Who Did Best? The Complex Reality Behind a Simple Question
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.”
[…] It is not knowable by citing their loss of 800,000 subscribers and a great deal of market valuation. Those are outcomes, and even good strategies get bad outcomes from time to time. Plus, many strategies require more than a few weeks to achieve their desired effects. (See also Who Did Best?) […]
[…] The thing is, our outcomes depend on more than what we do. They depend also on what our competitors do, on events in the market, on the general economy, on the weather, and so on. Of course our strategy has a major impact on our outcomes, and it is reasonable to demand high-quality strategy decisions. It is unreasonable and unfair, though, to say that our strategy is wholly responsible for our outcomes. (See also “Who Did Best?“) […]