Monday Mornings with Madison

Using Chess Strategy in Business, Part 2

Word Count:  2,292

Estimated Read Time:  9  min.

There are many benefits that come from playing chess.  Psychologists often cite chess as an effective activity to help improve memory function.  That is probably why chess is recommended in the fight against Alzheimer’s.  Playing chess can also help the mind solve complex problems and work through ideas.  It is also thought to increase one’s intelligence, although that’s not been scientifically proven.  And the effects of chess on children – which has been correlated to children getting better grades in school — has led to chess being introduced in schools in a multitude of countries.  That said, many are still intimidated by chess because it is perceived as a game for geniuses.  But while chess is a thinking-man’s game — one that requires a great deal of strategic thought and tactical reflection — it is not just for geniuses and savants.  Anyone can learn to play chess and improve through study and practice.

Indeed, many past and present political and military leaders – including U.S. Presidents Thomas Jefferson and James Madison, Sigmund Freud, Queen Elizabeth I and II, French Emperor Napoleon Bonaparte, former U.S. Secretary of State Henry Kissinger, former U.S. Vice President Spiro Agnew, British Prime Minister Clement Atllee, Alfonso King of Spain, and Vladimir Lenin – all played chess.  Many titans of industry also play chess, including Bill Gates, Co-Founder of Microsoft, Billionaire Investor George Soros, Carl Icahn, Chairman of Federal-Mogul, Peter Thiel, Co-Founder of Paypal, Jared Heck, co-founder of GroupMe and Fundera, Seth Bannon, Founder and CEO of Amicus, and Victoria Lipschitz, CEO of Grid Dynamics.  In fact, Boaz Weinstein, chess player and head of Saba Capital, once said that “Chess helps me in trading, teaching me to focus on the important decisions and to accept risk.”  Last week, we looked at a few useful strategies.  Let’s look at some more chess strategies that can be applied to business.

The Art of Strategic Thinking

As we noted last week, business and chess are different.  Business is focused on the production of products and services.  This is accomplished through processes which occur in ways that aren’t as linear or organized as a chess match.  In business, many events occur simultaneously and at varying speeds.  What business and chess do have in common are the strategies used and stories told in each.  And strategies used in chess can often be applied to business.  That is what Japanese scholar warrior Miyamoto Musashi meant by “From one thing, know ten thousand.”  He believed that achieving mastery in one discipline provides the tools to transfer those skills to all other areas of life. Thus, by transferring and applying strategic concepts used in chess to other areas, leaders are better equipped to deal with the myriad of challenges that are sure to arise in the political arena, battlefield or business marketplace.  It may explain why Bankers Trust made a point of recruiting and hiring a number of chess grandmasters to become stock traders in the early 90s.  Many of them didn’t even know what stock trading was at the time but went on to become millionaires.

Last week, we looked at the chess strategies of taking the initiative, following through and impenetrable defense, and how those can and have been used to succeed in business.  Here are threemore chess strategies that can be applied to business.

Timing:  Control the Tempo

In chess, each player has two types of resources with which to accomplish a strategic end:  material resources, which are the pieces on the board; and immaterial resources, which is the time it takes to play.  But there is also a scoring mechanism that allocates a certain number of points for each piece.  A pawn is valued at one point whereas a knight is worth three points and a queen is worth nine points. Therefore, it would make sense that a player trading one of his pawns for one of the other player’s pawns would be an even trade.  Not so fast.

This is where the concept of tempo comes into play.  Even if two players are exchanging even pieces (a pawn for a pawn), one of the players might still win.  That’s because of the variable of time.  If one player expends five moves to take a pawn but the other player only expends two moves to also acquire a pawn, the second player is likely to win the exchange.  In this exchange, he would have gained “a tempo of three.”  Or if you advance and then have to retreat, a move was wasted.  That’s a lost tempo.  While it’s not officially part of the scoring system in chess, the greatest chess players known how to use tempo to win championships. The more that can be accomplished with the fewest moves, the better the chance of winning.   In fact, since chess statistics began being tracked 166 years ago, it’s been determined that the player who moves first wins 55.3% of the time.  That’s right.  Just having one tiny tempo advantage can have an impact on the outcome.

It isn’t hard to see how time and tempo affects business.  In this increasingly fast-paced world, the early bird is more apt to get the worm.  A company’s ability to deliver an outcome is not enough.  How much time it takes to act on potential opportunities also matters.  And, in business, it is even more complicated.  When it comes to material resources, the playing field is not level and companies can enter an industry, sector or market with all types of advantages and disadvantages.  But when it comes to immaterial resources, time is probably one of the most important factors in business success.   It is even more critical in business since one doesn’t take turns playing.  Market forces are all at play simultaneously.  But there are other ways that timing plays a key role in business.  Business leaders must time their entry into a new market or the expansion of a new product or the hiring of a sales force.  History is filled with new innovations that came to market late and missed the tipping point.  Timing is also a critical factor in productivity.  Reducing the time it takes to go from point A to point B or reducing the number of steps it takes to complete a process can have a profound effect on profits.  Likewise, timing is a factor in the supply chain as well as the logistics.  There is a timing factor in the influx of capital and the company’s cash flow.   Timing affects every aspect of business, and it is the only resource that is finite.  Time cannot be replenished.  Being nimble is just as important as being savvy or innovative.

Distance:  Control the Position

It is understood, in chess, that in every encounter, proper timing goes together with an awareness of space and position.  The player who can move freely over a greater area of the chess board will be able to place his pieces more advantageously.  This will increase his likelihood of having a breakthrough over his opponent who is restricted in his movements.

There is another ancient Japanese concept that captures the essence of this idea.  It is called Shitoe.  This refers to the thickness of a single sheet of fine rice paper.  On one side of the paper is written a symbol that represents life.  On the other side of the paper is written the symbol that represents death.  Shitoe signifies that the shifting of position even an infinitesimally small amount (the thickness of a sheet of rice paper) can make a profound impact on position as much as the difference between life and death.  Thus, it is an art to maintain the right position and distance relative to another, whether it is an opponent or competitor…. what is called a harmonious distance.  Another player’s most powerful move is harmless if one remains outside of its range and reach.

This concept of space, position and harmonious distance is applicable to business.  A smart leader knows that a company’s best techniques can be executed effectively only when in the right position, and positional effectiveness is in relation to a competitor’s own position.   In business, space and position has to do with how a company is positioned in the marketplace, and how that positioning relates to the product/service.  Too many companies develop a product or service without giving much thought to product positioning.  The positioning is left to the marketing department to handle as an afterthought, rather than having it designed and engineered into the product or service.   That is how companies miss the opportunity to differentiate.

There are several ways to use the strategy of position and space as it applies to business.  One way to apply the position and space concept to business is in targeting a specific audience that is being overlooked by other vendors within that space.   The idea is to look for the under-served consumer.  Indeed, when the competition is ignoring one segment of the target audience, that is a perfect opportunity for a smart company to build a product or service that is perfectly suited for that niche.

Case in point.  Carol Haffke didn’t have any retail experience when she decided to open a shoe store.  Considering the volume of competition in that space, that might seem like good initiative but bad strategy.  Not so.  Carol might not have had retail experience but she had one thing in common with the niche audience she was targeting:  she wore a size 12 shoe.  Her store, The Shoe Garden, caters exclusively to women who want beautiful shoes in sizes 10 and up.  Haffke started the store with just a database of 600 female customers who had just one thing in common… the inability to find shoes that fit their size.  Since opening, Haffke has gotten requests for her to carry smaller sizes but refused.  Not only did she target a very specific area in retail (shoes) and target a very niche space within that area (women with large feet), she narrowed her target even further by only stocking elegant and dressy shoes.  Sparkly sandals.   Suede stilletos.  Patent leather slingbacks.  No comfort shoes, which is what is typically available to women with large feet.  Her focus is to offer as wide a selection as possible to an audience long neglected.  The store has been a huge success.  By shifting her positioning an infinitesimal amount – from beautiful shoes for women to beautiful shoes for women “size 10 and up” – she found a harmonious distance between her and other shoe vendors.

There are other ways to apply the chess concept of space and position to business.  One simple yet challenging way is in story-telling.  If all businesses in the same industry or sector are all telling the same story, whether that is that they have the lowest price or give the best service, then a company needs to tell a different story.  Is the business more innovative or creative? Is it the most user-friendly or customer-service oriented? Does the business welcome product suggestions?  Does it support environmental or social causes that resonate with the audience?  The way to alter the space and position is to change the perception by telling how the company is different.  Again, it only needs to alter the space an infinitesimally small amount to achieve harmonious distance… “the thickness of a single sheet of fine rice paper.”

Yield to Win:  The Art of Sacrifice

In chess, there also exists the strategy of yielding to win.  It is a strategy that is used when taking on a player who is very strong and well balanced, and cannot be overcome with normal strategies.  That calls for more dramatic measures.  A player might choose to sacrifice important pieces in order to advance a strategy or advance position on the board.  Bobby Fischer, the unschooled Brooklyn teenager and world famous chess champion, is considered one of the most adept players to use the strategy of sacrifice.   In his championship match against Boris Spassky, he sacrificed his rook for a knight and was constantly prepared to sacrifice more pieces at critical moments in exchange for strategic momentum or tactical advantage.  His willingness to sacrifice opened the door to success.

This concept can also be applied to business.  For example, a company – or an entire business sector – might choose to sacrifice resources such as capital, profits or time in order to gain market share.  Case in point.  After World War II, the Japanese were intent on improving and expanding their manufacturing to create jobs and stimulate their economy.  At that time, the Japanese were manufacturing cars and wanted to enter the American automobile market, which was both large and affluent.  However, Americans would not buy Japanese cars at the time because they were perceived to be of poor quality.  The Japanese understood that to make inroads in the U.S. market, Japanese car manufacturers would havehad to sacrifice profit in exchange for market share.  They began producing energy-efficient, affordable cars.  Employing Deming’s Total Quality Management (TQM) principles and precision-focused production techniques, Japanese car quality soared.  Low price and good quality, coupled with rising gasoline prices (a factor that the Japanese did not control but one that benefited them and shows how timing/tempo also played a role), led American consumers to begin buying Hondas, Toyotas and Datsuns.  The Japanese began capturing U.S. market share, putting American automotive manufacturers on the defensive.   However, rather than responding with an impenetrable defense, America auto companies lost their balance and acted in haste.  They introduced cheap, poor quality alternatives, such as the Ford Pinto (which exploded when hit from behind) and the Chevy Chevette.  The Japanese increased awareness of their vehicles and grabbed even greater market share.  It is an advantage that they continue to enjoy even now, 50 years later.

Quote of the Week

“Without strategy, execution is aimless.  Without execution, strategy is useless.” Morrish Chang, CEO, Taiwan Semiconductor Manufacturing Company

 

© 2017, Written by Keren Peters-Atkinson, CMO, Madison Commercial Real Estate Services. All rights reserved.

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