We are going to tell you two true stories of conflict between top management and product management. One involves a Fortune Global 200 pharmaceuticals company, the other a Fortune 500 consumer-product company. You may be surprised at the way the companies demonstrated skill at competing.
Conflict one: Triple sales!
We’ll start with the pharma giant. Their conflict was about sales goals.
Top management wanted the business to triple sales of a recently launched product in a year. That was clearly a stretch goal but it was not unheard-of in the industry. Product managers didn’t mind having a stretch goal, of course, but they wanted to be sure that the goal could be achieved in reality. That conflict is classic and both parties’ views are rational. Moreover, neither party is served by setting bad goals.
The company hired one of us, Mark, to help them quantify where stretch ended and fantasy began for that product.
How would you do that? Think about that question for a moment.
Mark has presented this case and that question to many groups of strategists and students around the world. The answers he’s heard fall into two categories:
- Negotiate a settlement between top management and product management. This could mean bargaining, beseeching, or persuading.
- Call upon magic numbers: “I know a business that tripled its sales” or “let’s see how often other companies triple sales in our industry.” Magic numbers amount to existence proofs: it has happened before, therefore it can happen now.
Neither negotiation nor magic numbers involve any analysis or discussion of what’s possible for this business. They are merely ways to bridge the gap by coming up with a number that top management and product management will agree to.
This company took a different approach. Its crucial leap was it willingness to abandon a single-number target (triple sales) and, instead, simulate scenarios and possibilities.
Mark ran a three-step process with the company.
- Brainstorm potential strategies. Teams of managers from the company created several strategies for their business and for their competitors.
- Generate scenarios. Combinations of the business’ strategies and its competitors’ strategies became scenarios. It was best-case, worst-case, and most-likely case analysis on deluxe steroids with a cherry on top.
- Run simulations. A computer-based simulation estimated the performance of the business in each scenario. In effect, they ran a series of war games in a computer.
The simulations showed the business could triple its sales if the business used its most-aggressive strategy and its competitors used their least-aggressive strategies. In any other scenario, the business would fall short. Under some scenarios the business would barely increase its sales at all.
Top management and product management agreed it was extremely unlikely for competitors to follow their least-aggressive strategies if they chose their most-aggressive strategy. In other words, they agreed that tripling sales was highly unlikely. They also learned what sales growth reasonably to expect under various scenarios. That information let them set reality-based stretch goals.
That’s not the end of the story. But first, the other story.
Conflict two: Go upscale!
A well-known consumer-product had long served a low-income segment with a standard-quality product. It wanted to move up to the premium segment, where profits where presumably higher, by improving quality and raising price.
The company hired Ben to stress-test the premium strategy before they committed to it. Ben quickly surfaced an implicit and uncomfortable question: could the company actually play in that playground?
How would you answer that question?
The question is difficult for companies to answer themselves. Company founders usually internalize the internal consistency leading to their success, but the professional managers that follow may not and may, as a result, be overconfident. An honest-broker external consultant may study the market and analyze some P&Ls. Still, it can be tough for management to accept bad news, and not all external consultants are honest brokers.
This company took a different approach. It decided to “proof” its move-to-premium plan by testing it against competitors’ most-likely or worst-case response. That’s where Ben came in, to run the business war game.
The fact that a segment looks seductively, enticingly rich does not mean you can just walk in and be welcomed by the incumbents (and not even by customers). The success of any strategy, launch or otherwise, depends heavily on the strategies of the opponents. In this case, the opponents were two: the 800-pound gorilla global market leader, and the premium-only player that started this segment. Those two shared the market.
Ben coached the teams in role-playing the competitors faithfully. The teams used an analytical approach known as behavioral economics — a combination of economic and non-economic factors — to assess competitors’ likely and most-aggressive responses. The teams were helped by having former employees of those competitors participate in the game.
When you see an 800-pound gorilla between you and your goal, you start looking for a different goal. That’s what this company discovered.
The gorilla was role-played to perfection by its team. The company didn’t have to go into the worst-case scenario to realize immediately that the market leader would squash them through marketing, advertising, and distribution moves that’d keep them off shelves and out of the two accounts deemed crucial for the company’s success.
It got worse. The home team showed that the move to premium would alienate its current, and extremely loyal, customer base. That’d practically invite a private label to step in and steal most of the lower-income consumers who, until that move was implemented, were willing to pay slightly higher prices for this company’s brand.
In short, the move to premium would lose existing customers and not gain new ones. The company scrapped the plan and went back to the planning board to search for a more-resilient strategy.
Now we can end both stories. They have the same ending.
Competing as a skill
It may sound as though the pharma and consumer-product companies failed. Not so. They avoided failure.
These cases have much to teach about goals, reality, and competing as a skill.
- They teach that some moves will fail and — this is the good part — that it’s possible to tell which will fail.
- They teach that companies will (usually) listen to bad news if the bad news is objective, thoughtful, involves their own people, and experiential.
- They teach that conventional approaches — negotiation, magic numbers, overconfidence, accommodating consultants — are neither necessary nor wise.
- They teach that finding bad news in safe, simulated, role-played environments frees people to search for better options.
And the cases illustrate the most-basic competing skill of all, a skill without which none of the other benefits are possible. Both companies chose deliberately and systematically to think through competitive moves and countermoves. That’s what a skill is all about.