetheless. When considering making and breaking alliances, business leaders would do well to follow the example of Great Britain. Britain's overarching aim for hundreds of years was to keep any power from becoming so dominant in continental Europe that they could threaten the British Isles. This led Britain to make a number of alliances, each lasting long enough to defeat the country that was attempting to become dominant. For example, in the 1820s Britain supported the Greek efforts for independence from the Ottoman Empire but in the early 1840s she allied herself with the Ottomans against Russia when Russia threatened Britain's interests. However, 1848 found Britain supportive of Russia's efforts to put down a rebellion in Hungary that threatened the status quo. Later in the 1800s, Britain stood by when Prussia 51



defeated Britain's former ally, Austria, because Austria's weakness made her useless as an ally. However, when Prussia threatened to gain primacy in Europe in the early 1900s, Britain allied herself with France and Russia to stop her. In business, even the major Japanese corporations, known for their close alliances, are recognizing that alliances that worked in the past might not be right for the future. Forged before World War II, "keiretsu" alliances were made illegal by the Allies after the war, but then reformed again. These alliances, composed of several large and small Japanese firms, are combined with a major bank and export company to form a constellation of companies aimed at increasing exports. The tight keiretsu alliances have served Japanese industry very well by providing the capital and resources to drive exports. However, the advent of increased international competition is beginning to make the benefits of these locally oriented alliances questionable. More and more Japanese firms, such as those in electronics and autos, are making alliances with American companies and forsaking their partnership with other Japanese companies to be part of the global alliances required to compete internationally.



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Chapter 21: Take the Risk



It is very important while playing Dominos to be willing to take the risk. As you recall, some of the moves depends totally on luck and chance, so after doing all the counting and math, there will always be a little risk that you should be willing to take. Ask yourself a question, do you prefer your team to win with a score 4-2 or to win with a score 2-0? In the two cases your team will win with 2 goals more than his competitor. If you prefer the "42" score, then you are a risk taker, you would rather take the risk of trying for "4" even if you fail in two shoots and got a counter attack. If you preferred that "2-0" score then you are not that much of a risk taker. Innovation is all based on risk taking. I am not telling you to just go and take wild decisions, but you should do all the required analysis, gather the required information, study your market and then take the risk and make your move. Do not make the mistake of Kokhenmister. Kokhenmister is a famous story in the Egyptian market. Kokhenmister was a new product imported from Germany and had a really great taste, one of the best cakes I have ever had. The only problem was that they were targeting children and the children's were not able to pronounce the name Kokhenmister. Kokhenmister I believe is a Dutch word which may be easy to pronounce in Germany or Austria, but was defiantly unpronounceable in the Arabic speaking countries. The sales was a disaster and the company had to re-launch the product under a much simpler name, Dream Cake. They have made the required analysis for the problem and were willing to take the risk of relaunching their product again. Another example of a good risk taking decisions that was based on good studies and analysis was IBM investments in PC. It was a time that everyone believed that Computers are not for home users. IBM vision and risk taking made them leading the way. What would you think Google would be doing now if Larry Page and Sergey Brin were not willing to take the risk of dropping there PhD to start their own company. Can you imagine your world



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without Google's products? On the other hand, Yahoo did not want to take the risk of accruing Google when Google was worth only 1 Million Dollars. Google now worth more than 300 Billion Dollars and is on its way to acquire Yahoo!



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Chapter 22: Silence is Gold



Sometimes when playing Dominos, you should keep your thoughts for yourself. As we said before, keep you cards close to your chest and keep your mouth shut while making your move. Microsoft has been speaking a lot about their intention to acquire Yahoo. They made everyone in the world aware of their intentions; Wall Street even knew the share price Microsoft was offering Yahoo. Unsurprisingly the deal failed as Yahoo asked for a higher share price. The negotiations took a long time but with no added value.



Apple and Microsoft also tend to speak about their products before they got launched. Speaking about how great and reliable the new products are raises the expectations of the customers. Imagine after such speeches and press releases about the new advanced features, what would you do if you found a bug or something not working as it should be? Wouldn't you be frustrated? Don't you think Microsoft and Apple should have made their speeches without much exaggeration?



Even on the competition side, Orange Telecom has been speaking about their new "Business Everywhere" product long before it was even completed. The result, Vodafone launched a similar product under the same name just before Orange releases its own. So always keep your thoughts and strategy for yourself, do not share it with other players.



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Chapter 23: You are not the best player



Never under any circumstances fall into the trap of believing you are the ultimate best player ever. You are not the best; you are just a little better than the players you are playing with but not better than all the players out there. The reason for being better than the players you are playing with may be just because you have played with them many times and you have become familiar with most of their moves, not because of your skills. But you have not been in contact with all the players out there.



It's not hard to imagine the reaction of GlaxoSmithKline (GSK) staff when they were first contacted about the research findings of two fourteen-year-old New Zealand students. In a science experiment, Pakuranga College students Anna Devathasan and Jenny Suo tested a variety of their favorite fruit juice drinks, including Ribena, for the presence of vitamin C. Ribena, a blackcurrant syrup-based drink with huge annual sales, has long been a favorite of children the world over, their parents no doubt comforted by the claim that ‘the blackcurrants in Ribena have four times the vitamin C of oranges’. Yet according to results of the science experiment, Ribena contained almost no vitamin C. The students contacted the company to raise their concerns and were fobbed off. Suo said, ‘When we got no response to a letter and e-mail we telephoned them but they didn't take us seriously because we were just fourteen.’ Undeterred the girls took their observations to the Advertising Standards Authority and Brand power but it was only after a TV consumer affairs programme, Fair Go, picked up the story and suggested they approach the Commerce Commission that things started to happen. The New Zealand Commerce Commission, the country's corporate watchdog, took up the cause and in March 2007, with the girls, now seventeen, watching from the public gallery, GSK were fined $217,500 for breaches of the Fair Trading Act. GSK the world's second largest food and pharmaceutical company, with worldwide turnover in excess of $61 billion, 56



admitted to fifteen representative charges that it misled consumers by implying Ribena had more nutritional value than it actually did. The Australian division of GSK also admitted responsibility and the television advertising and claims on drink bottles and packets have since been changed to drop the false claims. It's impossible to know how much the company made on the back of those claims. Certainly over the course of their advertising history, it is significantly more than the fine handed down in the New Zealand court. However, it's a timely reminder that you should never make light of your opponent—especially if they are right and they can prove it.



So, as it is very important not to underestimate your competitor, it is also important not to overestimate yourself.



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Chapter 24: Wear a mask



If you do not have a real mask, just learn how to control your emotions. Do not look so thrilled if you got good combinations of cards, do not look too frustrated if you got bad ones. Hiding your emotions will help you win the game. Keep in mind that this is not the same as lying, after all we wanna play a fair game, so you are just hiding your feelings and there is nothing unethical about it. A lie is when you're holding on the phone for half an hour, and the recorded voice still tells you how important your call is, that's a lie; it's just a corporate lie. When you tell your customers that their happiness is your priority, you're lying. These are the small untruths that come with any job. Telling really big whoppers is the job of someone with serious authority, for whom it might mean the difference between winning and losing. If you're going to lie, and it's for a good reason, then you need to do a good job of it. Here are some tips from the CIA to help you. Bad liars touch their nose or rub their neck. They ask too many questions and leave long pauses or say ‘um’ a lot. Their body language doesn't match their speech, either—for example, nodding while saying ‘not really’, or not coordinating speech and gestures. And then there are the eyes. We unconsciously move our eyes to the right when we are inventing images (up and right) and sounds (straight right). So remember, if you want to won Dominos game and you do not know how to control your feelings, then you'd better buy a mask.



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Chapter 25: You cannot win every game



There is nothing wrong about losing one or two games. When you lose a game, you win a new knowledge. You get to know new lessons and tactics from your opponent which will help you win the next games. Motorola had an almost 80% market share of the cell phone. They were in their comfort zone of Analog technology, wining all the battles and there was almost no competition. All of sudden something came up; a new technology called the digital technology. Motorola started to lose its market share bit by bit to a new Finland company called Nokia. In December 1988, things were looking so bleak for the Nokia Corporation that its chairman committed suicide. Founded in 1865 as a forestry business located near the river Nokia in Finland, the storied company had evolved into a sprawling conglomerate, one of Finland’s largest companies. It commanded businesses in industries ranging from rubber footwear and tires to cable operations and consumer electronics to paper goods. But for the decade, profits had been declining, pulled down by the company’s consumer electronics division. In the 1980s, going into consumer electronics had seemed like a good idea. The company had been fairly successful in data processing and industrial automation. It could probably leverage these technical skills into competing with TVs and radios. Between 1980 and 1988, Nokia’s consumer electronics business took off, growing from 10 percent of Nokia’s sales to 60 percent over the period. From the outside—seeing only its infrastructure and employees— Nokia appeared a diversified company. But with more than half of its revenue derived from one business area—consumer electronics—Nokia’s survival depended heavily on the price of TVs. The problem was that as the 1980s came to a close, TV prices were dropping, pulled down by a new crop of competitors. Lowcost Asian producers were undercutting established Western producers, bringing down prices and margins, as they pushed 59



what was once a high-margin business into the realm of commodity. Between 1989 and 1990 Nokia’s profits began dropping, and by 1991 the company posted a $102 million loss. It was this dramatic turn, when a 125-year-old company was brought to its knees in just three years that led Nokia to the depths of discontent from which great innovations spring. After the chairman took his life in 1988, Nokia put in place a new CEO to launch a restructuring. He divided the company into six business groups and divested several old divisions, exiting the flooring, paper, rubber, and ventilation systems businesses. But Nokia needed a more dramatic change of direction. Jorma Ollila spent eight years working for Citigroup in various European offices. He was eventually posted to help launch a Citigroup office in his home country, Finland. While there, he decided to leave Citigroup and join Nokia, at the time still a diversified conglomerate. In 1985 he took a role in Nokia’s finance department. A few years later he was tapped to run Nokia’s mobile phone division. In 1992, at the age of forty-one, Ollila was asked to take over as CEO of Nokia. Ollila had been with the company for six years and knew its businesses fairly well. He was trained as an economist and so looked at Nokia’s environment as an economist might. His assessment revealed three weak signals that pointed to a significant opportunity: 1. Governments across Europe, and the world, were deregulating the telecom sector. Businesses that had previously been served by protected, national telecom monopolies were now open to independent competition. 2. Analog communications technology was slowly giving way to digital technology. This transformation would allow phone operators to offer a host of new services and thereby expand telecom markets around the world. 3. Unlike the United States, Europe had agreed on and adopted one common phone network standard a year before Ollila took over. This would enable European telecom companies to compete across borders with technological ease. Ollila sensed that these three weak signals would lead the telecom industry into a very different competitive arena. Whereas in the 60



past telecommunications services were defined by country and provided by protected government operations, competition in the future would be waged by more innovative, dynamic, private companies without regard to borders. Ollila decided he would move into this world quickly, before the competition. Great innovations almost always reach back to an event that at the time seemed without clear purpose. For entrepreneurial innovations, this event usually seems to be one in which the innovator experienced something meaningful and made a profound commitment. Corporate innovations also reach back, but the commitments they draw on seem less personal. Perhaps this is because the CEO of a large company can wield a longer lever by seeking beyond him- or herself and finding some commitment the entire company holds. In the case of Nokia, this commitment occurred in the 1960s when the company decided to expand into communications systems. At the time, this seemed a tangential offshoot only loosely related to its industrial automation and consumer electronics businesses. But this offshoot proved pivotal to Nokia’s turnaround. The commitment to communications systems led Nokia into telecommunications. By the time Ollila took over as CEO, Nokia had nearly thirty years of telecommunications experience. As Ollila puts it, “Nokia had a background in telecommunications since the early 1960s—so we were not totally new in this business area.” With the three critical elements of discontent in place—weak signals revealing rigidity meeting a commitment—Ollila had the platform from which to launch a change. Ollila devised a vision for a “new Nokia.” The company would cease to be a conglomerate and instead would become a company that was, as he says, “clearly telecoms-oriented.” He prepared a memo for Nokia’s board, outlining his new vision and his plans for achieving it. He wrote that he planned to divest Nokia of nearly all its non-telecom businesses and put in place the pieces needed to realize the new Nokia: Nokia as a telecom company. It is unclear how much resistance or disbelief Ollila faced. Perhaps the board members had reached sufficient discontent that they were open to such a radical turn of direction. Perhaps they resisted at the time but now, enjoying the unambiguous success of the 61



decision cannot clearly recall their initial doubts. Whatever the reaction, Ollila prevailed and won support for his new vision As with most corporate transformations, the Nokia turnaround occurred in two distinct cycles. The goal of the first was to carve away what did not fit Ollila’s new vision for Nokia; of the second, to put in place or grow what was missing. Ollila spent his first two years removing what no longer fit. He immediately replaced Nokia’s top team with a crop of young managers. Nokia Data had been sold off the year before and Ollila wanted to do the same with the company’s consumer electronics business. But he could find no buyers, so he cut its work force by 45 percent, shut down factories, and consolidated operations to reduce overhead costs. In 1994 Nokia sold its power unit, and the following year sold its television and tire businesses. Ollila merged the businesses that remained into three divisions: telecommunications (which produced infrastructure for fixed and mobile telephone systems), mobile phones (which made handsets), and electronics and cable (which would concentrate on products closely related to telecom). Around 1995, Ollila had substantially carved away what he needed to. Nokia was slim and focused exclusively on one industry: telecom. As he described in a 1995 interview, “When you look at the task we set out three years ago of creating a company clearly telecoms-oriented, we are pretty close to what we have to do—and we have been able to implement the changes faster than we expected.” During this carving period, Nokia made no acquisitions and entered no joint ventures of note. It had made one important strategic investment before Ollila took over: in 1991 it bought a U.K. company, technophone Ltd. That proved a critical piece in Nokia’s ability to excel in mobile phone r & D. But around 1997, as the company’s growth began to pick up steam, Nokia entered into numerous deals with which it expanded its telecom capabilities. It formed a global partnership with IBM, for example, to accelerate the growth of the wireless Internet. The two companies worked together to develop technology that would enable customers to extend e-business from the desktop onto mobile phones. Nokia partnered with realNet-works to develop technology for delivering Internet audio and video content to mobile devices. It even



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partnered with Whirlpool to develop network solutions for the home. Nokia was winning over all three stakeholders most critical during the Wood phase: people, partners, and customers. Its people were excited because Nokia had stopped losing money and was now growing. Nokia became one of the most desirable companies to work for in Finland. Partners were embracing Nokia as a firm that could help them move into the mobile Internet. And customers were buying Nokia’s phones in increasing numbers. It was not until 1998, however, that customers would pass their tipping point and pull Nokia into the leagues of its larger competitors, Motorola and Ericsson. In 1998, Nokia launched the 6100-handset phone. It was a major breakthrough. It was small (about the size of a pack of cigarettes), lightweight, and had an impressive battery life. Nokia first introduced the phone in China but it quickly took over the world. The 6100 contributed to a banner year for Nokia. In 1998 the company sold nearly 41 million phones overall and produced a 50 percent jump in revenue, to $15 billion from $10 billion. Its operating profits increased 75 percent and its stock shot up more than 220 percent, delivering a 250 percent total return to its shareholders that year. Nokia had caught fire. The next year, 1999, sales jumped another $6 billion to $21 billion while the company delivered shareholders a 490 percent total return. Nokia was still smaller than Motorola ($30 billion in revenue) and Ericsson ($26 billion), but it was catching up quickly. Innovations that are sustainable are rarely driven by product alone. Products can trigger the Fire phase and raise public awareness that a company is doing something interesting, but products are too easy to copy. Nokia persisted through the Fire phase by following what John Boyd advised his pilots: cycling faster and producing more creative responses than did the competition. For example, in 1998 Nokia decided it needed to protect its business from Microsoft, which was making inroads into the software that runs mobile phones. It did not have the scale or expertise to compete with Microsoft in the game Microsoft knows best (software), so Nokia devised a creative strategy to simulate Microsoft’s size. It convinced its rivals Ericsson and Motorola to join a new alliance they would call Symbian. Together these rivals developed and continue developing their own mobile software. Toward the end of 2000 the telecom industry experienced a sudden, painful crash. At the time, Ollila and his wife were 63



refurbishing a 200-year-old mansion outside of Helsinki. Ollila and Nokia had already proven themselves. They could have reacted as most of their peers did by focusing the company on its core business of handsets, retrenching from the riskier bets such as software and mobile Internet technology. But Ollila did exactly the opposite. He pushed Nokia ahead against Microsoft with still heavier investments in software. In 2003 Nokia increased its stake in Symbian to 32 percent from 19 percent. This bet paid off for Nokia quickly as the market for mobile software exploded. In 2001, Nokia’s market share eclipsed that of Ericsson. Ironically, back when Nokia was in deep financial trouble it narrowly missed being taken over by this Swedish rival. In 2002, Nokia toppled Motorola from its position as the largest mobile phone manufacturer in the world. Between 1998, when Nokia entered its Fire phase, and 2004, Nokia more than doubled its revenues to $36 billion from $15 billion. The question for most investors now is whether Nokia will sustain its dominance and how it will do so. Mobile phones are transforming into multimedia devices luring in new breeds of competitors. Apple, for example, is currently pushing its sophisticated handheld device, the iPhone. Traditional mobile devices are commoditizing, with inexpensive Asian manufacturers selling phones at ever-lower prices. The situation bears some uncomfortable resemblance to Nokia’s consumer electronics business in the 1980s, when the company fell deep into loss. But Nokia is showing signs of resilience. By 1995, arguably the point at which Nokia exited the Fire phase, the company had a worldwide market share of 35 percent. As of 2007 it has sustained this share even in the face of strong competition. Of the consolidation options—lock in clients, lock out competition, or lock up resources—Nokia appears to be seeking to lock out competition. As one of the three biggest players in its market it can afford to invest more than most contenders. The more it invests, the more difficult it becomes to follow. This is what Sun Tzu would call climbing precipitous heights. Ollila describes Nokia’s key to success as “the constant and vigorous investment in research and development—around 10 percent of group sales—as well as design and changing the product portfolio by simplifying the technology and allowing economies of scale in production.” If we draw the boundaries of analysis traditionally, around Nokia’s direct 64



competitors, this strategy has been proven to work. Only one other company, Motorola, is targeting the same high-end market Nokia serves, so Nokia may not need to concern itself with Sony, Samsung, and LG Electronics, which are focused on the lower end. With fifteen manufacturing facilities in nine countries and r & D facilities in twelve countries, Nokia has scale few could rival. But significant innovations disrupt giants because they come from unexpected places. With the mobile phone morphing into the territory of computer firms and music-device companies, and attracting the attention of countless other industries, it is difficult to discern from where Nokia’s next threat will strike, and therefore against whose measure we should judge how far Nokia has climbed precipitous heights But things will not be that easy for Motorola. New competitors like Sony Ericsson, Alcatel, HTC and I-phone are out there. In this new market circumstances you should adopt yourself not to cry over the poured milk, but to know how to learn from your mistakes.



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Chapter 26: There are always new tactics



Do not think that you have known all the game tactics and strategies. There are always new things coming out everyday. You can start by developing your tactics; revisit your default order of playing your cards. You may even need to mix between old tactics and new tactics periodically. This will again serve your purpose of being unpredicted. Innovation always takes us by surprise. When the first Motorola brick-sized cell phones were introduced in 1983, the most ambitious projections were for 50 million phones in use in the year 2008. However, in 2008, more than 3.3 billion cell phones are in use around the globe. How could we consistently be so wrong about the future? Every time we encounter massive change, such as that brought on by cell phones, it's nearly impossible to fully understand the true nature of the change or the way in which it will alter our behavior. That's the reason humanity has such a miserable track record of predicting the true impact of innovation and change on the future. Thomas Watson, founder of IBM, is reported to have said that the worldwide market for computers would never exceed five. True or not, this statement always sticks in my mind as a great example for how even the most visionary among us are stymied by the unpredictability of the future! Whether it's the printing press, the automobile, the computer, or the cell phone, the human ability to find applications for new ideas and react to and adapt to change is a constant source of amazement. It is ultimately the most encouraging and optimistic aspect of human nature. Part of the reason it is so difficult to project the path of innovation is that big change rarely comes in singular form. The impact of innovation is not predictable like the trajectory of a cannonball—it's more like the shape of a dust storm. Massive change is accompanied by a context of uncertainty, with so many forces interacting in chaotic ways that they defy any reasonable person's ability to project how the chaos will evolve.



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Today the changes we are experiencing in the world are many. Global markets are responding in near unison to economic and political threats and opportunities. Financial markets worldwide have been rocked by mistrust and doubt. The growing ranks of consumers are stressing industry and ecology. The empowerment of massive new pools of well-educated knowledge workers is creating unprecedented mobility of work. The number of college graduates worldwide has increased to more than 30 percent of the population in developed countries.1Going forward it is expected that over the next twenty years demand for higher education will increase 300 percent globally. On the other hand, the looming and amorphous threat of terrorism creates a constant undercurrent that we have barely begun to factor into our psychology. It's an overwhelming cocktail of change. We've built organizations, economies, and societies that seem to have exceeded our ability to keep pace with our ability to innovate. Part of the problem is that we are at the tail end of an era focused almost entirely on the innovation of products and services, and we are just at the beginning of a new era that focuses on the innovation of business models. This goes beyond just asking how we can make what we make better and cheaper or asking how we can do what we do faster. It is about asking why we do something to begin with. When Apple created iTunes it didn't just create a faster, cheaper, better digital format for music; it altered the very nature of the relationship between music and people. eBay did not just create a market for auctions; it changed the way in which we look at the very experience of shopping and how community plays a role in the experience. When GM created OnStar it didn't just make getting from point A to point B faster; it changed the relationship between auto manufacturer and buyer and fundamentally altered the reasons for buying a car. Dell did not create personal computers, but it radically changed the way people build and buy them. Google did not invent Internet search, but it changed the way advertisers find and pay for buyers. These are all examples of business model innovation: obvious in themselves, but obviousness is the foundation of every great innovation. However, until recently business model innovation occurred infrequently. The change in today's world and in the future will be that the innovation of our businesses will need to be as continuous a process as the innovation of products has been over the past hundred years. 67



Of course, it will continue to be important to innovate products and services, but it's not enough to simply acknowledge product innovation. We need to rethink innovation to include the way we define and redefine our businesses. We need to think of products and services as the outcome of a process of continuous business innovation. It's here that the greatest payback and value of innovation will be found, but they have yet to be fully understood and exploited. We are stuck in an old model of innovation. So to help set aside old ways of thinking about innovation, let me begin by first defining what innovation is not. First, innovation is not invention. It's not about creating the next new gadget, wonder drug, or weapon. Innovation is not about accelerating the rate at which we create stuff; it's about accelerating the rate at which we create value. Innovation cannot exist in the absence of value that is recognized and rewarded. Invention can. Patent and trademark files are filled with inventions that never created any value.



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Chapter 27: Be aware of the new players



As we said before, you may think that you are the best because you are used to the existing competitors. But what about new players? Every new player will bring new challenge and new strategies, so make sure to take your time to understand the new player's way of playing. Sony took the world by surprise when introduced the famous Walkman. For more than 25 years, Sony was dominating the market. No one has ever thought that the people would appreciate having portable music. Take a good look at all the movies in the 80s and you will know what I mean, you can hardly find someone with no Walkman. Inventing the Walkman did not just provided the people with a new way to carry their music around, but it gave them new way to extract themselves from the crowding noise while talking a nice walk in the park, a new way to record their lessons and replay them, a new way to enjoy your music in public without disturbing others. Major players of the game at that time were taking by surprised and it took them a long time before even starting competing. However Sony made the same mistake. They thought that they have got it all. Then the world gave us the MP3 players, a small device where you can have more than 3000 songs on its micro memory card. There is no need to have recorded tapes with maximum 20 songs. Again it took Sony a long time to start producing its own MP3 player. And then again, Apple invented their I-Pod and took the world by surprise. It is a never-ending cycle of new products arousing every day.



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Chapter 28: Get rid of the heavy cards



When it is apparent that you are not wining, start getting rid of heavy cards. Heavy cards are the ones with big number. Combinations of (66, 65, 55, 45, 44, and 46) are considered as heavy cards. If you were dragged to a sudden death game, you will still have a good chance of winning. When you have two products, one of them is doing well and the other is not producing the same profit, what would you do? Some may suggest to start allocating more resources to that specific product, make more promotions and so on. I would say no. get rid of that looser and allocate its resources to the winning one. There is no point of making promotions for something the customers have already rejected. It is simple; would you rather invest in a successful product or in an unsuccessful one? Xerox made that mistake. Xerox were known for their copying machines, there brand is even being used a verb for copying. But that was not enough for them. They established their legendary labs in Palo Alto to make new products to compete with IBM. For more than 4 years they kept investing in their labs but were still not able to beat IBM. They did not want to get rid of their burden for more than 10 years. Not only they lost their investment, but they have also lost the opportunity of investing in creating smaller more convenient printers and copying machines that were suitable for residential customers. That opportunity was taken by Cannon and Xerox by the year 2000 was about to declare bankruptcy. The new management team started with getting rid of all burden projects and focused on their specialty, Copying.



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Chapter 29: Make no mistakes



When playing Dominos, you cannot afford to make mistakes. The playing is fast, other players are waiting for your mistake to finish you. There is no second chance in the round but you may try again in the next round as long as the game is not over yet. Xerox is often cited as making a huge mistake by not recognizing the potential of the ‘information processor’ they developed that was later adopted by Apple. Steve Jobs of Apple famously said that Xerox ‘grabbed defeat from the greatest victory in the computer industry’. That may be true and certainly they did set up a research facility specifically to develop technology that would expand their brand. The same can be said for IBM. When they decided to enter the PC market, there were other players there. Already in catch-up mode they decided to source the microprocessor and the operating system externally. Intel and Microsoft stepped up and the rest is history. That said, IBM was a very successful hardware giant and their strategy at the time was making them a lot of money – so why change? As was the case with Xerox, IBM’s requirements were not among their core competencies; they had neither the time nor the experience to develop them internally. So perhaps it’s unfair to cite either of these as mistakes. If it’s mistakes you’re after, then what about the Smith and Wesson mountain bike? The famous US gun manufacturers decided it was time to capitalize on their name. However, someone obviously forgot to tell them the cardinal rule of brand extension – the extension must be related to the core brand. In the wrong hands they can both kill and they are both made of metal but that’s where the similarities end. Bic’s brand extension into disposable underwear was another howler. How a company famous for disposable pens, lighters and razors could think the next big thing was disposable tights is unfathomable. That too was a mistake.



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Chapter 30: Stay Humble



Staying humble is the secret in wining your games. Always respect your opponent. If you have won each single game in your life, that is not a reason to stop being humble. If it’s humble and successful you’re after, look no further than Warren Buffett, the Oracle of Omaha. Buffett is a man of simple tastes despite being the second richest man on earth. There are no Ferraris in the garage; he prefers his new Cadillac. His old car – together with the number plate ‘THRIFTY’ – was auctioned on eBay for charity in 2006. There is no crowing or bluster; the results speak for themselves. If you bought one share in Berkshire Hathaway in 1964, it would have cost you $19.46; on 25 August 2007, that same share was worth $119,850! He invests only in what he understands and believes in putting all his eggs in one basket. At the other end of the spectrum is a business Buffett didn’t touch with a barge pole … Enron CEO Jeffrey Skilling hung up on the only journalist brave enough to question Enron after telling her she was unethical. Bethany McLean still wrote the article – entitled ‘Is Enron Overpriced?’ – for Fortune magazine. Chairman Kenneth Lay tried unsuccessfully to get her fired and CFO Andrew Fastow flew to New York to pressure her to back down, insisting Enron was in great shape. Forceful words ahead of a spectacular retreat. Fastow, the man at the center of the creative accounting that contributed to the company’s downfall, earned CFO Magazine’s CFO Excellence award a mere two years before the collapse. Chief Executive Magazine also lauded Enron around the same time, a time when Enron was already up to its neck in fraudulent activity. Eleven out of sixteen Wall Street analysts covering Enron were still recommending the stock as ‘buy’, or ‘strong buy’ to investors weeks, even days, before its collapse. Enron went from allegedly enjoying revenue of $100 billion in 2000 to declaring bankruptcy on



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2 December a year later. Clearly McLean was correct to question Enron and it was not her that had behaved unethically. Despite having friends in very high places, Enron was finished. President Bush distanced himself immediately. Two years later, Bush would be taught his own lessons on humility. In response to the insurgents attacking US forces in Iraq, he said: ‘My answer is bring ’em on’ – a statement he came to regret and publicly apologized for in 2006. Beginning with bluster does indeed show a ‘supreme lack of intelligence’.



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Chapter 31: Go for it



To be a good Dominos player, you must develop an eye or details. An eye capable of recognizing opportunities for wining. As we said on Chapter 28, make no mistakes, you should too wait for your competitor one mistake, this is your opportunity for winning the game. The history is full of great entrepreneurs who saw success opportunities where no one else did. In the 1990s, Tommy Hilfiger’s move from small niche brand aimed at the ‘preppy’ upper-income US consumer to a global urban fashion icon was more accident than design. For reasons unknown, the Hilfiger logo was embraced by the hip-hop community and it started to appear on rap music videos. Whatever may be said about Hilfiger the designer, no one can dispute his marketing prowess. He seized on the opportunity and started to deliberately design for that market, emphasizing the logo and making the baggy even baggier. He recognized the power that urban black fashion had on mainstream America and sought out upcoming rap stars that exuded the street cool that would then be imitated by hoards of suburban kids. In March 1994, Snoop Dogg appeared on Saturday Night Live wearing a red, white and blue Hilfiger shirt and Tommy was officially cool. It would have been easy to stick to the existing strategy or dismiss the interest in his brand by the hip-hop community as nothing more than a fad – after all, this market was not huge. But Hilfiger did neither; instead he recognized the growing influence of rap music and how that would translate into consumer behavior. Mr. Wrigley – of the chewing gum fame – was also very good at following where advantage led. A born salesman, William Wrigley dreamed of starting his own business. He moved to Chicago aged twenty-nine with $32 to his name and started his entrepreneurial career selling soap. He was one of the first to understand the power of incentive. To make his product more appealing than his competitors he offered free baking powder with every purchase. The baking powder proved more successful than the soap and he



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moved his business into baking powder. Again he promoted his product with an incentive, this time two packs of chewing gum. And again the incentive proved more popular than the original product – and the rest is history. Both Hilfiger and Wrigley were willing to deviate from the plan when a fortuitous opportunity presented itself and exploit it to the max. Their adaptability made them both very rich men.



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Chapter 32: Kill the SCCs



As we have pointed out previously, if you have SCCs within your hands, they are similar to excess inventory of an obsolete product. You should play smart in order to get the most out of them. On the other hand, you need prevent your competitor from doing the same. You should always block his way and not allow him to use his SCC. For example, if he has a "55" combination card, try not to have one of the ends with a "5" during his turn to play.



Now, if you have a combination with 5 for example "5, 2" you should play it and thus block your competitor way of getting rid of extra load.



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And this is exactly what the cell phone manufacturing companies have been doing in the last decade. Take Nokia and Sony Ericsson, Nokia's N90 series was developed to block the way for the Sony Ericsson Z series. Apple's I-Phone against Black Berry and HTC. Using a new technology allows you to deliver better products was lower prices and thus making it very hard for your competitor to sell his less advanced products. It is always about identifying the gaps in your competitor's product and introduces another product without these gaps and stress on it. For example if I found out that the other competing company is producing cell phones with windows mobile applications and web browsing and so on however all these applications are causing the device to run slow or its battery needs charging more often, I then should concentrate on producing a similar cell phone with a faster processor and a heavy duty battery. This way your competitor will start loosing the market for you.



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Chapter 33: Control the fluctuations



Sometimes while playing Dominos, you notice that most of the cards on the board are the lower value cards like "0, 0", "0, 1", and "1, 2". This kind of setup means that the big numbers are still out there and the winner will win big time and the other players will lose a really bug amount of points. In these cases, you should try to stimulate the game and create requests for big numbers to be played. You may think "but I am having a chance of winning all the big numbers", but again you are also in the risk of loosing big amount of points. Try to balance the game, so you can win as many points as you can and in the same time reduces the risk of loosing your points. This is one of the methods used in marketing. When you are running a good business and your products are the top when it comes to quality, customer services. You are now about to produce an even enhanced LCD TV with all the features one may ask for. However, your LCD's price is much higher than other brands in the market, so what should you do? As in Dominos, we have suggested that you need to create a need for big numbers to be played. How can you do that in our case of introducing a high priced product in a market with low priced products? We will simply use the 4Ps of marketing theory. Product: customer wants and needs If you want to sell your products and services, each must fill a customer's want or need. Do customer usage patterns indicate a need for change? Do customers approve the product's appearance and technical features? Is a product category showing growth nationally? What are the trends in product innovation, marketing campaigns, and pricing? Price: customer value assessment Too often, price changes are reactive. A company may increase or lower their prices based on competitor activity. But, a targeted method of pricing where customer value is assessed is a much better approach. Before you set or change prices, ask your team the following questions: Does the pricing structure 78



strengthen or weaken your company? Do you offer a range of prices within a product category? How do your prices compare with the rest of the marketplace? What is the level of price elasticity? How do returns, credits, promotions, and shipping policies impact revenue? Does the relationship of your price to your competitors change seasonally? Place: customer convenience If you think how the product is distributed is the company's decision, think again. Convenience to the customer is a key factor in successful distribution. Superstores, toll-free catalog shopping, 24-hour cable shopping channels, and the Web are all designed to give customers maximum convenience. Promotion: communicating to the customer Promotion is communication with the customer. To see results, you must consider your customer's media habits then promote your product or service as a solution to their problem. Promotions should also help to build long-term relationships.



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Chapter 34: Support other players



When you are playing against more than one player, sometimes you may have to let one of the other players win the round. This happens when you find that you have no chances in winning your game and in the same time you do not want a certain player to win. This may be due to the fact that the other player have the highest score and is about to win the whole game. So in order to delay him a little bet you should help other players to win if you can not win yourself. We have seen this happening a lot in multinational companies' battles. France Telecom, British Telecom, and Vodafone have been playing this game for a long time now. Whenever one of the companies starts operating in a new country, the other two companies start to support the local operators against it. The support may be in the form of knowledge transfer, technology support, new systems, and new equipment. On return, the supporting company starts to buy shares in the supported company. And thus, after a while they totally acquire the local company and starts competing with the other multinational company face to face. Our working environments with their tiresome round of conference calls, meetings about meetings, brainstorms and blue-sky thinking are designed to create disagreement where none needs to exist, purely based on the need for two or more parties to compete for status. The modern office is a machine that could almost have sprung into existence specifically to develop petty cliques and fiefdoms. Climbing the greasy pole used to be a noble profession around the time that you did it. Today, as the prostitute said when she saw two people kissing, it's another great profession that has been ruined by amateurs. This is to your advantage. Knowing that two parties don't agree, it's better for you to do everything possible to put them together as long as you are certain that they won't resolve their differences. Resist the temptation to help at this stage, because



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your intervention might be extremely useful for both of them, but not for you. At the last possible hour your intervention on one side of the argument will be wonderfully helpful for everyone. If you can help the probable loser to become the winner, you will make a brand new ally, solve the problem and stay the good guy. The tech business, with its shifting patchwork of alliances, is a great place to look for instances of this. For example, when Microsoft launched its bid for Yahoo!, the Wall Street Journal reported that one of the calls Yahoo! CEO Jerry Yang took in his bid to stay independent was from his other big competitor. It was an unlikely offer of help from Google CEO Eric Schmidt: his enemy's enemy



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Chapter 35: Primary players and Secondary players



In Dominos game, there are always big players and small players. Apparently, you will need to focus more on the primary players but that does not mean not to pay attention to secondary players. You should balance your focus between the two according to the value of each. For example 70% focus on the primary player and 30% on the secondary player. Motorola was focusing her attention and strategy on big players of Cell Phone manufacturing like Ericsson. They did not pay much attention to a rising small company like Nokia in Finland. The result? The result was that Nokia have acquired most of Motorola's market share of mobile phones. Recently, LG is doing the same in the US market of cell phones; they are acquiring both Motorola and Nokia's market share. Xerox made the same mistake too. Focusing on competing with major hardware manufacturers like IBM made her lose focus on Cannon. The Asian then small company has started to rise and gain more market share with its new small size low price machines. Xerox has paid for focusing only on the primary players.



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Chapter 36: What if I passed on



While playing Dominos, you may not – in some rounds - have the suitable cards to play so you pass on to the next player. It is a very dangerous and critical situation. You have lost one chance and now the other players are one step ahead of you. If you were a first mover, then you have lost all the first mover's advantages. But do not panic. All you need to do now is to focus your strategy on making the other players pass on at least once so you can bring the game back to balance. You may refer back to chapter 15 "Finish Him" to learn more about these techniques. Again, it is all about turning your misfortune into gain. Here are some stories of turning misfortune into a gain. When Erin Brockovich was involved in a car accident she was already down on her luck – after two failed marriages, she had three kids and precious little money in the bank. She hired Los Angeles attorney Ed Masry to seek compensation from the negligent driver but lost the case. In desperation, she begged Masry to give her a job. He did and her initial misfortune turned into such staggering gain that Hollywood made a film about her story, starring Julia Roberts. What makes her story so special is that the gain was not just hers. She got interested in a case involving residents of a small Californian desert town called Hinkley. Mysterious illnesses had affected the residents, who all lived near Pacific Gas & Electric (PG&E). Although she had no experience, she followed the case like a dog after a bone. Masry realized she was on to something and sued. In 1996, PG&E settled for $333 million. Not only was it the highest pollution lawsuit ever settled in US history but it also meant that hundreds of families seriously affected by corporate negligence got the help they deserved. Who could have predicted that a computer crash would create the management guru industry and propel a McKinsey employee to the top of it? John Larson of McKinsey’s San Francisco office was due to give a presentation to a client but the computer meltdown meant he couldn’t access it. He needed to find something else or someone else to satisfy the client. Tom Peters, one of Larson’s colleagues, had spent time the previous year traveling around the 83



world researching international best practice. Perfect! He instructed Peters to pull it together and give it a sexy title. The result was the forerunner to In Search of Excellence and Tom Peters was recast as a management guru. Now he fills auditoriums the world over and is the author of many books. Truth is, his research had been gathering dust. He’d presented his findings to the powers that be in McKinsey’s in the summer of 1977 but his research remained vague and inconclusive and Peters returned to his normal assignments. If Larson’s computer hadn’t crashed, who knows if the research would ever have been revisited and crafted into one of the world’s most respected management books.



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Chapter 37: Divide your competitors alliances



As we have pointed out previously, your competitors may form an alliance just to bring you down. You now need to work on dividing them and break the alliance. It is easier to take them one by one than attacking them all at once. Remember the case of Microsoft's trial to acquire Yahoo. If this deal was completed, it would have a formed a big Software and Internet giant. That would have jeopardized Google. Google immediately stepped in the negotiations and convinced Yahoo to turn Microsoft's offer down and that Yahoo deserves a better deal. Google's intervention in the negotiations has stopped the formation of a giant.



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Chapter 38: Study the game circumstances



You should always pay attention to the pattern of playing going on the surface of the board. Try to make a good estimation of what other players are up to. If you are not to follow this rule you may end up making a move that is good from your point of view but according to the game conditions, it can be your last move. In a business context, these issues refer to the importance of knowing the market you operate in and understanding the cultural and environmental nuances that apply. Getting it wrong can be costly both to reputation and bottom-line results. Open any kitchen cabinet in millions of Western homes and you’re likely to find a Kellogg’s product. After a boom run in the 1980s, growth slowed. In an effort to combat this, Kellogg’s looked outside their traditional markets. They plumped for India – excited by a population approaching a billion, a quarter of whom were considered potential customers. It was a brave new world for Kellogg’s – except for one tiny detail: people in India generally started their day with a bowl of hot vegetables. Not only would Kellogg’s need to educate people about their products but they also needed to change cultural habits so that their products were relevant. Kellogg’s didn’t understand the terrain. They were blinded by the population figures and the potential upside. In their enthusiasm to get Cornflakes into the Asian market they conveniently ignored the fact that the target customers didn’t eat breakfast cereal and even if they did only 10% would be able to afford it.



Similarly, when Gerber took their baby food to Africa they didn’t do some basic research. No doubt to save money, they used the same packaging as for Western markets, which showed a happy smiling baby. But Gerber didn’t understand the terrain … In Africa, due to the illiteracy problem, it was common practice for manufacturers to illustrate the contents by printing a picture on the



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label rather than just relying on the words alone. No wonder sales were low! In 1988 General Electric Company (GEC) and Plessey joined forces to create a new telecommunication giant. A brand was sought that evoked technology and innovation. Ironically the chosen name demonstrated neither. The new company was called GEC-Plessey Telecommunications or GPT for short. This seemingly innocuous name was, however, greeted with great hilarity in France: said quickly, the acronym sounded like ‘J’ai pété’ – or, for those non-French readers, ‘I’ve farted’! Along the same lines, a Scandinavian vacuum cleaner manufacturer made a marketing faux pas when they launched their product in the United States with the strap line ‘Nothing sucks like an Electrolux’. Ouch! It’s important to understand your market and take a walk in your customers’ shoes. If you don’t the results can be costly and embarrassing.



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Chapter 39: Do not repeat yourself



Do not repeat the tactics which have gained you one victory, but let your methods be regulated by the infinite variety of circumstances’. Victory has no formula and each new battle must be assessed from the unique circumstances it brings. The same can be said for business. While there may be aspects of success that hold true from one business to another, or one product to another, it is a mistake to assume that a success in one market can naturally translate into another. Quaker, made precisely this error by assuming Snapple could be Gatorade! Assuming all things will remain equal when you alter one element of the business success formula is bound to backfire eventually. Each situation is unique and must be assessed as such. And a little common sense won’t hurt either. To avoid being shaped by your rivals, you must avoid two things: using the same tactic twice in succession and telling people how you accomplished your success. Using the same methods twice in a row is a cardinal sin in smallunit tactics. For example, when a patrol is sent out into enemy territory to scout, it should never come back to friendly lines using the same path—it should return a different way. It should also avoid patrolling an area using the same route at the same time every day. If it does, the enemy will discern the pattern from observing its movements and execute an ambush with deadly results. You must learn from this. Do not do the same thing over and over. Do not get into patterns or routines with your strategy or your tactics. Otherwise, you will be an easy target for a corporate ambush. Although he was in many ways great, Henry Ford, the founder of the Ford Motor Company, relied too long on old formulas for success. The Model T, the car that built Ford, was first produced in mass quantities when Henry Ford introduced the assembly-line concept in his factories in 1914. Although only 6,000 Model T Fords were sold in 1909, in 1914 Ford sold about 200,000. They 88



sold for up to $1,000 in 1909; because of mass production, a Model T could be had for $260 by 1924. To enable the miracle of the assembly process as well as produce more cars faster, it was necessary to use black paint. Black paint dried much more quickly than any other color; therefore, every car manufacturer used it. This fact led to Henry Ford's famous statement, "You can have any color car you want, as long as it's black." The invention of quick-drying paint by DuPont Company and its instant adoption by General Motors in the early 1920s changed the playing field. Using its wide variety of car models, introducing new models each year, and capitalizing on new colors, GM's new approach put Ford's venerable single-product strategy in the back seat. Even though Ford Motor Company had produced more cars than the rest of the world's manufacturers in 1914, by 1927 General Motors had taken away Ford's lead in market share. Ford never regained Gerber are a very successful baby food manufacturer, known for their pureed fruit and vegetables in small jars with cute little babies on the front. In 1974, however, they attempted to diversify into the adult food market. The theory was sound : look at what you already produce and assess whether you could tap into a new market for that product or service. But it’s hard to see how anyone in their right mind would have thought the idea of people coming home after a hard day at the office for a jar of ‘Creamed Beef ’ followed by ‘Blueberry Delight’ was a winner. The marketing disaster was amplified by the fact that Gerber used the same jars for the adult product as they did for the baby range. By maintaining the same tactics, as Susan Casey pointed out in the October 2000 issue of Business 2.0, ‘they might as well have called it “I Live Alone and Eat My Meals From a Jar”’. A more recent example of a product blooper is Heinz’s Funky Fries. Again the logic might have been valid in principle but the execution was plain wrong. If kids already loved the plain fries they were bound to love cinnamon, chocolate, sour cream or bluecolored fries – right? Actually, no. Funky Fries were pulled from US shelves after a year of poor sales. The challenge for many companies is developing new lines without having those new products cannibalize their existing product



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range. It makes sense to always keep an eye on the future and tries to diversify your offering but you shouldn’t assume that what has worked in the past will automatically apply to different segments of the market. You need to assess each situation afresh – and from the consumers’ perspective. Not your own.



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Chapter 40: Do not kill your own numbers Do not attempt to set traps for your competitors on the account of yourself. Do not drive the game into requiring a certain number if you are lacking it yourself. Once again we have a similar case from the real world. Before April 1993, Philip Morris Companies was the owner of what was arguably the world's most profitable brand, Marlboro. In 1992, over 124 billion Marlboros had been sold just in the United States and Marlboro revenues were bigger than the total revenues of large, well-known brand companies such as Campbell's Soup. Profits from the brand totaled in the billions—big enough so that had Marlboro been its own company it would have ranked in the top tier of the Fortune 100. However, Marlboro was slowly losing market share to discount cigarette brands. So, in an effort to hit competitors hard and regain market share, the CEO of Philip Morris agreed to cut the price of Marlboros by 40 cents per pack, or 20%. This strategy was based on a single market test in Oregon, in which Marlboro was able to get back four points of share from the discount brands. However, the test was not carried out long enough to track the responses of competitors, nor had the Marlboro marketing team thought through how competitors might react to Philip Morris' move. What competitors decided to do became clear soon enough. As the other major industry players cut prices drastically, soon no one was making money. Philip Morris itself lost $1 billion in profits and Wall Street responded by chopping $13.4 billion off the market value from the company in the days following the price cut. This 23% drop in stock price was the largest one-day decline of a stock in six years and, for the first time in twenty-five years, Philip Morris was unable to increase its dividend. In an effort to return to profitability Philip Morris announced it would eliminate 14,000 employees (8% of its workforce) and close forty plants. Finally, faced with no support by the board for his future plans, the Philip Morris CEO resigned. As you can see, a strategy based solely on cutting prices to attack competitors is seldom beneficial.



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The airline industry is another example of rampant price-cutting to gain market share. Prior to deregulation, airlines found means of competing other than price. However, after deregulation and the entrance of such competitors as PeopleExpress (who focused on no-frills flying with cheap tickets), the nature of the competition changed. The 1980s saw mergers, takeovers, bankruptcies, and restructurings. The early 1990s saw continued price wars between the major airlines. Even when American Airlines CEO Robert Crandall attempted to restore sanity to the industry's pricing by wiping out discounts and simplifying fare structures, the other airlines chose to ignore his lead. Instead, they reacted by cutting their fares even deeper. Since deregulation, 120 airlines have gone bankrupt, the industry lost $12 billion between 1989 and 1993, and it laid off 100,000 employees between 1989 and 1995 while forcing pay cuts on those who remained. In fact, only one airline was consistently profitable between 1989 and 1993—Southwest Airlines. Problems in the airline industry caused by price wars hit the airline manufacturing industry as well. Companies like Boeing took it on the chin as orders for new aircraft from U.S. carriers dropped from 1,800 in 1989 to 350 in 1993, forcing Boeing to cut thousands of jobs. In fact, by 1996 the aircraft and parts manufacturing industry had lost over 250,000 jobs, mostly because of problems in the airline industry. Even customers suffered; although ticket prices fell and many more people were able to fly than before, most flyers weren't satisfied with the industry. The cutbacks in personnel and pay lowered customer service and raised tempers of both airline employees and customers. New, narrower planes introduced to reduce costs featured half the cabin space of their ancestors, crowding passengers. And the number of older planes that airlines kept flying far past the time their designers had planned increased passenger concern about safety. Judging by their results, companies in the airline industry in the 1989–1995 timeframe could not claim to meet the standards of either Western or Eastern measures of success: profits or jobs. As you can see, it does you no good to "take All-under-Heaven" if there is nothing left of it when you are done. In strategy, as in life, you make your decisions, and then they make you.



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It is all about winning your market without destroying it. The goal of business strategy must be "to take All-Under-Heaven intact"—to capture your marketplace. You must define the markets you are going after and commit to achieving relative market dominance in those markets. By doing so, your company will ensure its survival and prosperity. There are many examples of companies that have done this. They began as seedlings, but used creative strategy to bring value to the marketplace, grow quickly, and continue doing business successfully for a number of years. They had to be able to gain a position in their industry or niche that enabled them to protect themselves and shape the forces in their industry in their favor. They achieved relative market dominance. Market dominance can appear in many forms; technology leadership, brand recognition, or cost leadership are some signs of it. Market dominance can also be thought of in terms of market share. Companies with dominant market share in an industry segment or an entire industry are more able to influence the industry, direct its evolution, and establish an excellent competitive position. Their powerful position allows them to set the industry's standards and define the playing field. Firms that have achieved dominant market share most likely also enjoy the advantages of higher customer loyalty, larger volumes, better economies of scale, and strong distribution capabilities. In addition, substantial data and research have shown that market share and profitability go hand-in-hand in a number of industry environments. Those same advantages tend to increase revenues and lower unit costs, thus increasing profitability. If a company can achieve relative market dominance properly, prosperity will eventually come.1 In the 1970s and 1980s, Japanese companies, with their long-term view of strategy, emphasis on competition and survival, and belief that business is war, supported this thinking. Japanese companies were very successful at capturing market share and achieving a dominant position in many industries. Whether the industry involved automobiles, consumer electronics, or office equipment, the inroads they made in U.S., European, and Asian markets were significant. This provided these Japanese companies with the ability to influence their respective industries and ensure their



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survival, even when American and European firms began to successfully respond to their attacks. In the United States, GE's John Welch charged his business units to be number one or number two in their industry or face being sold off. Microsoft's dominance of the software market for personal computer operating systems has enabled it to call the tune that other computer system companies, application software companies, and PC hardware firms have danced to for the last decade. Microsoft's CEO and chief strategist, William H. Gates III, has been able to influence the industry so effectively that it is difficult for any firm to make a move without considering how Microsoft will react. Both Microsoft and GE have experienced prosperity utilizing this strategy; GE, a $60-billion-dollar company, became America's most profitable company in 1994 with earnings of $6 billion. Microsoft has also done well; between 1990 and 1994, its sales grew 47% and its profits increased 53% per year. One may argue that relative market dominance is not necessary for survival and prosperity, pointing to small "corporate Switzerland" as examples. The country of Switzerland has survived hundreds of years and prospered; it has done this not by seeking expansion and domination but by creating a strong defensive position. Switzerland combines a well-trained citizen army with its forbidding terrain, thus making the costs of attacking it outweigh the benefits of conquering it. The Swiss also use their neutrality to serve the warring nations of the globe, playing a key role as a site for negotiations and a go-between for antagonists. Switzerland utilizes the assets it has been given and a unique strategy to find a defensible position in the world. Likewise, companies do exist with low market share that have found defensible positions in their industry along with sustained profitability. They too have done so by understanding their strengths and weaknesses and using strategy to create a place in which they can survive and prosper. However, these businesses, like Switzerland, exist at the whim of the dominant players. Like major world powers, at any time market leaders may decide that these little "Switzerland" have served their purpose in the industry and choose to eliminate them. Although a small company might cause a lot of problems for a dominant player before going away, in the end it would be



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eliminated. Thus, the only true way to control your firm's destiny is to drive for relative market dominance. This must be your purpose.



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Chapter 41: Build on others' tactics



It is not essential to develop your own unique strategies. You can create your strategy by building on other player's moves. Actually this is a typical case while playing Dominos; you are always put in different situations where you need to adopt your strategy based on your available cards and on the moves done by other players. In 1979, when the Walkman was launched, portable tape recorders were not new. Sony themselves marketed a similar product called The Pressman to professional journalists. Its main feature allowed reporters to record their interviews and dictate notes. Honorary chairman Masaru Ibuka used Sony’s first attempt to develop a portable tape player to break up the monotony of his frequent air travel. But the device was bulky (and expensive) so he and chairman Akio Morita instructed Kozo Ohsone, head of the tape recording division, to make a smaller version. The Pressman was modified by removing the record function, adding stereo circuits, a headphone terminal and lightweight earphones. The Sony Walkman was born. Since then, over 150 million units have been sold around the world. Sony took an (almost) existing product, tweaked it and launched it with a completely different proposition to a completely different audience. It was no longer a niche tool aimed at professionals but a vital ingredient to youth, freedom and liberation. It offered people something they never even knew they wanted – music on the move. In so doing, Sony marched far into a market that was not defended. In 1989, Paul Cave was involved in organizing a one-off climb over the arch of Sydney Harbor Bridge as part of an international business convention. It was a great success and Cave wanted to make the experience accessible to everyone. It took him nine exhausting years before the first commercial climb took place. The logistics of turning an international landmark into a commercial tourist activity was tricky – negotiation with dozens of organizations, including state and local government, community groups and hundreds of experts on everything from national heritage and conservation to safety. More than two million people



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have climbed Sydney Harbor Bridge since 1998 at an average adult price of $230 – you do the numbers!



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Chapter 42: Making one good move is not enough



In Dominos, making one good move is great but if it were not your final card, then it is not enough. You should always build on your success and start working on your next move in order to win the game. This is also applicable in business context. Think of a company that provides exceptional good products with great prices, however, their after sales services is very bad. They do not provide you with warranties or technical support. Would you still do business with them? What about services industries like banks or telecom providers? Would you work with a bank with poor customer services or do business with a mobile operator with low prices but has poor coverage? What if Apple had settled for its first I-Phone and did not work on delivering new advanced devices. It would have been the end of Apple. Imagine Microsoft stick with windows 3.11 till now, we may have not be hearing about Microsoft anymore. So, it is always important to make a good move, but continuing on making other good moves is more important.



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Chapter 43: More than one strategy at a time



Do not play with a single strategy. You may be facing many players at one game so you should have different strategy for each. Remember that you have seven cards only, so you should learn how to use your limited resources in different situations and circumstances. Look at McDonald's Menu, what will you see? Many kinds of different sandwiches, but are they really different? Take a good look again at a deeper level, the component level, what will you see? 90% of the sandwiches are composed of Burgers, vegetables, bread, onions, eggs, cheese, mayo, ketchup, and mustard. But despite that fact, McDonald's has managed to create a different value and differentiating aspect in each sandwich, from Mac Royal to the Happy Meal. It is the value within the sandwich, not the sandwich itself. The same applies for Kentucky Fried Chickens. They have a big menu but on the basic level, it is all fried chickens.



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Chapter 44: Create your own information index



As we have indicated previously, you should monitor the tactics of other players by watching their moves and order of playing cards carefully. You should develop your own information index of the game. For example, if one of the players throws two cards with the number "3" combinations, then this may indicate that he has got the majority of "3" combinations and thus you should make use of this information by not giving him the chance to drive both ends towards "3". In business, many companies develop their own metrics and information index. McDonalds' for example uses the price of its sandwiches in different countries as an indicator to the local currencies' power. If the "Big Mac" in USA costs 1.5 U$ and costs in Egypt 9 EGP, this means that the United States Dollar is five time more strong than the Egyptian Pound. These types of information are useful when studying the circumstances and patterns of a certain market.



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Chapter 45: Compromise



Previously we said that, when it is obvious that you not are winning the game, then you should focus on minimizing your losses. It is not an easy job though. You should keep monitoring what is going on the board and create internal negotiations with other players using your cards only; you are not allowed to speak with them. As I have always been a fan of Donald Trump management style, I will use some examples from his business. Every skilled negotiator develops an innate ability to know what to do or what not to do in a situation. Donald Trump has this skill honed to a razor’s edge. In the 1970s, a mansion and estate in Palm Beach, Florida, went on the market—Mar-a-Lago. It was built in the 1920s by Marjorie Meriwether Post, heiress to the Post cereal fortune. This mansion had 118 rooms and 67 bathrooms and, overall, more than 67,000 square feet of floor space. The estate was spread out over 19 acres. The trust that owned the property put it on the market at a high price. Donald Trump knew that the offer he was going to make was not going to be the high bid, but he thought he could get it anyhow if he gave them a compelling nonfinancial reason to sell it to him. Donald knew that the trust had given the estate to the State of Florida as a museum. For some unknown reason, it was not a popular attraction, and the state gave it back to the trust. The trust wanted to ensure that the mansion would be maintained as a national treasure. Knowing the trust’s desires, Donald said, “If you sell it to me I pledge to keep the premises intact and to restore it to its original pristine condition.” As part of the deal, Trump also offered to buy all of the furnishings. This offer appealed to the trustees, who were attracted to the idea of a buyer maintaining the Post legacy. They sold the property and all its furnishings to Trump even though he was not the high bidder. True to his word, Trump refurbished the estate and restored it to its prior glory.



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However, the taxes and the cost of maintenance were much too burdensome for a private residence. Trump thought, “Why shouldn’t other people have the use of this masterpiece of elegance and workmanship?” Trump conceived the idea of turning the estate into a luxurious country club. Since many of the furnishings were valuable antiques of museum quality, he couldn’t visualize having them abused by members, so he decided to sell the pieces at auction. The price they fetched was more than he paid for the entire estate when he bought it from the trust. But true to his word, Trump had all of the pieces of the original furniture replicated and replaced in their original locations. The local authorities didn’t like the idea of a New Yorker with new money creating the most spectacular club in Palm Beach and refused to give him a permit to develop the country club. So Trump threatened to subdivide the 19 acres and build houses on it, which was permissible under the zoning rules. He knew the zoning officials hated the idea of more homes in the area and the loss of an historical treasure more then the idea of a country club and he exploited this knowledge until they finally relented. With initiation fees in excess of $200,000 and $1,000-per-night rooming charges, Trump was able to make the exclusive country club concept extremely desirable to the moneyed families in the area. Belonging to Mar-a-Lago became synonymous with prestige. He created an aura of exclusivity and elegance that the wealthy in south Florida found extremely attractive. The recurring theme in Trump-style negotiation is looking for ways to satisfy both sides, to structure a deal so that everyone feels that he or she comes out a winner. I experienced an unusual example of this type of a negotiation approach when I worked for Sol Goldman and Alex DiLorenzo Jr. in the 1960s. One day an elderly, disheveled broker came into our offices and handed me a listing for an apartment building in Brooklyn Heights. It was for sale by a family who had built it 40 years before and owned it ever since. The asking price was $860,000. Not knowing whether it might be of interest to Sol Goldman, I showed him the listing. Sol knew all about the property and had tried to buy it years ago but was unsuccessful. He told me he would love to buy the property and when I told him the asking price he was shocked because it was so low. He told me to find out how many people the broker had already shown the listing to. So I spoke to the broker again, who told me we were the only real estate investors he’d come to,



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because we were well known as the number one buyer of Brooklyn properties. When I told Goldman that, he said, “George, if this deal gets out in the market, there will be a bidding war for it. We have to avoid one and move quickly. Tell the broker I’ll buy the property for $1 million.” I said, “Sol, they’re only asking $860,000 how can I justify $1 million?” He told me, “Hey, you’re the lawyer, you figure it out.” I went back to the broker, who was still sitting in my office, and said, “My client likes the property, but there’s a major problem. The price is too low.” The broker didn’t understand what I said and he replied, “Well, I know they’re asking $860,000 but I think they might sell it for $800,000.” “You weren’t listening to me,” I told him, “The price is too low, if you raise the price to $1 million you’ve got a deal. Just bring me a contract for that price and I’ll give you a check for $100,000 as a down payment and we’ll close in 30 days.” The broker was thoroughly confused and asked me, “Why would anyone pay $1 million for something they could buy for $860,000?” Reaching for a plausible explanation I said, “My client is an eccentric millionaire and he won’t buy anything costing less than $1 million. That’s his style. As I told you, if you come back to me with a contract for $1 million, I’m authorized to sign it and give you the down payment.” The broker left my office like a shot and came back the next day with a contract, which I signed, and gave him the $100,000 deposit. Now, the kicker was that before title passed, Goldman had lined up a nonrecourse first mortgage on the property for $1.4 million from a bank—the bank thought it was worth at least that amount. Goldman took title with his own money and a few months later I closed the loan with the bank without disclosing the original purchase price. By overpaying Goldman had ensured that he would get the property quickly. With his instinct, he believed he knew the property’s true value, and he was right; he made a great deal. If you approach negotiation with the idea that one side must win and the other must lose, you’re not using Trump-style negotiation. Your goal is not to squeeze everything you can out of the other side, but to create a deal they can live with. Both sides in this transaction got more than they were willing to accept, and both walked away feeling like winners. Whenever you can create that feeling, you are executing a Trump-style negotiation.



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With skill, creativity, and showmanship, you can turn adversaries into allies by showing them how it is possible to make a deal acceptable to both sides. The desired outcome is mutual satisfaction. The last step in explaining how Trump-style negotiation works is to summarize six of the most important deal-making techniques you can use. Mastering these basic fundamentals will guarantee you a higher success rate in closing mutually satisfying negotiations: 1. Keep exceptional records. Remember what I said earlier: The side that is more prepared in any negotiation has a better chance of winning. The notes you take during a negotiation serve as a defense against the other side raising new issues or contradicting themselves later. If you are able to refer to a specific discussion, including the date and what was said, you have a compelling argument. 2. Wherever possible develop your own forms and create the aura of legitimacy. It is a truism that the side that prepares documents decides what goes in and what stays out. The aura of legitimacy is set by you presenting something for signature and authenticating it by saying something like, “This is what I used in a similar deal with GM, if they approved it, it should be fine with you.” The existence of a contract, application, agreement, or other document carries the aura of legitimacy merely because it exists and people have a tendency to believe the written word. 3. If you can, use company policy as a negotiating tool. If you represent a company in your negotiations, simply presenting the argument that “That is our company’s policy” will put an end to many arguments. Somehow company policy is like a mandate from God. The other side is likely to realize there’s no point in trying to change something as inflexible as company policy. They rarely probe to find out whether or not the policy, in fact, exists or is that inflexible. 4. Be willing to take calculated risks. You have to play to win. Taking risks may be reckless if you have not evaluated the risk and reward beforehand. But a calculated risk is worth taking if you are willing and able to live with the consequences. For example, if someone wants to delay the final stages of a negotiation, you can calculate that the other side has more to lose than you do by walking away. So it might be worth the risk of saying, “This is my best offer. Take it or leave it.” Successful negotiators are willing to take



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calculated risks. Suppose, for example, I make you the following offer, “I’ve tossed this quarter 49 times and it always came up heads. I’m willing to give you 100 to 1 odds that it will come up heads the 50th time as well.” Now you know the odds are 50-50 so you would jump at the opportunity, right? Let’s change the scenario a bit. Assume that your total life savings is $200,000 and I say, “I’ll bet $20 million against your $200,000 that it will be heads again.” The odds haven’t changed, but the stakes have, and suddenly the possibility of losing everything becomes a reality. You begin to think, “With my luck it’ll come up heads again, and I’ll be wiped out.” You refuse the bet even though it was a well-calculated risk. Any negotiator who has the courage to take risks has an advantage over those who lack the courage to do so. 5. Use time as the ultimate negotiating weapon. Every negotiation has a time element involved in various phases of its development. As long as you are not forced to operate under a deadline governing your side, you can use time as a weapon to control the negotiation. When you are aware that the other side must end the discussion within a specific time and place, don’t begin negotiating in earnest until the latest possible moment because that’s when the other side is most vulnerable to accepting your suggestions. You can also make effective use of delay as long as it furthers your agenda or makes the other side eventually come around to an agreement because they get tired of waiting. Deadlines, delays, and deadlocks are all timerelated methods of negotiation. Figure out how to use each of these at appropriate times to enhance your negotiating power, and by all means avoid allowing the other side to use time against you. 6. Make and use general commitments to gain concessions. You can make promises to the other side of a general nature, to gain the advantage. For example, you can say, “I promise that I’m going to see this through until we reach an agreement.” This is a moral commitment to not walk away. But if you are going to make such a commitment, you should expect reciprocity. Keep in mind that you can choose to refute your moral commitment if circumstances so require, but if the other side does so you can remind them of their agreement and get them to continue negotiating.



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The entire field of negotiation is merely the continual use of diverse methods to communicate ideas that will achieve a favorable result. Some people are effective motivators and others are not. Some hold their cards close to their vest and carefully control what they do, say, or employ to impress others. Inept negotiators signal when they have a good hand, or a poor hand, by what they say, write, or the actions they take. Skilled negotiators are easy to deal with, but they get what they want. Your awareness of negotiation skills and tactics is essential to making the process work. You certainly don’t want to find yourself in a situation where you’re at a disadvantage; and if you do, find a way to delay the proceedings until you’ve had a chance to create a plan that can reverse that situation. In this book, I have provided you with a series of strategies, tactics, and skills worth mastering. Anyone who studies the philosophy of Trump-style negotiation will eventually be able to apply these skills in his or her own negotiations with other people. I never said it would be easy, but over time you will create your own data bank of what worked and what didn’t. The ability to negotiate effectively is a worthwhile talent in any situation, industry, or organization. You will discover that it transcends your professional life and carries over into your personal life as well. You will be better equipped to deal with salespeople, friends, spouses, and children once you gain the insights into what people are really thinking when they say something. You will be much better equipped to be an effective salesperson because that’s what a skilled negotiator is. Once you are able to recognize common errors or human nature, you will be a much better negotiator on every level. You’re always negotiating. It never stops. Just remember this most important element of Trump-style negotiation: You can only achieve mutual satisfaction and complete the biggest and best deals when you build a relationship of trust and rapport with those with whom you become involved.



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Chapter 46: Fast winning



You should not waste a chance of a quick victory. Do not look for lengthen the time of the game to show off your skills in playing Dominos. Instead you should take every opportunity to end the game quickly with victory. Microsoft did not waste long before being declared as the winner of the Software world. It used quick tactics to introduce graphical interface operating systems then accompanied it with many useful software packages like MS Office and MS Internet Explorer. Google also used the same quick wining tactic. After launching their search engine, it took only few months to be declared as the King of Internet. Many free products and services have been introduced for internet users. The free open source approach they used was their fast wining strategy. One can think of so many cases like the previous ones. Stories from Motorola's cell phone to Nokia's digital technology. History also teaches us that it is very difficult to define a winner of a battle that went on for too long. This point can be illustrated by showing the difference between two popular games: Go, an Asian favorite, and chess, a Western one. In chess, the object is to destroy the opponent's pieces in an effort to "take" his King. In fact, the saying "checkmate" is derived from the original Persian shah mat, meaning "the king is dead." In the beginning of the game, the board is full of pieces. However, by the end, chess resembles a medieval battlefield, with several "dead" pieces strewn about, one king taken, and the board empty except for the few men left standing Contrast this to the ancient game of Go, which was invented in China over 4,000 years ago. One wins in Go by capturing and holding the greatest amount of territory with the smallest investment in pieces (either black or white stones). While each of



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the two players can surround an opponent's stones and capture them, in Go the destruction of an opponent's stones is secondary to the object of capturing territory. In games between masters, very few stones are taken. Unlike chess, Go begins with the game board empty; the players then take turns placing their stones to control territory. Players can put their stones anywhere on the board, balancing the need to acquire territory against the possibility of overextension and capture. The best strategy is to claim the open areas of the board, then, as the board fills, to attack an opponent's unsupported pieces. One cannot win by being satisfied with merely defending a small piece of territory; one must defend by attacking, keeping one's opponent always on the defensive. Played by masters, the game will end with just enough pieces on the board to control the greatest amount of territory. In business, you should follow the philosophy of Go rather than chess. You should seek to control the most market territory with the smallest investment, not to destroy your competitor and your company in endless fighting. You will win not by wiping out your competition but by avoiding fighting and moving strategically to achieve relative market dominance, survival, and prosperity. This approach leaves your industry intact, allowing your firm to dominate a healthy industry rather than a sick one. One can "win without fighting" in a number of ways. Research of competitive industries has shown that subtle, indirect, less visible attacks are much less likely to prompt a competitive response. Obviously, any successful move that either delays or does not provoke a competitive response will result in a market share gain by the attacker. Furthermore, attacks that is radically different from what a defender expects or is difficult for the defender to respond to organizationally will delay or avoid a competitive response. For example, research showed that even though it was possible for defenders to respond to new-product introductions in as short a time as six months, the typical response time was eleven months. In fact, some attacks were not responded to for up to four years! The reasons for slow responses to unexpected or radically different attacks are twofold. First, strategic, bureaucratic, and political barriers exist within companies that delay a response. A



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defender may find it difficult to respond because their strategy takes them in a different direction, because the timing does not fit with their budget or planning cycle, or because internal power blocs are against responding. The other reason is that the executives of the defending companies go through denial that the attack will be successful, and spend time finding evidence to support their view instead of building an effective response. In contrast, high-profile attacks, attacks perceived as significant threats (such as one directed at a defender's most important markets), and attacks that the defender believes can be responded to successfully for gain are almost certain to elicit an aggressive competitive response. In addition, it was found that price actions were especially provocative, with defenders more likely to respond to a price attack than any other type. Price attacks tended to be countered more quickly and directly than any other type. Clearly, if you hope to win all without fighting, you must utilize strategy and tactics that enable you to gain share prosperously, without destroying your industry. In sum, remember that market dominance is the means, but survival and prosperity are the end, that the essence of fighting is not fighting. Fighting takes resources, which are limited and, if used up, leave one defenseless. Outright price confrontation, as witnessed in the tobacco and airline industries, should be avoided, for intense and prolonged fighting will destroy an industry. To attack indirectly and win without fighting means your company will use less resources and your industry will remain intact. It is then possible to dominate and prosper in a healthy industry instead of just surviving in a sick one.



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Chapter 47: Common sense



In Dominos game, there is nothing called common sense. Always expect the unexpected. Common sense does not have a single version. It is your own prospective of things that forms your own common sense. What is a common sense to you may be very uncommon to others. Do not make your tactics on your common sense but on the game circumstances and roles. In Japan, when the police stops someone driving while drunk, they drive him home because he will not be able to drive, common sense. In the US, for the same situation, they arrest the guy, also common sense. Coca Cola assumed that their customers will like the new recipe of the "New Coke". After all it is sweeter than the old one as market researches indicates. In Pepsi challenge, the customers had chosen Pepsi because it is sweeter than Coca Cola. Common sense. But the customers' response was not expected at all. The customers just hated the new Coke taste. They knew the both tastes of Coca Cola and Pepsi and have decided to go for Coca Cola. They simply did not understand why two products with similar taste but from different companies. If they wanted the Pepsi's taste; they simply could have purchased Pepsi. Again, common sense. Only two weeks later Coca Cola made a press release and announced that the old recipe and the old taste are back.



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Chapter 48: Two Vs Two



In a two vs. two Dominos game, you should develop a common strategy with your game mate. Agree on a playing system, including your secret communication language. By making good communication and strategy plan with your mate, the victory is yours. A famous example of several rival businesses uniting in joint adversity to safeguard the future is the Swiss watch industry. United by one single priority—survival—it is an excellent demonstration of the power of cooperation between adversaries. Think of Switzerland and it's not long before you think of clocks and watches. Yet, by the late 1970s, the prestigious industry was in big trouble. Cheap Asian competition had seen the Swiss slice of market share slip from 30% to just 9%. Swiss precision was always associated with the higher end of the market, yet that too was taking a battering because of fake imports. In a last ditch attempt to recover, leading Swiss manufacturers— who until the crisis had competed fiercely with each other in the same market—joined forces to form a consortium called ASUAGSSIH. (Thankfully, this was later simplified with the help of businessman Nicolas Hayek to SMH.) They rightly felt it would be better to all go down fighting together than to die out individually with a whimper. The result was the Swatch. Positioned as a disposable or replaceable fashion item, Swatch was the ‘second watch and was a direct assault on the cheaper end of the market. It was kept technically simple—this was not a timepiece that would be passed down through generations. There was a range of bright colors and ever-changing styles and designs. They were affordable and funky, and single-handedly put Swiss watch manufacturing back on top—the Swiss share increased to 50% of the worldwide market. Their continued innovation and design changes meant that Swatch watches even became collectors’ items—so perhaps they will be passed down through generations after all.



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None of this would have been possible had the entire industry not been in jeopardy. It is a striking example of what can be achieved between ‘enemies’ united by a common threat and a reminder of what therefore should be possible between allies.



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Chapter 49: The theory of probability



As you have probably known by now, Dominos is a probability game. Out of twenty eight cards, you get only seven if you are in a two or four players' game and nine cards if you are in a three players' game. The numbers are from "0" to "6". Each number has only seven combinations available. In order to be a good Dominos player you should understand the rules of probability. I am not asking you here to be a statistician, but to just understand the basics of the probability theory. As we said, each number has seven combinations available. The definition of probability is •



Probability is the measure of the likelihood of an outcome. In the probability formula, probability is represented by the letter "P." Probability is typically expressed as a decimal or percentage.



So, the probability of each combination of a one number is 1/7. This means that if you have three combinations of the number "5", then there is a probability of 4/7 that your competitor has the other four cards. If your competitor played a card which is not on of the number "5" combinations, then the probability of him having the number "5" is now 4/6. if he now played another two non "5" combination cards, then the probability will change to 4/4 and so on. You must be able to calculate the probability of the existence of each combination in the game. Many companies depend on statistics and probability to design and market their products. When LG decided to produce the PDP TV in China (A Big Stand Alone TV almost 40 inches that you probably see in outdoor places) they had to do some measurements. The length between the ground and the center of the screen must be equal to the height of a setting person, i.e. if an average man is sitting on his chair, his eyes must be opposite to the focal point of the screen. So LG started to collect samples from random Chinese people and calculated the average person's height and designed their TV accordingly.



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Marlboro got sued in the court based on the probability. Till now, science has not been able to prove that there is a direct connection between cancer and smoking. The sentence "All Smokers will get cancer and all non smokers will not get cancer" can not be proved yet. However, based on statistics, the scientists were able to prove that if you are a smoker, you have a much higher probability in getting cancer. And according to that, many people who have suffered from cancer have sued big cigarettes companies all over the world.



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Chapter 50: The theory of constrains



Sometimes, you get six good cards and one bad card. This one bad card jeopardizes your chance of winning the game. In this case you should split your strategy into two, the first one focuses on how to best utilize your good cards, and the second one focuses on getting rid of the bad card. In business, this is often referred to as the theory of constraints. The main concept behind the Theory of Constraints (TOC) – developed by leading business consultant Dr. Eli Goldratt – is that all systems have at least one element that limits them. This restrictive element, termed a constraint, prevents them from producing infinite output and stops them from being any better than they currently are. Goldratt compares systems to chains. A chain has a weakest link that prevents it from being better or stronger than it currently is. A system also has a weakest link limiting it. The remaining nonlimiting system elements are compared to the additional links in a chain. As there can be only one weakest link or constraint limiting at a time, the remaining links, or system elements, are termed no constraints. The TOC focuses on improving systems by fixing the weakest link – the system constraint – in a chain. Removing constraints may remove waste from processes. As soon as the weakest link is strengthened, it is no longer the weakest link. The next weakest link becomes the constraining factor in the system, so the process starts again, and the constraining factor must be strengthened. Constraints prevent organizations from achieving goals. Constraints may be physical, which are easier to identify as they usually have some visible element. Limiting policies are more difficult to identify, as they are often entrenched in an organization; they are accepted as fact. Identifying and remedying constraining policies results in a larger degree of system improvement when addressed. The TOC has several basic principles: 115



•



•



•



Systems can be thought of as chains, with weakest links or constraints – Systems thinking is an important part of the TOC. Strengthening any link other than the weakest one constraining the system brings no benefit. In addition, continual systems improvement is needed. This is because systems change with time, and the optimal solution needs to be updated to maintain its effectiveness. Managers need to understand a system before changing it – In order to know what to change about a system and what is the weakest link constraining it, you need a complete understanding of the system, its goals, and its processes. The Pareto principle applies to systems – The Pareto principle states that 80% of all problems arise from 20% of potential causes. So a few major problems are responsible for the majority of undesirable system effects.



Underlying any process are core problems. These problems cause inefficiency or waste. Key principles of the TOC regarding core problems are as follows: •



•



•



Undesirable effects reveal core problems in the system – The core system problems are often hidden and hard to notice. They are evident through their undesirable effects. Solving core problems eliminates undesirable effects – Fixing the undesirable effects is a short-term solution, but solving a core problem removes all of its undesirable effects. It is better to treat the underlying cause (the problem) than treating the symptoms as they arise. Challenge underlying assumptions to solve core problems – Many core problems lie hidden beneath assumptions that have come to be accepted as facts. Managers must challenge the base assumptions of the system to find real core problems.



The TOC involves approaching process improvement from a highlevel viewpoint. Entire systems are investigated, rather than individual processes. In order to improve system performance, system bottlenecks must be reduced. Managers use three main operational measures, or metrics, to evaluate systems and their output to find where bottlenecks occur:



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•



•



•



Throughput (T) – Throughput is the rate at which a system generates money. It can be thought of as money coming in to the system. Inventory (I) – Inventory is all the money tied up in the system, either in the form of actual inventory items, or in the form of investment or reinvestment in the system and its processes. Operating expenses (OE) – Operating expenses include all the money spent on running the system and turning inventory into throughput.



Measurements are the main source of feedback for managers when deciding which changes to make. In terms of these three measurements, there are only three changes that can be made to a system – increase throughput, reduce inventory, or reduce operating expenses. Reducing inventory and operating expenses is limited by the fact that they are both vital to the continued functioning of the system. Beyond a certain point, further reduction becomes counterproductive and begins to affect the system negatively. Technically, throughput could be increased indefinitely. Realistically, this is not true, as organizations do not have unlimited funds to support this activity, and there needs to be a market for the increased amount of goods produced. Considering these aspects, it is more likely that any action taken to improve the system will focus on increasing throughput, rather than decreasing inventory or operating expenses. It is easier to increase throughput than to decrease inventory or operating expenses. The basic model for system improvement then focuses on increasing throughput, while decreasing inventory and operating expenses is a secondary aim. However, the optimal solution often incorporates elements of both of these solutions. Additional measures are used to define process results and system output in high-level terms that are meaningful in the context of the entire organization: •



Net profit is the actual money that an organization makes by producing and selling a specific product. It can be calculated using this formula: net profit = throughput - operating expenses. 117



•



•



•



Return on investment (ROI) is a measure of how much money is being made for each dollar invested in the process. It can be calculated using this formula: ROI = (throughput operating expenses)/inventory. Productivity is a measure of how much is being produced by the system, in terms of saleable items. It can be calculated using this formula: productivity = throughput/operating expenses. Turnover is a measure of the rate that a system turns work in progress (WIP) into saleable items, and eventual profit. It can be calculated using this formula: turnover = throughput/inventory.



The main concept behind the Theory of Constraints (TOC) is that all systems have at least one element that limits them – the constraint. The TOC focuses on improving systems by fixing the weakest link. Managers use operational measures to find system bottlenecks. Operational measures are throughput, inventory, and operating expenses. Some companies even tends to kill one of its products if it is causing big loses that is affecting the total profit of other products. This is also being done on the level of customers and suppliers. You may wish to sacrifice a whole customer segment in order to improve another more profitable one or to gain a new profitable segment. Changing or replacing one of your low quality suppliers is also a good example of applying the theory of constraints in business world. business. A product or marketing campaign is launched, but, at the critical moment, reserves are unavailable to exploit a breakthrough. For example, GM's Saturn Corporation couldn't keep its dealers supplied with enough cars in 1993. Saturn's catchy advertising program and well-engineered cars had allowed it to achieve a good deal of success in the first years of its life. Saturn's customer satisfaction ratings in 1993 were above those of Acura, Mercedes-Benz, and Toyota and Saturn headquarters was receiving 350 letters a week from ecstatic Saturn owners. Meanwhile, Saturn was beating the Japanese automakers in California, essentially Honda and Toyota's home turf. However, early 1994 found Saturn with a ballooning inventory of cars, dropping sales, no advertising, limited capacity, and a stalled dealer expansion program. In addition, Saturn's plan to bring out 118



larger and more profitable models was on hold. The reason: GM had put on the brakes for capital just when Saturn had started to go into orbit. Despite Saturn's successes and the fact that Saturn had made a profit in 1993 (not bad for a start-up company in an industry that requires huge capital investments), a top GM Executive VicePresident was quoted as saying, "Saturn has got to fight for capital like any other business. It's causing them some trouble." ▪ The GM Vice-President was right. The "trouble" caused by choked-off capital flows from GM meant that Saturn had to delay plans to upgrade the interiors of the new models, improve their styling, install a more modern engine and chassis, and add plant capacity to be able to ship 500,000 cars per year. Instead, just as Saturn was starting to take off and beat the Japanese automakers, GM decided to move their investments toward larger and more profitable cars made by the other GM divisions. 10 The amazing thing about cutting off the capital flows in 1994 was that, when Saturn was originally conceived, GM knew it had to produce 500,000 cars per year and offer larger models to be economically viable. Yet after all the development, manufacturing, and marketing investment necessary to create a new business, funds were stopped, plant capacity was stuck at roughly 300,000, and larger models were pushed out to later years. This could certainly be described as "wasteful delay." 11 Remember, to be successful at the strategic level, reinforce your successes at the tactical level. Exploit your breakthroughs and create market momentum. The corollary of reinforcing a successful product is: when a product is failing, drop it like a live grenade. Believing that throwing resources at the problem will fix it is like thinking that throwing more soldiers against a well-entrenched defensive line will allow you to capture it. The costs will pile up and you still may not obtain your objective. Take Crystal Pepsi. When it was launched in 1993, this "non-cola" was targeted to gain at least 2% of the U.S. soft drink market within a year. Unfortunately, it gained only half that. "I'm more than a little disappointed. We were not able to satisfy people's taste," said the chief executive of Pepsi-Cola North America.



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So, in March 1994, the product was relaunched—repositioned as a citrus cola, totally reflavored, and renamed "Crystal" instead of "Crystal Pepsi." The results? In addition to spending the increased investment the relaunch required, Crystal distracted the company from supporting its top brands, Pepsi and Diet Pepsi. "Our people can only execute so many things. If they're building extra Crystal displays, they can't build as many Pepsi displays," said the same Pepsi executive. Partly as a result of the Crystal failure and subsequent focus, Pepsi and Diet Pepsi lost market share in 1993. 12 What should Pepsi-Cola Company have done? Dropped Crystal Pepsi in a heartbeat when they saw it wasn't the right product for the market. All the marketing hype in the world is not going to save a soft drink that people don't like to drink. Remember, reinforce success, and starve failure.



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Chapter 51: It is never too late



You should always remember that even if you have lost the first two or three or even four rounds in the game, it is never too late for you to come back and win the game. You may in just one round gain as many points as your competitors have collected from the beginning of the game. This applies in the business world too. Microsoft was not the first company to design graphical operating systems or the word processors. But they came up and improved the existing systems and with "Microsoft Windows" and "Microsoft Office" the won more money than all other competitors although they were not the first winners in the beginning. Google also did not invent the search engines. Before Google even appears there were already other search engines like AltaVista and MSN. Actually, if it were not for these search engines, Larry Page and Sergey Brin may have not come up of the idea for their new search engine algorithm. It was the problems and flaws in these search engines that made them think of a new improved way to create a faster search engine. And although Google were on of the last startups in Silicon Valley, they are really on their way to win. They did not invent e-mail and they are leading now with Gmail. You can now see many Google products that is hitting the market like Chrome operating systems, Chrome web browser and other products that were not originally developed by Google.



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Chapter 52: Defeat the Secondary player first



As we have mentioned before, in a four players game, there are often primary strong player and a less skillful secondary player. You must try to get that secondary player out of the game as fast as possible so you can focus all your resources to defeat the strong primary player. It is all about Priorities. The secret is to priorities creatively. When you prioritize, it's not about what you put in, it's what you leave out. In the case of defending your cities against siege, it's literally about what you leave outside. German cities were heavily fortified, and inside the fortifications they stored up enough provisions for a year, and the raw materials ‘to keep the people engaged for a year in the occupation essential to the life of the city’. When they were under attack, the cities didn't try to defend the outlying countryside, and the inhabitants soon abandoned their farms for the safety of the fortifications, where they knew they would be fed and housed. By abandoning the inessential elements, the Germans actually preserved them. Because there was no weakness in their defense, and the citizens could be fed and clothed for a year, most of the time it was useless to lay siege to a German city. A siege is expensive and boring, and could occupy an army for a whole year. It weakens the aggressor, whose attention is distracted from possible trouble at home. When the invading troops packed up and left, the German citizens could reclaim what was left of their abandoned farms (probably not much—but better than the alternative). By making it possible to give them up, they actually increased their chances of hanging on to them. It's unlikely such a plan would work today. Before they got into the safety of the city, the farmers would have had to spend time catching up with their emails. The stored food would have been delayed because the city was moving over to a just-in-time provisioning model. And the ruler wouldn't have noticed the arrival of the invaders because he was stuck on a conference call.



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Research conducted in America by Salary.com shows that the average office worker wastes just over two hours a day on meaningless activities. When he was a government minister, Michael Heseltine insisted that briefing documents, which traditionally would have been the size of a phone book, were no longer than one side of paper. In that way he kept on top of the essentials of the job. Xerox did not have a good prioritization when they decided to compete with IBM in the hardware playground. They were not able to win and they have also lost some of their dominated market share of copying machines to Cannon.



The reasoning behind this principle is simple; attacking your competitor's weak points is a much more effective and efficient use of your resources than attacking its strength. Attacking weakness leverages your company's limited resources; attacking strength wastes resources. Attacking weakness shortens the road to victory; attacking strength makes it longer. Attacking weakness increases the value of your victory; attacking strength throws it away. In sum, avoiding strength and attacking weakness achieves the maximum return for the least expenditure of resources in the shortest possible time, thereby maximizing profits. Unfortunately, pitting strength against strength is often the preferred method of competition among many Western companies. This is because the direct approach is strongly embedded in the Western mind. It makes its appearance in our legends, our sports, and, at times, our military adventures. It's two knights alone in armed combat, riding their chargers toward each other at high speed with the sole purpose of driving a lance through the opponent's heart. It's the stand-up shoot-out at OK Corral, the "hand-off-to-the-fullback, run-it-up-the-middle" mentality, the "fightfire-with-fire" approach. It's the frontal attack philosophy; impatient, unsubtle, and heads-down. Let me give you a business example. Starting in 1990, Kmart spent three years constructing 153 new discount stores and revamping 800 existing ones in a $3 billion strategy to take on upand-coming Wal-Mart. At the time, Wal-Mart was expanding beyond its rural locations into Kmart's urban territory. In response, Kmart's CEO launched a direct assault against Wal-Mart, lowering 123



prices on thousands of products to be more competitive. To offset the lower prices on other items, Kmart began pushing more apparel, which carries higher margins. Five years later, the expensive direct attack strategy was proven unsuccessful. In the first three years of implementation, Kmart's new store sales per square foot fell from $167 to $141. The apparel inventory Kmart bought for the most part either went unsold or was let go at clearance prices. Meanwhile, Kmart was not able to draw customers away with lower prices since Wal-Mart dropped prices to match them. A Wal-Mart manager was quoted as saying, "It's very simple. We are not going to be undersold." In early 1995, the board of Kmart forced the resignation of its CEO. The cost of the CEO's direct attack on Wal-Mart's strength included a drop in Kmart's market share from 35% to 23%, falling or negative profits, and flat stock performance. Meanwhile, WalMart's market share doubled to 40%, profits soared, and its stock quadrupled. 2 The principle of avoiding strength and attacking weakness makes what occurred plain. Kmart took on Wal-Mart at its strongest point—its cost structure—and failed. It was unable to get below Wal-Mart's five-point advantage in operating costs. As a Wal-Mart manager was quoted as saying, "What that means is that in an allout price war they'll go broke 5% before we will."



This tendency toward direct, head-to-head competition results not only from our culture. It also comes from a line of reasoning that is misguided yet dangerously appealing. The thought process is this: If our competitor has been successful by being the lowest-cost provider or by increasing spending on research and development or marketing, than we could be too. We only need to imitate the best practices of our competitors and we can become the market leader. A variation on this theme is: If they can produce a good candy bar (camera, car, etc.), then we can too. This strategy of competitive imitation leads many executives to attack strong competitors at their strongest point. A company that followed this logic was AT&T, with its foray into the computer market. In the 1980s, as the communications and computer industries became more entwined, AT&T grew enamored with attacking IBM, DEC, Hewlett-Packard, and others



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with its own computer line. With a large treasury, the technology jewel of Bell Labs, and ownership of the UNIX operating system, AT&T executives must have felt assured of success. Eight years, thousands of layoffs, and $2 billion in losses later, AT&T executives realized that the attempt had failed. So, in 1991, AT&T executed a $7.5 billion hostile takeover of NCR, paying 20% over NCR's market value for another crack at this market. It still was not successful. In 1994, AT&T dropped the NCR brand name and replaced it with AT&T Global Information Systems (GIS), hoping a third shot would finally be rewarded. In late 1995, AT&T finally gave up. After losing $3 billion since the merger, AT&T took a $1.5-billion write-off, laid off 8,500 more employees, and spun off GIS (which again became NCR). Clearly, AT&T's mistake of relying on competitive imitation and sheer size to directly attack major competitors head-on is the epitome of an unsuccessful frontal attack. The AT&T fiasco illustrates the problem with the strength-againststrength approach; since it is not very creative nor based on attacking the competition's weakness, it dooms a company to a battle of attrition. The basic philosophy behind an attrition strategy is that your resources will outlast those of your competitor. In practice, this means that your company must not only have resources sufficient to overcome the competitor but also the will to expend them until your competitor capitulates. Often, an opponent stubbornly refuses to do so. From an historical perspective, the most obvious and searing example of an attrition strategy not working was the United States' involvement in Viet Nam. The plan was to outlast the enemy and defeat him by expending whatever resources were required. It was thought to be an unbeatable strategy since the United States had several times the resources of North Viet Nam. However, U.S. leaders drastically underestimated the ability of the communists to leverage their limited resources so effectively. They also dramatically misunderstood that the communists' strength was their ability to prolong the fighting by utilizing guerilla warfare. As time went on, the American effort in Viet Nam became a bottomless pit that consumed its resources at an ever-increasing rate and distracted the United States from dealing with dramatic changes at home and abroad. Finally, elections brought new leadership to run the U.S. government, which then changed the



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strategy to end American involvement. In the end, it was the United States that was outlasted. In business, there are several ways you as a strategist can replicate this approach and create a situation where your company's strengths are applied against your competitor's weaknesses. One way is to attack the weakest part of your competitor's value chain. If they are strong in manufacturing but have a weak tie to their distributors, attack them there. Reinforce your distribution channels to take their customers away. Better yet, woo away their distributors and make them your own. Without them, their manufacturing prowess will prove worthless. Japanese companies employed the technique of attacking the weak point in their competitor's value chain when they leveraged their strengths in quality manufacturing to beat American competitors, who were weak in that link. If your company is a major player in a market with a few large companies and many small ones, another method may prove successful. Do not attack the other large companies to try and take market share from them. Instead, attack the weaker players one at a time. You then surround the major players with new customers and gain greater market share without confronting them directly. This is what Wal-Mart did against Sears, Kmart and other large retailers. Wal-Mart's success is the result of several factors, many of them operational. However, a major strategic reason for WalMart's success is that it chose as competitors little Mom & Pop stores in small towns instead of taking on the big retailers head to head in large markets. Using their huge buying power and lean distribution methods to drive costs down, they defeated the small stores and "attacked the enemy where he did not expect it" in small towns. Wal-Mart gobbled up market share and surrounded its main competitors. GE has chosen a similar approach by investing heavily in emerging geographic markets. The end of the Cold War and the shift to capitalism around the world opened up new opportunities for companies in developing or redeveloping countries. Billions of dollars of capital are flowing there daily as smart players move to entrench themselves in these markets before their competition. GE has made it a priority to deploy resources to China, India, and



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Mexico. They want to be well positioned in the appliance, jet engine, plastics, and medical and power systems markets early on



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Appendix A: The 36 Stratagems



More than 2,500 years ago, military and political minds in China began to debate how to make a science of strategy by distilling their collective knowledge into a few universal principles. The process took more than a thousand years, and it produced a catalog of thirty-six strategies for gaining, expanding, and retaining power: the Thirty-Six Stratagems. For the past decade I have been using these stratagems as brainstorming tools to help executives devise creative options for outthinking their competition. By viewing your challenge through three to five of these ancient metaphors, you may find a winning move that you would otherwise have overlooked. Simply answer these two questions for each stratagem: What would it mean to apply this tactic to your situation? How would you translate this move, described here in the flowery language of an era long past, into a solution to your modern problem? 1. To Catch Something, First Let It Go. Do not attack your rival; rather, let him go, and follow close behind. 2. Exchange a Brick for a Jade. Give your rival something on which you place relatively little value in exchange for something you value much more. 3. Invite Your Enemy Onto the Roof, Then Remove the Ladder. Entice your rival to enter your area of control and then cut off all escape routes. This forces your rival to fight where you hold the advantage. 4. Lure the Tiger Down from the Mountain. Lure your rival out of his stronghold onto an open field where he has no advantage. Then attack him or take his stronghold. 5. Befriend the Distant Enemy to Attack the One Nearby. Ally yourself with a distant, or indirect, competitor to jointly attack a nearby, or direct, one. 6. Kill with a Borrowed Knife. Use a third party to attack your rival.



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7. Besiege Wei to Rescue Zhao. Have an ally attack your rival. This will force your rival to disengage from his conflict with you to defend himself. He must then fight on two fronts. 8. The Stratagem of Sowing Discord. Find someone your rival depends on, lure him to work in your favor, and thereby topple a critical relationship on which your rival depends. 9. Trouble the Water to Match the Fish. Create confusion around your rival to blind him and hinder his ability to understand your intentions or see your approach. 10. Remove the Firewood from Under the Pot. Rather than engage your rival head-on, attack his supply line or cut off a critical resource he needs to attack you. 11. Shut the Door to Capture the Thief. When your opponent is weak, divided, or dispersed, surround him, prevent his escape, but avoid direct attack. 12. Replace the Beams with Rotten Timbers. Attack the key support structures on which your rival’s advantage depends. 13. The Stratagem of the Beautiful Woman. Identify your rival’s key weakness or need and use this to encourage him to act in a way counter to his benefit. 14. Beat the Grass to Startle the Snake. Launch a false, small-scale attack to encourage your enemy to reveal his plans. Then plan your real attack with this new knowledge. 15. Loot a Burning House. When trouble strikes, look for your rival to freeze or retreat. Capitalize on his inaction or retreat to take action and build power. 16. Sometimes Running Away Is the Best Strategy. Rather than fight a more powerful rival, retreat to preserve your power and apply it somewhere else or at some other time. 17. Seize the Opportunity to Lead the Sheep Away.



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Look for a moment when your rival fails to act (for example, because he is distracted), and attack where he will not defend. 18. Feign Madness But Keep Your Balance. To avoid being perceived as a threat, appear crazy or incapable. When your rival puts down his guard, take him. 19. Watch the Fire on the Other Shore. When your rival is engaged in conflict internally or with his allies, refrain from acting. An attack might cause unification. Allowed to continue, the internal conflict will damage him. 20. Let the Plum Tree Wither in Place of the Peach. Allow your rival a victory on one front to preserve, even strengthen, your competitiveness on another front. 21. The Stratagem of the Open City Gates. Openly reveal your strength, weakness, or strategy. This will encourage your rival to call off his attack because he fears your strength, no longer considers you a threat, or believes he understands your strategy. 22. Await the Exhausted Enemy at Your Ease. Identify the next battleground, set up a defendable position there, and wait for your rival. When he arrives, use your superior position to defeat him. 23. Exchange the Role of Guest for That of Host. Encourage your rival to accept you as an unthreatening guest. Incrementally build power over him and eventually take control. 24. Borrow the Road to Conquer Gao. Look for someone who has better access to your objective, and create an alliance with him to gain passage. 25. Shed Your Skin Like the Golden Cicada. Create a façade and make your rival think it is the real thing; then move the action somewhere else. 26. The Stratagem of Injuring Yourself. When your rival’s suspicion hinders your success, injure yourself to either win your rival’s trust or avoid appearing to be a threat. When your rival accepts you or lets down his guard, advance. 130



27. Borrow a Corpse for the Soul’s Return. Adopt a forgotten or abandoned model, idea, or technology to differentiate yourself and build power. 28. Point at the Mulberry But Curse the Locust. Rather than attack your rival directly, aim your attack at a different target. This will send a covert message that will alter his behavior. 29. Clamor in the East; Attack to the West. Feign an attack the defense of which exposes your enemy to a different attack. Launch your true attack and defeat your rival. 30. Openly Repair the Walkway, Secretly March to Chen Cang. Focus your rival, or let your rival focus on, a direct, orthodox attack while you launch an indirect, unorthodox attack to take him by surprise. 31. Fool the Emperor and Cross the Sea. Take actions that appear normal, ones that appear everyday, to lull your rival into complacency. By the time he realizes your actions constitute a threat, it is too late. 32. Create Something Out of Nothing. When your direct attack (one using existing players) is ineffective, create a new player or entity to catch your rival off-guard. 33. Hide a Dagger Behind a Smile. Because a direct attack would generate resistance in your rival, choose an approach that is, or appears to be, friendly. When your rival lets down his defenses and welcomes this approach, take him with a secondary attack. 34. Deck the Tree with Bogus Blossoms. Combine and coordinate independent elements within your environment to become a much stronger whole, then overpower your rival. 35. To Catch the Bandits, First Capture Their Leader. Focus your attack on your rival’s leader or leaders. By influencing them you can direct your rival with less effort. This is like leading a horse by directing its head. 131



36. The Stratagem of Linking Stratagems. Rather than concentrating on just one, execute multiple strategies, either simultaneously or in succession. If one strategy is not effective, the next one is. If the next one is not effective, the following one is. This eventually overwhelms your rival or catches him in an impossible situation.



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Appendix B: Master Sun Tzu's "The Art of War"



Some time around 400 B.C., during a period in China known as the Age of the Warring States, there arose a general from the state of Ch'i known as Sun Tzu. His ability to win victories for his warlord gained him fame and power. To hand down the wisdom he had gained from his years of battles, Sun Tzu wrote a book, The Art of War, that became the classic work on strategy in China. His book, which details a complete philosophy on how to decisively defeat one's opponent, has given guidance to military theorists and generals throughout the ages, both in the East and the West. The Art of War not only contains Sun Tzu's insights but also provides additional elucidation by military commentators who came after him, such as Li Ch'üan, Tu Mu, and others. In The Art of War, military readers found an holistic approach to strategy that was powerful yet succinctly communicated—it is truly a masterpiece on strategy. In China, the first Emperor Qin Shihuang studied The Art of War. Adhering to its principles, he united China for the first time around 200 B.C. 2 Twenty-one centuries later, Mao Zedong used Sun Tzu's writings to defeat Chiang Kai-shek and the Nationalists in 1949, again reuniting China. Sun Tzu also influenced Mao's writings on guerilla warfare, which in turn provided the strategy for communist insurgencies from Southeast Asia to Africa to the Americas. Japan was introduced to Sun Tzu's writings around 760 A.D. and her generals quickly absorbed its lessons. The three most wellknown of her samurai—Oda Nobunaga, Toyotomi Hideyoshi, and Tokugawa Ieyasu—all mastered The Art of War. This mastery enabled them to transform Japan from a collection of feudal states into a single nation. In the West, The Art of War first made its appearance in 1772 in Europe after being translated into French by a Jesuit missionary. It is possible that Napoleon read and was influenced by Sun Tzu's



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work, given both his interest in all things military and his culture's interest in Chinese literature. 3 B. H. Liddell Hart, the British military historian whose theories on armored warfare led to the development of the German blitzkrieg, was amazed at the depth of Sun Tzu's military philosophy and instruction. He was impressed by how closely Sun Tzu's ideas mirrored his own theories of warfare and thought that, had The Art of War been more widely read and accepted by World War I generals, much of the terrible slaughter of trench warfare could have been avoided. 4 The principles discussed in The Art of War have been used successfully in countless battles throughout time. Speed was an essential factor in the victories of Genghis Khan and his Mongolian horde. Shaping their enemies by the skillful use of alliances allowed the Romans to expand and maintain their empire. Secrecy and deception were used in major World War II battles, both by the Japanese in their attack on Pearl Harbor and by the Allies to mislead the Germans about the exact location of their invasion of France. The use of intelligence was critical to American success in the Cuban missile crisis. The Viet Cong lived by the rule of avoiding strength and attacking weakness, while the Red Army used this principle to deal Germany's Sixth Army a devastating defeat at Stalingrad. Most recently, Sun Tzu's principles were put to the test in Desert Storm. By controlling the air both to follow Iraqi movements and mask his own troops' movements, General H. Norman Schwartzkopf fooled Saddam Hussein as to the location of his attack. Threatening an amphibious assault in the east, Schwartzkopf did an end-run on the Iraqi army in the west, thus winning a stunning victory with extremely low casualties. Deception, speed, and attacking the enemy's weakness—all part of Sun Tzu's philosophy—added up to amazing success. Today, Sun Tzu's appeal has extended beyond the military realm into the world of business. Because business by definition deals with competition, Sun Tzu's principles are ideally suited to competitive business situations. In the United States and Europe, The Art of War has been quoted in numerous books on strategy, organization and competition. Many of its more striking verses have been the lead-in for countless business articles. The popular



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movie Wall Street, a tale of corporate mergers and hostile takeovers, utilized Sun Tzu's wisdom in the battle of wits between Gordon Gekko, the film's villain, and the young hero Bud Fox. In the booming world of Asian business, Sun Tzu's strategic principles are revered, and have been used by numerous CEOs to lead their companies to prosperity. Because business, like warfare, is a contest of wills, dynamic and fast-paced, based both on morale and machines, dealing with the effective and efficient use of scarce resources, and is both timeless and ever-changing, many businesspeople across the globe have found value in Sun Tzu's teachings. Unfortunately, for the many who would like to gain insight into Sun Tzu's strategic philosophy, there is no recourse but to read The Art of War and attempt to directly apply Sun Tzu's phrases about military operations to today's business problems. That is no simple task. The Art of War is arranged according to military topics and jumping the chasm between the realm of ancient warfare to today's business world is not easy. Many have tried but found the task too daunting. Therefore, to offer a more straightforward bridge between today's business world and Sun Tzu's ancient wisdom, I have written Sun Tzu and the Art of Business. This book takes the writings of Sun Tzu, organizes them to better reveal his holistic perspective on competitive strategy, and then applies them to the world of business in a way that is readable, useful, and practical. My hope is that people will use the principles in this book to create strategies that make their own company much more competitive. This is important to me for two reasons: First, more creative competition will lead to greater prosperity for the stakeholders in the company as well as better products and services at lower prices for consumers. Further, improvement in competitive strategy will not necessarily mean that one company will take away a piece of the pie from another. Creative use of strategy will more likely lead to a larger pie. When Burger King overhauled itself in late 1993, it stimulated its competition to improve their products and services. McDonalds offered more choices, put them together in "value-meals," and spiffed up service. Wendy's launched a marketing blitz that revolved around its founder David Thomas. When Aleve, a new painkiller from Procter & Gamble, was released into the market, its advertising campaign and those of its rivals actually boosted overall painreliever sales. 135



Indeed, on a global level, it has been shown that when competition in an industry or country is most demanding and creative, companies in that market go on to greater successes in other markets. The smarter the competition in a marketplace, the better the chance for company survival and prosperity. In essence, creative competition means an improved standard of living. Second, by using the principles of Sun Tzu and competing more creatively, business leaders will be able to avoid the huge casualties of corporate downsizing caused by dull strategic thinking. Just as the lives of millions of soldiers in World War I were sacrificed because of lack of strategic insight on the part of their generals, a similar tragedy has occurred in corporations during the first world war of global competition. While some of it was necessary, too much of the corporate downsizing that has negatively impacted millions of people's lives is the result of the mistakes of business leaders who lacked strategic vision. I believe that the widespread use of the principles in this book by executives and managers will help avoid more corporate casualties in the future. In this era of "flat" organizations, teams, and empowerment, some may question how a treatise on warfare could possibly apply to business today. Quite a number of articles have postured that the military model is out of date. In fact, business strategy first evolved from military strategy. As you read on, you will see how closely ancient and current military organizations and strategies have successfully implemented what many companies today are only beginning to understand. Ever since the first Chinese warlord deployed cavalry and infantry in battle together, armies have been successfully dealing with the problem of cross-functional coordination and teams. Since the time of Xenephon's Persian expedition, military leaders have intelligently dealt with balancing discipline and control with empowerment and delegation. Since Napoleon's era, when coordinating the movement of huge armies led to their arrival at the exact time and precise place of decision in battle, generals have been successfully handling large numbers of people working at great geographic distances from each other. Since the American Civil War, military officers have worked diligently to implement new technological advances brought on by the Industrial Revolution for competitive advantage.



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Articles and books written by marketing gurus Philip Kotler, Al Ries, and Jack Trout have explained the applicability of military strategy to business. More recent articles such as "New Ideas from the Army (Really)," bear this out. The success of the book Moving Mountains—Lessons In Leadership and Logistics from the Gulf War by Lt. General William Pagonis, written after his masterful handling of logistics for the Persian Gulf War, is another indicator of the robustness of the true military model. To make the transition from Sun Tzu's The Art of War to Sun Tzu and the Art of Business, I have extracted what I believe are the most important and pertinent strategic principles from Sun Tzu and devoted a chapter to each. These principles are: 1. Win All Without Fighting Capturing Your Market Without Destroying It 2.Avoid Strength, Attack Weakness Striking Where They Least Expect It 3.Deception and Foreknowledge Maximizing the Power of Market Information 4.Speed and Preparation Moving Swiftly To Overcome Your Competitors 5.Shape Your Opponent Employing Strategy To Master The Competition 6.Character-based Leadership Providing Effective Leadership In Turbulent Times



While there is much that businesses can learn from military strategy and examples, businesspeople should not follow the philosophy of the destruction created by total war. Business must be performed ethically. Almost four hundred years have passed since the British East India Company used its own army and navy to capture the markets and resources of India and Asia, then ruled them with its own civil service. 13 The days of imperialist companies setting forth to conquer and exploit less developed parts of the world are over; the era of the infamous American robber barons in railroads, steel, and timber is gone. The proper rules of business conduct and ethics must be followed for business 137



and society to function effectively and prosperously. Therefore, ethical use of the principles put forth here is required.



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Appendix C: Silicon Valley Startups



Smaller than Rhode Island, Silicon Valley is home to over 7,500 high-tech companies. It is America's leading exporter of manufactured goods. A prolific developer of new technologies, it leads the U.S. in patent awards. In less than 20 years, it has become the undisputed global technology leader, consuming onethird of America's high-tech venture capital and developing many of the world's most innovative products.1 The Valley's culture of innovation thrives on the challenge of turning new technologies into profitable companies. Once dominated by military electronics and semiconductor manufacturing, Silicon Valley has diversified. Today, its economy includes thousands of companies specializing in software, computer hardware, telecommunications, biotech, and the Internet. The Valley's success at creating new products, new companies, and new industries has attracted investment from around the world. Daimler Benz has a research facility two blocks from Stanford University. Fujitsu has eight Silicon Valley locations. Merrill Lynch has moved their information technology practice from San Francisco to Palo Alto—not to save money (which is unlikely since Palo Alto office rents now rival Manhattan's), but to be closer to their high-tech customers. Intel, Hewlett Packard, Sun, Cisco, Seagate, Adobe, Oracle, Intuit, and a myriad of lesser-known companies have thousands of openings for engineering and marketing professionals. Their collective success—their ability to innovate—has made the Valley famous. Governments attempting to replicate this success are modeling their high-tech centers on Silicon Valley. Around the globe forty municipalities have added "Silicon" into their moniker, including Silicon Mesa and Silicon Bayou. Silicon Valley has become the global metaphor for innovation and leadership The arrival of the microprocessor accelerated the pace of technology and business planning. The silicon chip created many new industries and each new industry created thousands of business opportunities. This explosion of opportunity made



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traditional business planning techniques obsolete and overwhelmed many organizations. Silicon Valley executives adapted to this whirlwind of technologydriven change. At the eye of the storm, they developed techniques to evaluate these new projects quickly and effectively. Over time, they learned to ask the right questions and became adept at picking winners. The Silicon Valley Way is a behind-the-scenes look at the American high-tech miracle. It describes a uniquely American management style—a business planning methodology—that enables fast, high-quality decisions Why Silicon Valley happened in Santa Clara County is a topic of debate. Valley executives most frequently attribute the success of Silicon Valley to four factors: Stanford University and the University of California. These two great universities—their business schools, their medical centers, and their schools of engineering and computer science—created the nucleus of the high-tech industry, which now attracts top technical talent from around the world. Venture Capital. The availability of financing for high-risk projects—an art form pioneered in Northern California—enabled many small companies to obtain financing unavailable in other regions and countries. The Concentration of High-Tech Companies. The concentration of 7,000 high-tech companies has created a self-sustaining culture of innovation. Parents and grandparents expect their children to work for unknown companies and change jobs frequently. Engineers and executives jump to small, high-risk enterprises, confident that other opportunities will be available should their current company fail. The Weather. Surprisingly, many executives mention the weather as a major reason they keep their businesses in Silicon Valley. With 300 days of sunshine, the area has an idyllic climate for outdoor enthusiasts. Hiking, cycling, sailing, tennis, and golf are available year-round. Employees addicted to the Valley's outdoor lifestyle are often unwilling to relocate.



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These factors have played a major role in shaping the Valley's success, but they are not the whole story. If the availability of capital and a well-educated, mobile work-force were sufficient to create a "Silicon Valley Clone," other states would have replicated this Northern California success. No municipality has succeeded in duplicating the Valley's prosperity, in part because the formula includes other subtle ingredients: Workforce Diversity. Silicon Valley has one of the most diverse and best-educated workforces in the nation. Hispanic, Asian, and many other cultures blend, creating a uniquely American workforce—innovative and hardworking. Two-Income Families. In Silicon Valley, double incomes often provide financial security, enabling one spouse to leave a secure job and join a start-up. Entrepreneurs whose spouses have stable incomes are more willing to take career risks. In many countries, Japan in particular, workforce inequality restricts the mobility of both men and women, shrinking the size of the labor pool available to start-ups. Labor Laws. American entrepreneurs are able to start new companies because, unlike their European counterparts, they can dismantle them. European entrepreneurs are reluctant to start new companies because firing employees and shutting down a failed start-up is so expensive. The laws designed to protect workers actually prevent the creation of new, well-paid, high-tech jobs. Government and Industry Cooperation. The economic slowdown in the early 1990s caused many local Silicon Valley governments to become more business-friendly. They streamlined their building permit process and adopted more consistent building codes. San Jose, for example, cut its approval process for minor building permits from two weeks to one day. For some major commercial developments, the process was reduced from six months to one month. By 1997, San Jose had ten million square feet under construction and the Valley had created 100,000 new jobs. California's Culture. Californians value the intuition and interpersonal openness required to innovate. Often ridiculed, California's mantra of "get in touch with your feelings and share your emotions," has subtly shaped how California's engineers and financiers communicate with each other. The Valley's culture of



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truth-telling and personal accountability creates an environment where companies build prototypes because an engineer "feels the technology will work." Employee Ownership and Stock Options. The granting of stock options to non-executives—engineers and marketing professionals—has enabled new companies to compete for talent with larger, more established enterprises. Stock options enable entrepreneurs to start companies quickly, exploiting new technologies and markets. California's Public Colleges. California's state colleges and junior colleges play an important role in developing the Valley's workforce. In many European and Asian states, it is difficult for workers to change professions. In California, late-bloomers can obtain a college degree and change careers. Many countries exclude some of their brightest minds from high-tech careers because of poor grades or test scores early in life. Everyone gets a second chance in California. This increases the size, quality, and mobility of Silicon Valley's high-tech workforce. California's Pioneer Mentality. In the 1850s, young miners moved from claim to claim searching for the "big strike," and San Francisco financiers made huge investments too risky for their East coast counterparts. A century later, this pioneer spirit continues in Silicon Valley; young engineers change companies, searching for the "big product," and investors fund start-ups too risky for their Eastern peers. 2



Silicon Valley's largest city, San Jose, is 51% Hispanic and Asian/Pacific Islander. San Jose has one of the highest levels of workforce education in the U.S. and the lowest crime rate of any American city with a population over 250,000. The low crime rate is indicative of the racial harmony in the valley. 3



Valley cities also have a reputation for clean government with little patronage. Bribes and professional "expediters"—common in other parts of the world—are rare in Silicon Valley. The lesson is clear: Local governments will attract business investment if they are: ▪ ▪ ▪ ▪



Business friendly Predictable Devoid of corruption Quick to approve or disapprove new construction



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Valley executives have outperformed many of their more established competitors. They have mastered the complex art of transforming research technology into profitable products. Valley entrepreneurs win at the high-risk game of technology roulette, succeeding where others have lost fortunes. This modern alchemy—turning research and technology into gold—has eluded many larger, better financed companies. Valley executives have become so adept at developing new technologies that many companies are now investing in Silicon Valley for fear of being outmaneuvered by their smaller, nimbler Valley competitors. In some high-tech enterprises, 50% of next year's revenue will come from products not yet shipping. Some companies, like Hewlett Packard, remain nimble, continually producing innovative products. Other companies, like IBM in the 1980s, dominate an industry and then lose their ability to develop new, winning products. Occasionally companies return from the brink of disaster, betting on a winner, as Chrysler did with the introduction of the minivan. Silicon Valley executives are like Indy car racers. They are disciplined and fast, often appearing reckless and making observers nervous. Like great Indy racers, great entrepreneurs are rare, perhaps because disciplined analysis at high speeds is hard. Between 1984 and 1994, over 250 companies left the Fortune 500. Some of these companies merged with larger companies and a few rebounded, later returning to the Fortune 500. But most of the companies, almost half of the Fortune 500, were replaced by their once-smaller competitors. These giants of American industry invested in the wrong products or the wrong markets. They failed to pick winners. Many companies around the world continue to evaluate new ideas haphazardly. They invest poorly, sinking millions in businesses with little chance of success. They spend heavily on internal research and development, yet never develop leadership products. They have large marketing departments, yet always miss the fastest growing markets. To win in the twenty-first century, you will need to: ▪ Pick the right markets ▪ Know your customers ▪ Design exceptional products 143



▪ ▪



Market your products creatively Distribute your products efficiently



The Silicon Valley Way poses the questions you will need to answer if you are to successfully compete in a high-tech world. In a few hours, you will get help organizing your thoughts and planning your business



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Appendix D: TRIZ Universal Innovation Principals



TRIZ provides a systematic, logical progression for the process of problem solving. It's based on the idea that someone, somewhere, at some time, has already solved your problem or one very much like it. The solution is to abstract your problem from its technology, and use The 40 Inventive Principles to determine which solutions have been utilized successfully to solve problems like yours. The 40 Inventive Principles The 40 Inventive Principles are: 1. Segmentation



21. Rushing through



Divide an object into independent Perform harmful or hazardous parts. operations at a very high speed. Make an object easy to disassemble. Increase the degree of an object's segmentation. 2. Extraction Remove or separate a harmful part or property from an object.



22. Convert harm into benefit Use harmful factors or environmental effects to obtain a positive effect. Remove a harmful factor by combining it with another harmful factor.



Increase the amount of harmful Remove only the necessary part action until it ceases to be or property. harmful. 3. Local Quality



23. Feedback



Change an object's structure from uniform to non-uniform.



Introduce feedback.



If feedback already exists, Have different parts of an object reverse it. carry out different functions. 24. Intermediary Place each part of the object 145



The 40 Inventive Principles under conditions most favorable Use an intermediary object to for its operation. transfer or carry out an action. 4. Asymmetry



Temporarily connect an object to another one that is easy to Replace a symmetrical form with remove. an asymmetrical form. 25. Self-service If an object is already asymmetrical, increase the Make the object service itself degree of asymmetry. and carry out supplementary and repair operations. 5. Merging Make use of wasted material Combine similar objects in and energy. space. 26. Copying Combine similar objects in time. Use a simple and inexpensive 6. Universality copy instead of a complex, expensive, fragile, or Have the object perform multiple inconvenient-to-operate object. functions, thereby eliminating the need for other objects. Replace an object by its optical copy or image. A scale can be 7. Nesting used to reduce or enlarge the image. Contain the object inside another, which, in turn, is placed If visible optical copies are used, inside a third object. replace them with infrared or ultraviolet copies. Pass the object through the cavity of another object. 27. Replacement of an inexpensive, short-lived object 8. Counterweight for expensive, durable one Compensate for the object's weight by joining it with another object that has a lifting force.



Replace an expensive object by a collection of inexpensive ones, forgoing properties.



Compensate for the weight of an 28. Replacement of a



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The 40 Inventive Principles object by providing interaction with an environment that contains aerodynamic or hydrodynamic forces.



mechanical system Replace a mechanical system with an optical, acoustical, or olfactory (odor) system.



9. Preliminary counteraction Perform a counteraction in advance. If the object is, or will be, under tension, provide antitension in advance.



Use an electrical, magnetic, or electromagnetic field for interaction with the object. When replacing fields, replace •



10. Preliminary action



•



Carry out all or part of the required action in advance.



•



stationary fields with moving fields fixed fields with those that change in time random fields with structured fields



Arrange objects so they can go Use a field in conjunction with into action in a timely matter and ferromagnetic particles. from a convenient position. 29. Pneumatic or hydraulic construction 11. Beforehand cushioning Prepare emergency means in advance to compensate for the low reliability of an object. 12. Equipotentiality



Replace solid parts of an object with gas or liquid. 30. Use of flexible membranes or thin film



Change the operating conditions Replace traditional constructions so that the object doesn't need to with those made from flexible membranes or thin film. be raised or lowered. 13. Inversion Invert the action required to perform a function. Make movable parts fixed and



Isolate an object from its environment by using flexible membranes or thin film. 31. Use of porous material Make an object porous or add 147



The 40 Inventive Principles fixed parts movable. Turn an object upside down. 14. Curvature



porous elements. If an object is already porous, fill the pores in advance with a useful substance.



Replace linear parts or flat surfaces with curved ones, and replace cubical shapes with spherical shapes.



32. Changing of color



Use rollers, balls, domes, or spirals.



Change the degree of translucency of an object or processes that are difficult to see.



Replace a linear motion with a rotating movement that uses centrifugal force. 15. Dynamicity



Change the color of an object or its surroundings.



Use colored additives to observe objects or processes that are difficult to see.



If such additives are already Make an object or its environment automatically adjust used, use luminescent traces or for optimal performance at each tracer elements. stage of an operation. 33. Homogeneity Divide an object into elements that can change position relative Make objects interacting with a primary object of the same or a to each other. similar material. If an object is fixed, make it movable or interchangeable. 34. Rejecting and regenerating parts 16. Partial or overdone action Reject or remove portions of an If it is difficult to obtain 100% of a object after it has completed its desired effect, achieve functions. Immediately restore somewhat more or less to greatly any exhausted or depleted part simplify the problem. of an object. 17. Moving to a new dimension 35. Parameter changes



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The 40 Inventive Principles Remove problems by moving an Change an object's aggregate object in two-dimensional or state. three-dimensional space. Change an object's density Use a multilayered assembly of distribution. objects instead of a single layer. Change an object's degree of Incline the object or turn it on its flexibility. side. Change an object's temperature. 18. Mechanical vibration 36. Phase transformation Set an object into oscillation. Implement an effect developed If oscillation exists, increase its during the phase transition of a frequency, even as far as substance. ultrasonic. 37. Thermal expansion Use the resonant frequency. Use a material that expands or Instead of mechanical vibrations, contracts with heat. use piezoelectric vibrators. Use various materials with Use ultrasonic vibrations in different coefficients of heat conjunction with an expansion. electromagnetic field. 38. Use strong oxidizers 19. Periodic action Replace normal air with enriched Replace a continuous action with air. a periodic (pulsed) one. Replace enriched air with If an action is already periodic, oxygen. change its frequency. Treat an object in air or in Use pulses between impulses to oxygen with ionizing radiation. provide additional action. Use ionized oxygen. 20. Continuity of a useful action 39. Inert environment



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The 40 Inventive Principles Carry out an action without pausing where all parts of an object operate at full capacity. Remove idle and intermediate motions.



Replace the normal environment with an inert one. Carry out the process in a vacuum. 40. Composite materials Replace a homogeneous material with a composite one.



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Appendix E: The Google's Story



Within the last seven days, Google has altered and augmented my perceptions of tulips, mind control, Japanese platform shoes, violent African dictatorships, 3‐D high‐definition wallpaper, spicy chicken dishes, tiled hot tubs, biological image‐processing schemes, Chihuahua hygiene, and many more critical topics. Clearly, thanks to Google, I am not the man I was seven days ago. —John Gaeta, visual effects supervisor, the Matrix trilogy Imagine doing that for someone? Imagine doing that for 90 million people a day? Larry Page and Sergey Brin can say they have changed the world. Their story, and that of Google, makes one of the most interesting tales of this century or the best “so far,” as admits Brin, “the number‐one factor that has contributed to our success over the past seven years has been luck.” It has been a dramatic journey from when Page and Brin celebrated milestones by going to Burger King for hamburgers and when they played roller hockey in the parking lot with employees. Those were the good‐old‐days. Google has moved on to the good new days and to a time when it has enormous responsibility to the public, to employees, and to shareholders. “There are people who think we are plenty full of ourselves right now, but from inside at least, it doesn't look that way,” said Craig Silverstein, Google's technology director and its first employee. “I think what keeps us humble is realizing how much further we have to go.” Google also presents one of the most perplexing paradoxes of our time. We love Google, we use it obsessively, we bare our souls to it. The information makes us healthier, wealthier, and wiser. Information is the underpinning of personal and political freedom. On the other hand, we don't understand how Google really works. It feels as if it knows too much about us and has too much control over us. We are suspicious of it. The whole process of search and search‐related advertising challenges age‐old concepts of



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personal privacy. When it comes to property rights, Google seems to have the attitude, “What's mine is mine; what's yours is mine.” “As a corporation,” wrote BusinessWeek, “it's often a cipher, its intentions and methods concealed by algorithms that look impenetrable and impersonal. Yet the search engine and the blockbuster business built atop it utterly depends upon millions of people sharing through searches their most intimate desires, and upon thousands of businesses willing to open their data storehouses to feed Google's voracious digital maw.” The question that most people ask about the company is, “Do they really do no evil?” It is their oft‐stated intention not to do evil, and very likely they don't do evil on purpose. But the Google guys are human, and Google is a complex business. Different people have different definitions of evil. In its dozen years of existence, Google has changed its own definition of right and wrong. Originally, the founders refused to offer horoscopes, financial advice, or chat. Horoscopes were considered bogus, financial advice often suspect, and chat superfluous. They originally claimed not to accept pornography advertisements, but then such ads would mysteriously appear. Those ideals have long gone by the wayside. Ah, well, evil happens. Writing in Canada's The Globe and Mail newspaper, Matt Harley and Grant Robertson insist that “Google is a work in progress, and always will be. The Mountain View, Calif., Company exists in a state of perpetual beta, and it's a corporate philosophy that has helped drive the company's seeming boundless innovation.” As long as the company continues with high profitability and outstanding growth, it can get away with a lot of missteps and mistakes. But once those two measurements of success lag, it will deal with the same harsh judgments other mature companies must face. In fact, some of those criticisms have begun. Trip Chowdhry, a senior analyst at Global Equities Research, claims that being the king of search won't be enough to sustain Google over the long term: “Name me anything they've been successful in besides search,” Chowdhry asks. “I think the board and management of Google needs a total overhaul. Certainly investors have signaled their doubts about Google. The stock started 2008 off strong with shares hovering above $690— 152



slightly below the all‐time high of $747.24 as of November 2007. But as 2008 progressed, the company's stock plunged 56 percent, partly because of fears that its revenue growth would tank. Google's core business has in fact slowed, but held up reasonably well during the 2008 to 2009 financial turmoil. Despite the legitimate fears, Google remains a stable organization and a trusted brand with a strong franchise. The number of searches done on Google grows every month. Its ad revenues have also been on a fast track. In 2007, Google outstripped every other media company, whether it was the Web, TV, print, or radio. Google's ad revenues outstripped 17 major media businesses, including News Corp, Time Warner Cable, Viacom, Yahoo!, Microsoft, AOL, the New York Times, and CBS Radio. Online ad revenue for these 17 companies grew 9 percent that year, while total online revenues grew 28 percent. Google's online ad revenues grew 44 percent compared with 15 percent for the combined online ad revenues of Yahoo!, Microsoft, and AOL. Revenue growth declined slightly in 2008 and was expected to slide more in 2009. Still, Google leads its pack and continues to rake in the money. The positive side of the company far, far outweighs the negative. Eric Schmidt announced a defensive plan for Google but said he was bullish about the economic outlook for Silicon Valley companies. “This is the sixth or seventh cycle I've seen in Silicon Valley. I think we're better positioned than ever.” Then he placed the blame squarely on the area's terrific weather, and Larry Page agreed: Silicon Valley is amazing, but before the end of 2008, Google announced it was trimming overhead and laying off much of its 10,000‐strong contract workforce. Even Tesla, with its backlog of sales to movie stars and industry moguls, felt the pinch. Admittedly, Google's survival is anything but guaranteed. The company operates in a quick‐changing, highly competitive environment—it is involved in a global scientific and economic boxing match. Yet, if the founders continue to be as cautious and crafty as they have been in the past, they will prosper. “Google will keep pushing the envelope,” predicted writer John Battelle. “It's one of the things that seem to make them happy.” 153



What can we learn from the Google story? ▪ The American dream is alive and well. It may flicker, it may fade, it may seem far away, but it still beckons us forward. Anything is possible. ▪



▪ ▪ ▪



A high‐quality education system is an important incubator. Thanks to Montessori schools, public schools, great state universities, and Stanford University, the Google guys were able to learn what they needed to know to formulate and develop their ideas. When they arrived at Stanford, they found the knowledge, technology, equipment, and even financing they needed. By then, they were ready for it. Stanford is an excellent example of how a great university can promote science and business innovation, but there are numerous other examples. Both Microsoft and Facebook were launched on Harvard's computers. Don't focus on the money; focus instead on excellent results. Have fun. Others will be more than willing to support you in your work, especially if it is playful and pleasant. Don't be evil—or at least try your best to conduct business in an honest and fair manner. This one isn't easy, but it's a commendable aspiration.



I've written about many people who have changed the world with their ideas and actions. These include Bill Gates of Microsoft, Warren Buffett of Berkshire Hathaway, Jack Welch of General Electric, Ted Turner, creator of CNN, Oprah Winfrey, and others. I'm often asked what characteristics these exceptional people have in common. ▪ Foremost, they trust themselves and follow their own ideas. They have intuition, but more important, they listen to that inner voice. Intuition is not a supernatural phenomenon. It is a combination of your total knowledge, your experience, your thinking and feeling self, and your present mindset. It can be your automatic pilot. ▪ Fresh thinking is essential. As the world of technology evolves, new problems arise daily. Old problems return to haunt. Bill Gates and Paul Allen did not even think of the past as they worked up the first operating system for the first personal computer. They simply surveyed the challenge and dove for the answer.



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▪



▪



▪



They are curious. Larry Page and Sergey Brin continually ask questions and probe the answers to see whether they work. They engage their imagination. They think of what may be possible. They think big. Imagination is a gift, but it also can be cultivated. They are bold, sometimes in a brash way, sometimes in a genteel way. They push and poke beyond what others, even their own mentors, have done. They don't hesitate when they know they are right. A strong positive attitude carries them forward, far forward.



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Appendix F: General Electric and Jack Welch



General Electric surely is the most typically American of all companies, and Welch, the son of John F. Welch Sr., a Salem, Massachusetts, railroad conductor, is the most blatantly American of any chief executive in the world. In the predictably American way, Welch has little patience with tradition for its own sake, and, as might be expected, he is unintimidated by trappings of social class. Welch, who stuttered for most of his life, gives his mother, Grace Welch, much of the credit for his self-confidence. "She told me I didn't have a speech impediment," he recalled. "Just that my brain worked too fast." His tongue just couldn't keep up. An energetic, imaginative self-starter who grew up in the historic port town of Salem, Massachusetts, Welch thrives on confrontation and is outspoken to the point of being brash. Yet he also is a captivating ruffian who still speaks with the accent and cadence of a Boston-area kid who's playing a tough game of sandlot baseball. His high school classmates called him the "most talkative and noisiest boy." Sports were always central to Welch's psyche. Since his school days Welch has been known as an aggressive hard worker, and as a kid he was able to incorporate work and play when he earned $3 a day caddying at the golf course near his home. Welch was the first in his Irish-American, working-class family to attend college, though he was not able to attend an Ivy League school as he'd hoped. The college he attended, the University of Massachusetts, did not have the prestige of nearby Amherst and Smith Colleges, but it has had many other distinguished graduates, including Jack Smith, who is chairman of General Motors. The spartan UMass campus sits like an old New England mill town in the midst of rolling green hills, but it was fertile soil for young Welch. When their son took off for college in the fall of 1953 it was a new experience for the Welches, though the $50 a semester cost seemed a small sacrifice for their only child. Jack's usually taciturn father had simple advice for the boy: "Work really hard, and don't mess up."



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Welch's mother, a devout Catholic, had enormous influence on her son. She had been trying to have a child for 16 years with no luck; then, when she was 40, Jack was born. Grace Welch hoped her wonderful bright boy would study to be a priest or physician, but Jack followed his own course. He chose chemistry because he loved it. Welch played hard and lived in the rowdiest fraternity house on campus, but he also studied, and he graduated with honors. "All of my professors—many of them have died now—were my friends until the day they died," recalled Welch. "I was sort of like their child. They pushed me through ... They just liked me, and they took care of me, boosted me But the 1980s, when Welch took charge, also were times of technological change, economic stress, and challenges from outside the United States. Many old-line companies were slipping down. GE prior to Welch had the goal of simply growing a little faster than the economy as a whole, which was less than inspiring. When Welch became CEO in 1981, GE's outgoing chairman Reg Jones was voted the best CEO by his peers among the Fortune 500 companies, and GE was voted the best-managed company. Nevertheless, Welch saw that the company, indeed the entire nation, could and should be better, and must be better to maintain its momentum in the last two decades of the century and to propel itself into the twenty-first. On the December day when his promotion was announced, the U.S. prime rate rose to 21.5 percent; the economy was slowly coming out of one recession and was about to drop into another; the Dow Jones Industrial Average was at 937, a level it first reached 15 years earlier. Stocks had just experienced their worst decade since the 1930s. GE's own stock had lost half its value over the previous 10 years. Not just at GE, but everywhere in America, old management ideas were clearly worn out. Technology was on the move; Europe and Asia had recovered from the cataclysm of World War II, and the United States itself was ready to recover from the Vietnam War. Japan was sweeping the world with its commitment to quality, and W. Edwards Deming was calling attention to the U.S. deficits in that particular realm.



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"We were dealing with Asian threats across every business," explained Welch. "It was a reminder that we'd better get a lot better, faster. So I guess my message in our company was, 'The game is going to change, and change drastically.' And we had to get a plan, a program together, to deal with a decade that was totally different If you bought $10,000 worth of General Electric shares in March 1981—when Welch was elevated to chief executive—never sold, and reinvested your dividends each quarter, your stake would have been worth more than $640,000 at the end of 1999. (During that time, there were four two-for-one stock splits.) Berkshire Hathaway chairman Warren Buffett often laments that it has become increasingly difficult for Berkshire's stock price to beat the market as the company grows. Yet Welch has bested the S&P 500 index in most of the past 30 years. For the period between March 31, 1981, and December 31, 1999, GE beat the S&P 500 index by a factor of 1.4 times. For the most recent three years of that period, the factor was 1.8. General Electric's underlying numbers seem to justify its share price. By 1999, GE was the ninth largest and second most profitable company in the world. Since Welch took over in 1981, GE sales rose more than sixfold (from $27.2 billion to $173.22 billion); profits also grew more than six times (from $1.6 billion to $10.72 billion). Measured by sales, it is second in the nation after Exxon Mobil. In terms of profits, GE also is second only to Hutchison Whampoa. Welch agrees with Buffett that size is a burden unless you make it work for you by using the size for leverage, and that is exactly what he has done. "The two greatest corporate leaders of this century are Alfred Sloan of General Motors and Jack Welch of GE," says Noel Tichy, a longtime GE observer and University of Michigan management professor. "And Welch would be the greater of the two because he set a new, contemporary paradigm for the corporation that is the model for the twenty-first century." The Canadian magazine Maclean's reported that in addition to being the most admired corporate leader in the world, "He is also, by near-universal agreement, a tough and foulmouthed SOB," who conducts meetings so aggressively, using criticism and demeaning 158



ridicule, that people tremble. This description leans toward the truth, but is somewhat extreme. Welch is direct, plainspoken, and decisive, and does not suffer fools gladly. He demands a lot from GE employees and, in doing so, does not use words as if he were in church school on Sunday. He would never have been able to change GE as much as he did without a forceful personality. And yet, say the people closest to him, he listens to others and he is consistent and fair. Certainly Welch can be impatient. Tom Peters recalls hearing a story about when Welch asked some purchasing people to work on some tasks. "Weeks later, he met with them to review their progress. To his dismay, they had none to report, only weighty analyses and half completed efforts at coordinating with various departments. Welch was furious. He called the meeting to an abrupt halt, then ordered it reconvened only four hours later. The agenda? To report on progress. He got it, too. More was done in those four hours than had been done in several weeks preceding them." Even with acknowledgment of Welch's strong spirit, there are differing ideas as to what accounts for his success. Writers at Forbes say that the secret to Welch's accomplishments is not a series of brilliant insights or bold gambles, but rather fanatical attention to detail. Some say his greatest talent is matching technologies to markets; others say it is that of a change agent. Most agree he truly Americanized GE—bringing the democratic process, the voice of the ordinary worker, into the corporate arena—while at the same time pushing GE into global leadership. Management experts say Welch's reputation as a leader can be attributed to four key qualities: 1. He is a skillful, intuitive portfolio strategist. 2.He's willing to change the rules if necessary. 3.He's highly competitive. 4.He is a great communicator and motivator. As a portfolio strategist, Welch knows what he likes and doesn't like. He is focused and analytical, but after his homework is done he trusts his instincts. He demonstrated this skill immediately after becoming CEO by restructuring GE from 350 businesses down to two dozen core activities, and either expanding internally or making acquisitions to position all GE's businesses as either number one or number two in their fields. The last-minute, high-



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intensity Honeywell acquisition was Welch's last and largest strategic strike, and it is one that will be redefining GE for years to come. The Honeywell acquisition and Welch's postponed retirement are examples of how boldly and swiftly Welch can readjust course, but his attitude toward change goes deeper than any specific event. It is a philosophy. When Welch instructs his managers to "hate bureaucracy and all the nonsense that comes with it," he is shifting from top-down to outside-in orientation. He is saying, basically, let external demands, not internal management, guide your productive behavior. That makes intuitive sense to workers. They don't need to commission a management study to confirm what he says. Nothing has demonstrated Welch's competitive nature as clearly as the day he realized that one of GE's major competitors, United Technology Corporation, was about to acquire Honeywell, giving UTC control over some of the most advanced and forward-thinking technology in the aviation industry. Welch's reaction was swift and effective. From the start of his career until the Honeywell incident, Welch injected his own competitive nature into GE's very fiber. He set painfully high standards for huge growth margins, market leadership, and near-flawless quality for his divisions, standards he calls stretch goals because they require employees to reach as high as possible—but he also expects the standards to be met and maintained. While there is no doubt about who is in charge at GE, the nature of Welch's leadership is flexible and constantly adapting. Rather than planning and controlling the operations of GE divisions from corporate headquarters, Welch sets performance targets and lets each business unit run itself. He exudes faith in his employees, but as one NBC worker explained, he also instills a little fear. "When the chairman speaks, you'd better listen." Even though he puts a touch of tyranny into his leadership, Welch has transformed himself into the most influential manager of the century. Beyond a CEO, he is seen as a management role model, an oracle, an icon for those people who hope to ascend to the mountaintop of management. Welch became a teacher, a guru, within GE by actually stepping into the classroom. At Crotonville, GE's acclaimed management academy, Welch has led more than 250 class sessions in his two



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decades as chairman, engaging more than 15,000 GE managers and executives in a dynamic dialogue about the company, its functions, and its future. Welch's hell-bent-for-leather sessions sometimes last up to four hours. Even so, communicating to large numbers of people was something Welch had to learn. Welch says that he was five years into his term as CEO when he realized that his message wasn't getting across to the entire company and he wasn't always as convincing as he hoped to be. "I was intellectualizing the issues with a couple of hundred people at the top of the company, but clearly I wasn't reaching hundreds of thousands of people," he recalled. The company's powerful in-house communications machine does its part. After Jack Welch gave a rousing leadership speech at GE's January management meeting in Boca Raton, Florida, the next day 750 video copies of the speech were dispatched to GE locations around the world. The tapes were prepared in eight different languages, including Mandarin and Hungarian. Many people have tried to condense the Welch philosophy into bullet points, and Welch himself likes to use simple concepts to sell big ideas. They almost always distill to the following concepts: ▪ Face reality, but don't be afraid to envision big results. ▪ Be forthright and candid with everyone. ▪ Lead rather than manage. ▪ Change before you are forced to do so. ▪ If you don't have a competitive advantage, get out of the game. ▪ Control your own destiny, or someone else will. "For me," explained Welch, "good communication is simply everyone having the same set of facts. When everyone has the same facts, they can get involved in shaping the plans for their components. At the Corporate Executive Council, everyone in the room sees the entire company and can draw his or her own conclusions about its performance, its environment, where it's going for the next 90 days, where it's going for the next two years, and where the vulnerabilities are, where the strengths are." As some see it, Welch wasn't entirely in control of his own destiny once he started up the management ladder at GE. He soon became an avatar, the embodiment of the GE ideal, a 161



reincarnation of previous GE leadership, simply adapted to his own time and conditions. Welch was the eighth chairman of GE and the youngest GE chief executive in the company's history, but he wasn't an anomaly. Each of the previous eight GE chairmen captured the spirit of his own era. Gerald Swope, Ralph Cordiner, Fred Borch, and Reg Jones have been legends, although perhaps not to the extent that Welch has been. Collins and Porrras insist Welch did not inherit a grossly mismanaged company, that in fact the opposite was true. The challenge for Welch was to spot trouble before it occurred, to take preventive measures, and to make the most of GE's tremendous momentum. Welch was a Yankee revolutionary; but, once again, he wasn't GE's first revolutionary. In 1913, GE hired Owen D. Young, a reputable lawyer, to help protect the company from government Sherman Antitrust Act probes that had started in 1911. When he reported for work at the company,Young was amazed by the potential he saw there. He lived in a world mostly lit by kerosene lantern and moved by hydro and animal power. "Electricity was then a new art and the notion that great machines could move without belt or other visible ties opened my eyes and mouth with wonder." Young quickly learned the business, and when GE purchased the Wireless Telegraph and Signal Company Ltd. and renamed it the Radio Corporation of America, Young became RCA's first chairman. There he supervised David Sarnoff, a daring thinker in the radio and television industry. Young first became chairman of GE in 1922, with Gerald Swope serving as president. Young served as chairman until 1940, and then briefly again between 1942 and 1945. Young and Swope believed that electrifying the home was the key to GE's future success. Demand for household goods would grow dramatically when they were cheap and reliable, and in turn, use of electricity would expand. Young was the first person to reinvent and reengineer GE, and he did it 70 years before the terms became catchwords in the business vocabulary. He was hailed as a new breed of manager—a scientific one. To the public, Young pledged "either a better product at the old price or the same product at a lower price." To employees he promised, "We must aim to make the earning power of human beings so large as to supply them not only with a living wage, but a cultural wage." In other words, the company's wealth would be 162



shared so that everyone could have the opportunity to develop their intellect and enjoy life more. Young had grown up poor on a farm, and he didn't wish poverty on anyone. The shareholders didn't necessarily like Young's attitude, but he, like Henry Ford, realized that satisfied workers were not only more productive workers they were consumers of GE's products. Young also understood business cycles, though the concept did not enter the lexicon until 1919. His president, Swope, introduced the concept of "enlightened management." Other GE change agents were Fred Borch and Ralph Cordiner. Cordiner (1950 to 1963) pushed GE into a vast array of new industries. He restructured and decentralized the company and created Crotonville, GE's famous management training and indoctrination center. Fred Borch (1964 to 1972) took GE into many new bold, risky ventures such as jet aircraft engines and computers. "Borch let a thousand flowers bloom," observed Welch. "He got us into modular housing and entertainment businesses, nurtured GE Credit through its infancy, embarked on ventures in Europe, and left Aircraft Engines and Plastics alone so they could really get started. It became evident after he stepped down that GE had once again established a foothold into some businesses with a future A superior CEO like Welch has been compared to sports legends. Like a Michael Jordan, a Tiger Woods, or a Florence Griffith Joyner, not only does he win, he changes the way the game is played. Although there are divergent opinions on the specific key to Welch's success, it is widely agreed that he rewrote GE's playbook in several ways: First, Welch conquered the company's diversity, making it a strategic asset rather than a liability. Additionally, he made bureaucratic GE quick-thinking and entrepreneurial by accelerating all of its activities to warp speed. Finally, capitalizing on GE's fraternal nature, Welch got his managers to feel like business was a game and they were headed for the Super Bowl. Forbes magazine explained, "His greatest achievement is that having seen what needed to be done, he faced up to the huge, painful changes it demanded, and made them faster and more emphatically than anyone else in business." Welch has characteristics in common with other business leaders as well. Like CNN founder Ted Turner, he wanted his company



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always to be a contender. Like Microsoft founder Bill Gates, Welch has been keenly in touch with the future. Like Berkshire Hathaway's Warren Buffett, he shared his ideas with anyone who would listen, and plenty of people did. The British magazine The Economist concurred that Welch's greatest accomplishment was getting GE to confront three big external shocks: globalization, the move from manufacturing to services, and the Internet. These were big challenges, requiring vision, energy, and time. The first two accomplishments— globalization and the shift to services—are well worth exploring, and we will do so in the chapters ahead. Welch's role in the third— integration with the Internet—may be more perception than reality, an issue that will be discussed in the third section of this book. It will become evident that Welch succeeded because he was the right person to lead the company at the time. He indeed took charge of GE during an era when the economy was in crisis, the automobile industry was being redefined by the Japanese, conglomerates like GE were out of favor, and business leaders were responding miserably to a number of threats. Welch applied a group of expansive, positive ideas to the unique challenges of the time. Not everyone is convinced that the company was completely transformed by Welch, or rather just highly groomed so that it could continue to maintain its prodigious heritage. And yet, "Welch's GE," claims Victor Vroom, a professor at the Yale School of Organization and Management, "is a model for the promise— and the problems—of creating the modern industrial company."



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Appendix G: 4 Ps of Marketing



The four Ps of marketing are product, price, place, and promotion. Also called the "marketing mix," these variables work together to create a framework for all strategic marketing plans. Each variable can be controlled to produce a positive effect provided the consumer is considered at every step along the way. •



•



•



•



Product: customer wants and needs If you want to sell your products and services, each must fill a customer's want or need. Do customer usage patterns indicate a need for change? Do customers approve the product's appearance and technical features? Is a product category showing growth nationally? What are the trends in product innovation, marketing campaigns, and pricing? Price: customer value assessment Too often, price changes are reactive. A company may increase or lower their prices based on competitor activity. But, a targeted method of pricing where customer value is assessed is a much better approach. Before you set or change prices, ask your team the following questions: Does the pricing structure strengthen or weaken your company? Do you offer a range of prices within a product category? How do your prices compare with the rest of the marketplace? What is the level of price elasticity? How do returns, credits, promotions, and shipping policies impact revenue? Does the relationship of your price to your competitors change seasonally? Place: customer convenience If you think how the product is distributed is the company's decision, think again. Convenience to the customer is a key factor in successful distribution. Superstores, toll-free catalog shopping, 24-hour cable shopping channels, and the Web are all designed to give customers maximum convenience. Promotion: communicating to the customer Promotion is communication with the customer. To see results, you must consider your customer's media habits then promote your product or service as a solution to their problem. Promotions should also help to build long-term relationships.



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Remembering the four Ps of marketing will help you to create a solid framework for your market strategy. As you develop your plan, keep the customer in mind whether you're developing products, setting prices, deciding on distribution channels, or creating promotions.



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Appendix H: Change Management



Key elements for organizations managing change successfully through the change process were as follows. Orientation There needs to be a good process for addressing both external and internal drivers for change, together with openness for change backed up by detailed data gathering and a rigorous decisionmaking stage. In the majority of cases there was a co-creation of direction with key stakeholders. By connecting with them, a motivating shared vision could be built. An important component was having the end user - customer, client, pupil -always in mind and also the ability to refer back to them when deciding on what changes to make. After the future state - outline or specific - had been mapped, it needed to be supported by a clear and convincing business case. This means ensuring that the drivers for change do lead to improvement coupled with a set of principles for the way the changes will be handled. In each case holding the organizational values in mind and referring back to them as a ‘touchstone’ was a natural and integral part of the plan. What you do and how you do it emerged as an important concept. Clarity of vision and commitment to a core set of values was crucial in direction setting and/or in execution. Those organizations where stakeholders felt a sense of readiness for change seemed to make the transitions more smoothly. Organization There was an imperative to address both the task issues (project implementation) and the process issues (the group/team dynamic). The projects were run by dedicated, credible people with meticulous planning on the things that needed to be got right. There tended to be a credible project team with ongoing top level sponsorship. Where appropriate (eg systems change, due diligence) a well thought out project management methodology with a very clear decision-making and problem-solving process was evident.



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In all cases the business and other stakeholders' needs were represented on the team and they fed into the design process and the solution generation. Being responsive to the customer, listening to the staff and suppliers or consultants aided the process. Mobilization Entering into real dialogue with key stakeholders took longer but ultimately enhanced the chances of successful outcomes. Taking the time upfront to create a ‘facilitating environment’ enabled change agents to allow tensions and potential conflicts to be raised and addressed. This reduced the possibility of these conflicts being ‘acted out’ negatively during the change process itself. Involvement and engagement of all stakeholders with targeted communication according to need was demonstrated time and time again to be an indispensable factor in the successful management of change. Part of this was by ensuring that managers were engaged, involved and trained for the change and staff had many opportunities to feed back their views. Even those initially against the changes could be engaged in this process. Holding onto the vision and having visible involvement of senior management supported the Prosci research findings. The combination of visible sponsors and top team commitment increased momentum and reduced organizational drag. Communication channels were established really early on and a series of continuous and targeted communication occurred throughout the process. The various change teams engaged people in all of their relevant networks -especially the operational side of the business. Engaging stakeholders was best achieved through attentive and active listening. Creating a motivating vision that all communities can get behind and then demonstrating that you can and will deliver builds short-term credibility and enables mobilization to happen more readily. Recognizing and acting on the fact that different personality types like to be communicated with in different ways doesn't have to be an overly planned affair. But you do need to shape your strategy accordingly - for example, a series of one-to-one, group, team and stakeholder ‘events’ can tap into everyone's energy and enthusiasm and allow everyone to make contributions - first in 168



terms of the direction, and second in terms of commitment to action. Implementation Providing coaching, supervision and development for the management population - linked to strategic objectives and operational realities -enhances management capability and provides emotional support (and challenge) during times of change. As the changes take place, parts of the organizational infrastructure will change in line with the change direction - for example, a new structure and new locations went hand-in-hand with devolving power and budgets. A very effective project management structure was established when the nature of the change required a more planned, top-down approach. This always came with a clear line into the program management board. There was business representation for all strategic discussions and a business group assessed the blueprint, the training and user acceptance and reported back to the board. There was a clear governance structure with a senior responsible owner and clear responsibilities and accountabilities. An issues log and a risk management log were part of the everyday process. Understanding the politics of the situation always helps as does going where the energy for change is. Spotting where the changes were being disrupted or where help was needed was also a distinguishing feature. Transition Creating dialogue means everyone's voice is heard, thus increasing the possibility of ‘buy-in’ and engagement in the change process. It's important for issues to be raised so that they can be addressed. Workshops for affected managers to address issues of concern and planning for the future were shown to be useful change interventions in a number of the case studies. If the changes are conducted openly and with a lot of communication then the change team are more likely to get valid feedback about progress. The more you can forewarn people and clearly link the changes to the strategy, the more understanding will be the people affected by change.



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Building capability and capacity through development programmes and time out to review and reflect was a major plank in a number of the changes. The transition period tended to be managed through dialogue and engagement. There were some meetings where boundaries, such as performance management issues, were laid down, but generally it was the movement from one culture to another done though dialogue and engagement. That is not to say that change was always smooth. Disturbance is an inevitable part of the process and there will most likely be a period where the organization is in Bridges' ‘neutral zone’. Integration Building staff and management capability and capacity, and getting structures, strategy and systems realigned and fitting with the new culture were key challenges for integrating the changes. It is important to recognize that additional resources are needed not only during the changes but most likely for a period of time after the changes have been implemented. It is useful for senior management and the change team to ensure continued focus at the stabilization phase and to ensure learning reviews takes place and are transmitted to the next change team. Even if you are traveling at speed, do make sure from time to time that you put in the infrastructure to sustain the changes. You can also embed the changes by developing the leadership capability and the cohesiveness of the formal and informal organizational networks. Leadership Having complementary leadership styles in the top team creates a broader spectrum of leadership capability. Creating the time and space for the change team itself to address (i.e. confront and work through) the ‘emotional baggage’ they may have picked up during the change process wasn't a universal theme, but did appear to ensure the lack of dysfunction of the change teams where it did happen. Having a project team being a cohesive unit helped the effectiveness of the team during the implementation process. There doesn't seem to be any need for a particularly visibly charismatic leadership, but there does need to be a variety of leadership styles adopted at different points in the change process.



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Understanding the nature of the leadership task during these different phases was highlighted as a key element. A low key but authoritative style in keeping all stakeholders on board proved to be particularly effective in a number of the case studies. In terms of Goleman's six styles of leadership, the most prominent ones that emerged in the case studies were the authoritative, affiliative and democratic, with some coaching style demonstrated. In a couple of organizations and in a number of situations the pacesetting style was prominent.



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Appendix I: The Seven Laws of Innovation 1. Build for the unknown: (NASA Space Suit) The amazing thing about the space suit is that, like so many great innovations, it was created for circumstances that were mostly unknown. No one could anticipate everything; the suits had to deal with factors the smartest terrestrial scientists could never have known to ask about, but that were immediately obvious once theory met reality. 2. Fail Fast: (Sony and the Pocket Radio) In 1946, with his father's $25,000 investment and a university colleague named Masaru Ibuka as his partner, Akio formed Tokyo Telecommunications Engineering Corporation (Tokyo Tsushin Kogyo K. K., or TTK). The first big hit for TTK came shortly after Morita licensed the transistor from Western Electric and the patent rights from Bell Labs. He decided to pursue a shirt-pocket-sized radio, which was a huge gamble. Although the transistor had been used with success, and miniaturization was emerging as a trend, no one considered radios personal. However, Morita's first attempt was hardly a pocket radio as we think of it today. In fact, he had custom shirts tailored with oversized pockets for his salespeople so the company could call it a pocket transistor radio! People laughed at him, but he was not dissuaded. He realized that this was something the market had no model for. He understood that there was no way to create a market for the pocket radio without pursuing a series of failed attempts to understand the market by involving it in the design and definition of this new idea. He decided to build the pocket transistor radio from the ground up based on what the market wanted. Failure was just an opportunity to learn. In what has to be one of the most brilliant product rollouts of the twentieth-century consumer electronics industry, Akio Morita allowed the market to shape itself. Over four years TTK transformed itself into Sony and went through four generations of technology until it finally hit the market dead center with its TR-63 in 1957. In the next two years Sony brought out no less than eight additional generations of the pocket transistor radio, each one the 172



embodiment of numerous lessons learned. By then it had sold more than a million pocket transistor radios. The breakthrough pace of Sony's innovating was unprecedented, and it quickly became the hallmark of its agile 3. Abandon the Success of the past: (Apple and I-Pod) For two decades Sony continued to dominate the market for personal music with its Walkman, through a steady proliferation of models. Yet Sony was not infallible. The first indications that something was wrong started in 1975 when Sony introduced the Betamax videotape format and began a long battle over both the rights to Betamax and the popularity of the competing VHS standard. Sony got lost in the mistake of trying to invent rather than to innovate, in trying to repair broken dreams rather than create new ones. In the same way that Sony's TR-63 was not the first transistor radio, the iPod was not the first MP3 player, not by a long shot. In fact it was not the least expensive, nor was it the smallest, nor by any measure the incumbent. In fact, Apple was the outsider in the music business. Apple no more created the popular MP3 format, which all iPod music used, than Sony had created the transistor. But Apple created the experience by bringing together the interface, digital media, and the ability to buy music at its most atomic level and create truly personalized playlists. And, most important, it let the market run with it. 4. Separate the Seeds from the Weeds: (General Motors and Onstar) In 1995 Project Beacon, a partnership of GM's Hughes Electronics, EDS, and GM's car business, was an uncertain venture with no clear path forward. Yet, Harry Pearce, GM's retired vice chairman, saw in Project Beacon a glimpse of the future in which mobile communications and the automobile could be brought together. Pearce selected longtime GM middle manager Chet Huber to head the project. Huber was an engineer with a Harvard MBA and a degree from the Industrial College of the Armed Forces, all of which would be essential as he spent the next six months looking at how GM could build a business around the Project Beacon portfolio. The portfolio included the nascent technology of GPS, a tiny opportunity that at the time could only generously be called a seed within the enormity of the automobile industry, where new



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innovations are measured by their contributions in billions of dollars. In this context it just wasn't clear what the payoff from combining mobile communications, GPS, and automobiles would be. The bigger challenge in doing anything new in the automotive industry, however, was to break open the vehicle development process and make it fast enough to accommodate the pace needed for smaller-scale innovations. GM couldn't introduce an innovation of any magnitude in the time it took to integrate new technology into an automobile. According to Chet, "If we had to live by the traditional rules of engagement for vehicle programs, then from the concept to our first application would have been three or four years." That was just too long. The first step was creating an Innovation Zone—a new business called General Motors Mobile Communications Services that acted as a demilitarized zone between Hughes, EDS, and GM. This provided the neutrality that the new idea needed to be unencumbered by past legacy and culture and to survive long enough to determine its value. The idea quickly formed to build a device that would enhance vehicle safety by using positioning and telemetry to report accidents, unlock doors, and locate stolen vehicles. Some basic market research was done to validate the interest in a device that might increase the safety of automobiles using GPS; the initial feedback was encouraging, although far from definitive. 5. Focus on Process over Product: (3M and the Post-it Notes) One of the cornerstones of 3M's innovation culture is what has been called the 15 percent rule. Simply put, the 15 percent rule states that every technical employee at 3M can spend up to 15 percent of the time working on independent projects. The rule had its origins in the early days of 3M when an enterprising young engineer began to devote time to the problem of tape used in painting cars. At the time two-tone car bodies was starting to become a popular trend. However, the plaster tape used by painters would either peel away the paint or leave a residue on the surface. In either case the result was hours of additional prep. A 3M employee who was responsible for providing 3M's WetDry sandpaper to body shops noticed this and began to research



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adhesives that could handle the challenge. In 1925 3M introduced masking tape. Five years later that research led to the introduction of cellophane tape. This approach has continued as a cornerstone of 3M's innovation philosophy to this day. A 3M executive told me that the philosophy at 3M is to reward not only successful innovation but failed attempts as well. This sounds absurd but it is at the heart of 3M's success with Post-it Notes. The adhesive used in Post-it Notes was developed with no specific application in mind. According to its creator, Spencer Silver, "My discovery was a solution waiting for a problem to solve." Spencer's collaborator Art Fry (often credited with the idea of applying Silver's adhesive to paper) says, "At 3M we're a bunch of ideas. We never throw an idea away because you never know when someone else may need it." This would sound like a very inefficient way to go about innovation were it not for the fact that it comes from one of the world's most successful and consistently innovative companies, one that, according to internal documents, averages a whopping 30 percent of sales from products less than four years old. That sort of track record is hard to argue with. But it's also incredibly difficult to sustain, especially for a $20 billion company. 6. Create an Innovation Experience: (Cheskin) In the 1930s Louis Cheskin and his company, which evolved to become Cheskin Added Value, embarked on one of the most radical efforts to understand consumer buying behaviors and to answer the question, Why do consumers buy? Cheskin's work shaped of some of the world's most prominent and iconic brands, including Marlboro, Tide, Crest, Dove, McDonald's, Standard Oil, 3M, Lifesavers, Atari, and Betty Crocker. It's difficult to find anyone today who does not interact daily with one of the brands that Cheskin touched. Cheskin's ability to understand the way markets behave was founded on a deep conviction that people develop an association with the image of a brand and the statement it makes. In the 1930s and 1940s the notion that a brand could convey value, much less innovation, was a novel idea. But at the same time there was an explosion of several fundamental trends that created an innovation apex for Cheskin. These included the advent



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of mass markets, mass distribution systems, mass transportation, mass media, and economies of scale that caused every company to look for ways to sell more by inventing new product categories. Innovation in this era was steeped in product and invention. The explosion of new ideas, products, and markets created choices, but it also created confusion. To differentiate themselves, companies started moving slowly toward the more effuse notion of a brand as a way to make their product experience unique. The products Cheskin consulted on were in many cases commodities, so the move was essential. Products such as soap, cigarettes, and fast food used the same basic ingredients and processes, yet they were still able to create a strong brand attraction and loyalty. Cheskin's approach was to identify the fundamental drivers of buyers in order to present the product in a way that best fit their perception of value. Sometimes this was a subtle exercise, as when he suggested changing the color of margarine from white to yellow, dramatically increasing demand for margarine and setting the stage for every other margarine since. 7. Challenge Conventional Wisdom: (The I-Robot Story) In the 1980s Colin Angle was a graduate student at MIT. He was fascinated by robotics and was working on developing a six-legged mechanical version. Angle's project ended up as the basis for his master's thesis. However, after working painstakingly to develop his robot, Angle had a hollow feeling. It dawned on him that, despite its technical prowess, his six-legged marvel was nothing more than a curiosity, an odd but interesting techno-toy. The realization dawned on him that there was no value there, just cool technology. This was not an innovation as much as it was just one more link in a long chain of interesting but otherwise useless inventions. That was a turning point for Angle. He quickly decided to turn his focus to creating value through robots rather than just chasing after technology. In 1990 he was joined by cofounder Helen Greiner and Rodney Brooks and created a new company, iRobot. The mission for iRobot was simple and straightforward: "Build cool stuff, deliver great product, make money, have fun, and change the world."



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iRobot made a mark for itself by building robots for extraterrestrial exploration, military use on battlefields and minefields, and in 2001 searching the rubble of the World Trade Center in the aftermath of the terrorist attack. The company grew steadily, but the consumer market was still elusive. Colin Angle thought it was time to take a crack at the consumer once again, but this time without the hyperbole and promise of a robot maid-of-all-work. He took a much more practical approach. Angle entered a 150-year-old industry where extensive innovation had already occurred. Yet an innovation apex was approaching and the timing for his idea couldn't have been better. While much of the tedium of housework has been automated to operate in parallel mode—that is, your dishwasher, washing machine, and oven can all work simultaneously, without your constant attention—one aspect of keeping a house clean has barely progressed since the early part of the last century: cleaning your floors. Vacuuming and mopping have experienced countless incremental innovations but still require someone to attend to the entire task. At the same time the importance of this simple task has increased in response to airborne pollutants, respiratory conditions such as asthma, the growing footprint of the typical home, and the premium placed on time in two-income households. Suddenly you have several substantial catalysts that change the nature of the problem significantly. If you build vacuum cleaners and floor mops, how do you respond to these issues? Well, of course, you make the tool faster, cleaner, lighter, stronger— whatever is needed to make the task easier. Your focus is on the task, and that doesn't allow you to ask if the task even needs to be done. Companies that challenge conventional wisdom don't start by asking, "How can we make this task easier?" They start by asking, "Do we need this task at all?" So assume that your company sells vacuum cleaners and I suggest that the problem is the task itself and we should eliminate the need to do the task. It wouldn't take long for you to show me the door. But this is exactly the situation that an innovation apex creates and the way iRobot challenged conventional wisdom. In 2002 iRobot introduced the Roomba, a vacuuming robot that looked nothing like the prototypical sci-fi robot. The idea of a robotic vacuum cleaner wasn't especially inventive. The basic sensors, components, and software had all been developed by



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iRobot or elsewhere in the robotics industry in some form. According to Angle, for iRobot's thirteen-year history prior to its introduction of the Roomba, friends and associates would consistently ask if iRobot could create a robot to help clean their homes. What stopped iRobot and so many other potential manufacturers, especially the classic incumbent players such as Electrolux, Hoover, and Oreck, from introducing a robot vacuum? Like so many innovations the idea had been set aside as unlikely given the history of consumer robots. Lots of people were willing to buy a traditional vacuum cleaner. In fact, the market itself was very healthy given the catalysts bearing on it. However, Angle and his colleagues had several things going for them. They were not afraid to experiment; they had a deep core competency in small, compact, low-cost robots from their years of experience in practical solutions for space and military use; and most important, even though they were robot makers, they were not tied to the old notion of a home robot, and they certainly were not tied to the notion of a traditional vacuum cleaner. Angle had learned from his days at MIT that the key was not in the notion of what a robot was but rather in what it could do. In fact the original Roomba packaging did not have a single mention of the word robot (except for the company name). The intent was to keep it simple, practical, and useful. The small round Roomba disk wasn't expected to sell fifteen thousand units in its first year, and it didn't. It sold more than ninety thousand units! From the outset it was clear that the Roomba had hit a vein of unexploited market demand. Given the option of not vacuuming, people jumped at the opportunity.



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Appendix J: Lean Management



To implement lean manufacturing into your business, you must first define what lean manufacturing is. By defining lean manufacturing you will have a framework to operate from and a sense of what must go into a successful lean transformation. The lean manufacturing definition can be broken down into several important elements. These elements are: •



•



•



•



Concurrent improvement This means improvements take place simultaneously in all areas of manufacturing. The shop floor may be focused on right-sizing equipment while the IT department is reconfiguring the database system. Improvements are not limited to one area of production. Wasteful activity removal This means eliminating activities that do not add value to the manufacturing process. A line employee who must wait for a machine to finish its cycle before completing the next task is an example of a no valuable activity. Organized improvement projects to create efficient processes and quality products This means specific production improvement initiatives. These could be projects designed to reorganize the shop floor or an effort to use visual cues for line workers to see production levels. Reorganization of workforce effort to support improvements This means designing processes and strategies that apply employee effort in the best way to attain the most value. This might mean retraining employees to be able to perform each function in a manufacturing cell or help develop a new product line.



It is the combination of these elements that creates the alchemy of lean manufacturing.



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Michel Baudin, a lean manufacturing expert, has come up with a concise and straightforward definition of lean production that incorporates all four elements. He defines lean manufacturing as: "The pursuit of concurrent improvement in all measures of manufacturing performance by the elimination of waste through projects that change the physical organization on the shop floor, logistics and production control throughout the supply chain, and the way human effort is applied to both production and support tasks." Becoming lean Lean manufacturing is a systematic and sustained effort to eliminate as much waste as possible from systems, processes, and organization. This does not happen overnight, and it can affect minor and major activities. Being flexible Getting lean means being flexible and willing to carry out multiple improvement projects supported by appropriate communication, and sharing of lessons learned. Being lean is not about shrinking the workforce when processes become more efficient. Displaced employees can go on to other improvement projects, get trained in new skills, or educate others about what having a leaner vision can do. The education and training aspect of lean manufacturing is paramount in order to convince everyone that the counterintuitive practices will work and will work well. Working together You have to look at how everything works together; not just focus on one project to bring immediate success. It is simply not enough to decide what activities are wasteful and plan to eradicate this waste. Plans and ideas must be put into action with specific initiatives and manageable time lines. Organizational synergy Lean manufacturing is measured by decreased throughput times and increased productivity, but it is truly defined by its ability to create an organizational synergy, a synergy that brings all members of the organization together making things better as equal contributors. Perhaps you can begin to see why the word lean is part of the phrase lean manufacturing. The leanness describes the ability to do more with less: less inventory, less time, less effort, less space, 180



and less long-term frustration. Going lean takes stamina. Companies and individuals who expect immediate gains without long-term effort will be sorely disappointed. Becoming lean can be difficult to do but is worth the effort in the long run.



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