Success Is In a Word

When Ron Johnson was fired from JC Penney on April 8, 2013, its stock price was $15.87. It’s easy to see why he was fired: a year earlier the stock was worth twice as much.

JCP’s stock floundered to $13.93 the day after Mr. Johnson was fired. But relax, the price “recov­ered” within a couple of weeks. The stock was cured, doubtless by drinking plenty of fluids like Scotch and water, hold the water. Some­what-happy days are here again.

Except that now, as I write, JCP’s stock price is barely half of what it was under Mr. Johnson.

But we come here not to bury stock prices, nor to praise them. This essay isn’t about JCP, stock prices, or Ron Johnson. It’d be the same essay if I were writing about Apple’s market share un­der Tim Cook or JPMorgan’s profits under Jamie Dimon. This essay is about an assumption so deeply embedded into business thinking that you probably didn’t notice that I’ve kept it busy three times already.

The assumption is about how we judge performance.

By “judge” I don’t mean merely “measure.” I don’t mean the individual investor who places a bet and counts how much his or her wealth rises or falls. By “judge” I mean holding account­able, drawing inferences, deciding what works and what doesn’t, choosing whom to bury and whom to praise.

People from Boards of Directors on down use metrics to judge whether companies, and the in­dividuals in them, are succeeding or failing. But the metric’s value, such as a stock price of $X or a market share of Y% or profits of $Z, is not good or bad in itself. It is good or bad only in com­parison to something else. It matters a great deal what that some­thing else is, and that’s where the assumption comes in.

We can summarize the judge-performance assumption in one metaphorical word: YESTERDAY. We judge where we are now relative to where we were yesterday. (Remember, I said it’s meta­phorical. “Yesterday” means at some time in the past. It doesn’t necessarily mean precisely 24 hours ago.[1])

It is reasonable to compare today’s position on a metric to yesterday if you are measuring. You can measure relative to anything you want. For example, I am shorter than Mount Rushmore. It is not reasonable to compare a metric to yesterday if you are judging.

To judge strategies we must introduce another word: we must know what would have hap­pened OTHERWISE. (It’s possible. See the Appendix.) Comparing JCP’s stock price before and after Mr. Johnson’s ten­ure tells us only whether it’s gotten higher or lower. That’s good enough to tell the investor whether wealth has gone up or down; it’s not good enough to tell the Board whether to retain the CEO. We have to know what would have hap­pened otherwise if we want to know whether Mr. Johnson’s moves were good or bad.

Consider General Motors. GM once had about 50% market share in the United States. Today it has roughly 20%. That measurement spells disaster, relative to yesterday. But we shouldn’t ex­pect GM to hold onto 50% as credible, determined competitors — first the Japa­nese, then the Koreans, soon 3D printers — race into its markets. To judge, we must answer this: did GM do well to lose only 30 points of share or did it do badly because it could have lost less? GM took action; what would have happened otherwise?

In other words, we shouldn’t confound happiness and performance. GM and its investors pre­sumably weren’t happy about its decline. Unhappy performance, though, is not the same thing as bad performance. If GM would otherwise have lost 40 points of share, then it performed bet­ter than the alternative. This difference makes no difference to the stockholder who’s eyeing only wealth. It makes a big difference to those evaluating strategies and strategists.

The assumption behind judging today’s stock price, market share, or any other metric by com­paring it to yesterday is that we could have sustained yesterday if we’d wished. Such a notion would win Olympic gold for heroic assumptions. It also begs the question as to why so many companies in decline evidently preferred not to sustain yesterday.

Based on their decision to fire him, we know that Mr. Johnson’s strategy was judged negatively by JCP’s board. Whether they judged wisely or foolishly, I don’t know (although, again, it is pos­sible to know). All I’m saying is that the only way to know if his strategy was good or bad is to compare it to otherwise, not to yesterday.

The table below shows the two kinds of mistakes strategists can make by judging performance relative to yesterday rather than to otherwise.

PERFORMANCE RELATIVE TO OTHERWISE/YESTERDAY

To compete skillfully you must judge wisely. It’s easy to see yesterday. It’s valuable to see oth­erwise. The best time to do that is today, so you can succeed tomorrow.

See also Penney Wise, Penney Foolish

 

Appendix: Assessing otherwise

How to put numbers on otherwise is too complex to handle here. What’s important is that it is possible to estimate those numbers. I know because I’ve done it, and I’m not the only one.

The key is to generate and evaluate multiple scenarios. That’s possible with business war games and strategy simulations.

My Competing.com co-founder Ben Gilad and I both run business war games. Qualitative and quantitative war games focus on otherwise. Strategists who participate in them commonly expe­rience great surprise, such as “I didn’t know our competitors could do that!”

“Strategy decision tests” are computer-based simulations. They trade the hu­man drama of war games for rapid, rigorous, comprehensive what-if tests.

Even simple brain­storming can help. Ask your group “what has to happen for our strategy to succeed” and make it safe for them to answer honestly. That’s a start.

See also Triple Sales! Go Upscale!

 

 


[1] A related subject: targets, goals, and expectations. Such numbers come from highly detailed analysis, benchmarking, trend lines, and the like. But despite all the detail, they amount largely to yester­day, plus or minus.

About the author  ⁄ Mark Chussil

MARK CHUSSIL is founder & CEO of Advanced Competitive Strategies, Inc., and, with Benjamin Gilad, a cofounder and partner of Sync Strategy. He has conducted business war games, built custom strategy simulators, and taught workshops on strategic thinking for dozens of Fortune 500 companies on six continents, resulting in billions of dollars made or saved.

A pioneer in quantitative business war games and a highly rated speaker, he has 35 years of experience in competitive strategy. One of his simulation technologies has won a patent; a patent is pending on another. He has written three books, chapters for five others, and numerous articles.

He has been quoted in Fast Company, Harvard Management Update, The New York Times, The Wall Street Journal, and elsewhere. He received the Fellows Award from the Strategic and Competitive Intelligence Professionals society in 2013. He earned his MBA at Harvard University and his BA at Yale University.

One Comment

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    December 5, 2013

    Brilliant! Love the way you continually challenge the way we think!

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