by Mark Chussil

Introduction

With his heartfelt goodbye-cruel-world article “Peak Intel: How So-Called Strategic In­telligence Actually Makes Us Dumber” in The Atlantic, Eric Garland sparked an elec­tro­nic blaze on LinkedIn. His article fired up many people (see Acknowledgements), includ­ing me, in the fields of competitive strategy and competitive intelligence over a few days in April 2012.

The article and commentary hovered around three themes, which I’ll call Closed Minds, Distorted Markets, and Stormy World. Those themes are perennially old and current-events fresh.

I’m not saying the themes are wrong. I am saying I don’t think the evidence establishes they’re right. They might be right, but they aren’t right yet. Until they are right I believe it’s worth considering other perspectives.

This essay, Closed Minds, is the first of four. It is my commentary on Mr. Garland’s arti­cle, and my commentary on the commentary on his article. See the others: Distorted Markets, Stormy World, and Beyond The Themes.

The Closed Minds Theme

Situation: I gave my client bad news.

Observation: My client didn’t like the bad news.

Outcomes: My client didn’t act on the bad news and didn’t ask for more bad news.

Conclusions: Clients don’t want to pay for bad news. Clients are closed-minded.

A Familiar Anecdote

The Closed Minds theme does not tally successful and unsuccessful consulting engage­ments. It is not a formal analysis. It is an anecdote, or maybe a collage of several.

It is an anecdote to which pretty much all human consultants can relate. Who among us has not experienced rejection or pushback? “They” just don’t get it. We all know the words to the lamentation and we all join the chorus on cue, and because we all sing along we think the song is good and true.

My own anecdotal experience contradicts the Closed Minds anecdotes. The executives who hire me to conduct business war games rarely (about 2%) have a particular out­come in mind. My clients often say explicitly that they want to prevent or dislodge com­placency; they want to be more open to news, good and bad.

It is possible I am interpreting my anecdotal evidence correctly and the Closed Minds pro­ponents are interpreting their anecdotal evidence correctly. Both can be true if our anec­dotes are drawn from different groups of people. It’s like getting differ­ent results from election-year focus groups because I talk to Democrats and you talk to Re­publi­cans. Perhaps people who buy news are more prone to Closed Minds resistance than are people who buy strategies. Not to mention that there’s simply more bad news dur­ing times of recession, burst bubbles, unemployment, and gridlock.

I’m Not Closed-Minded, I’m Principled and Busy

The Closed Minds theme is built on anecdotes, but that doesn’t necessarily mean its propo­nents are misinterpret­ing the anecdotes. Closed-minded people do walk the earth, and some of them become clients. The difficulty is in generalizing from the anecdotes. Not all bad-news deliveries lead to Closed Minds out­comes; open-minded people also walk the earth, and some of them become clients too.

Are closed-minded clients more plentiful than open-minded clients? If anything, I’d ex­pect the reverse. Why would a closed-minded person pay for any news at all?[1]

Think of it this way. When the question arose “who wants to pay for bad news?,” my response was “smart people.” It’s smart to want bad news early. Later on it’s too late to do anything about it. That’s why I think that at least some clients are not closed-minded, and that’s why I think the Closed Minds theme may be true occasionally but not usually.

No one thinks of him- or herself as closed-minded. Principled perhaps, or the proud possessor of superior evidence or expertise, or even too busy to fuss with small stuff, but not closed-minded. Closed-minded is a label bestowed by the other person.

Even though no one thinks of him- or herself as closed-minded, I doubt that anyone is open-minded all the time on every subject. Still, before we stamp a person “closed-minded” we might well consider whether another label fits better.

In other words, don’t assume that a client who rejects bad news must be closed-minded. Ask why an intelligent, open-minded client might reject the news. You can always de­cide they’re closed-minded later, after you’ve been open-minded about it.

Reasons to Reject Bad News

Here are some reasons why an intelligent client might reject your bad news:

• They know something you don’t know.
• They need time to process what you said.
• They’ve heard contrary opinions or evidence, and they disagree with you.
• They have a strong vested interest in the status quo or in sunnier forecasts.
• They’re under terrible pressure to perform or they’ve made huge, irrevocable com­mitments.[2] They’re not going to be thrilled when you tell them they’re going to fail.
• They misunderstood you or you were unclear.
• The bad economy or cost-cutting has sapped their company of resources, so they don’t have the means to do anything about bad news other than be frustrated.
• The audience is, shall we say, awkward. Imagine customers, suppliers, or top manage­ment are in the room. Some attendees, such as investor relations, might even be legally required to disclose bad news.
• They don’t see a way to deal with the bad news and/or you haven’t provided (or been asked for) a way out of the mess.
• They’re not paying for bad news, they’re paying for solutions.

I’m not saying a client receiving bad news is right or wrong to feel those things. I’m only say­ing it’s understandable for a human to feel those things. They’re rational from the client’s perspective, and, despite appearances, they don’t necessarily close the client’s mind permanently. Those possibilities also suggest ways we can deal more delicately with clients and even assist them further.

Finally, there is a very human side to the Closed Minds theme. If the client rejects what I have to say and is closed-minded, it’s sad but it’s not my fault. If the client rejects what I have to say but is not closed-minded, perhaps I am wrong. That’s not a happy prospect to contemplate, especially if I have a big reputation or my words affect many jobs and big bucks.[3] In other words, it’s bad news for me, and it’s my turn to resist it. I’m not say­ing we’re right or wrong to blame the client instead of ourselves. I’m just saying we hu­mans have a built-in deflector shield. I’m suggesting that the insight we gain by tempo­rarily lowering the shield can make the pain worthwhile.

Next, Read Part Two: Distorted Markets

Click here to read part two in this series of four essays. That part is about the Distorted Markets theme.

Acknowledgements

The LinkedIn e-conversation, in the Corporate Planning & Global Industry Segmenta­tion group, contained wis­dom from James Andrus, Babette Bensoussan, Ben Gilad, August Jackson, Alan Michaels, Seena Sharp, and many others. People cited Benjamin Franklin, Daniel Kahneman, Friedrich Nietzsche, and Mi­chael Porter. We covered blind spots, business war games, the curse of success, hon­ing the craft, industry databases, News Radars, oligopolies, political influence, and strat­egy simulations. I have done my best to reflect that commentary in my essay. Blame mistakes on me, and credit wisdom to them. My thanks to Sean Campbell for sage advice.

By Mark Chussil

Introduction

With his heartfelt goodbye-cruel-world article “Peak Intel: How So-Called Strategic In­telligence Actually Makes Us Dumber” in The Atlantic, Eric Garland sparked an elec­tro­nic blaze on LinkedIn. His article fired up many people (see Acknowledgements), includ­ing me, in the fields of competitive strategy and competitive intelligence over a few days in April 2012.

The article and commentary hovered around three themes, which I’ll call Closed Minds, Distorted Markets, and Stormy World. Those themes are perennially old and current-events fresh.

I’m not saying the themes are wrong. I am saying I don’t think the evidence establishes they’re right. They might be right, but they aren’t right yet. Until they are right I believe it’s worth considering other perspectives.

This essay, Distorted Markets, is the second of four. It is my commentary on Mr. Gar­land’s article, and my commentary on the commentary on his article. See the others: Closed Minds, Stormy World, and Beyond The Themes.

Distorted Markets

Situation: Oligopolies are getting bigger and more powerful. Government is playing an ever-more active role in markets.

Observations: Oligopolies and government distort market forces. They cloud the future by subjecting it to the caprices of industry dominators and political lobbyists.

Outcome: It gets ever-harder to predict the future.

Conclusion: Traditional competitive and market analysis is increasingly irrelevant.

Needed: A Fundamental Market Rationality

Business analysis, education, and thinking assume a fundamental market rationality. When we draw up our strategies we assume the market is fair: customers can choose without coercion, regulations apply equally to all, and so on. A level playing field.

Without those assumptions, we’d find it very hard to plan; we might even find planning pointless. For example, if Abrams-tank incumbents could gang up on poor little Smart-Car us, we couldn’t enter their market. For another, if government could direct people to buy or not to buy from specific businesses, then we could find our fortunes rising or falling through no virtue or fault of our own.

The Distorted Markets theme says that oligopolies have tightened their influence of more markets, perhaps directly through market power, perhaps indirectly through lob­bying for favorable rules. It says that governments are growing more intru­sive by pick­ing winners and losers, supporting the former with subsidies, tax incentives, tariff pro­tection, or direct investment, penalizing the latter by withholding those advantages. Some of those effects take place within a national economy, others are part of maneuver­ing among countries. The theme calls those effects distortions and asserts that those distortions are increasing. (Of course, companies designated “winners” don’t think of those effects as distortions.)

Obviously these are highly charged political issues, and much as I want to join that bat­tle I will throttle myself. For the purposes of this essay, my job as author is to use neutral language and de­scribe points of view without judgment, no matter how desperately they need to be judged. In return for my restraint, your job as reader is to give me a break. I’m happy to talk about politics over a nice single malt. But here let’s focus on the Distorted Mar­kets theme, not on the legitimacy of the distortions.

Prevalent and Potent Distortions

The point of the Distorted Markets theme is that the distortions are so prevalent and potent that they make it difficult or impossible to strategize effectively.

I don’t think an­yone disputes whether market concentration and government policies have effects. (People do dispute whether those effects are good, which is the debate we’re not having now.) I think the important question for those of us in CI and competi­tive strategy is whether those distortions so confound our efforts to run our businesses that it’s reasonable to goodbye-cruel-world strategy analysis and focus instead on raw power.

The Distorted Markets theme might be right, but it isn’t yet, at least not for me. There’s still plenty of strategizing to be done.

A little historical perspective relevant to oligopolies.

• A few decades ago it was fashionable to vertically integrate. We want control over everything between raw materials and the customer: it’s profitable and helps us control our costs.[1]
• Then it became fashionable to outsource anything that wasn’t a company’s core com­petence. (Vertical disintegration?) Our suppliers have economies of scale, and we don’t have to manage operations we don’t know well.
• Now it’s fashionable to partner with companies (affinity programs), to join with them in networks (airline alliances), or simply to buy little companies if they show promise (pharmaceuticals). We take on less risk and we can move more quickly.
• On the day I wrote this part of the essay (April 30, 2012) Delta Air Lines an­nounced it would buy an oil refinery to reduce its fuel costs. Back to vertical integra­tion?

Companies have jockeyed for control and competitive advantage for a long, long time. They have experimented with different methods, and done so in a surprisingly herd-like way. The exact nature of the methods changes from time to time and from place to place, but there’s always something. And that’s the point: there’s always something. That’s why I can agree that today’s oligopolies have distorting effects while also saying that they’re not so different, in kind or in number, from the distortions of the past. (Note too that some oligopolies are shifting or shrinking, as in book publishing and consumer elec­tronics.) We can quibble and quarrel over matters of degree and over a nice single malt, but I don’t see a massive shift in the fir­mament. I could be wrong soon but I don’t think Distorted Mar­kets is right yet.

We don’t necessarily need to know much about the something. It matters to us if we find ourselves competing with a company that has a cost advantage. What matters too is the size and importance of its cost advantage, the likelihood it will persist, and whether we can gain advantages of our own. It doesn’t matter so much whether its cost advantage comes from long-term contracts with suppli­ers, favorable tax rates, getting acquired by a sugar daddy that buys a new factory, or locating where labor costs are low. In other words, you can confront the same effect — a competitor with a cost advantage — that is or is not the result of a “distortion.”

Government “intrusion” ebbs and flows too, accompanied by political hysteria as an entertaining bonus. Regulations are relaxed, regulations are tightened. Lobby­ists are in­vited in, lobbyists are locked out. Retired politicians leverage their net­works. Perhaps the biggest government-intrusion change in the USA in recent years is the Citi­zens United case, which opened the door for big money to, uh, participate more enthusi­asti­cally in poli­tics. I think we should classify that as corporate intrusion affect­ing, ef­fecting, and in­fecting government intrusion, but the effect by any name would not smell sweet.

Citizens United may be a material change for industries rich enough to use it aggres­sively. It remains to be seen how effectively corporate money will be countered by forces such as social media and mass demonstrations. (I’m expressing ignorance, not skepti­cism.) Meanwhile, let’s enjoy our ride on the quadrennial Ameri­can election spasm.

Then we have local, state, provincial, national, and international taxes, tariffs, currency fluctuations and manipulations, sanctions, protectionism, state-backed industries, and so on. These things have been around a long time too, and to me fall into the category of there’s always something.

As I understand it, Distorted Markets doesn’t mention the effects of natural disasters, war, un­employment, mass migrations, or the near collapse of industries (housing in the USA) or national economies (Greece, Spain). Those effects can be large and sudden. If we’re wor­ried about our ability to plan and predict, why focus only on oligopolies and govern­ment? If the distortions are meaningful to a business, it seems irrelevant to me whether they are deliberate or fortuitous.

Looking Through Distorted Glass

The point of the Distorted Markets theme is that distortions make it hard to analyze and strategize. Perhaps I’m missing something, but in my experience markets can actually be analyzed well even with distortions. I know because I’ve done it, in dis­torted markets such as airlines, oil and gas, pharmaceuticals, and tele­communica­tions, on five conti­nents. You’ll get frustrated indeed with the cruel world if you analyze by, say, ex­trapo­lating the past into the future using trend lines or common statistical models. But if you apply what-if analysis using models designed for strategy simulation, you’ll get ac­tion­able insight. (See All About Models.)

We have to let go of the idea that we can predict the future. Predicting the future is not possible except for grindingly dull situations, and in those situations the successful pre­dictions are due not to the predictor’s brilliance but to the situations’ grinding dullness.

Instead, embrace three ideas:

1. Competitive advantage starts with exploring futures. That’s why people work with sce­narios, contingencies, competitive intelligence, business war games, and simula­tions.
2. We are not passive recipients of whatever a random-number generator doles out. Our positive actions make a difference.
3. Remember that our objective is to achieve good results, not to make good predic­tions. To do that we need good decisions, and good decisions require a lot more than predictions.

Next, Read Part Three: Stormy World

Click here to read part three in this series of four essays. Part three is about the Stormy World theme.

Acknowledgements

The LinkedIn e-conversation, in the Corporate Planning & Global Industry Segmenta­tion group, contained wis­dom from James Andrus, Babette Bensoussan, Ben Gilad, August Jackson, Alan Michaels, Seena Sharp,and many others. People cited Benjamin Franklin, Daniel Kahneman, Friedrich Nietzsche, and Mi­chael Porter. We covered blind spots, business war games, the curse of success, hon­ing the craft, industry databases, News Radars, oligopolies, political influence, and strat­egy simulations. I have done my best to reflect that commentary in my essay. Blame mistakes on me, and credit wisdom to them. My thanks to Sean Campbell for sage advice.

By Mark Chussil

Introduction

With his heartfelt goodbye-cruel-world article “Peak Intel: How So-Called Strategic In­telligence Actually Makes Us Dumber” in The Atlantic, Eric Garland sparked an elec­tro­nic blaze on LinkedIn. His article fired up many people (see Acknowledgements), includ­ing me, in the fields of competitive strategy and competitive intelligence over a few days in April 2012.

The article and commentary hovered around three themes, which I’ll call Closed Minds, Distorted Markets, and Stormy World. Those themes are perennially old and current-events fresh.

I’m not saying the themes are wrong. I am saying I don’t think the evidence establishes they’re right. They might be right, but they aren’t right yet. Until they are right I believe it’s worth considering other perspectives.

This essay, Stormy World, is the third of four. It is my commentary on Mr. Gar­land’s article, and my commentary on the commentary on his article. See the others: Closed Minds, Distorted Markets, and Beyond The Themes.

Stormy World

Situation: The world is changing rapidly and unpredictably, and change is accelerating.

Observation: Predictions are getting worse.

Outcome: Business decisions go awry more often.

Conclusions: As the future grows unpredictable, business decisions are increasingly problematic. No hope in sight.

The Good New Days

“How fortunate we are to be running a business in such placid times! Our competitors are kind and gentle, customers love us, and the win/win keeps pouring in. Decision-making is so much easier than it was in the indecipherable past. The world has reached a happy equilibrium and every­one is committed to cozy stability. Ah, these are the good new days.”

If you had a million dollars for every time you’ve heard an executive say that, you wouldn’t have a million dollars. No, we are living, and will always live, in times of un­predictable hyperultracompetition, so unlike the blissful wistful placid past.

Things are changing and the future is unpredictable. The Stormy World theme goes two subtle steps further: it says, with some anxiety, that today’s changes are qualitatively dif­ferent from yesterday’s and that what we learned in the past no longer applies. (See The Rules.) The theme might be right, but like the others I think it isn’t right yet. There are other perspectives to explore.

How You’ve Changed!

We marked our changes in our early years: we counted our new words[1], we completed grades in school, we wore black robes and black hats with helicopter landing pads and were told we’d completed our education.

And we keep changing, and the world keeps changing. When we perceive change, it’s hard to know how much is due to what we see and how much to how we see it.

For example, let’s think about experiences from the Closed Minds theme, where clients in­creasingly reject bad news, or at least seem to. It is possible that clients are increasingly rejecting bad news. That possibility is not mutually exclusive of others, such as:

• As your career has grown, you are now talking with tougher, more-senior audiences (or, as Eric’s article mentioned, bad-news-resistant “silver-haired alpha dogs”).
• As your skills have grown, you have taken on more-complex situations or you have learned to recognize more-serious bad news.
• As your fame has grown, you may be delivering bad news to companies that previ­ously wouldn’t have even let you in the door.

We all experience the broadening of our lives. There’s another change we all experience: the dimming of our pasts. Events recede. We edit and forget. The tough challenges we conquered seem retroactively easy as we gain skill and perspective. We hear and tell narratives of the past, and those narratives grow increasingly true, smooth, and inevita­ble. By con­trast, today looks, well, stormy.

The problem with predictions and the Stormy World theme may be not that the world is more stormy today, but rather the illusion that the world was more placid yesterday.

Fetch Me a Meteorologist

The world was plenty stormy yesterday and it is plenty stormy today. Who cares about the relative storminess? What we care about is decent forecasts to guide us through the storms. Right?

Unfortunately, there’s plenty of evidence that expert opinions and predictions are bad, even in areas much simpler than strategy. That might be due to distorted markets and a stormy world. It’s surely due also to a range of common human biases (overconfidence, confirmation bias, survivor bias, innumeracy, cognitive dissonance, and so on).

So then consider what we are asking of the client. The problem is not wholly that the cli­ent is in denial when he or she rejects bad news. The problem, in part, is that the client is being asked to buy a product that, according to both the Distorted Markets and Stormy World themes, doesn’t work.

So why doesn’t the product work? Not for lack of fine intelligence (both information and brainpower) to go into opinions and predictions. Rather, due to using the wrong meth­ods to transform intelligence into predictions.

Let’s say we liken business to chess. Would you use a trend line to predict what your chess opponent is going to do next? How about a benchmark or a spreadsheet? Of course not. Yet those are the tools people use in strategy, even though predicting the future and making strategy decisions are more like antici­pating chess moves than ex­trapolating a financial statement.

Think about meteorologists. They rarely give single-number forecasts. They say things like there’s an 80% chance of precipitation tomorrow. They give a range of outcomes.

And they are right. Research shows that meteorologists are “well-calibrated.” If they say, for example, there’s an 80% chance of precipitation, 80% of the time it precipitates.[2]

Notice, by the way, that meteorologists use structural models, not trend lines. They look at the conditions that cause rain and sun, not at averages or what happened yesterday. I meant a similar approach when I mentioned strategy models a couple of pages ago.

The meteorology equivalent for business decisions is to use structural models to explore multiple scenarios. There are two challenges here. First, in my experience companies rarely use structural models.[3] Second, there can be a lot of scenarios to explore. (See The How-Likely Case.) But structural models can be built and they can explore a lot of scenar­ios. Again, I know because I’ve done it, and so have others.

Next, Read Part Four: Beyond The Themes

Click here to read part four, the last in this series of essays. Part four is about going Beyond The Themes.

Acknowledgements

The LinkedIn e-conversation, in the Corporate Planning & Global Industry Segmenta­tion group, contained wis­dom from James Andrus, Babette Bensoussan, Ben Gilad, August Jackson, Alan Michaels, Seena Sharp, and many others. People cited Benjamin Franklin, Daniel Kahneman, Friedrich Nietzsche, and Mi­chael Porter. We covered blind spots, business war games, the curse of success, hon­ing the craft, industry databases, News Radars, oligopolies, political influence, and strat­egy simulations. I have done my best to reflect that commentary in my essay. Blame mistakes on me, and credit wisdom to them. Thanks also to Sean Campbell for sage advice.

[1] Given the average adult’s vocabulary, each of us learned something like 3-5 new words every day as a child. How many have you learned today? (Me too.) See The Oxford English Dictionary on the number of words in the English language.

[2] The Psychology of Judgment and Decision Making, Scott Plous, McGraw-Hill 1993, pp. 222-3.

[3] Possible sample-bias alert. Since I build simulators, I’m more likely to get called in by companies that don’t have good structural models than by companies that do have them.

By Mark Chussil

Introduction

With his heartfelt goodbye-cruel-world article “Peak Intel: How So-Called Strategic In­telligence Actually Makes Us Dumber” in The Atlantic, Eric Garland sparked an elec­tro­nic blaze on LinkedIn. His article fired up many people (see Acknowledgements), includ­ing me, in the fields of competitive strategy and competitive intelligence over a few days in April 2012.

The article and commentary hovered around three themes, which I’ll call Closed Minds, Distorted Markets, and Stormy World. Those themes are perennially old and current-events fresh.

I’m not saying the themes are wrong. I am saying I don’t think the evidence establishes they’re right. They might be right, but they aren’t right yet. Until they are right I believe it’s worth considering other perspectives.

This essay, Beyond The Themes, is the last of four. It is my commentary on Mr. Gar­land’s article, and my commentary on the commentary on his article. See the others: Closed Minds, Distorted Markets, and Stormy World.

Beyond The Themes

So far I’ve argued that the Closed Minds, Distorted Markets, and Stormy World themes have some truth to them although they do not, in my opinion, adequately explain the client resistance many people encounter.

I’ve also proposed alternate explanations for that resistance. When flipped around, many of those explanations imply antidotes. If you suspect communications problems, work on communicating better. If your audience will be hypersensitive to bad news, tread delicately or do a preview with the boss. If distortions interfere with your usual analysis, use other forms of analysis. If you’re not confident with point (single-number) forecasts, look at multiple futures and think like a meteorologist. If you get pushback, ask for feedback to build your skills. And so on.

Now, I’d like to toss in a few other ideas that might help us open minds and navigate through distortions and storms.

A Cultural Shift

I think there’s an important change that ex­plains some of the resistance that frustrates CI and strategy professionals. It’s less like a stormy world and more like climate change: imperceptible increments that gradually poison the environment. It’s about our cul­ture. Is it a real shift? I don’t know. It rings true to me but perhaps only for me.

All the talk of clients becoming more resistant to bad news, first from Eric and then ech­oed by many others, makes me wonder: if it’s true that they have changed, why have they changed? They didn’t suddenly locate or jettison IQ points. They didn’t suddenly leave their jobs en masse, only to be replaced by similar but less-competent people. (Ste­ven Wright: “Someone broke into my apartment while I was away and replaced every­thing with an exact replica.”) They didn’t get infected with a virus that caused them to mutate into Eric’s silver-haired alpha dogs. So why have they changed?

My conjecture: a cultural shift toward what we might call severity.

It has become imperative to be successful this day and every day, to generate an eternal mono­tonically-positive trend line. We have zero tolerance for perceived failure. “You should have known.” “If you don’t get the job done, we’ll get someone who will.” And we don’t want to wait, either. We see this shift in how we talk about business leaders (and politicians).

The shift finds a natural home in large corporations, precisely where people claim to ob­serve cli­ents’ resistance to taking on challenges and accepting bad news. We are quick to elevate perceived heroes and quick to terminate perceived failures. Then add in cost-cutting, the business equivalent of austerity. Loyalty to our people down, disposability of our people up. If that doesn’t make people fear bad news, what will? For many peo­ple, contesting bad news is defending their financial lives.

The dynamic is quite different in upstarts and small compa­nies, which have qualita­tively different perspectives. They think “investment” instead of “budget.”

Prediction, Precision, Perfection

Let’s talk more about the bad predictions that clients don’t believe, due to the analytical horrors of the Distorted Markets and Stormy World themes. (Hmm. If the predictions are bad, maybe it’s just as well they don’t believe them.)

I agree that precise predictions aren’t going to happen. The thing is, unlike the themes, I don’t think that’s anything new. Fortunately, we can imagine alternatives, and because the need isn’t new the alternatives are already here. I’ve been working on my version for a long time, and others have worked on theirs.

There are many possible futures because there are many moving parts. People in your company make decisions about price, product features, innovation, marketing messages, make-or-buy, segments to enter or exit, and more. Your competitors do the same thing. Customer preferences evolve. Distribution chains convulse. Supply chains snake around the world with all the vagaries of treaties, protectionism, state support, transportation, and more. Toss in a presidential election where we believe one party will grow the economy and the other will make it implode, though we don’t agree on which party will have which effect. Many possible futures indeed.

And even if we don’t go so deeply into all the possible futures, companies still need to combat complacency and overcome overconfidence. Start by ditching spreadsheet thinking and extrapolations from the past. Replace them with business war games, con­tingency planning, scenario planning, or even just plain brainstorming about what could happen.

With so many possible futures, it is absurd to believe we can pick the most-likely one. Even if we could, it is absurd to believe that even the most-likely future is highly likely to come to pass.

Predictions “work” when the problem is simple: short-term forecasts in grindingly dull situations. They fail otherwise. Meteorologists know this, and that’s why they will tell you the likelihood of precipitation three days from now but not three months from now, unless you are a place with grindingly consistent weather.

The alternative is to explore multiple scenarios. You may not know which one will come to pass but you get to test or develop strategies under different conditions, which tells you a lot about the potential risks and rewards of your strategy options. Business war games are highly effective at exploring competitive dynamics. Monte Carlo simulations can look at environmental uncertainties. My company’s strategy decision tests simulate and analyze your options against your competitors’ options.

Can you achieve predictive precision or perfection with those tools? No, of course not. But that’s a useless standard. We don’t know everything but that doesn’t mean we know nothing. Remember that the objective is to make better strategy decisions. The question is not whether an analysis is perfect. (How would you know?) The question is whether you can make a better decision with an analysis than without it.

To gauge the value of an analysis, ask yourself whether benefit of the analysis — the better results you can expect with a higher-quality decision — is likely to be higher than the cost of the analysis. I’ve seen clients figure that their benefits were five thousand times their costs. Strategy decisions are high-leverage.

The Last Word

As with every­thing in life, we do the best that we can. That means clients, that means you, and that means me.

No matter what, decisions will be made. Our goal is to improve the odds of happy re­sults, which we do by improving the quality of those decisions. We won’t get perfection but we don’t need perfection. A few percentage points is enough separate the gambler from the casino.

One last point regarding the notion that strategic intelligence makes us dumber. Would we really prefer to have less of it?

And I’m sure that’s not the last word on these subjects.

Nobody ever gets the last word. — Jack Balkin

Acknowledgements

The LinkedIn e-conversation, in the Corporate Planning & Global Industry Segmenta­tion group, contained wis­dom from James Andrus, Babette Bensoussan, Ben Gilad, August Jackson, Alan Michaels, Seena Sharp, and many others. People cited Benjamin Franklin, Daniel Kahneman, Friedrich Nietzsche, and Mi­chael Porter. We covered blind spots, business war games, the curse of success, hon­ing the craft, industry databases, News Radars, oligopolies, political influence, and strat­egy simulations. I have done my best to reflect that commentary in my essay. Blame mistakes on me, and credit wisdom to them. Thanks also to Sean Campbell for sage advice.

[1] Fun facts! The summit of Mount Wai’ale’ale on Kaua’i is said to have between 335 and 360 days with rain per year. The Atacama Desert, in northern Chile, has river beds that some studies suggest have been dry for 120,000 years. Three months from now — remember, you heard it here — it’s going to rain on Mount Wai’ale’ale and it’s not going to rain in the Atacama Desert.

by Mark Chussil

Advanced Competitive Strategies was officially incorporated in February 1992. Please join me with a smile: it’s time to celebrate and reflect upon twenty years of ACS.

We will do that here with accumulated facts, acquired wisdom, sincere thanks, and hopes for what’s yet to come.

Facts

It’s easy to catalog facts. Two hundred business war games on six continents for dozens of Fortune 500 companies and at numerous conferences and universities. Nearly 100 articles and essays. A couple of books. Many strategy simulators. Uncounted speeches and classrooms. Thousands of pages of computer-code gobbledygook. Colleagues and friends come and gone. I’ve spent more than half of my career running ACS.

Wisdom

It is tempting on ACS’ twentieth birthday to unveil the strategist’s equivalent of greatest hits. Behold wisdom! Deep thoughts ponderously expressed, just like this. I choose instead to talk about four favorite trivialities. Of course I don’t really think they are trivialities. It’s just that they may seem so in a world that wants definitive sound bites now.

1. Uniqueness isn’t so special

In Monty Python’s Life of Brian, Brian addresses a crowd.

Brian: You’re all individuals!
Crowd: Yes! We’re all individuals!
Brian: You’re all different!
Crowd: Yes, we are all different!
Man in crowd: I’m not…

Every person is unique. Still, the similarities among us vastly outweigh the differences. That’s why medicine works.

Every business is unique. Still, the similarities among them vastly outweigh the differences. There are far fewer business problems, and solutions, than there are businesses.

Teach yourself to look at businesses the way a doctor looks at people: the doctor appreciates and respects them as individuals, and also applies rigorous thinking and science. (Think of it this way: when I need health help, I don’t ask a friend who knows me well. I ask a doctor, a stranger who knows me better.) It’s the skill or habit that’s made it possible for my colleagues and me to help strategists time- and cost-effectively in dozens of industries.

Further reading: House, MBA.

2. It absolutely depends

One of the audience-involvement exercises I use in my workshops about strategic thinking involves this way of categorizing businesses in a market, called a value map:

I ask the audience this question: where’s the best position for a business?

They sputter and debate for a while, as it’s a surprisingly hard question. (“Surprisingly  hard” due to nuances and data into which we will not delve here.)

Eventually I change the question and ask, for each quadrant in turn, whether it’s possible to make money there. Yes, of course. As it turns out, the only absolute in the value map is that you maximize unit demand if you position yourself as the ultimate bargain. The ultimate bargain is perfection for free, and if you can do that, there’s no reason for a customer to buy from anyone else. But as soon as you back off from that maximize-unit-demand goal, the best-position answer is no longer absolute; it is it depends.

No one disagrees with advice to keep an open mind, which is what makes such advice a triviality. It’s quite another thing to experience that one’s mind is not so open and that it’s getting in the way. Really, seriously, keep an open mind. The worst that can happen from asking what-if or why or why-not is that you waste a few minutes. The best that can happen is that you achieve a breakthrough. Not to mention gaining a reputation for having an open mind.

Related: here’s one of the most-provocative questions I’ve come across. When you see someone doing something that looks terribly stupid, ask yourself why a smart person might do that seemingly stupid thing.

Further reading: The Rules.

3. It worked, unless it didn’t

We saw a problem and took action to solve it. We carefully tracked the results for years. We find that we performed much worse after we implemented the solution. We conclude that our solution didn’t work.

If we believe that line of reasoning, we should advise General Motors to resume making its less-reliable, lower-quality cars of a few decades ago. After all, that was when their success was at its peak, and they stalled after they improved their products.

Of course we wouldn’t advise GM to go back to that past. But the process is the important thing, and it’s important enough to elevate this story to one of the great trivialities.

When we say “I did X and the result was Y, therefore X worked (or didn’t),” we commit at least three serious errors. Here’s one: we assume that X caused Y all by itself. In other words, we assume we are in complete control of the situation and that no one else’s actions had any material effect. The only reason for Y is X.

Our decision is fully under our control. Our performance is only partly under our control. A great decision can be trashed by an unpleasant surprise. A bad decision can be rescued by an unpleasant surprise for someone else.

Being able to tell the difference — were we lucky or were we smart, were we unlucky or were we not-smart — sounds trivial but it is very hard. In medicine, we use clinical trials to see if a treatment works. We don’t use clinical trials in business. What we can use is simulation, which is why I think the most-exciting development in ACS’ twenty years is our patent-pending strategy decision test technology.

Further reading: Who Did Best.

4. Strategy matters more than precision

When a forecast goes awry (see also previous triviality), what do we do? As far as I can tell, one of two things. One: chuck the whole lot of models, computers, statisticians, and databases. The future is unknowable and anyone who pretends otherwise has got a microchip loose. The other: add a whole lot of models, computers, statisticians, and databases. The future is knowable but we need more better data faster. Tighten the microchips and show more digits to the right of the decimal point.

The former is like saying it’s impossible to know what my chess opponent is going to do so I’m going to concentrate only on my moves. The latter is like saying I’ll play better if I measure more-precisely where each piece stands within its square. Both, of course, are wrong.

Most of the business war games my colleagues and I have conducted used quantitative, computer-based simulation models. At the start of those war games the client company’s strategists grill us (not literally) about the model. How do we know it’s accurate?

Once the war game gets underway and they see simulated outcomes, questions about the model simply evaporate. Partly because the results show that the model is sensible. More importantly because the strategists see that the difference between strategy A and strategy B is not measured in cents. The difference is measured in millions of dollars, or tens of millions, even hundreds of millions. Strategy is not trivial. Strategy matters, and switching from one strategy to another simply swamps the inevitable, strategically trivial effects of imprecision. In other words, there’s a very high signal-to-noise ratio.

Incidentally, the question is never whether to use a model. We always, always use a model when we make decisions, even when we simply say “I think this strategy will work.” The question is only whether to use a so-called mental model or a computer-based model. And unless you know in a millisecond the answer to (163,948 x 992,580) ÷ (4,822 x 33,086 x 1,020), then you can surely applaud computers for helping us out.

Further reading: All About Models.

Thanks

Thank you, my friends, colleagues, and clients, for twenty years of ACS. Special thanks to Adrian Cruz, Bruce Hamilton, David Reibstein, Dennis Damore, Don Heaney, Don Swire, Joanne Kahn, Joaquim Branco, Joe Hull, Julie Baugh, Ken Paillé, Mindy Clark, Rika Warner, and Ruth Newman for the vital roles you played in ACS and my career. Most-special thanks to Sidney Schoeffler, who saw I had more than fingers to offer.

The best is yet to come: The next 20 years

With ever-fewer career years ahead and ever-more behind, such optimism hums slightly with defiance. Still, it is true. As a younger man I could not have imagined the perspective and (I hope) wisdom that comes from a mind forever voyaging.

And that’s why one more not-really-a-triviality is something that sounds like a cliché: the best is yet to come. We observe. We analyze. We create. We keep our unique minds open and the insights keep getting better.

Here’s to the next twenty years.

All the best,

Mark Chussil

You can view, and download, this essay here.

by Mark Chussil

Who did best? I’m not talking about the Democrats and Republicans. Not the New York Yankees and the Boston Red Sox. Not even the Beatles and the Rolling Stones.

I mean something BIG.

I mean Safeway and Supervalu, the huge supermarket chains.

If you’re still here you must be one of my faithful readers, and my faithful readers may remember an essay called House, MBA. In that essay, written with the American economy reeling, we saw that Safeway CEO Steve Burd wished he’d done what Supervalu CEO Craig Herkert did on prices, while Supervalu CEO Craig Herkert wished he’d done what Safeway CEO Steve Burd did on prices. (As they must say in an old proverb, the produce is greener in the other store.) We further explored what nasty, brilliant, truth-seeking, fictitious Dr. Gregory House would do to resolve the dispute.

Here’s how Safeway and Supervalu were doing at the end of 2008.

The Numbers are In!

A couple of years have passed since the House essay, since Mr. Burd and Mr. Herkert ranked #50 and #51 on the Fortune 500 list, and since they took their respective actions.

Think about where they started. Think about what they said in The Wall Street Journal of October 16, 2009, in “Safeway Shifts Tactics in Grocery Price War.” Safeway’s Burd said, “Had the chain moved quicker to lower prices, it would be ‘doing a bit better than we are now.’” Supervalu’s Herkert said, “Increased use of promotions ‘destroyed our gross margin… More items really cheap don’t bring in more people.’”

What would you expect to happen? What actually happened? Whose strategy worked? Here are their 2010 numbers, from the 2011 Fortune 500:

And the Winner is…

Pretty clear who did best, right? Not so much. Actually, not at all.

If you value, say, 10-year total return to shareholders, then Supervalu is doing better. If you value, say, return on equity, then Safeway is doing better. There is not a definitive, objective reality of one outperforming the other until you subjectively define success. You pick the metric, you pick the winner.

Plus, we don’t know what metrics Burd and Herkert wanted. We don’t know if they think they succeeded.

It gets less clear. Many things were in motion at the same time as their price moves. Changes in the economy, decisions about everything from advertising to sourcing to employment, Supervalu’s adjustment to a new CEO (Jeffrey Noddle left in 2009), and so on. Not to mention that companies’ cultures and capabilities differ. (See What You Pay For.) Not to mention randomness, uncertainty, and luck. (See Marvelous Techniques.)

It gets still less clear. Even if we knew exactly what each had done on price, how could we reasonably single out price as the driving force, the “reason” for one or the other to win? It just doesn’t make sense to do so.

What I think we’ve seen is that “who did best” is a difficult, complex question. It is not objective; it requires that we make value judgments. It is not clear who or what is responsible for “best” performance.

So what should we believe? How do we know who did best?

What Works Best

It seems to me that “who did best” is of limited value as a question and of even more limited value as a way to figure out which or whose strategy “worked.” It tells us what happened. It doesn’t tell us why it happened.

What I think is of far greater value is to change the question from “who did best” to “what works best.”

Treat that inquiry as a scientist would, looking for cause and effect. Treat it as a systems thinker or engineer would, balancing multiple moving parts and knowing everything is connected. Treat it as a chess master or military commander would, recognizing that it’s not only your moves that matter. Treat it as a statistician would, checking what’s random and what’s real. Treat it as a psychologist would, aware of human creativity, biases, and determination to succeed. It’s possible,* and it’s worth it.

* I like what Barney Pell said about a problem that needs only for people to think big and muster the will to take it on: “It’s only rocket science.”

by Mark Chussil

Attorney: All your responses must be oral, okay? What school did you go to?
Witness: Oral.
(Source: One of those humor emails that circulates eternally)

You ask a silly question, you get a silly answer. That much we know. But how do you skip the silly and go for better?

Questions and business war games

Business war games, in my experience (see Appendix), provide outstanding insights that greatly impact bottom lines. But why? What is it about business war games that produces insights that evidently elude other approaches?

I think the answer lies in the questions business war games ask. You ask a better question, you get a better answer.

The first, worst question

“For a moment, nothing happened. Then, after a second or two, nothing continued to happen.” — Douglas Adams

Imagine that we expect a new competitor to enter our market, or we plan to launch a new product, or we want to see what would happen if we cut our price, or we need to set performance goals.

We pull out our trusty spreadsheet, full of estimated sales and costs and with quarterly profits lined up in the traditional hockey-stick formation.

What is the question that our trusty spreadsheet implicitly answers? If it’s like most that I’ve seen in corporate use, it is this:

What will happen to us with this strategy, assuming it works?

“What will happen to us with this strategy” is fine as a first question. What makes it the worst question is stopping after we answer it. Which strategists are prone to do, because spreadsheet analysis looks detailed, precise, and definitive, and thus makes us forget the second, often-unspoken “assuming it works” part.

Here’s why accounting-based spreadsheets assume our strategy will work:

• They do not take competitors’ actions or reactions into account. Equivalently, they assume competitors will behave as we wish.
• They further assume that costs can be cut without affecting sales. It is a rare spreadsheet that explicitly links costs to the top line as well as to the bottom.
• They assume sales will grow as we command, costs will slow as we demand, and profits will flow as we expand.

Those assumptions, of course, leave us open to surprises, mostly unpleasant.

Further reading: Do Not Overtighten and With All This Intelligence, Why Don’t We Have Better Strategies?

A better question

Rick Blaine, Humphrey Bogart’s character in “Casablanca,” on Captain Renault: “Oh, he’s just like any other man, only more so.”

Of course savvy strategists worry about stopping after the first question. Fortunately, it’s a cinch to find a second, better question. The better question is this:

What do you think they will do?

“They” usually refers to competitors, although it may be anyone whose actions can affect us. Here, we’ll stick to competitors.

The need to answer this better question is obvious enough that people have provided an assortment of tools to do so. The tools include competitive intelligence, trend analysis, and SWOT (strengths, weaknesses, opportunities, and threats) analysis.

“What do you think they will do” is a major step forward because it explicitly looks at relevant others, especially competitors. Where it falls short is not in theory but in practice.

When human beings answer “what do you think they will do,” they tend to start with past behavior. They figure that future behavior will be like past behavior, only more so or less so. (This is called anchoring. See further reading, below.)

• Done well — say, by noticing that a competitor has hired a person with an unusual background to run their R&D — competitive intelligence can help you anticipate even quantum shifts. That, and much more, is truly valuable. Done less well, you may get only raw facts and figures. And no, numbers do not speak for themselves.
• Trend analysis, by definition, extrapolates the past into the future, and thus, by definition, will not expose possible shifts in direction. That makes it least useful precisely when you need it most, which is when the future will not look like the past.
• SWOT analysis theoretically can assay what competitors might do. In practice, it may not work out that way, as we’ll see when we get to the next question. By the way, the very act of assigning labels — strengths, weaknesses, opportunities, threats — prejudges effects and biases our thinking about what we should do.

Think, though, about how you make decisions. You don’t aspire to be as you were yesterday, only more so or less so. You strive to get out of the box and do something innovative and magnificent. So do your competitors.

Further reading: Decision Traps, J. Edward Russo and Paul J.H. Schoemaker, covers anchoring. See also Anchors Weigh Down Competitive Thinking. On trend analysis, Predicting Competitors.

An even better question

“The guy who invented the first wheel was an idiot. The guy who invented the other three, he was a genius.” — Sid Caesar

The previous question unintentionally leads us to start with the past and make adjustments. But what if (and notice the mind-shift in “what if”) we don’t default to the past? We could ask this question instead:

What would you do if you were them?

Logically, the two questions are related. The new one even seems like a precursor to answering the prior. But in practice they work differently.

“Oh, if I were them, here’s what I would do!” The even-better question triggers an imaginative, even playful, reaction not at all like what emerged from the previous two questions. Now we’re brainstorming, we’re role-playing, we’re exploring scenarios.

People are so eager to answer “what would you do if you were them” it’s hard to shut them up. They have fun and indulge their creativity. They get to show off their imagination and cleverness. They build on their knowledge and even their fears.

We can beef up this question with the information we may have compiled for the other questions, especially competitive intelligence. CI helps us tour competitors’ heads. We learn they’re struggling to survive, and we imagine desperation. We learn they’re outsourcing, and we infer future price cuts or long-distance distribution chains. We learn they have a radical new product almost ready to launch, and we imagine what else they would be getting ready to do.

Plus, we can think about CI from their perspective, where we are the target. If they learn our customer satisfaction is dropping, they may consider launching a switch blitz. If they learn we’ve hired a hotshot senior executive from a different industry, they may infer we’re planning to make big changes. If they learn our relations with our foreign distributors are stormy, they may give those distributors a discreet call.

There’s one more question to go because we’re still missing three things. Voluntary exercise in creative thinking: can you figure out what they are?

Further reading: I Didn’t Know You Could Do That.

The last, best question

“The enemy is anybody who’s going to get you killed, no matter which side he’s on.” — Joseph Heller, Catch-22

With the previous question we get into competitors’ heads and imagine where they could go. With the last, best question we put on competitors’ shoes and see where they could go. The best question, at least until you or I come up with a better one, is this:

You are them. Go forth and win!
Now what happens?

I mentioned that the previous question, “what would you do if you were them,” was missing three things that this question supplies. Here’s what they are.

1. Dynamic interaction. It’s easy in the previous question to think only of one move; that is, action at one point in time. (You might avoid that if you use role-playing.) In this question, multiple actions and reactions are built in.
2. Calculation. Here, with the “what happens” part, we explicitly address consequences. We did that in our first, worst question too, but here we take competitors into account and, with proper design, avoid the other mistakes as well.
3. Emotion. We human beings feel emotion when our strategies succeed or fail, and we respond with emotion: fear, desperation, retaliation, embarrassment, overconfidence, hubris. Competition isn’t computer against computer, it’s human against human. To understand our markets and our future, we have to include emotion.

That’s why our last, best question answers my initial question of why business war games work better than conventional techniques. Unlike the other techniques with which I am familiar, business war games alone combine dynamic interaction, calculation, and emotion:

• Dynamic interaction through teams role-playing their business, its competitors, and relevant others, through multiple moves.
• Calculation through simulation models that use team decisions to estimate results.
• Emotion through war-game design and humans’ natural competitiveness.

Further reading: About dynamic interaction, Predictable Competitors. About calculation, All About Models, What The Model Says, and The Model Whisperer. About emotion, Feeling is Believing.

The bottom line

My point isn’t that business war games are the only way to gain better answers to tough strategy questions. Perhaps other techniques can be made to produce similar benefits.

My point also isn’t that the business war games that I conduct are the only business war games to achieve those benefits. Other fine firms conduct business war games too.

Rather, my point is that we don’t improve answers only via precision or speed. Often it’s best to improve the questions we ask. We’ve all felt the magic of a great question.

Appendix

I’ve worked with business war games a lot. I’ve conducted a couple hundred, for Fortune 500 companies and at conferences and universities, on six continents. I’ve conducted others, involving millions of scenarios, in the privacy of my computer. All in all, I’ve observed the behavior, decisions, and performance of thousands of real-life strategists.

For some war-game case studies, see this page on ACS’ website.

You can view and download a free bibliography of two dozen articles and essays by ACS on business war games, with summaries and links to full text online.

by Mark Chussil

Investors suffer from a surplus of checks. I don’t mean checks in the sense of “here, let me write you a check.” I mean checks in the sense of due diligence, verification, and oversight. Not that there’s anything wrong with that, except for when they merely make sure you don’t overpay for your berth on the Titanic.

Some time ago I attended a meeting of investors, of whom I was not one. They filled a large, partially elegant room and listened to pitches from passionate entrepreneurs, of whom I was also not one.

The entrepreneurs all sounded highly competent, knowledgeable, and professional. They clearly knew their markets, their products, and their potential.

The investors all sounded highly competent, knowledgeable, and professional. They clearly knew investing, finance, and prudence.

I listened to the thirty or so questions asked by the investors following the entrepreneurs’ presentations. The questions dealt with checks for due diligence, verification, and oversight. Hey, if I’d been an investor, I’d want to be sure everything was legitimate too.

But that’s what every question was about. Every question sought a reason to believe that giving you a great deal of my money would be a wise move. Not a single question dealt with what could go wrong. What if, for example, a company already in a market wants to squash the entrepreneurial intruder? What if an applied-for patent is denied?

We humans are basically optimistic and energetic. We imagine things, we want things, we make things happen. I’m that way too; I wouldn’t have started businesses otherwise. But being an optimist doesn’t mean looking only for reasons to believe. An optimist steps up to a challenge. A fool steps off a cliff.

When we blend reasons to believe with ambition we get advocacy. I’m right, this is why I’m right, this is why we should do things my way, this is why you should follow me with your money or your career. That’s how we get ahead. That’s how we inspire action.

Due diligence may not protect you from frenzies of advocacy. At its worst, it’s like signing an ill-advised legal document because the spell-check said it was okay. Think it doesn’t happen? Remember that no one invests in a strategy or business expecting it to fail, yet somehow smart people invest in strategies and businesses that fail.

To make due diligence perform at its best, we must ensure that it does more than pummel the proffered reasons to believe things will go well. We must ensure that it also looks vigorously for reasons why things will fall apart. What if a whole bunch of mortgages sour at the same time? What if the market implodes for a couple of years? What if our product unexpectedly and publicly fails? What if credit dries up?

Looking at the dark side does not make you a pessimist or a naysayer. It makes you truly duly diligent.

There are many practical ways to do so. Stress tests. Business war games. Strategy simulations. What-if analysis. Thinking through a wide variety of scenarios. Role-playing with the equivalent of sparring partners. Corporate contrarians. Those are best practices used by optimists who want things to go right and know something can go wrong. After all, if an unexpected threat (or opportunity) can come out of left field, it is good to look toward left field before you commit to a strategy or investment. There are no guarantees, of course, but you can greatly improve your odds. I’ve seen it; it’s the rule, not the exception.

True-due diligence does more than protect you. It also helps you move forward, because you put together a better strategy and you have a better story to tell.

One last point. If true-due diligence demonstrates that it a strategy will produce unhappy results, that’s not a good enough reason to reject the strategy. First, you must compare the unhappy results to the outcomes you’d get under the status quo. If you get better results with the new strategy than you’d get without it, then, unhappy as it is, you should switch to it. Or, look for a better strategy. You’ve been forewarned.

“I observe the physician with the same diligence as the disease.”
John Donne (1572-1631)

This essay is a new, improved version of Checks and Balances, which this site retains for historical reasons.

This interview comes from the Trust Across America blog, where Barbara Brooks Kimmel writes on building great business through trustworthy behavior. Ms. Kimmel is a Founder of Trust Across America. I had appeared on Trust Across America’s radio show on September 29, 2010, and Ms. Kimmel and I continued our discussion after the show.

Barbara: Mark, tell us a little about your background.

Mark: I am the Founder and CEO of Advanced Competitive Strategies, and author of Marvelous Techniques: Essays on Going Beyond Strategy as We’ve Known It (available direct from ACS) and Nice Start: Questions Only You Can Answer to Create the Life Only You Can Live (Inkwater Press). I lecture and consult globally about strategic thinking, business war games, and strategy simulation. My work has appeared in Fast Company, The Wall Street Journal, and elsewhere. And finally, I earned an MBA at Harvard and a BA at Yale.

Barbara: Why do companies engage in untrustworthy behavior?

Mark: No one gets up in the morning saying “My job today is to screw up the world. If I make people miserable, if I hurt the general well-being, if I damage our civilization in even the slightest way, then I can go to sleep with the satisfaction in a job well done.” Most people want to do good things, but when we work for a company, we are bound, in a keep-my-job way, to “do good” according to the company’s definition of “doing good.” We do what we’re paid to do.

Barbara: On your blog you have an essay called “What You Pay For.” Is that what you mean?

Mark: Yes. The customer gets what he or she pays for, and companies are our customers when it comes to employment. If the customer, the company, pays you for sales growth, it will get sales growth from you. It may also get profits or innovation or social responsibility, and it may also get shortcuts or bribery or non-compliance with safety regulations, but those are side effects.

Barbara: Presumably a trustworthy company cares about more than just sales growth.

Mark: Yes, a trustworthy company will care about other metrics too, such as impact on the environment, fair treatment of employees, customers, and suppliers, and living up to its word. The point is that compensation programs — what companies pay for — are tremendously important. Perhaps one way to identify trustworthy companies is to find out what they pay for.

Barbara: What else can we look at besides compensation programs?

Mark: Look also at how they work. Kaiser Permanente, the big HMO, is proactively using data on medical tests. Over the last 15 years they identified 450 patients with new or recurring cancers or abnormal biopsies who would not otherwise have been found. I’m one of their customers, and that proaction is one reason why. See “What the Doctor Missed” in The Wall Street Journal.

Barbara: The Wall Street Journal had an article on automobile safety (“What’s Safer, a Chevy or Mercedes?”). I think you blogged about it, in “Who Doesn’t Like Airbags?”. The auto industry has often resisted mandatory safety improvements, even going back to seat belts, as well as fuel-economy standards. Now they compete on safety features and fuel economy. What happened?

Mark: Regulations forced some good behavior, such as publicizing crash-test results so customers would have the information they need to compare car models. Plus, Lee Iacocca, who used to run Chrysler, decided to stop resisting safety improvements and, instead, make safety a selling point. The resulting competition directly benefits customers.

Barbara: Why did Mr. Iacocca do that?

Mark: I don’t know. Did he change his mind because he saw there was money to be made or because he wanted to save people’s lives? Do we care about the answer?

Barbara: Are you saying that it doesn’t matter why a company does good things? What, then, does it mean to be “trustworthy?”

Mark: At one level I don’t care why a company does good things. I want Delta to fly me safely from one place to another. I don’t care if they do it because they’re afraid of punishment if they fail, they don’t want to lose customers (perhaps literally), or they think it’s honorable to keep their customers safe. Does it matter if I give to a charity because I like the charity or because I think the donation will get me into heaven? [See Update at the end of this interview for more on this subject.]

Barbara: But the threat of punishment seems to happen when a company has proven itself untrustworthy.

Mark: I agree. We expect “trustworthy” to have some connection to good motives and intentions, not merely following the rules. A company that demonstrates good intentions makes us trust that it will not deceive us or put us at risk. We’re all sadly familiar with the opposite kind of company.

Barbara: So let’s talk about a company’s motives and intentions. Is it reasonable to expect a company to behave well?

Mark: Professors Jay Lorsch and Rakesh Khurana of the Harvard Business School wrote an article called “The Pay Problem.” They say corporations have shifted their focus from “stakeholders” to “shareholders.” Stakeholders can include customers, employees, and society in general; shareholders means just the people who own shares in the company. When we evaluate decisions in terms of effects on stakeholders, we look more broadly than when we think only of shareholders.

Barbara: What difference does that shift make?

Mark: I believe it means we have more need of government regulation, and I think that recent events ranging from the financial crisis to the BP oil spill show why. We need rules to ensure that the shareholders-perspective does not go too far. That’s why we have anti-trust laws, the FAA, FDA, and FTC, minimum fuel economy rules, and so on. Those solutions might have been controversial when they were first put in place, but just try to take them away now.

Barbara: You mentioned regulations, which are enforced with fines and other actions. An article in Newsweek, “Do Fines Ever Make Corporations Change” (September 13, 2010), suggested that fines won’t make corporations change because they are tiny relative to the size of the companies. Do we get untrustworthy behavior because fines are too low?

Mark: Perhaps fines are too low, and perhaps inspections are too infrequent or lax. An option might be for fines to go up as a company accumulates offenses, just as insurance companies raise our rates if we get into too many accidents or we face more years in prison for repeated offenses. But those are punishments. We really want to prevent bad behavior, and there are reasons why companies may think it’s profitable to risk take chances.

Barbara: Why?

Mark: One reason is that companies generally don’t quantify the value of their reputations, so they don’t know until it’s too late (and maybe not even then) how much it hurts to have their name dragged through the mud. A second is that human beings underestimate the odds of a bad event; “it won’t happen to us.” A third is that there’s little incentive to be the first one to play fair. Managers can clearly see, or think they see, the costs of playing fair, and it’s harder for them to see the benefits.

Barbara: It’s important to level the playing field or to have vigorous competition.

Mark: I agree. Regulations level the playing field so no one has extra costs. I’ve worked with executives who want stronger regulations so that they can do what they know is right without making themselves uncompetitive. And Lee Iacocca’s move, being the first to embrace safety features, was important because he changed the calculus for the other automakers. They could see the costs of falling behind.

Barbara: So what are you saying about companies? Why don’t they see the benefits as well as the costs of trustworthy behavior?

Mark: Some management experts say if you don’t measure it you won’t manage it. Problem is, financial statements don’t have lines for reputation, customer loyalty, product quality, and so on, and they don’t show how a loss of reputation trickles down to a lousy bottom line. And management culture is dominated by financial statements.

Barbara: In your writing you often talk about the quality of decision-making. What do you mean by that?

Mark: Imagine you have a persistent cough. You would not expect your doctor simply to say “in my experience, people with persistent coughs usually have bacterial pneumonia, so take these antibiotics and you’ll be fine.” Well, you won’t be fine if your persistent cough comes from asthma, emphysema, or lung cancer. A doctor who just gives antibiotics to every coughing patient who comes in without asking questions and running tests… that sounds to me like it’d be malpractice. But an executive following that approach might have a fine career in the business world. See my essays “It’s Working!” and “Gross Galactic Product.”

Barbara: In other words, part of trustworthiness is good decision-making.

Mark: Yes, even for shareholders. I think everyone would agree that the quality of decisions affects the probability of good outcomes. The better the decisions, the better the outcomes. It’s not a guarantee, but it raises the odds. Good outcomes mean jobs for employees, healthy communities, happy customers, and fair returns for shareholders. Bad decisions and bad outcomes help no one.

Barbara: Okay, so how do we get good-quality decisions? Isn’t that why companies try to hire the best managers, with experience and education?

Mark: Yes, but if that’s all it took we wouldn’t have companies going under. GM didn’t go under after a slow decline of 40 years because it hired bad managers; on the contrary, it went under in spite of hiring good managers. See my essay “Suffering Was Optional.”

Barbara: If having good managers isn’t enough, what else do we need?

Mark: Just as there are modern tools of medicine that help your doctor make good decisions about your persistent cough, there are modern tools of management that help managers make good decisions about their businesses. But in management we still have a culture of experience, even “instinct,” instead of rigorous, critical thinking. One of the themes in my book Marvelous Techniques is that we have biased humans using flawed tools, and that leads to bad decisions.

Barbara: What do you mean by “biased humans” and “flawed tools”?

Mark: I don’t mean that humans are biased in the sense of prejudice, and I don’t mean tools are flawed in the sense that they make mistakes in arithmetic. I mean that all managers are humans, and humans have a variety of unconscious biases that interfere with our ability to make good decisions. I mean that tools are flawed if they are the wrong tool for the problem, such as using an accounting-based spreadsheet to answer a strategy question.

Barbara: Give me examples of biased humans.

Mark: Russo and Shoemaker, in Decision Traps, talk about overconfidence and group biases that led, among other things, to the Challenger disaster. Tavris and Aronson, in Mistakes Were Made (but not by me), talk about cognitive dissonance, which makes people cling to past beliefs, such as the guilt of a person held in prison for many years, even after there’s conclusive evidence to the contrary. Dörner, in The Logic of Failure, describes the disaster at Chernobyl, when people overrode safety systems because they believed they were experts and knew what they were doing.

Barbara: How does that apply to business?

Mark: Perhaps the most obvious example is price wars. Price wars can be devastating to companies; look at the airlines. You’d think that smart, experienced managers wouldn’t start price wars. Yet they do, and getting out of them can take a long, unprofitable time. Price wars are a more complicated subject than they might appear, but the key thing is that no one expects to suffer a price war. They expect to enjoy a price advantage.

Barbara: What’s another mistake due to bias?

Mark: Managers often think they can forecast the results of a strategy in their heads; that’s what they’re doing when they say “if I do this, then I’ll get that result.” Business, though, is immensely complicated. Just to give you an idea of that: I conducted a recent program for a Fortune 500 company in which we determined that there were over 39 million possible outcomes from the options they faced. No human being can even list them, let alone pick which are the most probable or most profitable. See my essay “The How-Likely Case.”

Barbara: How about flawed tools?

Mark: We talked earlier about financial statements that don’t take into account reputation, customer loyalty, product quality, and similar factors. Those spreadsheets also don’t take competitors’ reactions into account. As a result, many analyses based on financial spreadsheets leave companies vulnerable to surprises. Generally unpleasant surprises, because spreadsheet analysis implicitly assumes that a strategy will work.

Barbara: How, then, can companies avoid falling into those traps?

Mark: The best techniques I’ve seen involve business war games and strategy simulations, which are ways to stress-test business strategies. They’re able to get past the limitations of spreadsheets and trend lines, and they’re able to handle the arithmetic. By the way, business war games aren’t about war or conquest. See my essay “The War (Game) Metaphor.”

Barbara: Should we not trust companies unless they use business war games or strategy simulations?

Mark: My point is not about business war games or strategy simulations, although they do work. The point is that companies need conscious, deliberate processes that ask tough questions, such as what could make our strategy fail. The USA and the EU took a step in that direction when we started to stress-test banks after the financial crisis. Without that question we get wishful thinking, results that disappoint, careers that flame out, people losing their jobs, and contributions to economic problems instead of to economic recovery.

Barbara: Why look at what could make a strategy fail?

Mark: Because that’s how we know how risky it is and what we have to do to strengthen it. Imagine how much better off we’d all be if we’d run those stress-tests before the financial crisis instead of after.

Barbara: Have any stories about that?

Mark: Sure, see my essay “When I Was Wrong.” I put together a pricing simulation that, so far, about 300 strategists have tried. I put in my own strategies, and they didn’t do very well. After I got over my private humiliation, I realized it was a good thing. Before the simulation, you’d have every reason to trust my advice: I’m an expert in my field, and you could expect me to know what I’m talking about. After the simulation — that is, after I learned from the simulation — you’d get much better advice from me. The trick is to make mistakes where it’s fast, cheap, and educational, not when real jobs, real careers, and real money depend on it.

Barbara: Mark, thank you for sharing your thoughts with me.

Mark: You’re welcome. Thanks for having me on the show, and congratulations on the work you’re doing at Trust Across America.

If you have a comment or question about the interview, Trust Across America invites you to share it in their comments box.

Update, October 7, 2010. In Brazil Engineers a Critic-Proof Dam, The Wall Street Journal says Brazil decided it made business sense to build environmentally conscious dams on the Amazon. “The dam’s greener hue isn’t because of any special environmental ardor on the part of the builders. It reflects a calculation about the unpredictable extra costs that environmental suits, [Amazonian] Indian protests and political backlashes can cause. ‘In the end, this is business,’ said Gabriel Azevedo, a former World Bank and World Wildlife Fund executive who serves as sustainability director at the energy division of the dam’s lead construction company, Odebrecht SA.”

Update, January 7, 2011. Trust Across America named Mark Chussil “one of 2010′s Top 100 Thought Leaders in Trustworthy Business Behavior.”

I’ve conducted hundreds of business war games for companies and at workshops around the world. Unfortunately (for me), many strategists don’t like the phrase “business war game.” War is not a happy thing, and “business war games” sounds like extolling or playing down horror. Uncomfortably (for me), other strategists do like the phrase, because they think it accurately reflects the idea that business is war.

Still, the “business war game” phrase has stuck. At the very least it promises a benefit we all can enjoy: a vacation from the rat-a-tat of PowerPoint bullets.

The war metaphor

“A good metaphor can make any bad idea sound good.” — Scott Adams

Although I’m a scarred veteran of many competitive-strategy campaigns, I don’t like the business-is-war metaphor. Not because I’m namby-pamby or lily-livered, because I’m not. Not because I faint at the sight of red ink, because I don’t. On the contrary, I’m as red-blooded and testosterone-soaked as a male MBA ought to be.

I am troubled by the war metaphor because thinking “business is war” can bias strategy decision-making, and not for the better.

Words matter; that’s why we use them. The words we choose both reflect and shape our thinking. So what does the war metaphor reflect and shape? It tars our competitors as our enemies, focuses our efforts on fighting them, and interprets their behavior as hostile.

Incidentally, I’ve met plenty of strategists who viewed their competitors as hostile. I have not met a single strategist who characterized his or her company as hostile. Hmmm.

I’m not saying we should think of our competitors as our buddies (“Competitor Appreciation Day,” as my Sync Strategy colleague Ben Gilad puts it), help them get their goals, or interpret their behavior as benevolent. I’m not saying we should avoid going head-to-head with them to win a customer. I am saying that the real objective of competitive strategy is our prosperity, not our competitors’ destruction. Clobbering the competition is only one path — and not necessarily one that’s attractive, low-risk, or feasible — to achieving our prosperity.

War and war games

“The difference between the almost right word & the right word is really a large matter — it’s the difference between the lightning bug and the lightning.” — Mark Twain

There’s a difference between a war game and a war. Two, actually. First, people die in a war, but not in a war game. Second, a war is about fighting and a war game is about learning. In a war game you test strategies and skills in a safe environment, and you learn from the results. A good idea before you march into real battle, and a good idea before you risk real jobs and megabucks.

That’s why I can be against the war metaphor and in favor of business war games. Assuming “business is war” constricts our thinking; conducting business war games expands it.

(Incidentally, a well-designed business war game is neutral, making no assumption that business is war or is not war. Discovering whether the strategies you’re testing lead to war is one of the key insights you can get in a war game. See the case study in Putting the Lesson Before the Test.)

And there’s another reason we can favor war games: They show us the horrors of war, even the business kind. Many of my war-game stories begin with strategists ready to assault the competition and end with those same strategists discovering that they could better achieve their prosperity objective by less-confrontational means.

This is something I’ve learned from all those war games: Watch out for the war metaphor in your strategic thinking, and challenge it if you see it. The challenge doesn’t cost you anything. You can always go back to the war metaphor if you really think it works.

P.S. Alternative names for games

“Call me anything you want, but don’t call me late for dinner.” — My father, to me, when I was about 5. I didn’t get it at the time.

I’ve worked with strategists who embraced the phrase “business war games.” One even had people wear military fatigues during war-game sessions. His objective was not to make them hard to see but to encourage them to think outside the cubicle.

You can call business war games by other names. I’ve worked with strategists who preferred to call them “virtual competitions” or “strategy games.” Just don’t call them too late.

Update

A few hours after I posted this essay, the Wall Street Journal printed a front-page story by Ellen Byron entitled P&G Chief Wages Offensive Against Rivals, Risks Profits. The story bristles with war metaphors, not least because of P&G CEO Robert McDonald’s military background and battle-inspired tactics. Interestingly, McDonald says of his price cuts in 10% of P&G’s business, “In my mind there’s not a price war going on,” and Energizer CEO War Klein says “We are following in order to be competitive. We didn’t initiate this.”

That article, so soon after I posted my essay? Coincidence? I think so.

Further reading

I mentioned that the business-is-war metaphor can bias our decision-making. That’s because the metaphor greatly influences our ”mental models” of how things work. For more about mental models and their effects on our decisions, see All About Models.