Certain to Win Boyds OODA Loop as a

Certain to Win Boyd’s OODA Loop as a business weapon Or, any position other than first is a tie for last. Chet Richards J. Addams & Partners, Inc. March 2008 © Chet Richards 2005 -2006 • crichards@jaddams. com (+1) 404. 231. 1132 1

Starting Point: Wars don’t always turn out as expected Russia Chechnya Soviet Union Afghanistan United States Vietnam Various Arab States Israel © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 2

Business doesn’t either General Motors Market share fell from 52% to around 25% Sears Dropped to #52 on Fortune 500 American Airlines Lost billions in 2001, 2002, 2003, & 2004 Delta, Northwest, United Airlines, US Airways In Chapter 11 Digital Equipment, Compaq, Montgomery Ward, Eastern Airlines, TWA, Pan Am, Mc. Donnell-Douglas Gone © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 3

But it’s not inevitable Automobiles Toyota, Nissan Retailing Wal-Mart, Target Airlines Southwest, Jet. Blue, Singapore, Emirates, Ryanair, Air. Tran Computers IBM, Apple © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 4

In other words, there are many times when the side we’d pick to win, based on: • size/financial resources • technology • market share loses. 5 © Chet Richards 2005 -2006 • crichards@jaddams. com (+1) 404. 231. 1132

Why? 6 © Chet Richards 2005 -2006 • crichards@jaddams. com (+1) 404. 231. 1132

The military’s answer is something called “maneuver warfare” And that is the business of decision cycles, or inside the decision loop, as people say … if, in fact, you can deceive him with respect to what you are going to do, to cause him further confusion and make him keep his force in place one day too long, then, in fact, you find yourself all the way to Baghdad. Gen Tommy Franks, Commander, USCENTCOM in Peter Boyer, “The New War Machine, ” The New Yorker, June 30, 2003 © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 7

The primary advantage we want to achieve in all forms of maneuver is time. © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 8

Using time as a weapon: The “H-Y War” 1981 - 1983 • Honda Motorcycles introduced or replaced 113 models, effectively turning over its entire product line twice. • Yamaha, which also started with about 60 models, was only able to manage 37 changes in product line over the same 18 months. • So, for one thing, Honda was able to incorporate (and test in the marketplace) a much wider variety of styling & technology. © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 9

H-Y War: The Results • But more fundamental: Honda succeeded in making motorcycle design a matter of fashion, where newness and freshness are important attributes to customers. • Next to a Honda, Yamaha’s bikes looked old, unimaginative, unattractive. • Yamaha was left with 12 months of unsold (and unsellable) inventory. Stalk & Hout, Competing Against Time, 59 Comment: a classic example of “shaping the marketplace. ” © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 10

A time-compressed company does the same thing as a pilot in an OODA loop … It’s the competitor who acts on information faster who is in the best position to win. George Stalk, Jr. & Tom Hout, Competing Against Time, 180 -181. © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 11

Business is a dogfight. Your job as a leader: Outmaneuver the competition, respond decisively to fast-changing conditions, and defeat your rivals. That's why the OODA loop, the brainchild of "40 Second" Boyd, an unconventional fighter pilot, is one of today's most important ideas in battle or in business. Keith Hammonds, “The Strategy of the Fighter Pilot, ” Fast Company, June 2002. © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 12

This is the OODA loop Orient Observe Decide Act © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 13

This is not the OODA loop Orient Observe Decide Act © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 14

An OODA “loop” with power Observe Orient Implicit Guidance & Control Unfolding Circumstances Observations Feed Forward Genetic Heritage Unfolding Interaction With Environment Act Implicit Guidance & Control Cultural Traditions Analyses & Synthesis New Information Outside Information Decide Feed Forward Decision (Hypothesis) Previous Experience Feed Forward Action (Test) Unfolding Interaction With Environment Feedback J. R. Boyd, “the Essence of Winning and Losing, ” 1995. © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 15

Observations on orientation for business Orientation Implicit Guidance & Control Cultural Traditions Genetic Heritage Observations Feed Forward Analyses/ Synthesis Feed Forward Decision Action New Information Previous Experiences Observation is the only feed into Orientation © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 16

Orientation locked tight The company (A&P), under pressure from Kroger, experimented with a new concept, “The Golden Key. ” “It sold no A&P branded products, it gave the store manager more freedom, it experimented with innovative new departments … Customers really liked it. “What did A&P executives do with ‘The Golden Key’? They didn’t like the answers it gave, so they closed it. ” Jim Collins, Good to Great, 68. © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 17

Battle of Orientations: 1 James E. Press, president of Toyota Motor Sales, said any top American company must first have a lineup that meets its customers' needs. It also must produce vehicles in the United States that lead their category in quality, resale value, comfort and design, he said. A leading American player has to have a strong brand image, a dealer network that offers good service and most important, put buyers first, Mr. Press said. Asked if Toyota meets those criteria, he said, "Not yet. We can improve on everything. " © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 18

Battle of Orientations: 2 Mark Fields, president of Ford's operations for the Americas, said: "Americans want to buy American cars. ” Micheline Maynard, Toyota Shows Big Three How It's Done, New York Times, January 13, 2006 © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 19

Improving orientation Toyota calls this hansei • Set aside specific times (e. g. , at each staff meeting) to review feedback on possible mismatches (“Reflection must be institutionalized as a business process. ” Michael Hammer, co-author of Reengineering the Corporation, and Steven A. Stanton, Fortune On. Line, Nov 24, 1997) • Abolish the Executive Dining Room. • Abolish “Management Clubs. ” © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 These are tubs for drinking your own bathwater 20

Improving orientation (II) • Post on internal web site (& invite discussion): – Assessment of the current situation: customers, competitors, economy, government, our situation, etc. – Post-mortems (proposals, projects, etc. ) – Specific competitor observations (esp. things they do better) • Also include a competitive intelligence, “what competitors do better, ” section in staff meetings. © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 21

What about “action”? • The idea is that the vast majority of the time, actions should flow smoothly from orientation via the “implicit guidance and control” link. • Thus, excellence in technique is vitally important – study, train, rehearse, practice, critique constantly, from the factory floor to the executive suite. • “I don’t make decisions, ” the fireground commander announced to his startled listeners. “I don’t remember when I’ve ever made a decision. ” – Gary Klein, Sources of Power © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 22

Observation Implicit Guidance & Control Unfolding Environment: • Customers • Competitors • Economy • Government • Employees • Financials • Other Indicators • Etc. Observations (Orientation) Feed Forward (Orientation) What you’re looking for are “mismatches” between Feedback From Decision Feedback From Action a) what your orientation is telling you the world ought to be and b) what the world really is. © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 23

In one of the first games he attended, [New Sacramento Kings Owner] Gavin [Maloof] missed an entire quarter waiting in a beer line. Knowing his father would have gone nuclear, Gavin arranged to have 20 minibars installed throughout the arena. Nobody waits for a beer now. Hugo Lindgren, The Flying Maloof Brothers, New York Times, February 15, 2004 © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 24

Decision (Orientation) Feed Forward Decision (Hypothesis) Feed Back Note: Decision is fed only from Orientation (Observation) Feed Forward (Action) Note: Decisions, in this sense, are needed when action does not flow from orientation. These types of decisions always slow down the OODA “loop” They can be considered as part of the learning process. © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 25

What OODA “loop” speed really means Quickly understand what’s going on Observe Know what to do And be able to do it Orient Decide Implicit Guidance & Control Unfolding Circumstances Observations Implicit Guidance & Control Feed Forward Decision (Hypothesis) Outside Information Unfolding Interaction With Environment Action (Test) Unfolding Interaction With Environment Feedback Feed Forward While learning from the experience © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 26

Key Points: • When you’re doing OODA “loops” right, accuracy and speed improve together; they don’t trade off. • A primary function of management is to build an organization that gets better and better at these things. © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 27

According to Boyd, a fighter pilot didn’t win by faster reflexes; he won because his reflexes were connected to a brain that thought faster than the opponent. Bing West and Maj. Gen Ray Smith, USMC, Ret. The March Up, p. 11 © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 28

Question How can your corporate “brain” think faster? Answer: • Ultimately, a culture or climate that encourages people to use their initiatives to further the goals of the organization. • Under such a culture, people will solve the technical & operational problems. © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 29

The Principles of the Blitzkrieg • Fingerspitzengefühl - Zen-like quality of intuitive understanding. Ability to sense when the time is ripe for action. Built through years of progressively more challenging experience. • Einheit - Has the connotation of "mutual trust" and implies a common outlook towards business problems. Built through common experience. Fingerspitzengefühl at the organizational level. © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 30

Blitzkrieg, continued • Schwerpunkt - Any concept that gives focus and direction to our efforts. In ambiguous situations, answers the question, "What do I do next? ” Requires leadership. • Auftragstaktik – Convey to team members what needs to be accomplished, get their agreement to accomplish it, then hold them strictly accountable for doing it - but don't prescribe how. Requires very high levels of mutual trust. © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 31

Fingerspitzengefühl: excellence at the level of tactics • Every day the sales team met at 7 am for two hours of training that involved role playing, sales strategies, and videotaping of mock sales calls. • Don Sumner, 38, an account executive, says Winkler has handed him a three-page performance analysis more than once, after overhearing one of Sumner's phone pitches. "Dealing with someone who can be such an S. O. B. has made me more thick-skinned, " says Sumner. • Since his arrival the number of clients at Secure. Works has grown from 100 to 800 … New orders at the now profitable company are growing at 200% to 300% a year ~ Fortune Small Business, “The Best Bosses, ” October 2004. © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 32

Fingerspitzengefühl as strategy There is a surface version of genchi genbutsu (go and see for yourself) and a much deeper version that takes many years for employees to master. What the Toyota Way requires is that employees and managers must deeply understand the process of flow, standardized work, etc. Jeffrey K. Liker, The Toyota Way, p. 224 emphasis added © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 33

“The Operating System is GE's learning culture in action. “It is a year-round series of intense learning sessions where Business CEOs, role models and initiative champions from GE as well as outside companies, meet and share intellectual capital. ” http: //www. ge. com/en/companyinfo/at_a_glance/operating_ system. htm - 2/25/2003 © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 34

Einheit hits the beach It is not more command control that we are after. Instead, we seek to decrease the amount of command control that we need. We do this by replacing coercive command control methods with spontaneous, self-disciplined cooperation based on low-level initiative, a commonly understood commander’s intent, mutual trust, and implicit understanding and communications. MCDP 6, Command Control, p. 6 © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 35

Flowdown: Schwerpunkt for manufacturing The Toyota Production System, quite simply, is about shortening the time it takes to convert customer orders into vehicle deliveries. This tells everybody in Toyota manufacturing: “When in doubt, take the action that has the biggest impact on order-to-delivery time”. © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 36

Augtragstaktik—missions and contracts instead of tasks The concept of mission can be thought of as a contract, hence an agreement, between superior and subordinate. – The subordinate agrees to make his or her actions serve superior's intent in terms of what is to be accomplished. – The superior agrees to give the subordinate wide freedom to exercise his or her imagination and initiative in terms of how intent is to be realized. J. R. Boyd, Patterns of Conflict, 76 © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 37

Augtragstaktik—what “commitment” means As part of this concept, the subordinate is given the right to challenge or question the feasibility of the mission if: – he feels his superior's ideas on what can be achieved are not in accord with the existing situation or – he feels his superior has not given him adequate resources to carry it out. Likewise, the superior has every right to expect his subordinate to carry out the mission contract when agreement is reached on what can be achieved consistent with the existing situation and resources provided. © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 38

Auftragstaktik—focused initiative Abbott recruited entrepreneurial leaders and gave them the freedom to determine the best path to achieving their objectives. On the other hand, individuals had to commit fully to the Abbott system and were held rigorously accountable for their objectives. They had freedom, but freedom within a framework. Jim Collins, Good to Great, 123. © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 39

It’s really pretty simple I. (Individual) Fingerspitzengefühl II. Einheit III. Schwerpunkt IV. Auftrag © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 40

A case study in cheng / ch’i In October 2001, Apple introduced the i. Pod. It did what you’d expect play music - but also what you didn’t expect - be intuitively easy to operate (in 2002, this was unexpected in MP 3 players). © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 41

A case study in cheng / ch’i i. Pod 1 Gen 2 Gen 3 Gen 4 Gen 5 Gen 6 Gen Mini 1 Gen 2 Gen Nano Exploit! “Penetrate”: Learn the marketplace; build Fingerspitzengefühl & Einheit 1 Gen 2 Gen It turns out that the real i. Pod killer is Apple itself. 3 Gen Last week, the company eliminated its top. Shuffle selling model, the i. Pod mini, and topped itself 1 Gen with the i. Pod nano, an even smaller device that 2 Gen becomes the new target dangled in front of the competition Touch — Seattle Times, Sept 17, 2005 2002 2003 2004 2005 © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 2006 2007 42

And how well did Apple’s strategy work? i. Pod 100 million 1 Gen 2 Gen 3 Gen 4 Gen 5 Gen 6 Gen Mini 1 Gen 2 Gen Nano 1 Gen 2 Gen 3 Gen Shuffle 1 Gen 2 Gen Touch 2002 2003 2004 2005 © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 2006 2007 43

How well did Apple’s strategy work? © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 44

Cheng • After 8 hours sitting on a ramp in Austin, American Flight was out of water and food and all the toilets were overflowing. “This wasn't a story about the "perfect storm, " but about corporate cultures that don't put customer service first. ” • American's Mr. Hotard says the airline is truly sorry for the mess. He says one reason the airline may not have contacted customers to apologize is that its Fort Worth headquarters, where customer-service specialists work, was closed for four days over New Year's. -Scott Mc. Cartney, Wall St. J. © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 45

Ch’i • Bob Hamel: "I had a similar experience with Southwest last summer. Sat in Chicago for five hours to go to Detroit. The difference was Southwest sent me two $50 vouchers and a letter of apology. In this case, it wasn't even their fault, it was the weather. ” • “Southwest staff took care of me and made sure I was as comfortable as possible despite the long lines and what I was sure had been long hours for them. Yeah, there were a couple of glitches, but these were taken care of in a manner that definitely put the customer's needs first. Finally, Southwest staff never seemed to lose what I consider to be one of the best things about flying Southwest -- a great sense of humor. Even when they may have been laughing just to keep from crying. " 46 © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132

Military analysts say we [US Navy SEALs] are becoming skilled disciples of John Boyd. That is, we execute the Boyd Loop—observation, orientation, decision, action (OODA)—far better and far quicker than our enemies. — Dick Couch, The Finishing School, p. 258 © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 47

You don’t wait for the future. You create it. Hwang Chang Gyu, President, Samsung Semiconductor © Chet Richards 2005 -6 • crichards@jaddams. com • 404. 231. 1132 48