In 2016, during my MBA at Cal State Long Beach, I competed in a semester-long business simulation competition. Five teams running fictional companies, making quarterly decisions on pricing, production, marketing, and R&D. I was the CIO for ours.
When I downloaded the year 3 quarter 4 reports, I found the first of two questions that defined the course for me. What do we do next?
Up until that point our team had focused on getting a feel for the business, discovering how the pricing and marketing levers worked, submitting our individual decisions, and hoping for the best. It wasn’t working. Our market share dropped to 16%. We had 200 units extra inventory. Our product was a flop. We couldn’t outprice the competition. I was stuck trying to divine some pattern in the data, looking for that last bit of information that would clarify what was happening in our business, what we needed to do.
Analysis paralysis. As a math major, this technique had worked well in the platonic world of absolute truths, and even when I branched out into statistics, I could make sense of seemingly random information by unmasking trends amid the noise. My MBA classes reinforced this view, with cases that allowed us to take an impersonal, outsider’s view of the situation. It was easy to declare a strategy broken and suggest solutions that would require a radical shift in direction. We never had to make binding decisions that required us to live with and interpret the unclear responses.
Staring at the reports with concrete numbers in the past and an unwritten future ahead, I realized an implicit assumption underlying my work until this point: I was using static tools in a dynamic world, and our decisions had more sway on most immediate financial results for our firm. Analysis could illuminate the external world, but it couldn’t make our decisions. This both clarified our job in the competitive environment, and begged the need for a strategic framework to make decisions. Quantitative tools became a method for predicting factors none of us could control, like macroeconomic demand, so we could get a sense for what goals would be realistic, but our job as managers was to create a definition of success for our firm, and a path to get to that point.
This led us to shift our management philosophy. I gathered information on relevant uncontrollable external factors, including estimating the production capacities of our competitors, forecasting the amount of industry sales in the upcoming quarters, and tracking when we’d achieve new model numbers.
This information allowed us to set measurable targets with a clear sense of the actions to get there. For instance, we could set a goal of achieving a 1.5% increase in market share, and with the forecast, would understand the required excess production, financing for overtime, and amount of marketing to increase demand. Our next product was a breakout success, and we had a clear picture on our external environment. We learned not to simply predict the future, but to make it.
By year 6, our team had a good handle on the tactics needed to steer the business towards the metrics we wanted to win. We had accomplished 8 of our 9 goals and were in a dominant market position. Then came the second question. It wasn’t the bank loans (that was an exercise in determination). On Thursday night, looking at our historical earnings compared to the competition, I kept asking why do our results look different?
Our earnings over time varied wildly from quarter to quarter, but the other teams’ earnings were a straight linear trend, suggesting an even investment policy and a predictable return for investors. Even before we got our first bank loan, I sensed we were in serious trouble. Our tactics and short term strategies had given us predictable results on a two quarter horizon for the past 2 years, but the graphs hinted that we didn’t have a clear long term destination in sight. We knew how to move the business’s sails, but we were adrift at sea.
Throughout the competition, we threw around the “best provider” strategy without a concrete definition on what the business would ultimately look like with it. We kept our options open with an organic growth strategy without being committed (or aligned) to any particular vision of the future operations. We let our uncertainty about the future run rampant. A story without a plot.
In the last three quarters, we formulated a vision for what best provider meant to us: strong manufacturing presence in each marketing area with the goal of winning market share from our competitors through an extensive investment in training and lowering the price as our COGS decreased. We finished the competition with a market leading 24.6% market share and a clear path for the next few years. Other teams won the prizes, but we won an insight into strategy.
Two lessons that have held up in the ten years since.
The first is that strategy is essentially a story. Mission, vision, and objectives can help clarify elements into a standardized format, but an overarching narrative with a clear vision (or at least a guess) of the conclusion is necessary to keep from floating around aimlessly.
The second is that analysis is most useful for elements that you can’t change, like the past, or uncontrollable factors. It can help illuminate the area around you, but the path forward is in your control. Don’t just be a character in someone else’s story.
Also, don’t be late to meetings.
Here’s the email I sent my family during the intensive phase, when we went bankrupt twice in two days and had to explain ourselves to the board of directors at 2:30 in the morning.
