THE JOURNAL OF LEADERSHIP APPLICATIONS
Vol. 9, No. 2
(626) 350-1500 Ext 102
“Dare the Impossible – Achieve the Extraordinary.“
Gain and Keep the Initiative*
© 2012 William A. Cohen, PhD
The advantages of seizing the initiative are well documented throughout history as well as in countless business success stories. But how can you ensure that your organization gains and keeps the initiative? In my research, I have discovered five key effective ways to do this:
1. Analyze the Situation Carefully
2. Seek Hidden Opportunities and New Solutions
3. Act Now!
4. Act Boldly
5. Keep the Pressure On
1. Analyze the Situation Carefully
It’s amazing what happens when you stop to scan your environment and analyze the situation before you act. You will find opportunities you previously missed. You will also see threats to be avoided and problems that must be solved before you can go ahead. It’s always surprising to me that so many companies that should know better blunder into situations without making a careful analysis first. Yet, a careful analysis can be the basis of great success even as you seize the initiative and act.
Stratton Sclavos founded a company called VeriSign. If there has been a problem with your Website or you’ve had a hacker, Sclavos probably knew it before you did. If you bought anything on the Net, it was Sclavos who protected your credit card number. And it was Sclavos who moved payments around to and from the right banks. Since the year 2000, every time you surfed the Net, you ran into one of VeriSign’s servers. If you had a domain name, Sclavos probably sold it to you. Sclavos had the world’s biggest Internet “tollbooth”, and he got and continues to get money from everyone. But, for all his initial success, Sclavos provides us with a valuable insight regarding the importance of doing a thorough analysis of your situation in order to maintain the initiative.
In 1995, Sclavos first seized the initiative by analyzing the situation and setting a clear objective: to build what he called cyberspace’s first “utility company.” By his definition, such a company would handle all the boring, but necessary, complex and comprehensive support activities regarding e-commerce. No one else had done this before, but Sclavos had a plan, and by taking the initiative, he began to implement it. No one else would take on this burden, but Sclavos was ready, willing and able to do it. As a result, while everyone else in e-commerce took a bath during the e-commerce collapse, VeriSign’s revenues went up 8% over the previous year, and its operating profits rose by 14%. Amazon.com and Yahoo may have set out to change the world, but Fortune Magazine said that their impact was going to be marginal compared with VeriSign’s.
For the first five years, Sclavos was successful everywhere in building his e-commerce security business. By the end of the decade, VeriSign’s stock was in the stratosphere at $200 a share.
Network Solutions was a company with a government-sanctioned monopoly to manage .com, .net, and .org domain names. It was looking for a merger partner. There were a number of giant, well-known companies interested in bidding for the opportunity. But Sclavos, flushed with his prior success, jumped in and bid preemptively to acquire what he saw as an effective way for VeriSign to absolutely maintain the initiative. Sclavos bid a stunning $19.6 billion in stock. Of course, competition disappeared and VeriSign became the proud owner of Network Solutions.
Wall Street experts knew Sclavos had overbid, but apparently Sclavos did not. At first, VeriSign looked good. It had no competition. Moreover the banks, which were previously some of VeriSign’s biggest competitors in the e-commerce security business, were now some of his best customers. Why? Sclavos gave them business, including not only payment-processing volume, but also new account leads. After all, the electronic directions to every Website in the world with an electronic address ending in .com, .net, or .org sat on VeriSign computers. This amounted to 30 million-plus names. To the banks, this access to information was a lot more important than the Web security business. They were happy to give it all to VeriSign. VeriSign’s shares rose 20% in three days after it acquired Network Solutions.
Unfortunately for VeriSign, 2002 was the year of reckoning. As e-commerce lost some of its luster, the demand for domain names was bound to slow dramatically. But Sclavos had failed to allow for this. VeriSign’s sales plummeted. Its stock shares lost 70% of their value in 2002, wiping out about $6 billion in shareholder wealth. It was one of Silicon Valley’s worst performing stocks. Timothy Leehealey of Wedbush Morgan Securities summed up VeriSign’s downfall this way: “This is a good business run by some smart people, but they didn’t do a very good job analyzing the data they had in front of them to anticipate this slowdown.”[i] Sclavos is a good strategist and he is fighting hard to turn the situation around. Yet VeriSign’s stumble provides a valuable lesson for all. While the initiative must be maintained, this must be based on good intelligence and analysis of the situation.
2. Seek Hidden Opportunities and New Solutions
You may have heard that a company either grows or it fails. I’ve seen organizations or businesses that are successful in their initial strategy but eventually fail. I wondered if there might be a connection. There is. Here’s what I discovered. The organization, company, or business that fails never deviates from its initial successful strategy. Yet the environment changes, competitors come up with new and better ideas, technology advances, etc.
But just changing for change’s sake is silly. Instead, to keep the initiative, keep looking for new opportunities, new ways to satisfy your customers, new ways help your employees, and new ways to be more efficient and to provide better products and services. There is an old saying that within each problem in business lays the seed for an equal or even greater benefit. Seeking hidden opportunities and new solutions when problems arise can help you regain the initiative.
Hidden Opportunities Help Regain the Initiative
There are many situations in business where the strategist is faced with a situation where initiative must be regained. That’s when the strategist really has to keep his or her eyes open for opportunities.
With no forewarning, a newly formed company union called a strike. The company had never had difficulties with its workers in the past. But the union was inexperienced and “feeling its oats” and the workers were seduced by the union’s misrepresentations. To demonstrate its power, the union called a strike. The strike was cleverly timed to occur when the president was scheduled to be in Europe with his wife on his annual vacation. The union set very limited objectives and expected to achieve these objectives with little trouble and settle the strike in its favor very quickly. The union suspected that the company actually would have agreed to what it wanted without a strike, if it had been asked. It wasn’t even sure that the president would return from vacation to do this. But he did.
On learning of the strike, the president returned immediately. As the union’s “demands” were hardly of much significance, he was tempted to simply give in at once, since as the union had surmised, he would have acceded to what the workers wanted without the necessity of a strike. The president’s advisors were baffled and angry. One vice president couldn’t understand what was going on and recommended that the president quickly agree to the union’s terms, since what the union demanded was so easy to provide. Another vice president understood exactly what was going on. He was furious and recommended not acceding to the unions “demands” under any circumstances, so as to demonstrate the company’s resolve. “If we give in on this, we will continue to have strikes over anything the union wants in the future,” he said.
The president considered the advice from both vice presidents, but looked into the situation for the opportunities which are always there, but sometimes hidden. He found such an opportunity and decided on a strategy which would take the initiative from the union.
Before the two sides could even meet to negotiate, the company’s president ordered hot meals to be provided to striking workers on the picket line. Before the union could decide how to respond to this gesture, he ordered that baseball equipment be provided and an area reserved for the workers to play during the time that they weren’t actually picketing. This was soon followed by a day care center so that the workers’ spouses could work to replace wages lost during the strike, if the strike were extended.
The message was clear: the company may not agree with the striking workers, but it was a company “team” and the company would do everything it could to help out all members of the team until matters were settled. Of course, the union’s only response was that the company was trying to seduce the workers into accepting less than the objectives set and to which they were entitled. But again, the president maintained the initiative. At negotiations, the president announced that not only was the company acceding to what the union wanted, but were going a step further and were going to provide a good deal more. He maintained the initiative until he reached his objective and the strike was settled on the company’s terms. What was the union going to do? Continue the strike because the company’s proposals were too favorable?
The result of this company president’s search and discovery of the hidden opportunities in the situation and his adherence to the strategy principle of seizing the initiative was that the whole thing ended well and with greatly enhanced respect for the company. By seizing the initiative, the president stayed well ahead of actions by the union.
3. Act Now!
Unfortunately there is a trap that lies in wait for even the most brilliant strategist. In fact sometimes it is the most brilliant strategist that is most susceptible. The trap is delay, usually caused by the desire to overanalyze the situation and make it perfect before proceeding. Too many strategists want the perfect situation, all the information, everything just so before proceeding.
General George S. Patton, with a record during World War II that clearly demonstrates his mastery of the strategy principle of seizing the initiative, had a definite opinion regarding delay in implementation. Said Patton: “A good plan violently executed now is better than a perfect plan next week.”
Of course, Patton was referring to warfare, so we don’t need to take him literally regarding executing the plan “violently” for strategy in business. Rather, we should translate his meaning as: “A good plan energetically executed now is better than a perfect plan next week.”
Most of us are familiar with the phrase “analysis paralysis.” “Analysis paralysis” is not a careful analysis of the situation to unearth new opportunities and to avoid falling into obvious traps to avoid as described earlier. Rather it is an over-analysis seeking perfect results in order to develop the perfect plan. Neither a perfect analysis nor a perfect plan is possible. This is because we never gain perfect information, never get all the information we need, and never get it in a timely fashion. As a result, the delay while seeking this perfection is almost always deadly and acting NOW is an important part of seizing the initiative.
‘Analysis Paralysis’ at a Major University
I was once appointed to the Image Committee of a major university. This university had a lot going for it including good scholarship, a great faculty, and an industrious student body. It had recently won a major national award in engineering by which a group of mostly undergraduate students had vanquished every major graduate engineering school in the entire country! Despite this proven track record, the image of this school among potential students was very low. The Image Committee was supposed to find out what was wrong with the university’s image and to come up with a plan to correct it. However, after several years in operation, the committee had been unsuccessful. In fact, they hadn’t come with a plan at all. What was wrong? The university president contacted me and asked me if I would join the committee and find out what was holding things up.
I discovered the answer to this question in the first thirty minutes of the very first committee meeting I attended. The members of the committee asked for my input in designing a student survey which would be distributed both among the university’s 23,000 students and thousands of other prospective students throughout the state.
Since the committee had been in existence for several years, I was surprised that they were just getting around to doing a survey. “Oh this isn’t the first survey we’ve done,” I was told. “But every year the demographics change and also we learn additional questions we should ask, or that we didn’t ask some of the previous questions in the right way, so we have to do the survey again. After all, we don’t want to waste money. We want the plan we develop to be perfect.”
These very smart individuals had not only failed to accomplish the task set for them, but had cost the university much in wasted effort and lost revenues from potential students who never applied to the university due to its poor image.
4. Act Boldly
Showing initiative implies risk, because there is the possibility that you can fail. Still, the opportunities for major success lie in knowing the risk through analyzing the situation you face thoroughly, finding the hidden opportunities, and then acting boldly to implement the strategy and initiating the action that will lead your company to success.
Sam Walton Succeeded by Acting Boldly
Sam Walton was a bold actor on the business scene. The watchwords for retail stores had always been the same as for real estate: “location, location, location.” Yet after Walton analyzed the situation and found new opportunities, his strategy seemed pretty bizarre to many observers. He decided to go as far as 20 miles outside town to build his stores. Critics said that he was going where his potential customers weren’t and he would soon fail. However, Walton had concluded that if he offered quality merchandise at a good price, his customers would be less concerned about convenience. He took the initiative and implemented his strategy, which allowed him to acquire land for his stores at far less cost than the competition was paying for prime locations.
Today, Wal-Mart is one of the world’s top retailers with more than 1,000,000 employees in the U.S. alone, and another 300,000 internationally. In some instances, even during down times for retailers, Wal-Mart sales actually climbed to record highs.
Boldness Was Costco’s Strategy, Too
An analysis of the strategy and the lesson of the initiative and risk-taking demonstrated by the founders of the membership club wholesaler, Costco, reveals a similar story to that of Wal-Mart.
James Sinegal and Jeffrey Brotman founded Costco in 1983. Convenience was hardly an issue emphasized. The first store built in Seattle, Washington was a cinderblock building with concrete floors. There wasn’t anyone on the floor to assist customers, and they didn’t take credit cards. It looked like the owners had designed their strategy and their store to keep customers away. But whereas the typical retailer operated on a gross margin of 25%, Costco’s gross margin varied between 9 and 11%. They passed this cost advantage on to customers with low prices for quality merchandise. Very little has changed since the corporation’s founding . . . at least in terms of ignoring convenience and emphasizing value. What were the results?
Today Costco operates 400 wholesale warehouses with 38 million members in the U.S. and abroad. It is the largest American membership club wholesaler. Despite the inconvenience of shopping at Costco, the company has won J.D. Power’s Consumer Satisfaction Award. And like Wal-Mart, Costco also increased sales during down years.
5. Keep the Pressure On
When I was in high school, we wore uniforms including military caps. Six of my classmates hit upon a unique way of tormenting their classmates, including me. During the exercise period outside they lined up in a single column. The leader looked for someone who was blissfully unaware and looking in another direction. When the leader spotted a target, he would remove his cap and run directly at the unsuspecting victim. The other five would remove their caps and follow in a single file directly behind the leader.
As soon as the leader was at arms length, he would swerve so as not to run into his target, reach out and whack the victim in the back of his head with his cap. Before the individual attacked could recover, the second attacker was on him and gave him another blow, and so on. I was amazed at just how effective this was. It didn’t make any difference how big the victim was, how athletic, or what he did to try and ward off successive blows. In every case I witnessed, including my own, the object of the attack wasn’t able to mount any kind of defense at all. In several cases, the defender was knocked to the ground, even though the weapon was made of cloth and couldn’t possibly cause serious damage. Still, and I speak from experience here, the cumulative effect of the blows, one instantly following another, was stunning. There was very little possibility for the individuals who were attacked to recover.
In business, we see a similar scenario when a company introduces a new technology or product into the marketplace. Seeing a successful introduction, competitors usually rush in with copycat products or similar technologies of their own. If the initiating company is practicing good strategy, it will stay ahead of its competition by maintaining the initiative and having important improvements or new products always in the pipeline and getting ready to go. That way, no matter what competitors do, they are always playing catch-up.
Building Southwest Airlines
Although Herb Kelleher helped found Southwest Airlines in 1972 and became chairman in 1978, he didn’t take the reins as CEO until 1982. At that point, the airline had only 27 planes, $270 million in revenues, and 2,100 employees, and flew to 14 cities. When Kelleher retired in 2001, Southwest was a $5.7 billion business with 30,000 employees flying to 57 cities.
Kelleher took the initiative and kept the pressure on. When 12,000 air traffic controllers went on strike his first year as CEO and all airlines were strictly regulated by a preference system as to which could fly and in what order of preference, he analyzed the rules. He saw that preference was given to new airlines. Taking advantage of the government’s own rules, he immediately started a new subsidiary called Midwest Southwest Airlines. It only owned one small Lear Jet. The government knew exactly what he was up to and so did other airlines. They may have wanted to do the same thing, but Southwest beat them to it. As soon as Midwest Southwest Airline passengers got booked and the airline had secured the preferred slots for flight scheduling they transferred passengers over to the mother company. The U.S. government didn’t like it. But Kelleher was Southwest’s attorney before he became CEO and he knew what he was doing. Southwest got its preferred flight slots before his competitors could repeat his strategy.
When fuel prices were low, other airlines coasted. Not Southwest. Kelleher started a major campaign to reduce non-fuel costs. He bought fuel and hoarded it while the price was low. In 1991, fuel costs shot up as a result of the Gulf War and the airline industry went into a recession. But Southwest was ready and while others were operating in the red financially, Southwest remained profitable.
Kelleher did the same thing and was prepared for the airline recession of 1999, buying fuel at $22 a barrel and weathering the storm as it rose much higher. Kelleher kept the pressure on by reducing costs for in-flight food. While other airlines provided elaborate meals, you got nuts and nuts alone (well, maybe a soft drink, too) if you flew Southwest. Today, most domestic flights have been forced to emulate Kelleher’s in-flight feeding strategy.
Nor was Kelleher shy in the promotional area. Once he had the unmitigated nerve to appear in an advertisement and offer customers who were ashamed to fly on a cheap airline a paper bag to put over their heads and conceal their identities.[ii] Bookings on Southwest only increased.
Kelleher well knew the principle of keeping the pressure on. Through his customer-friendly attitude on service and his innovative strategies for cutting costs, he tried to stay one step ahead of his competitors – and usually succeeded.
The bottom line for all this is simple: if you want to win, do whatever you you need to do so long as it is ethical and legal to seize and maintain the initiative.
[i] Liedtke, Michael, “Verisign Spruces Up Domain Name Business,” Los Angeles Times, January 13, 2003, p. C2
[ii] Katrina Brooker, “HERB KELLEHER: The Chairman of the Board Looks Back,” Fortune Magazine (May 28, 2001) http://www.fortune.com/fortune/articles/0,15114,373551-1,00.html- http://www.fortune.com/fortune/articles/0,15114,373551-6,00.html
* Adapted from The Art of the Strategist by William A. Cohen, Published by AMACOM, 2004
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