Category: Economy

Don’t Fight the Last War


FIGHTING THE NEXT WAR INSTEAD OF THE LAST WAR CAN BE DIFFICULT TO GET RIGHT

War, the absolute opposite of peace is a state of conflict between disagreeing parties and often comes with destruction and mortality.  In the world’s history, war, although minimal, is an on-going occurrence with two world wars particularly standing out. With armies dedicated to fighting wars, it is important for them to be well oiled, solidly structured and properly functioning for possible future wars.

 

The ‘Fighting the Last War’ Strategy

“Fighting the last war” is a strategic term used to refer to the situation where one focuses on what happened rather than what is likely to happen. The well-known saying is “Generals always fight the last war” where they tend to cling to previously used strategies and techniques to fight future wars that they will be faced with.

 

The ‘Fighting the Next War’ Strategy

This phrase acknowledges that analyzing past wars is important, but also says that we must always be prepared for the eventuality of a future one. This is done by coming up with new strategies according to the situation. It states by doing this, it increases the chances of winning the next war.

Many opponents have advocated that fighting the next war strategy is the best although this is not necessarily true. This strategy is hard to get right because when you fight the next war, you are inviting more room for error. This is because you are basically testing an unknown strategy, on a team in a hostile war zone. Even the name says it, you are already fighting the next war before you get there. You may guess right, but you may also guess wrong, which can be costly.

 

The Solution

A powerful solution that you could get your war strategy to go right for you is to combine these two. The familiarity and lessons learned benefits from fighting the last war, and the innovation and current situation analysis benefits from fighting the next war work great together.

 

Application to Business

Technology is rapidly changing and companies need to figure out what change is coming and turn it to their advantage. If they stay the same and don’t change they are likely to go out of business in the long run. If you look at the 20 largest companies, it is surprising how much turnover there is over time. So just as in war, businesses can’t fight the last war but need to figure out what the next one is likely to look like.

The Future is More of the Past


I just had my eyes opened. I just found some articles that my father had sent me in  1987. I had never gotten around to reading them at the time and felt guilty about throwing them away without looking at them.

Finally, in 2015 I unburied them and looked through them. It was very interesting and made me question even more whether I wanted to trust what advice people had to give about the stock market and the economy.

Crash of 1987

The articles talk about the stock market crash of 1987 and what were the causes and what should people do. A number of people were comparing the downturn to 1929 which in retrospect is a severely overblown reaction.

Some people felt that modern safeguards would prevent a meltdown to the 1929 levels. Between Social Security, unemployment insurance and an active Federal Reserve, many felt that they would prevent a complete 1929 style meltdown. At the time they were written, the downturn seemed to be only in the stock market and not in the general economy.

Worse than 1929?

One analyst felt that these only treated the symptoms and not the underlying causes. He felt that 1987 might be even worse than 1929. He said in both cases that excessive world wide debt and a contracting economy had been the cause of the crash.

He also said that legislators had gone overboard after the 1929 crash and there was too much New Deal social legislation and also business regulation. He felt that this was having a major drag on the economy. Sounds like the Republicans of 2015. Not much has changed.

Back to the Future

Another article said that people got too caught up in the euphoria of the stock market rise and that they didn’t pay attention to the warning signs. That sounds like what happens at any market peak to me. They said that people didn’t pay attention to low earning yields and dividends on stocks and figured that corporate earnings would increase and yields along with it.

Other problems were inflationary expectations which were much higher back then than they are now. Also there was a stalemate between Congress and the President. Perhaps not the inflation (although people keep beating that drum) it sounds a lot like today doesn’t it?

At least I didn’t read anything about people jumping out of windows in 1987 the way some did in 1929. There were a number of comments about people who had bought on margin and were facing margin calls. This was much worse in 1929 because there were fewer safeguards to keep people out of trouble back then. In 1929, everyone from tycoons to blue collar workers was buying on margin since it seemed like the joy ride would never end.