Is Ireland the
next Kodak? It's an uncomfortable thought on the day we (you and I and all the other
taxpayers) pay out €1.25 billion to the unsecured, unguaranteed Anglo Irish
bondholders (lucky them). What's it got to do with Kodak? In case you didn't
hear, the venerable old business filed for bankruptcy earlier this week. And the
story of its demise has important lessons for Ireland.
Gary North relates
a story about Kodak. It's from just a couple of years ago, and featured a
recently resigned senior executive talking about the company he had just left:
He also told of a baffling conversation with a member of Kodak's management, revealing: "Just last week a Kodak executive came to me and said 'I think film will make a comeback', and I'm thinking 'who are you kidding?' That's the mentality that's stuck in that company and you've got to break that and they've never been able to."
Maybe now you can
see the comparison? Think of all the talk recently about Ireland returning to
the bond markets, not needing second bailouts, and our intentions to honour all
our debts. Like the man said: 'who are you kidding?'
But the analogy
between Kodak and Ireland goes further. Kodak failed because it didn't want to
change. It just wanted to stick to the things that had worked in the past,
hoping that the future would eventually catch up. Its arch-competitor Fujifilm, on the other hand, could see the same changes coming and so invested in innovation, new sales
channels and was prepared to learn from its mistakes. As The Economist put it
recently:
What are the lessons from the surprising stumble and the equally surprising success? First is the need to cannibalise oneself. Second is the importance of execution in addition to strategy. But most important, firms must resist looking for a magic wand when hard work in needed.
Ireland needs to
get on with the hard work. And the hardest work is deciding on the strategy.
I've just finished reading Richard Rumelt's superb book Good Strategy, Bad
Strategy. He uses insights from history, business, and war to explain what
makes a good strategy (read the excerpt from the Introduction to his book on
his website to get a feel for his style and thinking). Rumelt explains the
three elements - or kernel - comprising a good strategy as follows:
1. A diagnosis that
defines or explains the nature of the challenge. A good diagnosis simplifies
the often overwhelming complexity of reality by identifying certain aspects of the
situation as critical.
2. A guiding
policy for dealing with the challenge. This is an overall approach chosen to
cope with or overcome the obstacles identified in the diagnosis, usually by creating or drawing upon sources of advantage. It's also crucial - stresses Rumelt - to be clear about what you are not going to do.
3. A set of coherent
actions that are designed to cary out the guiding policy. These are steps that
are coordinated with one another to work together in accomplishing the guiding
policy.
So let's think
this through for Ireland. The diagnosis is 'easy': we are on a path that will
not deliver a prosperous future for our citizens (though it has been pretty
good for bondholders so far). The big challenge is to admit we need to change
course and to identify a better way forward.
As for the
guiding policy, the greatest source of advantage that we have is our people -
at home and abroad. The skills, knowledge, experience, networks, influence and
- yes - wealth of the Irish people can be used to deliver economic
prosperity for us all. But only if such advantages are applied to the task of
pursuing a better course. We must therefore decide not to continue along the current path.
Which brings us
to the third element: coherent actions. The €1.25 billion handed over today
could have been used to provide 10,000 start up businesses with €125,000. If we
had made the 'pillar' banks (that we own) match it with low interest, non-recourse, 5 year
loans then that would have given €250,000 to 10,000 start ups (or already
established small businesses with growth ambitions). Assuming each start up
hired 3 staff in addition to the founder then that would have created 40,000
jobs. But instead we handed it over to anonymous bondholders - an action
entirely incoherent with any ambition to return Ireland to a path of prosperity
for all its citizens.
Do we want to be Kodak or Fujifilm? We still have a choice. But we can't delay the choice forever: Kodak shows us what happens when the hard choices are left too late.
Do we want to be Kodak or Fujifilm? We still have a choice. But we can't delay the choice forever: Kodak shows us what happens when the hard choices are left too late.
Image credit: NAMAWine Lake
It seems like we're at a crossroads where every path is a rocky one.
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