Industry View

How What You Know Can Hurt You

Some sage said, ’The trouble with people is not that they don’t know, but that they know so much that ain’t so.’ That can be a killer in risk management. Guest columnist Mark Chussil offers tips for testing what you know.

By Jen McCarthy

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One reason why we fall prey to these common crises: We think we are prepared and we think we know what to do, and we are wrong. What we know ain’t so.

The story

Management at a large, multinational, household-name company (whose name I will not reveal for competitive reasons) was enjoying great success with a household product when they learned a powerful foreign competitor was eyeing its market. This was not a Steve’s Stove Store scenario. The competitor clearly had the reputation, resources, skill and motivation to win.

A thoughtful senior executive decided to conduct a crisis simulation—a business war game—to test and strengthen his defenses before the competitor made landfall. My colleagues and I conducted that simulation.

In the simulation, the company’s management team took the new competitor seriously. They did their best to make tradeoffs between sticking to their budgets and reinforcing their levees against the new threat. Meanwhile, a group of the company’s managers role-played the new competitor, planning to capture the market.

The group role-playing the competitor succeeded, handily elbowing the company aside. Moreover, the company realized it would be especially tough to dislodge the competitor after it established its position and began to enjoy the benefits. It would be like trying to undo a flood.

One happy capability of a computer-based simulation is that you can turn back the clock and see what would happen if you make different choices. That’s what we did in this business crisis. The home team, sobered by the outcome of the first simulation, took a close look at their competitor’s strategy. (That is, the strategy that their own colleagues devised for the competitor. Managers from the real competitor’s company didn’t participate in the simulation, of course.) Because they saw and believed the potential disaster, they thought hard and created a way to preempt the competitor. This time, the company’s proactive response to the imminent crisis held back the competitor.

The management team was so convinced by what they learned in the crisis simulation—convinced of both the threat’s severity and the antidote’s effectiveness—that they implemented their preemptive offense in a matter of weeks. The competitor’s attack never came.

Six months later, the company happened to hire a manager from the competitor’s company. They found out that the competitor had indeed planned to take the market, and with a strategy remarkably similar to the one the role-playing managers had anticipated. However, when the competitor saw the company’s preemptive move, it decided not to attack.