On June 11, the world lost a giant in the world of business transformation. Dr. Goldratt entered the world of business with a background in theoretical physics. Over the years he challenged conventional wisdom and introduced many concepts that are being used successfully every day. His body of work was codified in what is now called the Theory of Constraints (TOC). Anybody who has looked at our web site or worked with us knows the tremendous influence he has on us.
Dr. Goldratt was a master of not only content, but with message delivery. Instead of dense textbooks, he revealed his concepts in business novels. His most famous ones:

• The Goal – The story of Alex Rogo’s struggles and ultimate triumph in saving his manufacturing plant. Here he explains the 5 focusing steps, drum-buffer-rope and the fact that sales drives profitability and cash flow, not operational efficiency.
• It’s Not Luck – Rogo, now a division vice president, must choose what businesses to sell, what ones to keep and how to sell them. Here current reality trees and mafia offers help Rogo vastly improve the company.
• Critical Chain – Goldratt explains how project management using critical path is designed to fail. Critical chain deals with the student’s syndrome as well as the manager’s tendency to negotiate as much time as possible for projects.
• The Race – A workbook where students can work on practical problems with drum-buffer-rope.
• The Choice – Goldratt describes how TOC has formed his philosophy and how it is his contribution to society.

Dr. Eliyahu Goldratt, 1947 - 2011

Many kind words have been written about Dr. Goldratt in the past few days. My perspective is he gave me structure to the intuition I felt about business. TOC is a model just like thermodynamics or quantum mechanics. One can use these principles and apply them to countless situations. Goldratt has done for business what Newton did for engineering: delivered a sound set of principles for the design and operation of virtually everything. Like Newtonian Physics, TOC isn’t exactly correct, but is vastly superior to anything else available. Eventually, Einstein’s theory of relativity was needed for design of things like satellites and GPS’s, but even after 300+ years, Newton’s equations are still extremely effective. Time will tell how long TOC will last, but I don’t see it going away any time soon.
One characteristic of a great model is it makes seemingly complex situations very simple. This elegance has beauty and Seth Godin’s Linchpin describes it as art. Instead of trying to convey this by paraphrasing, I’ll just quote Dr. Goldratt from The Choice:

“I smile and start to count on my fingers: One, people are good. Two, every conflict can be removed. Three, every situation, no matter how complex it initially looks, is exceedingly simple. Four, every situation can be substantially improved; even the sky is not the limit. Five, every person can reach a full life. Six, there is always a win-win solution. Shall I continue to count?”

If you would like to send condolences, thoughts or stories to the Goldratt family and the rest the TOC community you can do so at www.eligoldratt.com/messages.

As everybody knows, we live in a technological society. Technology has come into every part of our lives. Sometimes it’s a great thing. Other times we implement technology that doesn’t help anything at all. This blog is about how I’m using technology to improve my golf game.
I’m pretty much self-taught in golf, but I look for tips wherever I can find them. I hit a plateau a while back and the start of the season this year has been pretty brutal. The troubles with my game are:

• Inconsistent ball striking
• Lots of misses way left of the target
• Poor distance control on short pitch and chip shots

These are pretty typical problems, but I didn’t know what to work on. Bashing balls at the range and hitting endless shots at the practice green will only ingrain swing faults. Here’s what I’m doing instead.

The Gear
This winter I picked up a Flip Video camera for vacations and coaching. With a battery pack I paid $130 for it. It has a total of three buttons and shoots up to an hour of HD video. The camera has a USB connection and software built into the system. The interface is very simple to use. No geek required.

The Flip camera mounts on the golf cart using the Joby flexible tripod.

I found a flexible tripod made by Joby at Future Shop ($30). This tripod allows you to attach your camera to anything you can wrap the legs around. When attached to a golf cart, it provides a stable mount for video recording.

The Results
Full Swing
It didn’t take long for me to see where my swing faults came from. The video shows that although my balance and tempo were okay, there were several faults causing problems.
My driver swing.

The problems are:
Alignment: Feet are closed and shoulders are open.
Backswing: Way too far. It’s past parallel at the top and I’m no John Daly.
Wrist Position: Losing wrist angle early in the downswing causes thin and fat shots and robs all power from the swing.

Short Game
The short game swing showed the same types of problems as the full swing. The troubles with this swing it’s way too long, leading to deceleration in the downswing and too much wrist breakdown.

My 35 yard sand wedge swing.

The Theory of Constraints states that technology is useful only if it removes a constraint. Here, the constraint was I didn’t know what I was doing wrong. Now that I see my faults, I can move towards fixing them. For the cost of a wedge, I now have insight to my swing flaws. For this to be effective, I now have to work on correcting the flaws the video uncovered. Its too bad Cisco is shutting down the Flip line, but there are still some cameras available. If anybody sees any other swing flaws I should be working on, please let me know. See you on the course!

Like our readers, we keep our eyes open for business insight on the web. We came across John Warrillow, a writer for the Globe and Mail. He comes with the credentials of a newspaper writer – published author, successful businessman. It’s quite shocking to read his blog. Each post contains a statement that is either obvious or ridiculous. Here is a short sampling of his work.

Golden nugget #1: If you are looking for entrepreneurs, screen out MBAs. Here he states that the best way to hire entrepreneurs is to eliminate MBAs from your hiring pool. He sites a study that concluded that MBAs don’t think like entrepreneurs. That somehow, all of the different programs offered throughout the world produce a bland, unimaginative robot that can only think linearly. If the MBA didn’t see a similar case study in class, he will be helpless. This is like me saying that all dentists make for bad golf buddies or all teachers can’t do their taxes. It’s just crap.

Golden nugget #2: Winners look within for success. Losers look outward for excuses for failure. Well, duh. My high school football coach summed it up in one sentence in 1985 – “Excuses are for losers.” (Thanks Mr. Sekulich!)

Golden nugget #3: Smart people hate it when you ask stupid questions. Here’s another obvious statement. When you have an excellent team, you can’t lead them by always asking leading questions. Even the dullest genius will see that form of treatment as clumsy passive-aggressiveness.

Golden nugget #4: Business plans are a waste of time. Warrillow, in a fine demonstration of tortured logic, describes how he wrote a business plan for a product that nobody wanted and blamed its failure on the time wasted writing the plan. He didn’t test the veracity of his assumptions and found out too late that he didn’t have a viable business plan. He then makes the tremendous leap to say that business planning is a waste of time.

Is John Warrillow our version of....

...this fair and balanced pundit?

Is the Globe using Warrillow’s column to stir up interest like Fox used Glenn Beck’s paranoid rants to stake out new ground on the American political right? It’s either this or they aren’t reading his columns too closely. If their intent is to generate web traffic, it’s probably working. I like reading columns that challenge the status quo, but if you replace conventional wisdom with stupid rules of thumb, have you really added anything to the debate?
Whenever I read something like these blogs, my faith in common sense and logic takes a hit. Thankfully, the comments section is there to restore this faith. An exceptional comment came from the inc.com posting of the business plan blog. Rj, whoever you are, you’re my hero:

“I had no basis for this assumption. I just made it up—which, of course, is the problem with the business plan of most start-ups…”

When Science is a Waste of Time
I believed I could turn water in solid gold by combining it with dirt and cinnamon. I had no basis for this assumption, but I did some experiments and it turned out that it didn’t work. And that’s why scientific experimentation is pointless.
Posted by Rj – 04/14/2011 02:25 pm.

As reported by Bob Weekes, the Canadian Curling Association is looking at changing the format of the Brier, as well as their other national championships. They are experimenting with moving to a 14-team system.

• Team Canada, Northern Ontario and separate Yukon and Northwest Territories entries plus one team from each Province.
• The field would still be 12 teams with the 12th-place finisher from the previous year dropping into a pool with two other teams which didn’t make it in playing a relegation round just before the start of the national event (probably at a curling club in the same locale).

The rationale for this is by having Team Canada, you are basically assured of another strong team competing for the title. It will also bring some drama to the end of the week for teams at the bottom of the standings as they try to avoid relegation. Maybe they feel that the returning champion will increase interest in the events, thereby selling more seats, beer in the Brier Patch and sponsorships.
I feel this is akin to killing the goose that laid the golden egg. Here’s why:

The CCA is trying to turn their championships into toxic goose meat.

• One only needs to go to a Brier to see that it is much more than a sporting event. At any game you can see Nova Scotia fans with rain coats and blue noses, Territories fans with their moose calls and Saskatchewan fans in full green. Taking one of those teams out of the competition would put a serious dent in the event.
• At any National Championship, there are usually six teams with a realistic shot at winning with two or three favourites. Adding team Canada would add another favourite. So instead of one or two marquis matchups during the week they would have two or three. I don’t think the organizers would be able to measure the uptick in revenue from this.
• What happens to the relegated teams the following year? Instead of playing for a spot at the Brier, they are playing for a chance to get to the Brier. This will depress interest in the sport where it is most vulnerable.
• What about the total disaster scenario of no host team at an event? Try getting volunteers, decent gate attendance and other revenue when you don’t have a home team in the event.
• By having last year’s champions return as Team Canada, it makes it much easier to repeat. This assaults the record books and cheapens the title of Canadian Champion.

The curling elite have done a good job of whining themselves into preferred positions. Many of these teams already get a bye into their Provincial Finals, but they will try to convince the CCA that having more elite teams will add to a more successful championship. If this is the case, why do they play their Grand Slam events to half empty arenas? Remember when these teams boycotted the Brier for a few years? Nobody missed them. The Briers were great events and the Canadian champions fared well at World Championships.
If the CCA wants to improve things, why not make this a true national championship? Everybody starts on the same starting line. That genie is out of the bottle, but the magic and allure of the Brier has suffered as a result.
If the CCA goes ahead with this change, I predict that instead of a bounty of gold, they will end up with tainted goose meat.

On my earlier rant, I described how Air Canada made me choose between the right airport, wrong date and wrong airport, right date. I sent an email to their website to complain about how they handled the situation. Here is the email:

From: Sean McAlpine
Sent: 24/01/2011 11:52 AM
Subject : Is San Diego the same as Los Angeles?
Message : We booked the flight to get to San Diego.
In Saskatoon, the jet arrived at the gate at 7:20, instead of boarding at 6:35 am. After boarding, the pilot announced an engine valve problem and he was attempting to fix this by revving the engine. Once this was successful, he announced that we used too much fuel and had to refuel. Once we refueled, we took off at 9:00 am, 2 hours behind schedule.
Once in the air, I asked the flight attendant about our options as we would now miss our connecting flight (AC 580, 8:40 am) out of Vancouver. She contacted customer service in Vancouver, and told us we would have a rep waiting for us.
In Vancouver, the customer service rep handed us tickets to Los Angeles and told us to go on the Internet to book a shuttle to San Diego. He told us that our only alternative was to wait until the next day to fly to San Diego. We had under an hour to get through customs and get to the gate so we took the tickets. Once in Los Angeles, we contacted Air Canada customer service. They arranged a shuttle to the San Diego Airport. I ended up paying the shuttle driver $70 to take us directly to our hotel.
Does giving customers a choice between the wrong city and wrong date amount to acceptable customer service? I think it is a failure of service.
To be clear, the crew of the original flight did everything right. They kept safety as their top priority, got the ball rolling on alternative arrangements and were apologetic about the delay.
The problems I have are in the readiness of the jet and the Vancouver customer service. The jet was 45 minutes late to the gate. This is understandable for an incoming flight but the jet was in the hangar. The engine valve was said to be weather-related but it was -20 C with no snow. If these conditions prevent on-time departures, you shouldn’t operate in the Prairies. Secondly, the customer service agent handed the tickets to Los Angeles and told us to book our own shuttle to San Diego. He showed me his Iphone and said that he couldn’t connect to the shuttle service. I think he wanted to show me that he tried to help. Once I accepted this very time-sensitive alternative, he felt his job was done.
What I would like from Air Canada:
- Reimbursement of the extra $70 I paid to get to my hotel. A travel voucher is unacceptable, because that presumes that I will book with Air Canada.
- An acknowledgment that giving a customer the choice between the wrong city and wrong date is unacceptable customer service.
- If you want, explain why I should consider booking flights with Air Canada in the future.
Thank you,
Sean McAlpine
PS: This is the third time I tried to submit this feedback. A technical issue prevented transmission.

Pretty polite, wasn’t it? In the first blog post, I predicted a $70 travel voucher and some boilerplate niceties about how they value me as a customer. Here’s the reply:

Dear Mr. McAlpine,

Thank you for your e-mail.

We appreciate the time you have taken to contact us and are pleased to address your concerns. On behalf of Air Canada, I offer my sincere apologies for the inconvenience that you and your family experienced, with your delayed flight departing Saskatoon and subsequent missed connection in Vancouver.

While we make every effort to operate our flights as scheduled, regretfully, mechanical delays sometimes occur. In these circumstances, it is very important to ensure that the needs of all affected customers are being met. When handled with courtesy and professionalism, most passengers will accept the inconvenience and understand (as you do), that their safe travel must always be our first priority. Unfortunately, valves can get stuck for a variety of reasons. Moisture build up is common simply by airplane ascending and descending to different elevations.

We realize how important on-time departures are for our customers, and certainly regret the inconvenience you experienced as a result of this delay. As there are instances where avoiding a flight delay is impossible, times shown on tickets are not guaranteed, and do not form part of the contract for carriage on any airline.

You as a good question as many airports in different cites are considered the same airport. Los Angeles alone has four “sister city” airports. San Diego is considered a different city, therefore, we will refund your airfare between Los Angeles and San Diego, though the difference is not likely very much. Your tickets have been sent into Revenue Accounting for review, with any refund going back towards your original form of payment. This process may take a few weeks due to an unexpected backlog.

Unfortunately, we are not able to directly reimburse you the cost of your limousine, as you could have over-night in Vancouver and accepted a booking the next day. We would have provided a hotel due the missed connection being our fault. We regret if all options were not explained but it appears you had to decide quickly, or risk missing the flight to Los Angeles.

As a gesture of goodwill, we are pleased to provide your family with an electronic travel voucher in the amount of $200.00CAD. This transferable voucher may be used toward the base fare when you purchase an Air Canada ticket for travel on Air Canada and is valid until one year from today. This means that it must be applied to new tickets purchased within that time frame, however, travel does not have to commence within the year. Your voucher number is: xxxxxxxxxxxxx.

If booking through our Call Centre, simply provide the number shown above to the agent at the time of booking.

If booking on our website or through a travel agent, please wait until travel has been completed to submit your online request for deferred credit to the original form of payment. Simply visit the EMCO/Travel Voucher Request form at the link below to redeem your travel voucher.

http://www.aircanada.com/en/customercare/emco/index.html

Your travel voucher is fully transferable to the customer of your choice when using the EMCO/Travel Voucher Request form. Please ensure you indicate you are using your voucher as credit towards the purchase of a ticket for another passenger where asked on the online form.

Thank you for choosing Air Canada. We look forward to the opportunity of welcoming you and your family on-board in the future, we trust under more pleasant conditions.

Sincerely,
Jeremy

Once we got to California, my daughter and I were happy to find more reliable transportation.

So it looks like they have exceeded my (low) expectations. Instead of a $70 voucher they offered a $200 voucher plus the difference in the cost of the flights. It looks like Jeremy actually read the email and wrote a response to it. In fact, I feel bad for Jeremy if responding to these types of complaints is his job. The trouble with the response is the same as my whole experience with them: their primary mission is cost control. Jeremy probably did everything in his power to make this right. Unfortunately, it doesn’t look like he has much power.

My advice to Air Canada: Cost cutting is fine, but not if it affects reliability. If I’m right, Air Canada has cut back on hangar and maintenance hours to reduce labour costs. The valve issue was worsened because the jet was late to the gate. I’m sure that a two-hour delay on my flight cascaded into more delays all day for anybody flying on that jet. Who knows how many other $200 vouchers Jeremy had to issue because of this?
Finally, I have to rescind my offer to give the voucher away. My wife has already promised it to somebody else. Hopefully they will have better luck.

Bill Carter’s book The War for Late Night: When Leno Went Early and Television Went Crazy describes the wild ride NBC took when they tried to change hosts for the Tonight Show. The architect of the change came into it with the best interests of everybody involved, but in the end, everybody took a hit to their reputations and some relationships were destroyed. What happened? Is there any lesson to be learned?
As a long time fan of Conan O’Brien and David Letterman, I followed this with some interest as it unfolded. I thought that Conan got a raw deal from NBC and Jay was a Machiavellian character who didn’t know when to step down. Carter’s book, taken mostly from first-person accounts paints a much different picture.
The issues began in 2004, when NBC executive, Jeff Zucker, realized that he had an embarrassment of riches in late night. Jay Leno was consistently beating Letterman at 11:35 and Conan O’Brien had a fervent following in 12:35 in the all-important 18-49 year old viewer demographic. Zucker knew that Conan’s dream was to host the Tonight Show and wanted the 11:35 time slot. He also knew that Leno lived to work. In fact, in addition to doing five hours per week on TV, he averaged 160 standup dates per year. If he picked one host over the other, he was afraid that the other would go to ABC or Fox, cutting the late night pie three ways instead of two.

Conan and Jay in happier times.

What Zucker did, at first glance, seemed brilliant. He signed Jay to a 5-year extension with the agreement that it would be Jay’s last contract. He then signed Conan to a 5-year deal at 12:35 while promising him the Tonight Show at the end of the contract. This ensured that both Jay and Conan stayed with the network for five years and set a logical succession plan in place.
The trouble started in 2008, when the deadline began to loom. Leno was still in first place in the ratings and didn’t want to retire. ABC and Fox began some talks with Leno’s reps and it was clear that Jay was not going to retire from TV. Zucker felt an obligation to O’Brien, and he really believed that Conan was the future of the show, so he came up with a solution – move Leno to 10:00 pm and O’Brien to 11:35. The fallout turned into a ratings disaster. Leno was regularly hammered by shows like CSI Miami and O’Brien suffered from lower ratings than Letterman. The local affiliates complained and threatened to pre-empt Leno in favour of syndicated programming.
Enter Jeff Gaspin. As the new head of late night programming, he decided that Leno would move back to 11:35 for a half hour, followed by Conan’s Tonight Show at 12:05. Leno agreed to it but O’Brien balked. After negotiations, Leno returned to the Tonight Show and O’Brien left. Leno’s ratings were lower than before he left but he was able to beat Letterman after a few weeks.
There are no clear-cut good guys or bad guys here. Jay just wanted to write and tell jokes at 11:35. His main fault was he wasn’t honest about his feelings in 2004. He could have left and started another show with a different network. Conan came out of this with the most sympathy, but he is not without blame. While he was crafting his new show, he wanted to make the best show he could. He didn’t take suggestions to widen his appeal. The worse fault was his blind loyalty to NBC over the years. He passed up raises of several million dollars per year because of the NBC promise to be the host of the Tonight Show. This prevented him to see the stark business problem that faced NBC and O’Brien.
Jeff Zucker has taken the most heat for this debacle, and much of it has been unfairly attributed to him. The mistake he made was to try to look too far into the future and make deals that depended on his prediction. When Leno’s contract was up, Zucker could have bought Conan out and extended Leno. Or, he could have let Leno go to another network and compete with him. The moving of Leno to 10:00 was desperate and didn’t work. Now Conan is on TBS and NBC is left without a successor to Jay.
With perfect hindsight, what would be the right move? Zucker’s initial plan for succession was fine, except that Leno didn’t truly embrace the plan. When the deadline became closer, they should have made a decision – Jay or Conan. With the numbers Jay was putting up, it would most likely be Jay. He should have paid Conan’s exit clause and got on with life. Nobody, not even O’Brien himself, would blame the network for such a move. This would have left him without a successor to Jay, but that wasn’t an immediate problem. O’Brien would have been better off from this as well. He could have found the right fit for the type of show he wanted to do. It’s very likely that he would have come back to host the Tonight Show whenever Jay decided to retire or drop dead.
In the end, you can end up doing the wrong thing by trying to do the right thing.

Expert advice is a huge industry. Today, there is an endless supply of experts that promise to solve your problems in the most modern, elegant way possible. Many experts have their clients best interests at heart and work to solve their problems as they appear. Unfortunately, there are experts out there that view their clients as experimental subjects, using them to conduct research. This research doesn’t necessarily align with their clients’ best interest. If you are unlucky enough to hire this type of expert, you are in for an expensive life lesson. On the other hand, the right expertise can be the best investment you ever make. How you can you get the most from your expert?

If your expert wears this button unironically, head for the door.

Here’s how I learned my lesson the hard way. Back in my days at the pulp mill, we had a change in personnel in the bleach plant (the bleach plant turns wood pulp from brown, like grocery bags, to white, like photocopy paper). The new people were technically capable, but new to this technology. Queue our expert from head office. This guy promised that we could save $5 per tonne of pulp (about $1.5 million per year) if we adopted his bleach recipe. He guaranteed the same brightness (degree of whiteness of the pulp) as what we were running. Saving money while keeping customers happy looked to be a great combination. This seemed like a no-brainer. After we took his advice, we found out it wasn’t that simple. First, the fact that this expert didn’t step foot in our mill for the previous five years should have been a red flag. Second, the bleach plant operators openly protested the new recipe. To defend the expert and our decision, we could rationalize that the old management and the operators were fearful of change. That wasn’t the case. So, how did we do?
The results of the change were mixed. We achieved the cost savings and the brightness targets. However, the change was a disaster. This was because the 10,000 tonnes of pulp we made was too dirty to be sold at any price. For those of you keeping score, the sales price of pulp was about $700 per tonne. When faced with this inconvenient fact, the expert told us that bleaching wasn’t the same thing as cleaning pulp. In other words, he was responsible for the savings but was not responsible for the unsaleable pulp. He walked away and declared victory. We changed back to our old recipe, a little wiser from our experience. We later found out that he tried this same project years earlier and was banned from our site.
This is a sad story, but not unique. How can you avoid an expensive, frustrating experience when you hire an expert? Here’s how:
Before you hire the expert, ask for his client list. If he is as valuable as he claims, he should be happy to provide this.

• Make him define your problem and a method to solve it. This makes him think about a customized solution instead of one off the shelf.
• When you hire him, clearly set out expectations and measures for success. If the cure kills the patient, it isn’t acceptable.
• Don’t let your expert pat you on the head and lecture you. You paid for the service. He is your advisor, not your teacher.
• Don’t let him define success. The bad experts will take credit for benefits while ignoring the defects. The true measure is whether or not you are better off from your decision.

This might seem like a strange blog post from a business consultant. I make my living by being an expert. The reason is bad experts make it harder for me to help my clients. More importantly, giving bad advice is bad business. I expect anybody hiring me to hold me to these standards. If you hold your expert to them, you can achieve the results you are paying for.

I’ve seen many cases of this troubling problem. You have an employee that is excellent at his or her job, but is a nightmare to deal with. It’s easy to feel trapped by this situation. On one hand, you need your star for his high performance. On the other, his diva attitude is raising hell with the rest of your team. How do you solve this?

The first approach is to assess how much of a star your star is. A lot of the time, reputations are made on self-promotion or power hoarding. If your star doesn’t share information or takes credit for group achievements, you have a pretty easy decision to make. He cleans up his act or is gone.

Even if your star is as valuable as he claims, nobody is irreplaceable. As a manager, you must tell the star that if he values his position and status, he needs to conform to your code of conduct. This can’t be an idle threat. You must hold the star accountable or this tactic backfires. In addition, you must have the support of upper management or your own job could be at risk.
If you follow this strategy, you will get one of two results. The first is the most preferable: your star maintains his high performance and works well with the team. This usually doesn’t happen. The more likely result is an ugly dispute resulting in the exit of your star. This is still better than doing nothing. You will find that the rest of your team:

• has skills that rival that of the star.
• new respect for your ability to manage.
• renewed commitment to work for you, since you have put the interests of the team before the star.

For an example of this dynamic, we only need to look to this year’s NFL season. Randy Moss is the prototypical star-diva. His combination of size, speed and great hands has made him one of the top wide receivers in the game for a decade. As he started this year with the New England Patriots, he publicly complained that he didn’t have a contract-extension offer. He threatened that this would be his last year with the club and requested a trade. This was a power move in an organization that does not tolerate this. The Patriots’ response was to trade him to Minnesota for a third-round draft pick. Their record since the trade: 7 wins, 1 loss.

Randy Moss, great receiver, greater diva.

Minnesota came to the opposite conclusion when they acquired Moss. They were willing to put up with his antics if he could deliver wins. Almost immediately he started trouble by asking the owner to fire the coach, Brad Childress. In the four games he played for Minnesota, the Vikings went 1-3. Childress was fired shortly after.

Now Moss is toiling on the roster of the Tennessee Titans, averaging one catch per game and not making any sort of impact.

So there you have it. You can’t succeed by placing your hopes with your star and neglecting the rest of your team. If you have any doubt that you can succeed without your star, look to the NHL. After the Edmonton Oilers traded Wayne Gretzky to the L. A. Kings, they won two more Stanley Cups. Gretzky never won another.

photo © 2010 Louise Docker | more info (via: Wylio)

I think business plans get a bad rap. There’s a movement out there that says that business plans are a waste of time because they can’t accurately predict the future. For this reason, these people will tell you to not bother doing one. They’re missing the bigger picture.

It’s true that the future is very difficult to predict. Nassim Nicholas Taleb makes this point very effectively in his book, The Black Swan. However, being unable to accurately predict the future does not mean that it is a waste of time to think about how you are going to approach a situation, given the best information available at the time.

Business planning has a lot of value as a thinking exercise. I’ve seen lot of situations where business owners doomed their business from the beginning because they did not bother to plan out their idea. They made mistakes that could have been avoided if they had been discovered in the planning stage. Sixty percent of all businesses fail before the five year mark. A considerable number of these failures were destined at the outset because of major flaws in their business models.

I think business plans have a bad reputation with some people because of some high profile failures where the management team followed the business plan to the letter without considering changed circumstances on the ground. One such failure was recently documented in Steve Blank’s excellent blog post about Iridium. The company had a long product development cycle and did not take into account a changing competitive landscape. They stuck to their original plan destroyed $5 billion of shareholder value.

By it’s very nature, a business plan needs a feedback loop. As new information is obtained, the assumptions used in the business plan need to change to reflect the new reality. A big enough change might require a new strategy to be successful. This is why venture capitalists will tell you that given a choice of funding an excellent idea with a weak team or a weak idea with an excellent team, they will fund the better team. The strong team will be better able to adapt to changing conditions and modify their original business model as needed.

Iridium could have had a better outcome if they would have made adjustments to their plan as reality started to change around them. If they would have followed Steve Blank’s customer development process they would have undoubted been better off due to the feedback loops he has built into his model. It wasn’t the planning that killed Iridium, it was following the original plan right off a cliff.

Since Halloween is just around the corner, it fits to have a scary story for a blog post. Anybody following the Canadian business scene is at least slightly aware of BHP Billiton’s takeover bid of PotashCorp. In Saskatchewan, the debate has taken a very political turn, with people dredging up arguments based on ideology.
The rallying cry “Potash belongs to the people, not the company” has been stated by many a pundit. It has also rehashed the Crown Corporation debate. Some revisionist historians state that taking this company public in 1989 was the worst economic decision Saskatchewan has ever made. Unlike these people, I am not so bold to state that PotashCorp would be the same company today if it were never sold.
So what is the big deal about this takeover bid? The Conference Board of Canada released a report showing the effect of the proposed bid. It determined that BHP would take advantage of incentives to reduce government payments by $2 billion over the next 10 years. This sounds like a lot, but BHP would only be taking advantage of incentives in place for any existing potash producer. The report bases these findings on the assumption that BHP will continue to develop it’s Jansen Lake mine, regardless of the outcome on the federal government’s review of the buyout. If BHP is blocked from acquiring PotashCorp, they may rethink their entire potash play.
While there is no doubt that this is a big story for the province and the country, what should we be concerned about?

• Getting ripped off by potash companies – The Saskatchewan Government has a royalty system based on the profit of the company as well as the volume of product mined. The government has the ability to revisit these rates to protect its interest.
• Poor working conditions – Any company working in the Province has to abide by the laws here. They have to compete with other companies for talent. PotashCorp and BHP will likely be very similar in their approach to attracting labour.
• Poor corporate citizen – Each company has their own policy on giving back to communities they do business in.
• Jobs moving out of the province – This is a risk in any industry. People worried about head office jobs are probably not aware that many of these jobs are currently based in Chicago. Both PotashCorp and BHP have made public promises to increase head office jobs.

These are the fears I think are valid in this situation. Insightrix did a survey of Saskatchewan resident’s views on the proposed takeover. The findings were:
A new online poll conducted by Insightrix Research Inc. on behalf of CJME and CKOM radio shows that 55% of Saskatchewan residents either strongly oppose (28%) or somewhat oppose (27%) BHP Billiton acquiring PotashCorp in its recently announced hostile takeover attempt. In contrast, only 14% support such a move by BHP Billiton, while 22% are indifferent on the issue and another 10% are unsure on the matter.

This shows a lot of resistance to the plan. However, the people surveyed weren’t exactly up to speed on the current situation:
It is noted however, that many respondents appear unfamiliar with PotashCorp’s current mix of investors, given that 39% of those who oppose the acquisition say they want the company to remain Canadian / Saskatchewan owned despite the fact that currently, a minority (approximately 30%) of the ownership in the fertilizer company is from Canadian sources. Further, when specifically asked about the ownership structure of PotashCorp in this survey, 23% of survey respondents believe it is still a Crown Corporation. In fact, only 53% correctly identify that the fertilizer company is actually a publicly traded firm. One in ten (9%) believe it to be a privately held organization and another 15% admit they have no idea of PotashCorp’s ownership structure.

Since both companies are making promises to the Saskatchewan public, it’s good policy for the government to remain coy. In the end, the deal will hinge on BHP and PotashCorp setting a price that works for both sides. Only at that point, the government should clarify its position. Going forward, Saskatchewan will benefit the most by having this resource managed by professionals that are motivated to maximize profits and economic activity.