No one adopts a strategy expecting it to fail, yet strategies fail. That doesn’t happen on purpose but it also doesn’t happen by accident.

Christele Canard, founder of Switched On Leadership, interviewed Competing.com co-founder Mark Chussil for the cover-story subject why strategies fail. You can read and download their wide-ranging discussion here.

Christele and Mark talk about:

  • Why smart strategists believe their strategy will work and what happens when they find out in business war games that it won’t.
  • What happened when Mark built a strategy decision test technology (patent pending) and his own strategies didn’t work so well. (Hint: first, he looked for a bug in the software. There was no bug.)
  • Why people are so comfortable thinking inside the box and what it takes to get them to go outside.
  • What’s wrong with “I did this and the result was that” reasoning.
  • How people can expand their strategic thinking with a simple question.
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The dictionary defines neurotic behavior as “overanxious.” Woody Allen made this behavior popular in his movies, almost loveable.

We all know neurotic people. Maybe even ourselves, depending on subject matter.

I think companies can exhibit neurotic behavior too. I would not bother to document this statement if it did not relate to the skill of competing. In this piece I also offer a new tool called the Neurotic Index, or NIX. Use it to assess how your organization’s neurotic behavior affects its skill at competing. Don’t get neurotic about it, though.

I was inspired to create the NIX by a personal experience with a Fortune 500 company. I’ve dealt with Fortune 500 companies my entire professional life, so I’m used to a certain level of neurosis. Mid-level managers are often subject to unpredictable demands from the top level, which turns the mid-level neurotic from time to time. But this was different.

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Few Americans know Fimi. In Israel, everyone in business does. It is Israel’s first, and now its largest, private equity (PE) fund.

Since its creation in 1996, by Ishai Davidi, a former IDF Special Forces officer, Fimi acquired 72 companies. All but one are in Israel. Forty-one of them were sold, only three at a loss, and 32 are still owned. In the PE industry such a dominant fund is known as a country fund. Among the latest US investors in Fimi one can find Michael Milken, Jim Tisch of the Loews Corporation, and Jay Jordan of The Jordan Company.

There is no one formula for success. Moreover, no one knows in cases of successful investors if superior ability is at work or merely a halo effect. It is similar to Warren Buffett buying a company: everyone immediately assumes this is a company worth doing business with. IMD Professor Phil Rosenzweig documented this phenomenon in his best-selling book The Halo Effect. (Especially appropriate since halo effects lead to self-fulfilling prophecies.)

Even if Davidi’s success is due to halo effects , it is still worth examining the way he looks at the world. We may learn something. Here are some interesting principles he follows:

  • Fimi does not invest in financial or real-estate companies. Right off you can tell the guy is serious.
  • Each investment comes after years of patient monitoring of the target, and meeting with the owners.
  • Before making an offer, the fund assesses risk by running a red team/blue team war game. The stated objective of the war game is devil’s advocacy: argue that the deal should not be done.

Those steps, while prudent, don’t sound particularly innovative. But Fimi goes further. Fimi looks for companies with a) clear strategic plans and b) humble executives. Executive compensation must be correlated not only to performance over several years but also to workers’ compensation. Davidi does not believe in high executive pay and low workers’ pay. That’s not just about morality or generosity; it serves a business purpose. None of Fimi’s companies is unionized, in a country where unions are extremely strong and can be quite destructive, and Fimi wants to keep it that way. Finally, Fimi never looks for an exit. Instead, it improves the company’s performance. Davidi’s philosophy: once performance improves, offers will look for you.

The principles above do not amount to a formula for success; instead, they reflect a systematic, careful process of evaluation. Many investors, including our readers, follow similar logical process. So what makes Davidi different? I believe it is his ability to find the essence of competition in any segment where his portfolio’s companies play. It is almost as if he runs Porter’s Five Forces model for each company he buys. Consider this anecdote.

In 1999, Fimi paid $1 million for a small manufacturer of automobile engine parts. Fimi improved it and several years later sold it for $30 million. The new owners were not as strategic. In 2011, the company was near bankruptcy. Fimi bought it again for around $5 million. Today the company is valued at $210 million. Here is how Davidi summarizes the challenge in competing in the automobile supply market:

It takes years until the big car companies trust you enough to be in their supply chain. So you must participate in as many RFPs as possible, over and again. You must offer very low prices to gain a foothold. Entry into the trusted list is the most important aspect of the strategy, because once you are in, you are in. The car companies do not like to change suppliers. However, at a hint of legal trouble, they will drop you. So, when this company was in financial trouble, Fimi jumped in to avoid any creditors’ litigation or other legal wrangling which would have completely destroyed the company’s standing with the buyers.

In my career, I have met hundreds of executives who were extremely knowledgeable about every little detail of the competition in their industry. They tended to lose the big picture. They tended to think execution matters more than clear strategy. My perspective, as an observer of the skill of competing, is that Davidi’s ability to abstract from the details and focus on the most salient feature of competition is his biggest competitive skill. Once you crystallize the essence of competition in a given sector, you are at least looking at the right challenge to solve with your strategy.

Davidi, www.competing.com is not for sale!

Mark Chussil, co-founder of Competing.com, adds this: “Not so fast, Ben…”

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Businesspeople often cast critical thinking as a due-diligence gauntlet. Where did that number come from. How confident are you. What does [fill in author, authority, or celebrity] say.

Those aren’t bad questions; they’re just not good enough. They’re necessary but not sufficient. Saying you must be right because you survived the gauntlet is like saying you must be movie-star gorgeous because you floss your teeth.

Think of it this way. No strategy or business plan ever gets adopted without passing the gaunt­let, yet strategies and plans fail. We know that because companies go bankrupt (a severe form of failure), and it’s unlikely that bankruptcy was their goal.

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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.

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CNN reported on July 16, 2013, on “Russia in largest war games since Soviet era.” The BBC said “Putin inspects biggest post-Soviet war games.” Should the West be worried?

Take 1: Mark

No. War games have many objectives, including getting some use out of ammunition before it reaches its expiration date. The objective this time is, I believe, signaling.

It would be hard for Russian President Putin to hide 160,000 troops, 130 planes, 70 ships, and thousands of vehicles as they scamper over large areas for a few days. (“I think someone’s coming! Everyone hide!”) The futility of hiding isn’t an unfortunate fact of war-gaming life, though. It’s a feature, not a bug.

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A venerable company is in trouble. The world is changing, competitors are changing, the com­pany is not. A rescue is required.

A star is brought in as the new CEO. Of course the star wants to make changes. So does the Board; making changes is the whole point of bringing in the star. The star has achieved huge success previously (that’s what made the star a star). So what should the star do?

On leadership:

A) Stake out a bold, new, inspirational path.

B) Stick to tradition.

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