SCIP Oregon

Interview with Mark Chussil – Advanced Competitive Strategies

Posted by campsean - 08/10/08 at 08:10:42 pm

Mark’s Biography

Mark Chussil is Founder and CEO of Advanced Competitive Strategies, Inc. Mark began developing ACS’s ValueWar in 1986. Now one of the world’s most-powerful, best-known, and time-proven business simulators, ValueWar won the “Best in Class Software” award from Competia in 2002.

Mark has worked with ACS clients on four continents, including Astra Merck, AT&T Wireless Services, Bell Atlantic (now Verizon), British Airways, DuPont, GlaxoSmithKline, Kodak, Nortel, Novartis, Shell, Sprint, Sprint PCS, USWEST (now QWEST), Weyerhaeuser, and others who prefer not to be identified for competitive reasons. He speaks at conferences around the world about using virtual competitions (advanced business war games) and computer simulation to develop very successful competitive strategies.

Mark lectured from 1989 to 1994 in the Competitive Marketing Strategies seminar at the Aresty Institute of Executive Education, The Wharton School (the University of Pennsylvania).

Previously, Mark spent 15 years at the Strategic Planning Institute (The PIMS Program), where he was Director, Business-Unit Strategy Research and Director, PC Products. His experience also includes three years in market research and strategy at Sequent Computer Systems (subsequently acquired by IBM).

Mark is lead author of Strategy Analysis with ValueWar (Scientific Press, 1993). Mark’s articles and case studies on competitive strategy have appeared in Cases in Marketing Research (Reibstein and Farris), Competitive Intelligence Magazine, Competitive Intelligence Review, Marketing Research, PC World, Planning Review, SCIP.Online, Sloan Management Review, The Journal of AGSI (Association for Global Strategic Information), The Journal of Business Strategy, Wharton on Dynamic Competitive Strategy (Day and Reibstein), and other publications. He has been featured and quoted in Across The Board, Computerworld, Fast Company, Harvard Management Update, Oregon Business, The Wall Street Journal, and more.

Mark earned his MBA from Harvard University and his BA from Yale University.

Interviewers: Sean Campbell and Scott Swigart of Cascade Insights

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Interview Topics

 

• What business war gaming is and how it helps businesses competitively
• Establishing the right war gaming dynamic among participants
• How computer models help drive the results of business war games
• Using business war gaming to help overcome faulty assumptions
• Meeting the challenge of making good decisions about taking on risk
• Success stories and limitations: how war gaming contributes to running a business

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Sean Campbell: Mark, tell us who you are, what you are about, and what your focus area is around Competitive Intelligence.

 

Mark Chussil: I am the founder and CEO of Advanced Competitive Strategies. My colleagues and I focus on business war games and strategy simulation, mostly for Fortune 500 companies. We have conducted about 100 business war games on six continents, in many different industries.

We are not industry experts; we are strategic-thinking experts. We help people take the knowledge, information, expertise, and experience that they have in their industries and put it to the best use possible.

We have also spent a fair amount of time speaking at conferences and putting on workshops about strategic thinking and about business war gaming and simulation. We have published quite a bit in those areas as well.

Scott Swigart: One of the things that you mentioned was war gaming. Can you tell us a little bit about that?

Mark: Sure. Business war gaming means different things to different people. There is no strict definition, as opposed to generally accepted accounting principles, for example.

A business war game can be as simple as a two-hour conversation around a conference-room table where people are doing their SWOT [Strengths, Weaknesses, Opportunities, and Threats] analysis. It can also be as elaborate as a multi-day program run off-site with 100 people and costing hundreds of thousands of dollars.

Of course, it can also be anything in between those extremes, and most of what we do at ACS consists of one- or two-day programs in the middle of that range.

What happens in a business war game that makes it so special and so effective is that it puts people in the role of competitors as well as themselves.

Every strategist and manager knows that they need to be concerned about the competition. They always ask themselves questions such as “What do I think my competitor is going to do?” And they do their best to take that into account when they do strategic analysis.

What is different in a war game is that by having people role-play their competitors, the question changes from “What do I think my competitors will do?” to “If I were my competitors, what would I do?” It is a subtle difference, but it creates some important advantages when it comes to the way people think strategically.

We tend to be a little bit optimistic in response to the first version of the question, what we think our competitors will do. We tend to look at competitors’ history and whatever information we have about them right now, and we tend to think that they are going to fall in line with what they have always done or what we want them to do. We don’t do it consciously or intentionally, but we do it.

Things get opened up more creatively when we ask the second version of the question: “If I were my competitors, what would I do? ” That is where we get the really tough competitive strategies to learn about in advance rather than waiting for them to play out in real life.

In a well-run business war game, you are almost guaranteed to get real surprises about what your competitors may do. Better still, you get to figure out how to respond to those surprises or even how to prevent them.

The bottom-line benefit of the business war game is that you get to experiment with all of that in a safe environment when you still have time to do something about it, rather than scrambling to respond to something that you didn’t expect when your competitors make their moves in real life.

Scott: What are the hardest challenges for people in making the shifts from the casual “what if” scenarios they might play out over a latte or lunch, toward the actual visualization of what they would do in that role?

How do you recognize when they haven’t fully made the shift into that role or their behaviors that they exhibit? I imagine there could be situations where it could be a challenge to get people into the right mindset.

Mark: Actually, it’s not so difficult for people to do, even if they aren’t used to doing it. I don’t remember a single instance in which we started a business war game and people weren’t able to get into their competitors’ way of thinking.

The difference is that in our everyday strategy analysis lives, we are not in our competitors’ shoes, so we tend to just hope that they’re going to behave as we want them to behave. That is a natural behavior for most people.

The tools that people use in conventional strategy analysis–things like spreadsheets, trend lines, and so on–have a built-in implicit assumption that their strategy is going to work. For instance, a typical spreadsheet looks at our business and our moves; it ignores what competitors may do.

It effectively says “our strategy will work because we are going to get the things that we are feeding into our spreadsheet.” We are not looking at our competitor’s spreadsheets at the same time, so we don’t see what our competitors are planning (and which they are implicitly assuming will work).

Business war games help people get into the frame of mind where they can think more effectively about what their competitors might do.

We split the management group into teams to role-play competitors (or themselves), give them rules of engagement about how the game is going to work, give them information about the businesses in the market, and then say “your job is to win.” That last part is the most important one–”your job is to win.” That gives them the motivation to think differently about the competition.

The environment is critical. They know they are in a war game, and they know that the competitor teams are supposed to try to win, and that makes it safe. In the everyday workplace, it may be perceived almost as disloyal to say, “Well, if I were the competitor, this is what I would do. This is how I would rip apart our own strategy.”

You would probably get a chorus of people saying “No, they are not going to do that. We don’t want them to do that, etc.” You might also get some strange looks. In a business war game, though, that is a good move, because that is how you win in a business war game, whereas in a day-to-day strategy session, that is how you lose.

Sean: When you are putting the teams together, do they ever look to you for insight or suggestions as to who should be participating?

Mark: Great question. Part of the answer is that, as I said before, we are not industry experts, so they don’t really look to us for specialized knowledge of their industry. That, by the way, is positive, in terms of focus. We’ve focused on our expertise in industry, strategy, and business war-gaming, as opposed to specializing in a specific industry and dabbling in business war games. The answer to strategy problems is rarely found in locating some obscure factoid .

During the process of a business war game, we push the teams when we see them making narrow assumptions, when we notice that they are not asking certain questions, or if they are just avoiding certain subjects.

We like to have people on teams who come from different backgrounds, like sales, marketing, R&D, finance, and general management. It is good to have people with a variety of perspectives, because that is where you get a variety of ideas. That also helps police things from getting too crazy.

Something else that is implicit in your question is, “What is the objective of a business war game ?” The point is not necessarily to forecast the future; it’s more to generate ideas and to test strategies–a stress-testing process.

When we really want to quantitatively understand what could happen, down to the point of forecasting or predictions, we can run computer simulations–literally millions of them. In a sense, it’s like a business war game inside the computer where you have the computer playing against the computer.

You feed in all the different ideas that people can come up with and let the computer handle the calculations, with all the strategies duking it out amongst themselves. It is a very exciting and very powerful technology for fully evaluating strategy options.

Scott: How do modeling and simulation fit into the rest of the war-game scenario?

Mark: There are two major categories of business war games: quantitative and qualitative. Qualitative games, as you can tell from the title, do not involve computer models. They are ways just to let people talk about different possibilities. They can be very effective as a way to let people spin different ideas and to stimulate creativity.

In a quantitative game, in addition to the creative side, we add computer-based models so that people can see some of the numerical implications of what they are suggesting for different strategies.

Business people in general are familiar with working with models. All of us see spreadsheets and statistical projections or extrapolations from the past. Among people who are not so familiar with what it takes to build a model, there is a certain tendency to say “Well, the computer said it .”

In fact, there are many ways to put together models, all of which have different assumptions behind them, and that is because human beings are designing them and human beings make assumptions .

The choice of the model used in a war game can have a large effect on the quality of the game. To overstate things here for the sake of clarity, consider a model that says your performance depends solely on the price that you choose for your product and the price that competitors choose for their product.

In that case, it is impossible to see the effects of quality improvements, or new product introductions, or loyalty programs, because those issues, those concepts, are simply not present in the model. You can improve your differentiation, but if there is no way to express that to the model, then the model does not take it into account, so you get no costs or benefits of engaging in those programs.

All of that illustrates that it’s important for the model take into account the real-life strategy levers that you will pull in your business and that your competitors will pull in their businesses. That almost always means you are not going to end up using a spreadsheet, because in addition to tending to be company-centric, they also tend to be very finance-centric or accounting-centric .

Spreadsheets use accounting terms because that’s what we’re all familiar with, but concepts such as perceived quality or customer loyalty or new products probably don’t show up on spreadsheets, so you don’t have the ability to include costs or benefits from those kinds of real-life strategy moves.

It is possible to put together computer models that do take all of those things into account. That’s what I’ve been doing at ACS for many years, and I know other companies do it too. Business war games that want to be quantitative need to pay special attention to factors like that in terms of how the model works. The model needs to capture the kinds of levers that you will pull and that your competitors will pull in real life.

Scott: Do you ever run into situations where you feed the strategies that the teams come up with into the model, but people question the output the model creates? Both teams are incented to win, so if one team feels like it’s losing, do you ever see them try to blame the model?

Mark: That’s a great question. Actually, I have never seen that, but that’s maybe because I put together such great models.

[laughter]

At the beginning of a war game when people know that there is going to be a model involved, they invariably ask questions just like that: “How do I know that that the model is any good?” “Garbage in, garbage out…” and, “Has anybody tested the model?” “Do we know that it makes sense?” “Where did the model come from?”

There is certainly suspicion at the beginning of every business war game, because people want to know that the model is going to judge them fairly. We deal with those questions by explaining exactly where the model came from, and so on. They’re generally satisfied, although there is always a little bit of suspended judgment.

Once they start using the model, the questions that come up tend to be more focused in areas like why the model said what it did. They want us to trace things through, but with a well designed model, it does make sense.

The goal is not decimal-point accuracy; we’re not trying to say that somebody is going to have 24.6% market share instead of 24.7%. The point is whether your market share is going up by a few points or down by a few points. The strategy impacts of an event that you see in the model are almost always so large that any imprecision in the model is clearly overwhelmed.

There is something that we do in every business war game that is very effective at helping people to understand why they might not get the results they want. We all know that it’s a mathematical truism that even if you grow a market, the market has just 100% market share to be distributed among companies.

When the teams are coming up with their strategies, we tell them to predict their market share. After they have finished with their strategies and we run the simulation, before we show the numbers, we say, “So, what were your predictions?” We add them up, and it’s always over 100%, because everybody plans to gain market share. Unless they begin the war game running a monopoly, nobody puts together a strategy that says they are going to lose market share.

Right there, without a model at all, people see that things are not necessarily going to work out quite as rosily as they had hoped. That perspective makes it a lot easier for them to have an open mind as they figure out why they lost market share instead of gaining it.

Scott: If the model isn’t in question, do you sometimes have to referee circumstances where somebody simply doesn’t believe the other side is capable of making a certain step? It seems that if one side simply denies the plausibility of the event occurring, it could interfere with the game as a whole.

In World War II, the American forces war-gamed attacks on Pearl Harbor, but they decided that type of sneak attack was implausible.

Mark: That is not so different from what we are seeing now in the financial crisis. The failures we are seeing now are simply due to people willfully disbelieving that something could go wrong. Your historical example rings very true in that context.

In business war games, it is virtually always the case that when a team comes up with a terrific strategy, the other team doesn’t say, “No, they could never do that, that is much too good a strategy for them.” Instead, they say, “Uh oh, we never thought of that. That is really convincing.”

Part of the reason is that it’s their own colleagues that are coming up with it, and they know how to say it in a way that it makes sense to them. That makes it harder to deny; it is certainly harder to deny than if I were to say the same thing to them as an outsider.

I’ve seen it happen just once or twice, that somebody has said, “I don’t believe it.” The president of one company simply refused to accept what was coming out of the war-game scenarios. It was clear that he wasn’t quarreling with the numbers; he was just saying, “I don’t think this is right.”

As it turned out, he was wrong, and he actually ended up out of a job less than a year later. It is rare, though, for people simply to deny that the war game is telling them something valuable.

Scott: How do you address cases like the financial industry where people might have seen that there was a mortgage bubble growing, but they could also see their competitors making huge amounts of money from sub-prime loans?

There were plenty of people three, four, or five years ago saying that the market was just not sustainable, but there was tremendous pressure to perform that led smart people to do not-so-smart things.

Does that factor into war games? Do you sometimes come to an outcome where people say that they simply can’t follow the outcome of the scenario, because everybody else is going the opposite direction, so they can’t afford to buck the conventional wisdom and risk being wrong?

Mark: Everyone in business has to respond to pressure to perform, in their individual careers as well as collectively in terms of corporate success or stock prices. It’s made worse with built-in distortion that comes from relying on history, as we see in the financial crisis now .

This line of discussion gets us into the area of value judgment as well as smart versus stupid decisions. That is, the question of how much risk you are willing to take is a vital part of decision making. The ability to get a clearer view of potential risks–and the potential benefits of those risks–is an important part of business war games and strategy simulation in general.

What gets me jazzed about this whole field is that I like to help people make conscious, well informed, well thought-through decisions. An informed person may still choose to take a risky path, but they have a deeper understanding of what they are doing.

If you had been in the sub-prime game and you got out a year ago, you might say that you had a great strategy, but it might also be true that your timing was lucky. Telling the difference between great decisions and great luck is a perennial problem.

So, this really isn’t about trying to find “the” right strategy, because I don’t think there is a single right strategy . I think that the whole point of it is to make good, conscious, well-informed decisions.

Sean: Are there circumstances where clients come to you to do a war game, and you have to advise them against it?

Mark: Occasionally, somebody comes to me with a strategy that they want to prove is the right one, and in that circumstance, I say that is not the right reason for a business war game. If you want to do an honest business war game, you have to be prepared for the possibility that it will show that your favorite strategy is not going to work.

Trying to prove that a strategy you already have in mind is going to work is not a business war game. You may be doing an honest dress rehearsal or something else, but it’s not a business war game.

Sean: That makes good sense. To start to wrap up, could you share with us one of your more interesting success stories?

Mark: Here’s one of my favorites. It involves a company that makes something that all of us buy in supermarkets or pharmacies. They wanted to introduce a new product into their market, and they had a very dominant competitor that had something like 85% or 90% of the market.

Our client figured that the competitor was ripe for being attacked with a terrific new product they felt was better than the competition’s. As is common, most of the people in the room felt at the beginning of the war game that they didn’t even need to be there, since it was perfectly obvious what they should do.

Introducing a new product is Marketing 101. You blast the market with all kinds of advertising and promotions, so that people will become aware of the product. You introduce it with introductory low prices to encourage trial use of the product. What’s so hard about that? Senior management wanted to war game it, though, and we set it up.

In the first round of the war game, sure enough, the home team did exactly what I said: the Marketing 101 strategy. Their colleagues who were role-playing the competitor saw that, and they freaked out. They said, “This product is our bread and butter, and these people are hitting us with everything they’ve got.”

They had that pressure to perform that we talked about earlier, and they realized immediately that they needed to fight back hard, so they slashed their price. At the end of the first simulation, the client realized they had triggered a price war by backing their competitor up against the wall. They had gained market share, but they were hemorrhaging money.

So, we said, “OK, nobody’s very happy with that result. Let’s try it again. Let’s turn the clock back.” That’s one of the great things about war games: it’s a safe environment, and you get to wipe out your mistakes and start again from a clean slate.

In the second round, the client decided not to be quite so aggressive. They still encouraged trial use, but they were careful also to give their competitors some slack. They started out with strong marketing and claims of superiority, which were true, but they came in with a higher price rather than a lower price.

That preserved the price advantage for the incumbent, so they did not start cutting the price, and there was no price war. The incumbent did lose some market share, meaning that our client gained some–less than in the first round of simulation, but this time they were profitable while they were doing it, as opposed to that hemorrhage from before.

Like all the other surprises we’ve seen in business war games, the moral of the story seems obvious … after the war game. Before the war game, it wasn’t obvious at all, even to the smart, experienced strategists at the company.

Sean: Do you have any final thoughts you would like to add?

Mark: The best competitive advantage comes from outthinking your competitors, and that’s what this stuff is all about.

Sean: That’s a great note to close on. Thanks for taking the time to talk with us today. This was a great conversation.

Mark: I enjoyed it too. Thanks.

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