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Best-Laid Plans: Kogod Professor Says Smart Business Choices Sank the Titanic

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The Titanic docked at port in 1912.
Joseph Mortati says Titanic was a well-conceived business venture. But, like many businesses today, planners didn't contemplate extreme 'what-if' scenarios.

Why did the Titanic—a seemingly indomitable testament to human ingenuity—sink? It’s a question that has by turns fascinated and flummoxed observers ever since the tragic disaster in April 1912.

Joseph Mortati finds surprising answers in his e-book Collision Course: How Good Business Decisions Sank the Titanic (and why you're making the same mistakes), a recently rereleased version with new statistical models and simplified writing.

Like a keen-eyed investigator, Mortati refutes many old Titanic theories while offering his own original thesis. Early on, for example, people blamed “hubris,” with Titanic planners placing too much faith in technology to conquer nature. Then it became a story of greed, where a big company profited by packing poor people onto a ship in unsafe conditions. By the time oceanographer Robert Ballard discovered the ship wreckage in 1985, the discussion centered around technological failures.

But Mortati finds these arguments underwhelming. “My thinking when I started working on the book was, ‘I’m not sure that any of those points are really relevant.’ That’s because, fundamentally, Titanic was a business venture. And that’s the one story that nobody’s ever bothered to tell,” says Mortati, a professorial lecturer at American University’s Kogod School of Business.

Mortati got the idea for Collision Course while in graduate school, but he’d always been intrigued by the Titanic story. “How did this engineering marvel—that really kind of borders on a work of art—fail so spectacularly on her maiden voyage?”

 

Origins of a Disaster

James Cameron’s mega-blockbuster film Titanic famously depicted key events, from collision to sinking, in real time. Yet Mortati says most Titanic narratives start telling the story too late.

“People tend to go back about 12 or 24 hours, maybe a couple of days, and you pick up the story either when the ship is just about to leave, or when she’s somewhere in the North Atlantic. I went back 10 years, and I looked at all the strategic decisions that led to that ship, being at that point in the North Atlantic, on that heading, at that speed, at that time,” he says.

Many observers have traditionally viewed the Titanic through the lens of bad choices. But, as Mortati’s title suggests, Titanic stakeholders made plenty of logical and shrewd business decisions.

Despite being a British-built and -designed ship from the company White Star Line, Titanic was really owned by an American, J. P. Morgan. There were shipping regulations to prevent foreign ownership, but Morgan used loopholes and a holding company, International Mercantile Marine, to become a majority shareholder of White Star Line.

That first good decision cornered the market on North Atlantic passenger travel. “The fastest way to grow is by acquiring other companies. If you want to grow quickly, you want to get market share. The other way to do it is to have some sort of breakthrough idea, but that’s a whole lot more difficult,” Mortati explains.

Another smart business decision was to maintain a strong brand identity, and the White Star Line promoted luxury. Titanic, the second of three identical ships, catered to wealthier passengers. Those affluent riders were also more likely to take a round-trip excursion, whereas migrants usually traveled one way.

The notion that Titanic and her sister ships were built to exploit immigrants is a myth, Mortati says: “It didn’t matter the number of passengers you carried. It mattered the amount of revenue you got from them. The ship was not built to carry lots of steerage or third-class passengers, because it’s such a small percentage of revenue. You couldn’t have enough people to charge enough ticket prices to fund a ship of that size.”

Titanic and her sisters used hybrid propulsion power that helped minimize expenses, he added. Compared to its chief competitor, the Cunard Line, White Star Line generated 40 percent more revenue at 11 percent the cost on a per-voyage basis.

“The net effect was, even though the ships were much bigger, they had lower operating costs,” he says.

 

Lifeboats and Laws

Far from being cavalier about safety, Mortati notes, Titanic planners were prudent and followed industry standards. One well-known criticism is that there weren’t enough lifeboats on board. Mortati says the lifeboat planning by no means represented a “good decision,” but he found some illuminating reasons for the problem.

The lifeboat requirements weren’t based on passenger numbers, but on the ship’s gross tonnage. The Merchant Shipping Act of 1894 said a 10,000-ton ship—about the largest kind at that time—needed 16 lifeboats; Titanic had 20 total lifeboats and complied with the law. The problem was that the 18-year-old regulation didn’t anticipate Titanic’s size: at 46,000-tons, it dwarfed the 10,000-ton ship that the law was written to address.

More importantly, this argument is moot because the ship was sinking too quickly. “The very last lifeboat was launched literally as the ship sank from underneath it. In other words, they were launching the boat and the ship disappeared below the waves. So even if they had enough lifeboats for everybody, it wouldn’t have mattered because the limiting factor was time.”

 

A Proven Design, Scaled Up

Mortati says Titanic decision-makers smartly “reduced the new product implementation risk.” Essentially, they predicated their business plan on what had worked before. The Oceanic left port in 1899 and was a member of the Titanic family tree of vessels. It was an all-steel ship featuring watertight doors. It was 10 times greater length than width, which made for a smoother ride to prevent motion sickness.

“[Titanic planners] took a design that was proven, and they scaled it up,” he says. “It was the same company, building this series of ships for the same customers.”

He stresses that their thinking about safety was shaped by previous experiences. For instance, the 1907 voyage of the steamship Suevic taught sea captains that if the front of the ship was hit, they could rip the bow off and reconstitute it. (In the aftermath of that accident, the crew steamed the Suevic backwards to shore, where a company arrived with replacement parts.)

In 1909, the White Star Line’s Republic was inadvertently rammed off the coast of New York by another ship, and the Republic remained afloat for two days. The collision left a few individuals dead, but everyone else on board survived the sinking because of a successful Morse code signal.

Republic was greater than 10,000 tons and did not have enough lifeboats for everybody,” Mortati says. “The thinking after the Republic loss was that the ship itself is the lifeboat. And the lifeboats are just used to shuttle people back and forth to waiting ships, which would be there to rescue the passengers.”

In 1911, Titanic’s older sister Olympic suffered a serious blow that flooded two ship compartments, but they closed the watertight doors and the Olympic proceeded on her own power. No one was injured.

And the captain of the Olympic? Edward Smith, the same man who perished helming the Titanic. In fact, Mortati found that many of the senior planners for the Olympic were also involved with the Titanic. Again, this demonstrated that Titanic organizers were seasoned and understood maritime fundamentals.

“They had all the evidence that said, ‘What’s the worst thing that’s going to happen? Even if the ship sinks, which is inconceivable, we’ll call for help and people will come rescue us. Or if we do hit something, what’s the worst thing that could happen? You can cut the front of the ship off and put it back together.’”

 

The Unsinkable and the Unthinkable

Yet Titanic did sink, and Mortati attributes that to a failure of imagination.

“If you’re a business, and you have a very high-performing team—particularly one that’s been through significant adversity—most people would think that’s a good thing. However, the team may also have an overly high tolerance for risk,” he says.

If Titanic operators relied on all available evidence, what risks weren’t they considering? To assess the impact of each decision, he suggests “end-to-end thinking,” a concept Mortati himself learned while flying F-4 Phantom fighters in the Air Force.

In each Collision Course chapter, Mortati offers lessons for businesses today. “How much foresight do you put into your product launches?” he writes. “What planning have you done that’s really out there—that is, true, strategic, ‘what-if’ thinking?”

A major, unexpected what-if issue for Titanic was that six water compartments flooded. Experts never conceived of this happening to more than four compartments on a ship of that size. In modern parlance, this is called a “black swan” event.

“It’s something that doesn’t happen very often, but when it does, it’s catastrophic,” he says.

Mortati draws parallels between Titanic and recent black swan events. Think the dot-com bust, the AOL-Time Warner merger, and the 2007–2010 housing crisis.

“Many people said that these were good decisions and good business models. Many companies were recommended as ‘buys’ up until the day they declared bankruptcy,” he explains.

Like many other businesses, Titanic was Too Big to Fail—until it did.