TARGET: CORPORATE PSYCHOLOGY

Contrack International, a private US corporation and the managing partner of the $325 m contract to rebuild Iraq's transportation infrastructure, announced its withdrawal from Iraq today.  The company felt it had a responsibility to do so.  Here's why:

• Transaction costs skyrocketed.  Up to 60% of the dollars spent on contract completion were going to security.  Further, suppliers (such as its sole supplier of gravel), withdrew due to fears of reprisals.
• Systemic chaos due to personnel problems.  An ongoing campaign of violence directed against corporate personnel resulted in poor morale and defections.  The corporate HQ was attacked 2.5 months ago and the body of an Egyptian driver for the company was found shot in the head with the word "collaborator" attached to his chest. 
• Decision making was stalled.  The FUD (fear, uncertainty, and doubt) of the guerrilla campaign prevented efficient decision making.  The company was only able to complete $30 m of work over last 8 months.

Market Disruption via Corporate Targeting

Modern states and militaries are totally reliant on corporate outsourcing (critical allies in this war).  As this relationship is currently configured, this dependency is a vast underbelly of risk.  Global guerrillas disrupt the psychology of the markets that make this outsourcing possible through leveraged attacks on corporate systempunkts.  Corporations are not obligated to deviate from the standards of corporate governance.  As a result, they will cut and run from a conflict when they find themselves isolated across the following psychological vectors (read Boyd for more):

• Moral.  A company is morally isolated when it cannot meet its obligations to its stakeholders.  These include profits to shareholders and safety/morale to employees.  Management teams that don't meet their obligations to these stakeholders are either summarily replaced or held legally/financially liable.
• Mental.  Uncertainty is Kryptonite to corporate decision making.  Too much uncertainty and corporate valuations fall.  If an operation introduces new uncertainties that taints daily decision making, it will likely terminate it.
• Physical.  In order to do business, corporations enmesh themselves in a deep web of connections.  If a corporation's activities put their relationships with suppliers, financiers, and partners at risk, they are obligated to cease them.

Comments

[Marcello]

"Modern states and militaries are totally reliant on corporate outsourcing (critical allies in this war)."

It seems that someone is going to be reminded why Napoleon ditched contractors in favor of a fully militarized logistical system...

[jthomas]

This is extremely inauspicious. It may presage a generalized pullout of contractors, which will in turn almost certainly necessitate a draft, et cetera et cetera in a cascading series of fractures. Unprecedented use of contractors has amounted to a stealth draft, allowing the government to gloss over fatalities and camouflage what would otherwise have to be a conscription to fill out the ranks with truck driver IED fodder. I think the system may truly be punkt. (How do you win anyway if your enemy has no "heavy point...")

[Valdis]

You blogged: "In order to do business, corporations enmesh themselves in a deep web of connections. "

As more coporations pull out of the network, the benefits of the network decrease for all those remaining... less alternate paths/options... less redundancy... longer paths... more fragility... easier disruption... more single points of failure. At some instant there is a tipping point where all see the danger of remaining.

[M. Simon]

Defence is a mugs game.

Iran and Syria need to be the next targets.

Faster please.

BTW we aren't going to a significant number of more troops until Congress give the OK.

You go to war with the military congress gives you.

[Oscar]

It seems to me that thru this site you are arguing that the only solution to the problem of the global guerillas is the total elimination of all Muslims and the religion itself. This will of course have to be followed by the destruction of the left and all the leftist guerilla movements as well.

Is this really your position?

[John Kelsey]

Differentiate between uncertainty and risk here. When you know the risks you're dealing with, you can adapt to them. The problem is when you can't figure out what your risks are.

If the risks are known but high, then corporations that operate in that environment will negotiate for more money to cover those risks. But if they can't be quantified, then corporations that operate in that environment are going to have a hard time knowing what they will need to charge, which means they may end up pulling out or going broke.

The other thing that may have an effect here is the culture of the companies involved. Some private companies get involved in pretty physically dangerous things, and lots of companies are involved in high risk financial operations, but that doesn't fit the culture of other companies--the employees and management of those companies just aren't prepared to live with this kind of risk. Again, this is driven by whether or not the risks were known and understood when the company got involved in the project.

--John