To Your Battle Stations!
By Mark W. Sheffert
September 2001
"The aspect of the Pearl Harbor disaster which is really
surprising is that so many people failed to do either the
obvious or the sensible things."
—Washington Star, September 1, 1945
The recent movie "Pearl Harbor" and related media stories surrounding it have dusted
off the history lessons of my youth and cause me to wonder again why the Japanese
attack was such a complete surprise.
After the breakdown of peace negotiations in 1941 between the United States
and Japan, the U.S. anticipated Japanese aggression of some sort. There were so many
possible targets, but an attack on U.S. soil wasn’t considered a real danger. U.S.
commanders also had some indication of an impending Japanese attack from Navy
cryptanalysts intercepting Japanese diplomatic messages. But Navy communications
intelligence was relatively new and unproven, and conclusions were based on Japanese
communication patterns rather than actual decoded messages. So their warnings were
met with skepticism and left unheeded.
The Japanese First Air Fleet began its journey toward Hawaii on November 26,
but was undetected until the day before the attack at Pearl Harbor. A Royal Australian
Air Force pilot saw the fleet on December 6, but U.S. Army intelligence concluded it was
headed for Thailand.
Even up to an hour before the attack on December 7 there were signs that
something was amiss. In the hours before dawn, U.S. Navy vessels spotted an
unidentified submarine periscope near the entrance to Pearl Harbor. It was attacked
and reported sunk, but the report was handled routinely. Then at 7:00 a.m., an Army
radar operator at Opana spotted approaching attack planes, but passed it off as
American planes due to arrive that morning.
Despite all these warning signs, Japanese aircrews achieved total surprise when
they bombed American ships, warplanes, and military installations on Oahu shortly
before 8:00 am. Though it lasted less than two hours, the attack on Pearl Harbor
destroyed nearly all U.S. warplanes sitting on the ground and damaged or destroyed
seven of eight battleships sitting in "Battleship Row" in the harbor. When the attack
ended, American dead numbered 2,403 and 1,178 military and civilian were wounded. The attack pushed the U.S. into a world war and changed the course of history forever.
If warning signs before the attack had been heeded, maybe the U.S. could have dispersed
its Pacific Naval Fleet and been in a position to defend itself and avoid annihilation. Or
maybe war could have been avoided all together. Who knows, but it’s safe to guess there
would have been a different outcome on that day.
Now I realize it’s not of the same magnitude, but the surprise at Pearl Harbor
is oftentimes similar to the surprise when businesses sink. Poor planning, undercapitalization,
and bad decisions produce early warning signs that, if left unheeded,
will lead to crisis and failure. It’s like executives wake up one day and say, "Holy s---!
My business is falling apart!" But if they had had their radar on, they would have
recognized at least one of these early warning signs of trouble:
Winston Churchill Leadership: During a crisis, a powerful omnipotent leader like
Winston Churchill is what a company needs. But during peace and prosperity, it’s not
good for a company to depend too much on one person who does everything. A classic
Type A personality, this person is an autocratic manager who controls every decision
and can’t delegate authority or train new management. The result is over-extended
management, unclear lines of authority, and a dictatorship (not necessarily benevolent).
Cryptographic Messages: Nobody knows what anybody else is doing and
information is based on rumors rather than facts. Knowledge is perceived as power,
so nobody wants to share it. Communication between departments, management, and
employees are ineffective or non-existent; meetings are unnecessary or unproductive;
and interdepartmental coordination is poor.
Excessive Troup Turnover: If management is spending a lot of time with "help
wanted" ads, hiring and training new employees, and introducing a lot of new faces,
the company probably has excessive employee turnover. And if turnover is caused by
management’s neglect of employee morale issues and ineffective compensation / incentive
programs, there’s a disaster waiting to happen. High employee turnover results in
decreased productivity and, ultimately, lost business.
No Battle Plan: If the company is operating without a strategic and / or business plan
or, if there is a plan, the corporate goals are not understood, achieved, or communicated
to employees, there’s trouble waiting to erupt. When this happens, companies become
reactionary to customer wishes and competitive factors, losing sight of their core business.Particularly if it is a family-owned business, the lack of a succession plan and
careful grooming of a new president can be dangerous. And, the business plan should
take into account the company’s financing needs at each stage of growth to ensure
sufficient capitalization.
Lack of Military Intelligence: The military relies daily on intelligence reports about
its enemies, and so should business executives. If the company is experiencing declining
business from established customers or the company’s core market, it is out of touch
with its customers and its marketplace. This problem is worsened if the company is
dependent on a single customer that accounts for more than 70 percent of the company’s
business. Also watch for an increase in returned goods and customer complaints and
late or slow delivery of products.
Unaware of Battle Results: Lack of timely and accurate financial information
results in poor decision-making. Managers must have timely financials (and not just a
monthly profit and loss statement). Oftentimes my firm sees companies that don’t get
their financial results from their financial department for 60 to 90 days. By the time
they get the results, they could be broke and not even know it! If management doesn’t
operate from up-to-date cash flow and P&L statements, they’re not aware of their battle
results … and the attack planes could already be headed their way.
Momentum of Defeat: After the devastating attack on Pearl Harbor, President
Roosevelt understood the need for a wholehearted commitment to the U.S. war effort
to turn the momentum from defeat to victory. Similarly, if a company has a history of
defeat through failed growth strategies due to lack of cash, management expertise, or
poor market analysis, this is a sign of trouble. These defeats will have drained the
company’s cash, wasted time, and bruised employee morale, which often create
reluctance for employees to embark on new expansion plans. Don’t allow defeat
to become a habit.
Not Deploying Entire Military: Instead of using multi-dimensional management,
uncontrolled growth in one area of the business (usually sales) can cause management to
focus only on that aspect of their business and neglect other supporting functions such as
quality control or operations. Or, a company growing out of control can quickly
become unmanageable with existing (inadequate) information systems and management
skills.
Officers Club Management: Profits aren’t put back into the business, but are spent
on luxuries or deposited into the owner’s retirement portfolio. It’s tempting to enjoy
quick profits, but dangerous to the long-term health of the company’s business if
machines and technologies aren’t at least keeping pace with competition. An autopilot
management style will cause the company to fail to adapt to new technologies or change
with market changes and conditions.
Not Knowing Your Ammo Supplier: Executives tend to avoid meetings with their
banker, especially if trouble is brewing. And although it’s natural to clam up when
there’s bad news to report, the result is only an adversarial relationship. Realize that it is
in a banker’s best interest to work with his or her customers. Bankers usually will
extend loan terms if the customer can show they have a clear plan to overcome their
problems.
Blindfolded Generals and Politicians: Too many boards operate routinely, just
going through the motions, as opposed to focusing on the fact that a company is in
trouble. Failure of the board of directors to diligently oversee the company’s strategies
means people wearing blindfolds are running the company. If board meetings have
become routine and boring, it’s time to shake things up. Don’t just give reports about
how great management is doing; engage board members into serious discussions about
the company’s operations and its future. Believe it or not, conflict at board meetings can
be good.
Navigating the Payables Minefield: When the financial manager starts to hop
through the payables minefield, robbing Peter to pay Paul, there’s trouble brewing. Soon,
accounts payables are dragging out 90 to 120 days or more and the only vendors who
get paid are the ones who scream the loudest. That’s a sign that the company’s cash has
been getting tighter, resulting in increased trade credit difficulties and restrictions. If the
company is on C.O.D. with its vendors, the death spiral may have begun.
Denoidance: For my last warning sign, I made up a new word: denoidance … that sort
of sounds like a military term, doesn’t it? Denoidance is the combination of denial and
avoidance; a business executive’s state of mind when his / her company is beginning to
face trouble. If a company’s president avoids returning phone calls and meeting with
important people like bankers, major suppliers, and key customers, that’s a sure sign of
trouble. He / she is too far into denial and depression to handle simple things like
returning phone calls and doing routine reports.
As we’ve learned from the lesson of Pearl Harbor, for whatever reason it’s easy to
rationalize or ignore telltale signs of trouble. But to avoid an attack on the future
stability of your company and having to tell your managers and employees "To your
battle stations!" when the attack planes are already overhead, pay attention to these
early warning signs of trouble.
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