Clever Geek Handbook
6 January 2026

Blackwater

Recommendation

The Iraq war has seen a vast expansion in the use of private security contractors to complement the U.S. military. But who are these contractors? Who pays them? And how did one contractor, Blackwater, become so entrenched? Jeremy Scahill answers these questions and more in this provocative, thoroughly reported book about the world’s largest, private mercenary army. Scahill has done a masterful job of researching this secretive organization to disclose its origins, motives, leaders and activities. BooksInShort strongly recommends this compelling, disturbing story to anyone interested in the Iraq conflict, and in the larger picture of how private armies reshape warfare.

Take-Aways

  • Blackwater, a defense contractor, has gotten $1 billion in no-bid contracts from the U.S. State Department.
  • It is owned by Erik Prince, a right-wing multimillionaire.
  • Blackwater has been accused of indiscriminate use of force against Iraqi civilians.
  • Defense Secretary Donald Rumsfeld expanded privatization of the U.S. military.
  • By the time he left office, the ratio of active duty U.S. military to private mercenaries in Iraq was one-to-one.
  • Privatization is so pervasive that the U.S government pays contractors the equivalent of all taxes paid by every taxpayer who makes less than $100,000 annually.
  • Vice President Dick Cheney advanced privatization while at the American Enterprise Institute; by 1995, he headed Halliburton, the U.S.’s largest defense contractor.
  • By October 2006, Great Britain had 7,200 soldiers in Iraq versus 21,000 mercenaries working for British firms.
  • In 2007, the U.S. had 160,000 soldiers there, and more than 180,000 contractors.
  • In the 2003 Iraq invasion, one in three coalition members were contractors. Private security has become an estimated $100-billion-a-year business.

Summary

Private Warriors

In September 2007, a convoy of armored vehicles belonging to the major defense contractor Blackwater entered Baghdad’s upscale Nisour Square. While accounts differ about how the fight started, Blackwater’s mercenaries started driving the wrong way down a one-way street. In minutes, the convoy opened fire on civilian cars, killing 17 people and wounding more than 20.

“Blackwater is a private army, and it is controlled by one person: Erik Prince, a radical right-wing Christian mega-millionaire.”

That June, Blackwater employees’ violent acts already had drawn the attention of U.S. and Iraqi military and intelligence officials. But as complaints escalated, the officials got word that Blackwater worked for the State Department, and the investigations stopped. A drunk Blackwater contractor killed an Iraqi official’s bodyguard and was never charged. He was taken out of the country and his security clearance was revoked. Within weeks, another contractor hired him and sent him back to the Middle East. With the Nisour killings, as with other attacks involving Blackwater personnel, no one was prosecuted. The day after the shootings, the State Department ordered noncombat personnel, including Blackwater employees, to stay in the “safe” Green Zone. But within four days, Blackwater was back in business.

“In Congress, privatized war was almost a nonissue despite the efforts of a few prescient legislators who realized the threat.”

Blackwater has gotten $1 billion in no-bid contracts just from the State Department. The first was an August, 2003, $27.7-million contract to protect Paul L. Bremer, U.S. Ambassador to Iraq. His guards earned $600 per day, but the firm has been known to charge $1, 500 to $2,000 per day for its guards. Under Bremer’s orders, the 170 private contractors in Iraq enjoy immunity from prosecution. Iraqis cannot bring charges against them; in fact, Iraqi and U.S. authorities have never put a contractor on trial for a crime.

“Even though tens of thousands of mercenaries have been deployed in Iraq, private security forces faced no legal consequences for their deadly actions.”

When Congress investigated the Nisour killings, the State Department kept Blackwater from disclosing data about its contracts. President George Bush defended Blackwater. Secretary of State Condoleezza Rice concluded that under U.S. law, independent contractors are not accountable for their actions, so mercenaries could operate in Iraq outside of U.S. law, military law and Iraqi law. However, a subsequent FBI investigation found that at least 14 of the Nisour Square shootings were unjustified and the civilian victims had not participated in the attack. Blackwater’s unprovoked violence against civilians angered leaders in the U.S. military, who were trying to build local relationships. Officers worried about declining morale and retaliatory attacks.

“As mercenaries roamed the country freely, there was no official explanation given to Iraqis as to who these heavily armed, often non-uniformed forces were.”

To seek redress, in October 2007, relatives of the Nisour Square victims sued Blackwater in U.S. federal court for extra-judicial killings and war crimes. In response, Blackwater went on a PR offensive. It changed its name to Blackwater Worldwide, began calling its teams “global stabilization specialists” and marketed kids’ clothes emblazoned with its logo.

Halliburton, Rumsfeld and Prince

Blackwater’s growth was part of the privatization of the military, which gained momentum under the Bush administration though the first federal contracts were issued under Bill Clinton. During the 1991 Gulf War, then-Secretary of Defense Cheney pioneered using contractors on a large scale. He commissioned Halliburton, now the U.S.’s largest defense contractor, to do a feasibility study on privatizing the military. Cheney advanced the concept of privatization while working at the American Enterprise Institute. By 1995, he was head of Halliburton. Privatization is now so pervasive at the federal level that the government pays contractors the equivalent of all the taxes paid by every taxpayer who makes less than $100,000 annually, that is, more than 90% of all taxpayers, according to Vanity Fair.

“Not a single Blackwater contractor had ever been charged with a crime under any legal system – U.S. civilian law, military law or Iraqi law.”

Militarily, the U.S. had 160,000 soldiers in Iraq in mid-2007 and 180,000 private employees working for 630 contractors from 100-plus nations. Using contractors helped dodge unpopular issues that might have arisen if the U.S. military had been involved. Many armed contractors were used as mercenaries. Secretary of Defense Rumsfeld expanded privatization as part of restructuring the Pentagon. It was implemented on a huge scale as American forces invaded Iraq in March 2003. In this invasion, one out of every three people who were part of the coalition were contractors, as opposed to one in 60 who were contractors in the 1991 Gulf War. For its part, Blackwater became synonymous with the private police and security business. In May 2004, it formed an offshore subsidiary, Greystone, to provide paramilitary support for overt and covert operations.

Blackwater’s Origins

Former Navy Seal Erik Prince founded Blackwater after he had to leave the Navy to care for his dying wife, Joan, and their four children. Using family money from the sale of his late father’s auto supply manufacturing company, Prince and other Navy Seals began to build Blackwater in the mid-1990s. They erected a private, advanced military training facility in Currituck County, N.C., near the “black waters of the Great Dismal Swamp” that gave the firm its name. Blackwater soon gained a reputation as a top-notch paramilitary training facility with the largest private arsenal in the U.S. Blackwater CEO Prince and his family also developed strong relationships with the extreme religious and political right wing. The family went on record as anti-abortion, anti-gay supporters of the “theoconservative” movement, which linked the roles of the church and government.

“Scores of U.S. soldiers had been court-martialed on murder-related charges in Iraq.”

Blackwater’s business expanded with every serious armed attack or disaster. Business grew as a result of the Columbine High School shootings, the attack on the USS Cole and, especially, the September 11 attacks. The firm trained police officers, FBI agents and personnel from throughout the federal government, from Treasury to the National Nuclear Safety Administration. The volunteer military prompted the need to hire “force protection,” or private security for U.S. military bases, so volunteer soldiers could focus on their routine duties.

“Some began comparing the mercenary market in Iraq to the Alaskan Gold Rush and the O.K. Corral. As the Times of London put it...’In Iraq, the postwar business boom is not oil. It is security’.”

As Ambassador Bremer’s security force, Blackwater guards intimidated Iraqi civilians and U.S. military personnel alike, shooting at civilians and running people off the road in convoys that never stopped. One official said that if anything happened to Bremer, Blackwater would be out of business. Conversely, if the U.S. had been protecting Bremer, any military mistakes would be subject to formal review. Immunity and money made private armies grow.

Danger Builds a Big Business

In March 2004, the U.S. announced that it would pay private security firms $100 million to guard the four-square-mile Green Zone in Baghdad. That month in Fallujah, where civilians were already outraged over a battle where women and children had been killed, militants ambushed and killed four Blackwater contractors, and hung their “charred,” mutilated bodies off a bridge. This was a major setback for Blackwater, whose contractors were understaffed and ill-prepared to fight militants. U.S. officials initially downplayed the ambush and pointed out the productive building of roads and schools happening at the same time. Later they debated whether to treat it as a crime or as an attack. Though Marines in place opposed it, the federal government ordered a full attack on Fallujah.

“We’re expendable. If 10 contractors die, it’s not the same as if 10 soldiers die. Because people will say that we were in it for the money. And that has a completely different connotation with the American public.” [ – Thomas Pogue, Blackwater contractor and former Navy Seal]

That April, Muqtada al-Sadr’s Mahdi Army attacked Blackwater contractors protecting the Coalition Provisional Authority headquarters in Najaf. Blackwater mercenaries outnumbered the Marines inside, who found themselves taking orders from contractors. And the contractors found themselves in full-fledged violent combat.

“Blackwater is the embodiment of the Bush administration’s ‘revolution in military affairs,’ which has entailed aggressive outsourcing of core military functions.”

Back in Washington, Blackwater executives met with top government officials. Prince hired the Alexander Strategy Group, a powerful Republican lobbying firm, where his long-time friend, Paul Behrends, was a partner. Alexander had helped Blackwater become the first contractor in Iraq after the September 11 attacks. Now, it helped Blackwater gain a role in shaping Defense Department standards for private contractors, especially concerning the jurisdiction of the Military Code of Justice. The State Department’s Worldwide Personal Protective Service gave Blackwater a lucrative $750-million contract. The firm had grown 300% a year for three years.

“I refer to the mercenaries as our silent partner in this struggle.” [– Senator John Warner]

Two weeks after the Fallujah killings, Blackwater announced plans to build the world’s largest firearms and training facility, a 64,000-square-foot building with shooting ranges. It would include facilities for using explosives, incendiary devices and automatic assault weapons, as well as parachute landing zones. As Blackwater expanded, Iraqi insurgents were kidnapping and killing more contractors. While the U.S. officially never paid ransoms, a classified document said terrorist groups had extracted $36 million in ransom payments annually from corporations. Meanwhile, the cost of buying private security from Blackwater, Halliburton and Bechtel sapped the U.S.’s Iraq reconstruction budget. Fluor, an engineering company, hired more security contractors than actual workers to fulfill its $2 billion in service contracts. Private security contractors even were involved in the abuses at the Abu Ghraib prison.

New Assignments

Entrenched in the Bush circle, Blackwater gained a lucrative contract training paramilitaries to protect oil facilities near the Caspian Sea. Having the Baku area in friendly hands would disrupt Moscow’s local influence, and give the West better access to oil and gas facilities owned by British Petroleum, Chevron-Texaco, Unocal and ExxonMobil. To stabilize the area, the Bush administration overthrew a regime in Georgia and installed a new one that was pro-American. Blackwater was hired to maintain surveillance facilities on Iran’s border and to protect the oil facilities, including the BTC pipeline that circumvented Russia.

“War is business, and business has been very good.”

As the need for more mercenaries developed, Blackwater began recruiting from developing countries, such as Chile and Columbia. Since it offered large salaries, the recruiting went well. However, a group of Chileans it hired arrived in Iraq only to be told that they would be paid just $34 a day. When they complained, the company confiscated their return tickets and told them that if they quit, they had to find their own way home from Iraq.

“Facing a slew of Congressional, military and Justice Department investigations over his company’s actions, Prince said, ‘How can I sleep? Because I’m comfortable and I know what we’re doing. We’re doing the right thing, so beyond that, I can’t worry. I sleep the sleep of the just. I’m not feeling guilty’.”

Blackwater also tried to derail a lawsuit filed by families of the four men killed in Fallujah. The families charged that the ambushed detail should have had a minimum of six men, not four. They claimed the men were denied armored vehicles and adequate training. Blackwater stymied the lawsuit, hid material witnesses and failed to cooperate voluntarily with Congressional investigators. The company told the families they were entitled to only the minimum government death benefit. Since Bremer had given Blackwater immunity, it asked for the suit to be dismissed. The company sued the families of the dead for $10 million claiming they had violated their contracts. As of 2008, the lawsuit was still in court.

To expand its political power, Blackwater hired several top Bush appointees, including Cofer J. Black, a former CIA officer and ambassador, and Joseph E. Schmitz, the Pentagon’s Inspector General. Schmitz initially oversaw Pentagon-based private contractors, but he eventually became Blackwater’s CEO and General Counsel. By 2005, the Defense Department had granted $42 billion in contracts to fund 77 firms working in Iraq.

Defending New Orleans

When Hurricane Katrina hit the Gulf Coast in August 2005, Blackwater got its first domestic job. It sent heavily armed men to defend New Orleans from criminals, despite the police chief’s insistence that the city allowed only cops to be armed. Initially, Prince said the company would donate its services. Yet, within a year Blackwater booked $70 million in revenue for its hurricane-related work, apparently based on a no-bid contract from the Department of Homeland Security, which hired Blackwater people at $950 a day each to supply security services. Other contractors – Halliburton, Fluor, Bechtel, The Shaw Group, Kroll – also got a piece of the pie.

The Bush administration expanded the privatization of domestic and international security. By the time Rumsfeld left office, active duty military stood at a one-to-one ratio with private mercenaries in Iraq. Blackwater had people working in nine countries, and sold security services to corporations and other nations. In 2006, the company said it could provide a private brigade-size force anywhere in the world, and its deployment would be faster and cheaper than NATO or U.N. forces. By October 2006, Great Britain had 7,200 soldiers in Iraq, plus 21,000 mercenaries working for British firms. Overall, private security had become an estimated $100-billion-a-year business.

Looking forward, the U.S. military says it cannot do its job without private contractors. Both Barack Obama and Hillary Clinton have said they want American diplomats to be protected in Iraq – and that means using private security forces.

About the Author

Jeremy Scahill is a reporter for The Nation and Democracy Now!, and a Puffin Foundation Writing Fellow at The Nation Institute.

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Blackwater

Book Blackwater

The Rise of the World's Most Powerful Mercenary Army

Nation Books,
 


6 January 2026

Outsmart the MBA Clones

Recommendation

Dan Herman’s book is not really about M.B.A.s; it’s just badly titled. Actually, his subject is the continuing power of product differentiation, and he is challenging how marketers conceptualize their work. He explains how to “electrify” consumers by developing innovative products and services that your “M.B.A.-clone” competitors are reluctant to imitate, thereby handing you a monopoly. Herman comes out swinging as a bold strategist, but because his thinking is both nuanced and complex, his book is sometimes difficult to follow. Still, BooksInShort considers it a useful text in marketing strategy and recommends it to marketers of all stripes. Even if you decide not to follow Herman’s logic down all its paths, you can harness his clever ideas and out-market all those M.B.A. clones.

Take-Aways

  • M.B.A. graduates tend to think and act in highly conventional – and predictable – ways.
  • Compete with these individuals and their firms on your own terms.
  • Develop differentiation as an “unfair advantage” that immunizes you from competition.
  • An unfair advantage functions exactly like a “private monopoly.”
  • The “M.B.A. clones” will not attempt to follow your lead; they think inside the box.
  • “Electrify” customers with intangible benefits that are truly different and unique.
  • This kind of differentiation stresses a product’s “off-core” benefits.
  • Conduct an “opportunity scan” of your environment, market, customers, product and company to uncover new angles to exploit.
  • Try 10 tactics to find opportunities for your brand, including moving up- and down-market and targeting neglected markets and consumers.
  • Score big with “short-term brands” that get consumers buzzing.

Summary

Gain an “Unfair Advantage” Over Your Competitors

Do you believe that long-term strategies make your company successful? Think again. “Long-term” no longer exists when business moves as fast as it does now. So how do you stay ahead of the competition with its M.B.A.-toting CEOs? Don’t fall into the trap of the routine-bound “M.B.A. clones,” repeating the same old strategies. Instead, leapfrog your competitors. Take unfair advantage of them with compelling differentiation.

“Most of the rules of strategy, marketing and branding that you learned are no longer relevant.”

You can out-think the M.B.A. clones, even though they represent the crème de la crème of business schools. That is their strength, but also their weakness. They’ve all studied the same outdated marketing theories and, like good clones, they all think alike. So they set strategy the same way, they compete for the same clients and they create products that look the same to customers. Instead, you can win on your terms by creating a unique competitive advantage.

“A major weakness of M.B.A.-clone thinking is a blurred understanding of strategy (believing that it is something other than differentiation).”

Competing on price won’t help you. Your rivals will always match you and drive down profits for everyone. Price is not that big a deal with consumers; they don’t mind spending more to get what they truly want. An unfair competitive advantage has two primary characteristics:

  1. Consumers believe your product is absolutely irreplaceable – Apple’s ultraloyal customers are devoted to iPods, Macs and all things Apple.
  2. Your product is so special no one will bother to copy it – Virgin Airlines makes flying fun for its passengers, offering in-flight massages and manicures. These oddball tactics work, but Virgin’s staid competitors won’t duplicate them.
“The market isn’t price-driven and neither is the consumer. It’s the marketers who are price-driven.”

Companies that create unfair advantages develop “private monopolies.” They satisfy their customers by offering truly unique products. M.B.A. clones are unlikely to go down this road. Strategy involves choices, and M.B.A.s hate to give up any of the market to focus on just part of it. They’re afraid of deviating from the standard playbook they learned at business school, so they all use the same outmoded plans and end up fighting one another.

“To obtain a window of time large enough to allow you to become very wealthy, you must create a huge gap that stuns your competitors, create doubts in their minds...and paralyzes them.”

Use the “Advantagizing Approach” to set your company on a different path. Your product needs a competitive edge, profits and client appeal: a three-legged strategic stool. This “Unique Success Formula” (USF) consists of creating an advantage, a plan and an identity for your marketing. M.B.A. clones will never adopt this approach because they all buy into three common myths:

  1. “You have to be better than your competitors” – Not true; if you can match your competitors, you can still beat them by using “electrifying marketing” to offer a must-have product.
  2. “To succeed, you have to endear yourself to as many consumers as possible” – Not necessarily; you can succeed with a smaller client segment that is passionate about your brand.
  3. You “need...[a product] advantage on a parameter that is considered important” – Completely false; customers consider products that address their needs, but they only choose brands they see as distinctive.

“Off-Core Differentiation”

To achieve an unfair advantage, focus on off-core differentiation. Your customers already count on your product’s “core benefits.” A cellphone’s core benefits are that it provides not only a telephone, but also a camera, a messaging unit, and the like. Work to improve a core benefit, and your competitors will quickly one-up you, so you’ll be right back where you started. Go beyond the core to stand out (and away) from the clones. Swatch watches are prized for their artful faces and funky watchbands, both off-core differentiators that nobody’s imitated. To find the off-core:

  • Discover your clients’ needs, and research what satisfies them today.
  • Develop new solutions that deliver more.
  • Create a USF that includes your “competitive strategy, business model, brand concept and...realization plan.”
“The ultimate test of your strategy is the consumer test. Will he or she do (or not do) what you intend?”

Base your strategy on factors that set you apart from the competition. Try to:

  • “Satisfy an unsatisfied need” – Customers have not yet found everything they need in one product.
  • Provide “a new satisfaction for an already satisfied need” – Go the competition one better by providing an off-core differentiator.
  • Offer “satisfaction of a regenerating motivation” – Find this month’s trendy new thing, which will give way to next month’s trendy new thing, and so on.
  • Create “fantasy satisfaction of an unsatisfiable motivation” – Some people want to stay young forever, so they invest in cosmetics, face creams and plastic surgery. When those don’t work, they’re on to the next big antiaging product.

“Opportunity Scan”

Use the opportunity scan (or “O-scan”) method to analyze the market and determine your place in it. The O-scan examines five concentric segments to find the most promising opportunities. Explore these five circles from the outside in:

  1. “Context” – Understand cultural and business trends, political considerations, new technologies and security concerns in your market.
  2. “Consumers” – Analyze buying behavior and influences. Identify the customers you could potentially reach.
  3. “Market” – Know the main players, the proxies for your product, and the distribution and selling practices.
  4. “Competition” – Identify your current and future competitors. Spot the “competition’s rules, especially the implicit ones that [people] comply with but don’t notice.”
  5. “Us” – Come to grips with your abilities, profitability, resources and weaknesses.
“Today, a five-year period is the ‘long-term’.”

Make the most of available “research and analytic tools” to get marketing answers. You can “zoom in” on the O-scan to figure out “what’s now.” To determine your potential market, “zoom out.” Every opportunity involves recognizing how your company can improve consumers’ lives. Identify the prospects you could sell to, along with the concept that exploits the opportunity. Now examine the feasibility and profitability of implementing the opportunities that the O-scan identifies. Your goal is to create a competitive advantage in the minds of your customers. Your strategy must meet the needs of your targeted customers in a way that distinguishes your offering.

“In today’s business world, conservatism is dangerous.”

You can choose from numerous O-scan methodologies. “Contextual Segmentation” studies consumers according to how their context affects their buying. For example, off-road enthusiasts purchase more heavily equipped vehicles and accessories than do drivers who only occasionally venture off the pavement. The “ForeSearch Method” focuses on the judgments consumers make based on their emotions and expectations. In the mid-1990s, Chrysler’s market research discovered that drivers longed for a return to the good old days, so the auto maker created the PT Cruiser, the quintessential 1940s wagon. In addition to these methods, work through 10 “searching angles” to uncover opportunities for your brand:

  1. Identify the predominant buying criteria that consumers use for your merchandise.
  2. Consider new product classifications and customer segments.
  3. Speculate how your company can turn nonbuyers into buyers.
  4. Target consumers your competition neglects.
  5. Check out any selling opportunities your firm tends to ignore.
  6. Find consumers who are underserved in your markets.
  7. Think about adding an upscale product to your mass-market line.
  8. Think about adding a mass-market product to your upscale line.
  9. Develop new offerings that enable consumers to trade up and trade down at will.
  10. Ensure that consumers share your positive view of your product.

Compelling Brands

Your brand is all-important; hearing your name creates the “anticipation consumers feel for a specific benefit...from a company, product or service.” With the best brands, these benefits are intangible; these elements distinguish your brand and should be basic components of your competitive strategy. The 10 tactics you can use to uncover your brand’s intangible benefits are:

  1. “Creating a perceived connection to a tangible benefit” – The benefit must be real and tied directly to your brand.
  2. “Building mental context” – A brand’s “inferred meaning” makes the whole greater than the sum of its parts.
  3. “Directing experience using expectation” – The consumer’s experience transcends the product, much like drinking fine wines.
  4. “Creating a means for communicating a message of identity” – An Absolut vodka drinker identifies with the upwardly mobile implication of the brand’s message.
  5. “Creating a means for conveying specific messages” – De Beers’ slogan, “A diamond is forever,” links a diamond ring with the permanence of a romantic relationship.
  6. “Establishing a source of social-cultural authority” – Consumers take their cues from an “authoritative voice” that helps defines their life experience. Apple’s famous “1984” commercial imbued the personal computer with the power to enable creative expression.
  7. “Creating the long arm” – The Body Shop enables its customers to aid the needy and to assist sustainability through their purchases.
  8. “Creating an alter ego” – The consumer assumes a popular, sometimes forbidden persona, as did the early readers of Playboy magazine.
  9. “Building an emotional gym” – Users can live vicariously through a brand. Reality TV shows such as American Idol and Wife Swap exemplify such over-the-top fulfillment.
  10. “Fantasy support” – Harley-Davidson motorcycles exploit a dream commonly held by middle-aged male executives.
“If everyone has to think outside the box, maybe it is the box that needs fixing.” (Malcolm Gladwell)

Measure your brand’s desirability and success against these “ABCDE” factors:

  • “Attribution of benefit” – Consumers agree that your brand delivers a special benefit.
  • “Believability” – Customers have faith that your brand will deliver.
  • “Craving” – You can measure how much buyers want your brand over the competing brands.
  • “Differentiation” – Consumers recognize notable differences between your brand and your competitors’ brands.
  • “Ease of acting upon desire” – Consumers can purchase your brand readily; it is available and within their price range.

“Short-Term Brands”

In today’s fast-paced marketing world, short-term brands (STBs) can capture new customers the M.B.A. clones won’t bother to reach. Coca-Cola’s Coke Zero is a good example. Follow these four rules for STBs:

  1. Consumers will quickly feel comfortable with your short-term product if it’s at least 80% representative of an already successful commercial category.
  2. The benefit in the other 20% is innovation; otherwise, why would consumers switch?
  3. Whatever is new about your product should address an “unsatisfiable or regenerating” impulse, as determined in your O-scan.
  4. A “Wow!” innovation can spur consumers to spread the word eagerly (think Apple).

About the Author

Dan Herman, the co-owner and CEO of a global strategy consulting firm, is also a speaker and training workshop moderator.

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Outsmart the MBA Clones

Book Outsmart the MBA Clones

The Alternative Guide to Competitive Strategy, Marketing, and Branding

Paramount,
 


6 January 2026

The Shape of Things to Come

Recommendation

Author Richard W. Oliver argues that speed and customer responsiveness are keys to the new world of business. To stay alive, companies must flatten their corporate structures, do away with old roles, and embrace the technology that allows data mining and Internet-based purchasing. The author predicts that in the new century companies will sell directly to consumers, job descriptions will become more fluid, and smart cards and knowbots will become ubiquitous devices. This compelling, thoughtful book examines the trends shaping the global economy. While the book isn’t always organized clearly, it illustrates its points through examples of real companies which have changed their practices. BooksInShort.com recommends this book to any owners, executives, and managers who are involved in planning long-term strategies.

Take-Aways

  • The information age peaked with the development of the Internet.
  • The global economy has entered the post-information age.
  • Consumers in the new economy are knowledgeable and demanding. They require speed, quality, service, and price.
  • Multinational companies must build global brand names that attach a desirable lifestyle to a product.
  • Logistics, or the process of moving products, is key in the twenty-first century.
  • Successful companies will personalize products and services, and will reach their customers through tightly-focused narrowcasting.
  • In the new world of business, employees will adopt more flexible job descriptions that are based on customer needs rather than on corporate hierarchies.
  • Customers have become a firm’s most important marketers. They define the products they want.
  • Smart cards, sensors, smart materials, and knowbots are among the technologies that will redefine business.
  • Selling directly to consumers, without middlemen, helps companies keep in touch with market demands.

Summary

The Maturing Information Age

The information age began in 1947 with the development of the transistor. That innovation led to the computer chip. The information age peaked in the late 1980s and ended in 1993, with Marc Andreessen’s development of Mosaic, the easy-to-use browser that democratized the World Wide Web. The maturity of the information age is evident in the market penetration of computers with modems and Internet connectivity, and in the falling prices of microchips, wireless phones, and powerful computers. Information age companies, such as computer manufacturers, began to suffer the same problems faced by industrial age firms: frenzied competitive environments, high cost structures, and too many employees.

“The key to future success means much more than simply listening to customers; it means giving them the power to set corporate goals and design strategy.”

The three major economic eras - the agrarian age, the industrial age and the information age - have followed S-curve life cycles. The cycle’s four phases are inception, growth, maturity, and decline. These major economic eras are getting shorter. The agrarian age spanned several centuries, the industrial age lasted two centuries, and the information age covered only fifty years.

“In their search for value, consumers today show a greater propensity to switch products, stores, or service distribution networks to get what they want.”

The technological advances of each new era revolutionize the economics of the previous cycle. The industrial age’s innovations transformed agriculture. Later information age developments, such as robotics and computer-assisted design, changed manufacturing. An economic life cycle creates conventional wisdom that doesn’t apply to the era that succeeds it. The industrial age’s rise of mass production placed the emphasis on economies of scale, while the information age’s focus on mass customization made economies of scope the top priority. Economies of scope allow companies to customize products to meet the needs of unique customers.

The New Business Model

The global village has taken hold. Governments’ inability to control or regulate new information technologies led to a wave of worldwide deregulation. This governmental decentralization, which was encouraged by information technologies, filtered to the private sector as well. Corporate hierarchies flattened, giving more power to customers, suppliers, investors, and employees. Former giants slid as times have changed. GM, the second-largest company in the world in 1972, by stock market valuation, had fallen to fortieth by 1997. Sears was sixth-largest in 1972, but ranked 174th in 1997.

“Business must understand the value demands of today’s informationally empowered and engaged customer.”

Keeping such old-line companies on top requires melding the giants into a combination of big and small companies. They need the financial wherewithal and distribution networks of big companies, but the responsiveness and flexibility of a small entrepreneurial concern. The corporation of the future needs three traits: decentralized management and a small headquarters staff; little vertical integration; and an emphasis on its primary products and customers. Example: Southwest Airlines follows a cost-efficient strategy of short routes, using only one type of plane and not serving meals. This allows it to hire fewer people and to pass the savings on to customers.

“Our entry into the Age of Bio-Materials - biotechnology and the exciting new world of new materials - holds the promise of gaining control over matter.”

Globalization and technology aren’t intrinsically good or bad trends. However, they have major ramifications. The globalization that resulted from the information age means that a political event - such as the election of Nelson Mandela - is nearly as important in the U.S. as in South Africa. It means that a medical event, such as the outbreak of AIDS, threatens everyone on the planet. It means educational standards are international, not national. Globalization has led to transnational marketing, production, research and development, and investment.

“In the conversion to an information economy, the dislocation for workers was more acute, because the major change was from physical to mental work. Those without an education suffered most.”

Seven Rules for Business

  1. Reinvent yourself constantly: Daily innovations are required to keep pace with global competitors. Losing touch with customers can prove deadly. Firms such as BellSouth and Coca-Cola have created positions for chief learning officers or chief knowledge officers who report directly to the CEO. A successful company updates its product line constantly. A hot-selling product creates a spate of similar competing products, so innovation is not a one-time process but a continuous one. Example: In the mid-1980s, the Danish hearing aid company, Oticon, missed consumers’ shift to smaller hearing aids. As a result, it teetered on the brink of insolvency. The CEO responded by creating teams who followed new products from development through sales. He banished separate offices, filing cabinets and bookcases, in order to reverse a lack of communication and to get rid of suffocating piles of paperwork. The result is a more successful company, based on knowledge, not skills or rules.
  2. Turn customers into marketers: Formal marketing departments are often a waste of time, as shown by the failure of three-quarters of new products introduced into the marketplace. The new model for marketing requires that customers become part of every step in product development. The customer shapes the definition of the product, price, quality, and distribution. Under this strategy, the customer morphs from the mere audience who buys a product into an actor who shapes the product. Companies also should focus on keeping existing customers, rather than recruiting new customers or wooing dissatisfied ones. Examples: The Grateful Dead successfully used the strategy of customer intimacy. The rock band allows fans to tape concerts, something most acts forbid. It built a database of fans’ names and addresses, and sold tickets through phone hotlines. The opposite of customer intimacy shows up slow-responding auto manufacturers. Honda was late in reacting to customer demand for minivans and sport utility vehicles. The Big Three U.S. automakers were slow to respond to the success of European luxury cars. In the area of keeping existing customers, the Embassy Suites hotel chain de-emphasizes mass advertising in favor of programs that track and reward customers’ loyalty.
  3. Build an electronic "keiretsu:" Keiretsu is the Japanese term for a family-based group of companies which provide mutual support. The new model of keiretsu, enabled by the Internet, is linked electronically. These electronic linkages help bolster a firm’s logistics, which has become a key to competitive advantage. Top companies will be those that are quickest to learn what customers want and then to provide for those desires. Examples: Proctor & Gambel now can manage its own products on Wal-Mart’s shelves. General Electric does most of its purchasing through the Internet. Coca-Cola and McDonald’s have formed informal, keiretsu-like partnerships, while Amazon.com and CD Now have formed an electronic keiretsu.
  4. Customize everything: Improved technology lets retailers track consumers’ brand loyalty and buying history through data warehouses. This permits personalized marketing. While some critics say such electronic monitoring reminds them of George Orwell’s novel 1984, others say it’s similar to the days when a shopkeeper knew his customers intimately. Companies that personalize offerings wrestle with the growing diversity in the U.S. Personalization has led to narrowcasting, or customizing products and services to targeted groups. Ultimately narrowcasting could lead to Internet or TV ads written with only one person in mind. New products also will be adaptive. Examples: Blockbuster is testing systems that recommend movies to regular customers by analyzing their tastes. Harrah’s, the casino firm, tracks its customers through a database and uses the information to create personalized relationships. Mitsubishi Motors plans to customize seats, transmissions, braking systems, and traction controls to each driver’s size and driving style.
  5. Think globally, act globally: In a world where everything from production to markets to products are global, firms must realize that every customer and employee is subject to global forces. Therefore, brands also must be internationally known. Examples: European retailers, such as Carrefour of France, are aggressively moving into China. Brand names such as Coke, Nike, and McDonald’s enjoy global popularity because of their lifestyle connotations. U.S. icons generate international sales. Kellogg’s, for instance, airs nearly-identical ads in 22 nations.
  6. Eliminate the middle man: Any company that sits between a consumer and a producer and doesn’t add value to the product ultimately will be pushed out of business. Example: Dell Computer, for instance, successfully has ignored traditional stores - the middle man - in favor of sales of customized units via phone, catalog, and the Internet.
  7. Make job descriptions flexible: Traditional job titles will be replaced by more flexible positions. Example: The California ad firm Chiat/Day dropped traditional job titles and offices. Employees, who spend most of their time in the field, share work stations when in the office.
“While products will always have to be ’localized’ in minor ways to take into account local conditions and regulations, brands must be global.”

Seven 21st Century Firms to Watch

  • W.L. Gore & Associates: The maker of Gore-Tex has 5,000 employees but only two official titles: president and secretary-treasurer. The remaining employees define their own roles.
  • Chaparral Steel: The steel maker has no divisional boundaries. Production employees interact with customers. Only two levels separate the CEO and production employees.
  • Granite Rock: This construction materials seller lets customers define its market through such tactics as annual customer report cards. Truckers order by computer, check in with magnetic cards, and load their trucks from overhead bins. This innovation saves ten to thirty minutes of trucker-loading time.
  • Mbanx: This Internet banking company uses data mining to customize services to individual customers, including electronic loan applications.
  • The United States military: This huge bureaucracy has become lean through electronic keiretsu tactics that let it share information among separate departments. The organization’s superior logistics were shown in rapid Gulf War troop deployment.
  • Rhone-Poulenc: This French chemical company has decentralized, creating five worldwide divisions with strategic decision-making power.
  • BMW: The German car maker cut U.S. production costs by building only custom cars, thus cutting inventory costs.
“The twenty-first century customer wants just five things: speed, quality, variety, service, and price.”

Seven 21st Century Products to Track

  • Smart Cards: One day, these cards will store the holder’s health information and Social Security records. The card might be replaced by a chip that could be placed in your body.
  • Sensors: These devices let courier boxes protect their contents by adapting to changing shipping conditions.
  • Knowbots: This term, a combination of " knowledge" and " robot," describes palmtop computers and TVs that automatically turn to a certain channel at a certain time. Computer intelligence devices could also scan newspapers and save articles of interest to the owner.
  • Neural Nets/Fuzzy Logic: This concept lets computers move beyond simple yes-no logic, as illustrated by a computer’s defeat of a chess champion in 1997.
  • Smart Materials: These substances can adapt for maximum usefulness. Examples include fabrics that return to a programmed state after wearing, and medical devices that change shape after being inserted in a patient.
  • Biotechnology: The advances in DNA technology in this field could lead to cures for diseases. Motorola is among the companies hoping to apply gene splicing to computers.
  • Nano and Pico Machines: These tiny devices, now under development, will lead to small powerful gadgets such as a button-sized pico-turbine generating ten times the power of a chemical battery.

About the Author

Richard W. Oliver is a professor of management at the Owen Graduate School of Management at Vanderbilt University in Tennessee. He has written widely on business strategy, new business and global marketing. His books include The Coming Biotech Age: The Business of Bio-Materials.

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The Shape of Things to Come

Book The Shape of Things to Come

Seven Imperatives for Winning in the New World of Business

McGraw-Hill,
 



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