{"id":335,"date":"2010-10-05T16:30:40","date_gmt":"2010-10-05T20:30:40","guid":{"rendered":"http:\/\/www.trustacrossamerica.com\/blog\/?p=335"},"modified":"2010-10-05T16:30:40","modified_gmt":"2010-10-05T20:30:40","slug":"mark-chussils-thoughts-on-trustworthy-public-companies","status":"publish","type":"post","link":"https:\/\/www.trustacrossamerica.com\/blog\/?p=335","title":{"rendered":"Mark Chussil’s Thoughts on Trustworthy Public Companies"},"content":{"rendered":"

PART II OF II<\/strong><\/p>\n

Barbara: <\/strong>So what are you saying about companies? Why don\u2019t they see the benefits as well as the costs of trustworthy behavior?<\/p>\n

Mark: <\/strong>Some management experts say if you don\u2019t measure it you won\u2019t manage it. Problem is, financial statements don\u2019t have lines for reputation, customer loyalty, product quality, and so on, and they don\u2019t show how a loss of reputation trickles down to a lousy bottom line. And management culture is dominated by financial statements. <\/p>\n

Barbara: <\/strong> In your writing you often talk about the quality of decision-making. What do you mean by that?<\/p>\n

Mark: <\/strong>Imagine you have a persistent cough. You would not expect your doctor simply to say \u201cin my experience, people with persistent coughs usually have bacterial pneumonia, so take these antibiotics and you\u2019ll be fine.\u201d Well, you won\u2019t be fine if your persistent cough comes from asthma, emphysema, or lung cancer. A doctor who just gives antibiotics to every coughing patient who comes in without asking questions and running tests\u2026 that sounds to me like it\u2019d be malpractice. But an executive following that approach might have a fine career in the business world. See my essays \u201cIt\u2019s Working!\u201dRead Blog Post<\/a> and \u201cGross Galactic Product.\u201d Read Blog Post<\/a><\/p>\n

Barbara:<\/strong> In other words, part of trustworthiness is good decision-making.<\/p>\n

Mark: <\/strong> Yes, even for shareholders. I think everyone would agree that the quality of decisions affects the probability of good outcomes. The better the decisions, the better the outcomes. It\u2019s not a guarantee, but it raises the odds. Good outcomes mean jobs for employees, healthy communities, happy customers, and fair returns for shareholders. Bad decisions and bad outcomes help no one.<\/p>\n

Barbara:<\/strong> Okay, so how do we get good-quality decisions? Isn\u2019t that why companies try to hire the best managers, with experience and education?<\/p>\n

Mark:<\/strong> Yes, but if that\u2019s all it took we wouldn\u2019t have companies going under. GM didn\u2019t go under after a slow decline of 40 years because it hired bad managers; on the contrary, it went under in spite of hiring good managers. See my essay \u201cSuffering Was Optional.\u201dRead Blog Post<\/a><\/p>\n

Barbara: <\/strong> If having good managers isn\u2019t enough, what else do we need?<\/p>\n

Mark: <\/strong>Just as there are modern tools of medicine that help your doctor make good decisions about your persistent cough, there are modern tools of management that help managers make good decisions about their businesses. But in management we still have a culture of experience, even \u201cinstinct,\u201d instead of rigorous, critical thinking. One of the themes in my book Marvelous Techniques is that we have biased humans using flawed tools, and that leads to bad decisions.<\/p>\n

Barbara: <\/strong> What do you mean by \u201cbiased humans\u201d and \u201cflawed tools\u201d?<\/p>\n

Mark:<\/strong>
\n I don\u2019t mean that humans are biased in the sense of prejudice, and I don\u2019t mean tools are flawed in the sense that they make mistakes in arithmetic. I mean that all managers are humans, and humans have a variety of unconscious biases that interfere with our ability to make good decisions. I mean that tools are flawed if they are the wrong tool for the problem, such as using an accounting-based spreadsheet to answer a strategy question.<\/p>\n

Barbara: <\/strong> Give me examples of biased humans.<\/p>\n

Mark:<\/strong> Russo and Shoemaker, in Decision Traps<\/em>, talk about overconfidence and group biases that led, among other things, to the Challenger disaster. Tavris and Aronson, in Mistakes Were Made (but not by me)<\/em>, talk about cognitive dissonance, which makes people cling to past beliefs, such as the guilt of a person held in prison for many years, even after there\u2019s conclusive evidence to the contrary. D\u00f6rner, in The Logic of Failure<\/em>, describes the disaster at Chernobyl, when people overrode safety systems because they believed they were experts and knew what they were doing.<\/p>\n

Barbara: <\/strong> How does that apply to business?<\/p>\n

Mark:<\/strong> Perhaps the most obvious example is price wars. Price wars can be devastating to companies; look at the airlines. You\u2019d think that smart, experienced managers wouldn\u2019t start price wars. Yet they do, and getting out of them can take a long, unprofitable time. Price wars are a more complicated subject than they might appear, but the key thing is that no one expects to suffer a price war. They expect to enjoy a price advantage.<\/p>\n

Barbara:<\/strong> What\u2019s another mistake due to bias?<\/p>\n

Mark:<\/strong> Managers often think they can forecast the results of a strategy in their heads; that\u2019s what they\u2019re doing when they say \u201cif I do this, then I\u2019ll get that result.\u201d Business, though, is immensely complicated. Just to give you an idea of that: I conducted a recent program for a Fortune 500 company in which we determined that there were over 39 million possible outcomes from the options they faced. No human being can even list them, let alone pick which are the most probable or most profitable. See my essay \u201cThe How-Likely Case.Read Full Essay<\/a><\/p>\n

Barbara: <\/strong> How about flawed tools?<\/p>\n

Mark:<\/strong> We talked earlier about financial statements that don\u2019t take into account reputation, customer loyalty, product quality, and similar factors. Those spreadsheets also don\u2019t take competitors\u2019 reactions into account. As a result, many analyses based on financial spreadsheets leave companies vulnerable to surprises. Generally unpleasant surprises, because spreadsheet analysis implicitly assumes that a strategy will work.<\/p>\n

Barbara: <\/strong>How, then, can companies avoid falling into those traps?<\/p>\n

Mark:<\/strong> The best techniques I\u2019ve seen involve business war games and strategy simulations, which are ways to stress-test business strategies. They\u2019re able to get past the limitations of spreadsheets and trend lines, and they\u2019re able to handle the arithmetic. By the way, business war games aren\u2019t about war or conquest. See my essay \u201cThe War (Game) Metaphor.\u201dRead Full Essay<\/a><\/p>\n

Barbara:<\/strong> Should we not trust companies unless they use business war games or strategy simulations?<\/p>\n

Mark: <\/strong> My point is not about business war games or strategy simulations, although they do work. The point is that companies need conscious, deliberate processes that ask tough questions, such as what could make our strategy fail. The USA and the EU took a step in that direction when we started to stress-test banks after the financial crisis. Without that question we get wishful thinking, results that disappoint, careers that flame out, people losing their jobs, and contributions to economic problems instead of to economic recovery.<\/p>\n

Barbara:<\/strong> Why look at what could make a strategy fail?<\/p>\n

Mark: <\/strong> Because that\u2019s how we know how risky it is and what we have to do to strengthen it. Imagine how much better off we\u2019d all be if we\u2019d run those stress-tests before the financial crisis instead of after.<\/p>\n

Barbara:<\/strong> Have any stories about that?<\/p>\n

Mark:<\/strong> Sure, see my essay \u201cWhen I Was Wrong.\u201dRead Essay<\/a> I put together a pricing simulation that, so far, about 300 strategists have tried. I put in my own strategies, and they didn\u2019t do very well. After I got over my private humiliation, I realized it was a good thing. Before the simulation, you\u2019d have every reason to trust my advice: I\u2019m an expert in my field, and you could expect me to know what I\u2019m talking about. After the simulation \u2014 that is, after I learned from the simulation \u2014 you\u2019d get much better advice from me. The trick is to make mistakes where it\u2019s fast, cheap, and educational, not when real jobs, real careers, and real money depend on it.<\/p>\n

Barbara:<\/strong> Mark, thank you for sharing your thoughts with me. What is the best way to reach you?<\/p>\n

Mark:<\/strong> My contact information is as follows:
\nMark Chussil, Advanced Competitive Strategies, Inc., 1673A SW Montgomery Drive, Portland, Oregon 97201 USA
\n+503-243-3548
\nmchussil@whatifyourstrategy.com<\/a>
\nwww.whatifyourstrategy.com<\/a>Link to Website<\/a>
\nVisit our blog at Link to Blog<\/a><\/p>\n