The Terror Approaches: Sir Fred pleads for mercy

The leaders of failed financial institutes are being dragged out of their chateaux and paraded through the streets. I can hear the distant rumble of the tumbrels

Or, to shake off that fearsome image, let’s start with the show trial which took place today. Erstwhile heroes of capitalism were called to account by that Robespierre of the New labour Revolution, the Treasury Committee chairman John McFall

The BBC covered the proceedings

The former bosses of the two biggest UK casualties of the banking crisis have apologised “profoundly and unreservedly” for their banks’ failure.

Former Royal Bank of Scotland chief executive Sir Fred Goodwin told MPs on the Treasury Committee he “could not be more sorry” for what had happened.

The wrath of the prosecutors was reported in The Guardian

Sir Michael Fallon: “You [McKillop] were in charge of this board. You’ve destroyed a great British bank.”
John Thurso: “… I have rarely never heard such anger about an issue … And that’s because so many sound businesses are at risk of going under because they can’t get funding. 99.9% of my constituents believe that if a black hole opened up and every banker, and every derivatives trader and arbitrage trader fell into it, the world would be a better place ….”
George Mudie: “…The anger that the public feels is because you’re all in denial.”

But the jury remained unmoved. Chairman Tom McFall dismissed their grovelling pleas for mercy.

“They did give an apology and it seemed fulsome, but, as the session went on, I think they were drawing back from that and saying ‘Well, look, there were events outside our control’. If you ask me my opinion – yes, they were advised to do it (apologise). Was there a hint of arrogance still there? Absolutely.”

The Terror begins

I can’t get that image out of my mind’s eye. It took the French Revolution over a year to get down to the really brutal stuff, the show trials and public executions. But that was then. No chance of public executions here …

But the public anger might be as intense, and approval for meting out the harshest punishment possible on those accused.

So far, the most virulent attacks have showered down on the Leaders of the biggest financial institutions, and then The Government. But there is a more general wave of anger directed to all politicians, and that ‘least worse system’ of representative democracy.

And who next?

Business Leaders? Entrepreneurs? Foreign workers? “Make them walk naked ..stand in public with clown hats. ”

It is coming. The terror. And intellectuals will not escape scrutiny. What training did these people get to equip them to run a bank? Well, the answer is, a great deal of training. So let’s reserve a tumbrel for the leaders of business schools. Once again, the cry will be heard. What did you teach the MBAs at Harvard Business School?

And after that the tumbrel. Stop, enough. I want to get back into a state of denial.

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Battle of Ideas: Picking on the Apprentice

Alan Sugar acts out the leadership myth

Creative leaders are idea warriors. Which is why many will be found engaging in the debate on bullying at work organized by The Institute of Ideas

The Fourth annual Battle of Ideas will involve over 1500 participants including strands on bullying at work, biomedicine, the family and (inevitably for election week).

The bullying at work session has marketed itself as Picking on the Apprentice. Leaderswedeserve has had a few points to make in the past on the television program. Like ourselves, The Institute of Ideas is more interested in hitch-hiking on the over-publicized programme to get at a far wider wider range of issues.

The bullying event will examine the recent case when a Marks & Spencer employee was fired for whistle blowing. And the example of Jason Toal, a black fireman bullied by colleagues who hurled racist taunts at him and allegedly soaked him with water and binned his paper work.

Other sessions will explore whether management consultancy and the professionals are in need of a stronger moral compass in the interests of the community, and (if that appeal is not enough) for their own post-credit crunch survival.

Political correctness running sane

Many people have developed a kneejerk reaction to describe their feekings of frustration and anger under the catch-all phrase political correctness gone mad. It might be interesting to trace the origins of this.

I have no doubt that themes within the Battle of Ideas will attract the inevitable media take of political correctness running mad . Which is OK. It is a comfort to think that debate offers a chance to develop more balanced views, and more importantly to act accordingly. On balance I’d say that is political correctness operating in a socially healthy way.

Acknowledgement: The Institute of ideas for the press release which prompted this post

Leaders in the news: Winners and losers

Howard Schultz Starbucks

In times of crisis, some leaders step forward, others are deemed to have failed. There have been examples of each, as the global financial crisis enters a new critical stage

Fred the Shred takes the fall

Pressure mounted on Sir Fred Goodwin to resign as chief executive of Royal Bank of Scotland (RBS) as the bank seeks to tap the Government’s £500 billion rescue fund. The Government is reluctant to a deal with RBS’s participation unless he relinquishes his role. Although he clung on tenaciously this has been a very bad week for Sir Fred. Another former city hero exits ignominiously.

Sir Fred Goodwin 0

Gordon Brown is no dead cat

The deeper the crisis, the more polls seem to swing towards Prime Minister Gordon Brown. David Cameron and George Osborne grudgingly offer support the government. Are we seeing a ‘dead cat bounce’, or is there life in the political career of Gordon Brown? He appears more relaxed in the last two weeks than he has been since taking over from Tony Blair as Prime Minister.

Brown 1, Cameron 0, Osborne 0

Boris Forces Resignation of Sir Ian Blair in Leadership Battle

The resignation of Sir Ian Blair [October 2nd 2008] develops into a political story. The BBC traced his turbulent career. Boris Johnson, incoming Mayor of London, is proving a hands-on leader willing to act forcefully. Sir Ian, under pressure on operational and personal fronts, was called into a ‘meeting without coffee’ by the Mayor before tending his resignation.

Boris 1 Blair 0

Obama and McCain Round 2

The second televised debate between the two candidates [October 7th 2008, Nashville, Tennessee] is as stage-managed as the first.
A key negative moment was was reported widely as

Jabbing his finger and spitting out “that one” instead of naming Barack Obama, John McCain showed an angry side

Polls suggest that Barack Obama is moving ahead.

Obama 1 McCain 0

Dick Fuld faces the music

Dick Fuld, controversial CEO of Lehmans has had a very bad few weeks. When ‘invited’ to testify before a hostile congressional committee following the crash of his company, he demonstrates his robust leadership style, denying wrong-doing or ethical weakness. He ticks the boxes for the callous Wall Street fat cat. Fuld very much the loser here.

Dick Fuld 0

Darling’s drastic rescue bid of the banks and maybe Gordon Brown

As The Times sees it
Chancellor Alistair Darling [October 8th 2008] launched a drastic rescue of Britain’s high street banks [to avoid] a cataclysmic failure of confidence by announcing a part-nationalisation plan with £50 billion of taxpayers’ money. Alistair Darling, like Gordon Brown has had a better week.

Alistair Darling 1

Starbucks, Schultz and the running taps

Howard Schultz, returned to the chief executive role at Starbucks earlier this year, faced with serious loss of froth in the business. Poor figures and closures continue. This week [October 8th 2008] the ‘running taps’ story threatens to sully the firm’s good environmental reputation.

Starbucks 0, Howard Schultz 0

And in the long run?

Not all these cats are dead. And, as we know, cats have seven lives.

BA: Musings on mergers, marriages, partnerships and takeovers

BA announces a new partnership with American Airways and Iberia. It raises the old question of the nature of business alliances

BA has cooperated for some time with American Airlines. Any joint venture seems likely to tick one important box, namely that the partners seem comfortable with one another. So there is at least the possibility that the cultural chemistry is not going to be a problem.

That is not to say that cross-cultural issues can be safely ignored, just that many of them have been thoroughly tested in practice over a period of two decades by the two airlines.

Even so, a global alliance presents global problems (or challenges as the remorselessly upbeat business speak encourages us to say). Business Schools prepare the new case for analysis. This one has another layer of complication. The deal is the more complex by the presence of Iberia. Hard enough to get a grip of a bi-party deal.

Oneworld

Where to begin? American Airways places considerable emphasis on its role as partner (and co-founder) of the global oneworld® Alliance,

…which brings together some of the best and biggest names in the airline business, enabling them to offer their customers more services and benefits than any airline can provide on its own. Together, its members serve more than 600 destinations in over 135 countries and territories.

Such alliances have increasingly and rather unobtrusively making air travel a little more joined up Less frequent fliers like myself increasingly find themselves going with the flow and discovering that the short-haul or regional leg of their journeys is being managed on behalf of a larger and more familiar name.

The alliances fit with the messier business world in which cooperation and competition co-exist. Incidentally, it is a world which poses further ‘challenges’ for traditional arguements regarding the ultimate economic virtues of competitive markets. It will be interesting to read the take on all this from that intelligent newspaper The Economist.

According to OneWorld

The oneworld global airline alliance has warmly welcomed and strongly supports the application for anti-trust immunity filed on August 14 by its members American Airlines, British Airways, Finnair, Iberia and Royal Jordanian. .. The filing was made as American Airlines, British Airways and Iberia signed a joint business agreement covering their flights between North America and Europe and unveiled plans for further co-operation.

John McCulloch [oneworld spokesman] said: “oneworld has for many years been the only global alliance without the benefit of anti-trust immunity between its key transatlantic partners. This has put oneworld at a considerable disadvantage. We’ve had to work a great deal harder and smarter than our competitors [Our rival alliances SkyTeam and Star] have grown much bigger and the anti-trust immunity they enjoy has been extended far more widely to deliver the alliance services and benefits that our customers have come to appreciate so much.

Richard Branson’s response

Richard Branson leading from the front for Virgin, enters the fray with a typically high-profile response.

Sir Richard Branson went on the attack yesterday against his old adversary British Airways to try to block plans by the UK flag-carrier to join forces with American Airlines and Spain’s Iberia across the North Atlantic. The three carriers, all members of the Oneworld global airline alliance, said they had signed a “joint business agreement” covering flights between North America and Europe.
They intended to co-operate commercially on flights between the US, Mexico and Canada, and the European Union, Switzerland and Norway while continuing to operate as separate legal entities. They would share revenues but not profits.
Sir Richard, president of Virgin Atlantic, said a BA tie-up with AA would “create a monster monopoly that would push up ticket prices and substantially reduce competition on the busiest air corridor in the world”.
But other opponents to closer ties between the two airlines, such as Continental Airlines, are likely to tone down their lobbying efforts, as they await regulatory approval for their own proposed partnerships.
BA and Iberia have recently begun negotiations to merge.
It is the third attempt by BA and AA in 11 years to gain antitrust immunity for their alliance. Heathrow, BA’s global hub and the Europe gateway for travellers from the US, had been opened to full competition for EU and US carriers since the end of March [2008].

This is the way in which Virgin Atlantic has developed such a positive brand identity and reputation.

‘This is not a marriage’

Stephen Beard argues in Marketplace that this is not a marriage.

At a time of crisis in the airline industry, [BA and Iberia] want to huddle closer together. They want to cut costs, coordinating flights and fares, perhaps running a joint frequent flyer program. The two airlines feel at a disadvantage. Lufthansa and Air France both operate very closely with U.S. carriers. BA and American need to be allowed to do the same .. American have tried this before, but failed to win the support of regulators. This time, they believe they’ll succeed, because the Open Skies Agreement has opened up competition in transatlantic air travel.

What happens next?

Some more turbulence of shareprices. Further informal collaboration between the one world partners. Maybe a full- blooded merger between BA and Iberia. (My blink view is rather cold on this one. But whatever happens, I would not rely on a two-second judgment, if I were into BA speculation). Even more Business School attention on the nature of global alliances. Richard Branson in need of more strategic initiatives to protect the future of Virgin Airlines. We will hear a lot more over the next few months [August 2008].

Note: For a full account of Richard Branson’s statement see The Wall Street Journal

Cruz missile ditched at Morgan Stanley

Zoe Cruz of Morgan Stanley is the latest high-profile financial leader to depart in the wake of the sub-prime turbulence. The current bloodletting increasingly appears to be more symbolic than rational

According to Forbes

Zoe Cruz was promoted to acting president in 2005, after a glittering career in the company she had joined twenty years earlier. Her promotion occured at a time of considerable board-room battles.

She was regarded as a supporter of Philip Purcell who controversially replaced President Stephan Newhouse and appointed Zoe Cruz and Stephen S. Crawford as Co-Presidents. Several senior figures left the organization at the time, presumably caught up in the in-fighting. Subsequently Crawford also left, and Cruz became the sole ‘acting’ president.

Capella University’s useful executive remuneration site reports that her compensation package amounts to $17 million, hardly big potatoes in these times for someone whose bonuses had pushed past $7 million a year in the recent past.

Financial correspondent Tom Bawden suggested that

The departure from Morgan Stanley of Zoe Cruz, Wall Street’s highest-paid female executive, has heightened fears that the firm is poised to unveil further mortgage-related writedowns. Her exit comes just three weeks after John Mack, the bank’s chief executive, is thought to have reiterated that she was his favoured successor. However, Ms Cruz, 52, was responsible for the division which made the loss-making mortgage investments and appears to have been sacrificed as the latest high-profile Wall Street victim of the credit crisis.

According to the report, the epithet Cruz missile is a reference to her combative business style. However, Mack had publically acknowledged her significant role in the company’s success over recent years.

Her departure has resulted in speculation that the dismissals have also created opportunities for the pool of available and talented executives such as Cruz. Mention has been made of Citygroup.

The BBC quotes a senior financial analyst, David Easthope

“The captains are going down with the ship. Whether they are rising stars or not doesn’t matter. The losses are so large and embarrassing to the organization that they are getting rid of people to satisfy the public perception that they are fixing things.”

Echoes here of tipping point theory of change.

The theory of tipping points, which has its roots in epidemiology, hinges on the insight that in any organization, fundamental changes can occur quickly when the beliefs and energies of a critical mass of people create an epidemic movement toward an idea.

leadership questions

Can we learn more about the nature of leadership as a symbolic process through study of the well-documented demise of high profile leaders?

Might the case anecdotes also permit an evaluation of the nature of tipping points within periods of change?

The Post Office Saves the Day

The Post Office offers a Christmas savings scheme to meet the needs of savers damaged in last year’s Farepak crash. This is a financial services innovation which is welcome news to many of the most vulnerable families in the community. It also demonstrates that The Post Office may still be able to develop new strategic options for itself

The Post Office has been under threat for some time. It has hardly won accolades for its leadership, as competition increasingly invades once-protected markets. The Royal Mail group continues to present a beleaguered image. Its current news bulletin begins

We apologise to all of our customers for the inconvenience and disruption caused by the recent industrial action and are pleased to announce that there is no strike action currently taking place.

The announcement concludes in less than convincing style

We are pleased to confirm that the CWU EC has ratified the deal on pay and modernisation and that this acceptance of the proposal means that Royal Mail is now able to go ahead with plans to modernise the business and make it more flexible, efficient and able to compete more effectively. We are making sure that any changes we make will not cause any disruption to our customers and where we have mail for customers, deliveries will be made each day across the country.

The Post Office and Royal Mail

As its website indicates,

Post Office Ltd is a wholly owned subsidiary of Royal Mail Group Ltd and operates under the Post Office® brand. Managing a nationwide network of around 14,300 Post Office® branches, we are the largest Post Office network in Europe and the largest retail branch network in the UK handling more cash than any other business…

Post Office Ltd is one of the three arms that make up the Royal Mail Group, along with Royal Mail and Parcelforce Worldwide. Post Office Ltd’s Chief Executive and non-executive Chairman sit on the Group’s management board.

A leadership opportunity?

When are there leadership opportunities? At times of great threat. Why? Because there the obviousness of the threats will have encouraged considerations of what to do about them? Doing nothing may indeed by good for rather subtle reasons. This amount to ‘doing nothing in a calculative way’ rather than in a helpless way, the latter backed up by denial. Doing something can also be backed up by denial and by false calculation.

In other words, not acting is also a possibility. Acting or non-acting can be strategies. They can be considered strategies. They can be well considered and doubtfully considered. The circumstances surrounding threat at least may increase conscious efforts to do something better and different. Sometimes the strategy has been elevated to a leadership principle of masterful inactivity.

The opportunity in the threat

My unexpected conclusion is that the Post Office has a rare asset that it carries through the financial crisis, and which is one that most other financial institutes do not have. The asset lies in the confidence of customers that any deal offered will be as near as safe as any deal can be.

The implication is that the proposed savings product, although a relatively small one, could be an indicator of futher possibilities based along the same lines of guaranteed safe and regular savings. This was the strength of the home-savings schemes and of the offerings of the door-to-door insurance salesmen epitomized by The Man from the Pru. , The Pearl, The Refuge for a century or more.

The healthy option

If this is the case, it will be a healthy option that has emerged partly as a consequence of a breakdown of trust in the current business image of high street banks and their current accounts (no pun intended). Healthy, because the good old Post Office was hardly a considered option by many ordinary people who considered themselves to have more financial savvy than to follow the untutored practice of saving with the Post Office, or with the friendly societies.

The possibility is healthy because it is not dressed up in dubious marketing promises of foolishly attractive yields. What you are offered is what you will get. Maybe, just maybe, the simple promise can not easily be copied by competitors.

Straws in the wind?

The idea is based on several assumptions. First, that the various beffetings to the international and national financial systems are producing a shift in attitudes among members of the general public. These in effect result in beliefs that banks are no longer safe havens for money. In the UK this week, the missing computer records of thirty-five million members of the public may contribute to such atttitudes for some time to come. The second assumption is that the Post Office is, in contrast, safe. Not safer, but safe.

We will see.

VW Law. All in the family as Porsch/VW consider wedding plans

Update [Aug 2009]

[This post offers background to the eventual merger between Porsche and Volkswagen. The original post follows ]

No-one was surprised when the so-called VW law was declared illegal. The ruling had been anticipated for a long time by Porsche through skillfully increasing its stake in VW. The stage was set for an official announcement of a merger between two German industrial dynasties which already had close family ties

European commentators had been discussing the merger for some while, as the so-called VW Law was tested in the courts. The general view was that the law contravened EU principles on competition grounds. The possibility of non-German control would encourage a ‘friendly’ takeover, with Porsche a front-running candidate.

There are strong links between the companies

Dr Ferdinand Porsche designed the original Beetle in 1936, and his grandson, Ferdinand Piech, is chairman of VW and the controlling shareholder in Porsche. Wendelin Wiedeking, chief executive of Porsche, is a member of the supervisory board of Volkswagen.

Anticipating the ruling will go against the VW Law after the advisory opinion, fellow German automaker Porsche AG increased its holding in Volkswagen to 31 percent while Lower Saxony raised its number of shares to 20.36 percent. That means the bloc of Porsche and Lower Saxony can now stop any takeover themselves with more than 51 percent combined

Frits Bolkestein was the EC commissioner for the internal market, and had no doubts about the ruling. Writing in The Financial Times, he points to Article 56 of the Treaty on the Economic Community, which states that

“All restrictions on the movement of capital between member states and between member states and third countries shall be prohibited.” This is one of the four fundamental freedoms of the European Union the freedom of movement of capital, movement of goods, services and persons.

Rumors of wars

There is a case for stating that Germany demonstrates an alternative mode of capitalism. The much-lauded strength of its industrial sector is backed by a complex governance system. Funds tend to be provided by banks rather than the financial institutions of the city. News seems to trickle through to the financial press, increasing the proportion of speculative comment over hard facts.

In November 2007, rumors suggest that Porsche intends to acquire VW, and incorporate the models under the Porsche brand through a holding company. VW declines to respond to such rumors. The powerful unions at Volkswagen sent a signal of discontent, with work stoppages, including 40,000 workers at the main Wolfsburg plant on Wednesday October 30th.

What’s going on?

Shares in VW have moved steadily upward this month. News coverage in the rest of Europe has been low. My suspicion is that plans towards securing that dynastic merger are in place. Whether the happy day is near remains to be seen.

Sarcozy accepts need for EADS probe

The long-running tale of malpractice enveloping EADS continues. Nicholas Sarcozy distances himself from any involvement, and calls for punishment of the guilty

Earlier posts to this blog have followed the various dismissals, resignations, restructurings, and political interventions, at EADS and its Airbus subsidiary.

This week the International Herald Tribune picked up the news agency bulletin:

“If there are people who committed fraud at EADS, judicial officials must get to the bottom of it so that we know the truth and those who behaved dishonestly be punished in proportion to what they did,” Sarkozy said. “I’ll get to the bottom of the investigation to know what the responsibilities of the state were at the time.”

While a major shareholder, the French government does not sit on the EADS board. Its interests are represented by the French defense and media conglomerate Lagardere, which holds a 7.5 percent stake.

EADS shareholders Lagardere SCA of France and Germany’s DaimlerChrysler AG announced in March 2006 that they would reduce their stakes.

There are several inter-related strands to this story. Airbus is a European flagship company with a complex governance structure through its parent EADS which involves particularly French and German Governments. The business theme is centred around the fierce competition between Airbus and Boeing products. The political theme involves unresolved bickering about the ways in which the US and European governments subsidize their commercial interests. There are additional fascinating manufacturing, logistic, and technological issues to do with creating next-generation products across multiple international sites, and meet increasingly drifting deadlines. Oh, yes, and Airbus is struggling to achieve considerable cost-cuttings with industrial relations troubles. Add to all these issues a series of allegations of corruption.

At the start of the year I attempted to tease out the killer facts in the Airbus affair. At the time, it seemed that

[In 2006] A380 project executives, including Airbus CEO Gustav Humbert, were dismissed. Humbert was blamed for the failure to deal effectively with the project delays, but also was accused of concealing the seriousness of the problems.

In the same period, it was revealed that the joint CEO of EADS, Noel Forgeard had sold EADS stock weeks before its Airbus subsidiary announced the Airbus A380 would be delayed again. M. Forgeard resigned, and the stock plummeted.

In a short space of time, Humbert’s replacement, at Airbus, Christian Streiff resigned, which was when Louis Gallois stepped in. Streiff was believed to have failed to secure backing for a financial package he believed necessary to turn things around with the A380.

In a few months, the company had begun to unravel some of its knottier problems, and achieved a more convincing organizational structure.

However, the changes left some players with lesser roles.

Arnaud Lagardère (of the media group of the same name) was French Co-chairman of EADS and seems to have been airbrushed out of the wider game. It had been muttered (especially in the French press) that he escaped scrutiny over earlier share scandals, and is ‘protected’ by Sarcozy, who was given a rather soft ride from Lagardère’s media group in his election campaign. M. Largardère, claims that he had no inside knowledge of delays in deliveries of the A380, when his family group sold off 7.5 per cent of the Franco-German planemaker’s shares in April 2006. The possibility remains that he will be in line to return to EADS in the future, when the Chair rotates from German to French hands

According to The Independent, reports from the French press, that

[S]ince taking over the family empire after his father died in March 2003, M. Lagardère has cultivated a chatty and approachable style. He has, however, been plunged into controversies. His group is one of France’s biggest media players, owning a controlling stake in Hachette-Filipacci Media, the company that owns Paris-Match. He also has smaller stakes in Le Monde, Le Parisien and L’Equipe … M. Lagardère has been accused of interfering in editorial decisions to protect his friend M. Sarkozy and especially to prevent discussion of alleged problems in the President’s [private life]. Le Monde quoted a “close adviser” of M. Lagardère [as saying that] “whatever happens” he will be protected by M. Sarkozy.

It now seems, that “whatever happens” M. Sarcozy intends to place himself hors de combat.

Match of the day: Branson-Murdoch Round three

The battles between BSkyB and Virgin Media continue. This round goes to Richard Branson, as the competition commission rules that the Murdoch move which acquired a stake in ITV was anti-competitive.

According to The Guardian

Sky could be forced to sell its 17.9% stake in ITV at a substantial loss after the Competition Commission said this morning that the holding restricts competition and is against the public interest … It is likely to please Sir Richard Branson, who last year attacked Sky’s “reckless and cynical attempts to stifle competition, and secure creeping control of the British media”.

In a provisional ruling, the commission said that the shareholding, which has been fiercely criticised by rivals, would allow the satellite broadcaster to weaken ITV or prevent it competing fully with BSkyB.

In an earlier post I noted that

Both companies have a capacity to damage the other’s competitive position. As a complete victory for one side seems unlikely, the organizations will have to find ways of co-existing and collaborating, as well of competing

That has not stopped a bitter feud deepening between both organizations.

Earlier in the year Virgin’s TV subscribers were caught in the crossfire. Virgin lost an estimated 40,000 of its 3 million-plus subscribers when BSkyB pulled the plug (or at least, the dispute resulted in loss of BSkyB content to Virgin subscribers.

Both parties have continued to react energetically in the fast-changing media market-place.

This week Richard Branson launched the new TV channel Virgin 1, which even if planned otherwise will now fill the gap left by the loss of the Sky channels.

A day before the competition ruling, BSkyB yesterday unveiled Picnic, a new subscription service for Freeview digital TV, which initially will offer three channels (Sky One, Sky Sports 1 and Sky Movies).

Setanta Sports, originally positioned as viewing for Irish ex-pats, has muscled itself into a more visible position in its advertising campaign for cheap monthly subsriptions. In the UK, the most recent sale of transmission rights of Football matches has illustrated how what’s right for the Competition Commission may not be right for viewers wanting to follow their favorite team, and who now have mind-boggling calculations to make in view of the multiple bundling possibilities on offer.

What’s going on?

Here we have a developing story of some appeal to wannabe leaders. Is it a war-game? Are there rival teams of grand-masters planning move and counter-move?

While my favorite notion of Chess as a source of strategy insights offers a starting insight to the complexities, maybe a deeper study is required. One colleague suggested the various theories of Industrial Organization economics. These are even more complicated than the Branson Murdoch battle. A nice introduction can be found in the review by Kathleen Conner. Although not covering more recent work, it explores various theories, with particular attention to the Resource Based View of the firm. This remains a way of understanding how a firm’s competitive position may defined by a “bundling” of unique resources.

BA backs the Bus and the Dreamliner

British Airways splits its future plane purchases between Boeing and Airbus. Although earlier statements suggested that the company was not interested in a Superjumbo sized carrier such as the new generation A380, Willie Walsh and his team show a chess-like grasp of strategy

Speculation in Seattle was pretty much right. A week before any official announcement, Industry insider James Wallace noted

The campaign is a key showdown between the A380 and 747-8 Intercontinental and the 787 and A350 . So far, only Lufthansa has ordered the passenger version of the 747-8. But Airbus also needs another major international customer to back the A380. It has repeat orders from Lufthansa and Singapore Airlines, but Airbus has long sought to bring BA into the A380 fold.

Jefferies & Co. analyst Howard Rubel told the AP he believes investors are expecting British Airways to split its order between the two aerospace rivals.
“I think B.A. wants to bring a little competition into the mix,” he said.
BA Chief Executive Willie Walsh has visited Boeing and Airbus for briefings on their planes.
The airline recently ordered more 777s.
Even though British Airways early on said the A380 was too big for its needs, Walsh has said the airline is now interested in the big Airbus jet, which will enter airline service next month with Singapore Airlines after a two-year delay.

Wallace’s blog also attracted a remarkable set of speculations about the prospective decision. Most seemed to be based on ‘sources close to Boeing or BA’. The following was typical

Posted by unregistered user at 9/20/07 9:21 a.m.
I’ve heard 10 A380’s + options on 10 more , 20 787’s + 10 options and 10 A350’s + 10 options

When the news of the decision was formally announced it was widely replicated from news agency sources. I took this from The BBC, but found it on all the main news feeds.

BA will buy 12 Airbus A380 superjumbos and 24 Boeing 787s, to be delivered between 2010 and 2014, for a reported $8.2bn (£4.1bn). The group also has options to buy seven more A380s as well as a further 18 Dreamliners from Boeing.
Further negotiations will occur so that BA can replace its remaining 747-400s. This appears to be between the 787-10 and the 777-300 ER from Boeing, and the Airbus A350

The Boeing reaction was between gritted teeth:

The Boeing Company [NYSE: BA] is honored that British Airways has selected the 787 Dreamliner as a key element of its long-haul fleet renewal

What’s going on?

Leadership geeks may be tempted to see unfolding a story of strategic leadership. If so, it is a story which has to place leadership with a wide cast of strategic players. We may start by thinking of Willie Walsh as the dominant decision-maker in the story, with some billion pounds/dollars to invest in the future of his company.

The evidence of Mr Walsh’s leadership style suggests that he will have been very active in the processes building up to the decision, internal to British Airways. At present we can only speculate. However, the decision has enormous significance. It will impact on the travelling lives of millions of people some more directly than others. Arguably it will impact on the future of employees of Boeing, EADS, and a myriad of suppliers and sub-contractors including Rolls Royce who will supply the engines. At another level, the debate on political influence and subsidies to Airbus and Boeing continues to bubble away.

However charismatic and autocratic his leadership style, Walsh will have been flying in tricky conditions and with a chief pilot’s usual near-overload of advice and chatter. Advisors, and advisors of advisors will have examined assorted risk assessments from in and outside BA into which data will have been fed from numerous sources. Somewhere in these the influence of various governments and global institutions will have been factored in, as well as the much-publicised production delays at Airbus and more recently at Boeing for the A380 and B787 projects. Willie Walsh keeps sane by following what the great Herbert Simon called satisficing, or simplifying the decision through a set of personal mental filters.

In an avalanche of articles and books since the 1950s, Simon ..focused much of his attention on the issue of decision-making – and [developed his theory of ] “bounded rationality”. Agents, he claims, face uncertainty about the future and costs in acquiring information in the present. Thus .. they have only “bounded rationality” and are forced to make decisions not by “maximization” by “satisficing”, i.e. setting an aspiration level which, if achieved, they will be happy enough with, and if they don’t, try to change either their aspiration level or their decision.

I have taken the view that such processes are those which chess-players also have to make. In this chess-game, BA wants to avoid fixing the position, when there is much to be said for keeping options open. So the overall decision on replacing the fleet of aging 747 400s may or may not have been made. It makes sense to keep options open, even to the extent of splitting up the decision between the two giant contenders for the business. That is partly why decisions also involve options as well as firm commitments.

Those with a liking for logistics theory can debate the merits of smaller planes and P2P (point to point) strategy, and larger ones with a Hub-based strategy. Whatever.

A judicious mix of planes of differing size keeps both strategic options open. A judicious mix of ‘top-down’ leadership actions, and ‘data driven’ analysis may also be appropriate.