While reading a book Every Man a Tiger by Tom Clancy (ISBN-10: 0399144935) on General Horner, the Air Component Commander of during Operation Desert Storm, I came across this statement: “When a general goes to war, he needs a staff function. And if he wants to have any chance of success, he needs to have the best possible people heading up his intelligence, communications and logistics”.

A further comment said: “amateur and younger soldiers study success, while professional, older and more successful warriors study logistics”. It all makes sense. After all, war is nothing but the application of the right amount of very violent force, at the right time, at the right place, aimed at the right people. And that's logistics. You can have your armored corps commanders and you can have your special forces, infantry battalions, close air support helicopter commanders, strategic bomber leaders and artillery force commanders by the dozen, but all those are great at only a tiny part of the whole.

It is your staff function (intelligence, communications and logistics) which makes sure that you get these commanders to apply the above mentioned right amount of very violent force, at the right time, at the right place and aim it at the right people. Otherwise you might have the best tactical corps commanders, but you will fail in your plan, because it hasn’t been staffed and coordinated properly. History tells us that great generals ranging from Napoleon to Patton all could attribute their success to many things, but this staff function was vital for their success as well. And its not like it’s new, Alexander of Macedon is reputed to have said, “My logisticians are a humorless lot...they know if my campaign fails, they are the first ones I will slay.”

The reason I have gone into so much depth is that I have noticed an interesting lack of thought and preparation given to the staff functions within the financial institutions that I have operated in and worked for. If I look at the bottom of the top layer, the Managing Directors, their staff functions are usually very poor, unplanned and frankly, in my opinion, they are missing a trick. MD's are there because they are very good at their jobs and they usually are very very good revenue generators or very good at managing a very large process/department if they are in the support function. But almost always, they are very good at the functional level (like trading, crafting deals, client sales, Middle Office functions, back office functions, Compliance, Legal, Information Technology, etc. etc.)

In fact, I would say that they are brilliant compared to the great majority of the populace within the markets, themselves not being any slouches. Indeed they are Masters of the Universe. But they also stumble in the best case scenario and make major losses in the worst case scenario. You see, when the markets are booming, most mistakes and limitations are overlooked. It’s when the markets turn down, then any limitation or mistake is cruelly exposed. Look at the number of high profile people who have been fired. And it is my belief that a good staff function would help obviate, if not manage the delivery risks of the MD's business plan and leave the MD to do what he does best, concentrate on making money or getting the process to run sweetly, cheaply, faster....

The staff function is called differently in different organizations and areas. Some call it the business management function, some call it the Chief Operating Officer position, or the Chief Administrative Office, and I have even seen a position of Chief of Staff (d'oh!). Irrespective of what you call it, every MD has to have a strategic intelligence function, a communications function; logistics/operations function and should be backed up by a very very good administrative function (equivalent to an ADC in the army!). It is not necessary that each function is done by a separate person. For a trading desk, it might well as be done by a single person (if you can manage to get a person like that), but these functions need to be done.

The Strategic intelligence function provides the far seeing ability, the idea to bounce possible futures about, to continuously reposition the business, to change the trading limits, to think about new products, to think about client behavior changes, to think about economics and technology and to worry about the client industry future, etc. It also includes making sure that the current and strategic capital investments are in line with the strategic plan. The Communications function is where the thoughts, ideas, plans and desires are crafted together and communicated. The channels might be a PowerPoint presentation, a conference speech, a monthly blog entry, a stand-up speech every quarter, an email going out, etc, but communications are vital for the success and also for making sure that everybody is doing what they are supposed to do and are aligned to the overall goals.

The final part of the mix is the logistics and operational fellow. You need a highly process and detail oriented person, who is able to spot challenges in potential deal flow, who is able to have a handle on operational risk and capable of looking after scope and volume changes without too much screaming. You see, this is also what I call as the sewer works. As far as the front office or business is concerned, they really don’t want to know about what’s happening in the back, as long as it works. A smart MD will make it his business to know the back office inside out, but unfortunately that happens very rarely. In fact, I think I can only recall one MD at Merrill Lynch, who moved from the front to the back office to gain experience and then moved up to head the institution. But that will happen rarely. So you are supposed to be like a sewer. You keep on working and keep on being invisible. If you get blocked up, then you start to stink and that’s the only time that you get noticed. Not a good idea, is it? But that’s logistics for you! These logistics people, the people who are looking after your operations, systems, middle office, accounting, finance, product control etc. are making sure that your sales force/revenue generators are able to deploy their firepower at the right place at the right time aimed at the right people.

So as an MD, what you need is a staff function, a function which will support your primary purpose, to deliver revenue dollars. So how do you go about doing it? Well, generally, a new MD has a hundred days or about three months grace or trial period. You can negotiate getting this hundred day period and generally your boss will be happy to do so. During this period, hoping that you know yourself and your abilities, you can find out what you have in terms of existing personnel, processes, systems and coverage. More importantly, you should find out where the holes are, what audit points are outstanding, etc. Then, assuming by this time, you have developed your revenue plan then you underlay your revenue plan by your staff and operations plan. It is a fair cop that there is already a business manager in the business, so s/he can keep on doing the logistics work while you fix the strategy and communications piece. Then look at your business manager with very strong and penetrating beady eyes. Is s/he able to step into your shoes if you were to be run over by the proverbial bus? Will you be able to use her as your deputy? Can s/he do the jobs? If not, then make replacement plans. How do you judge them? Well, it is very simple. Look at the potential replacements and think whether you can hand over your business to them in three years time when you get promoted? If you can do that, then you are in clover, General Managing Director.

Business is not warfare and a managing director does not have to make life and death decisions and there is not that much death and destruction. But then again, capitalism was once described as creative destruction to me! And if one has to surf the waves of these creative destructive economic and financial turbulent seas, then you can do worse than to have a good staff function and specially concentrate on the logistics. As General Dwight D. Eisenhower said, “You will not find it difficult to prove that battles, campaigns, and even wars have been won or lost primarily because of logistics.” 

All this to be taken with a grain of piquant salt!

August 26, 2007

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