Over-Optimistic Promises Hurting Industry

There is a legendary story that I think illustrates the mindset and philosophy that has, during the past decade or more, prevailed in the simulation industry.

Two brothers are squabbling over some leftover pie. Each brother wants a slightly larger slice, and neither wants to be cheated by the other. Just as one brother has gained control of the knife and is about to help himself to a more generous portion, the father arrives on the scene. In the tradition of King Solomon, the father suggests that whoever cuts the pie must give the other brother the option to select the piece that he wants. As would be expected, the brother wielding the knife cuts the pie in two pieces of equal size.

The moral of the story is simple: If the focus shifts from defeating the other to addressing the problem, everyone can benefit.

There are some parallels to this in the simulation industry. Too often in this industry, customers and suppliers face off with each other in an environment that produces a winner and loser, instead of a win-win situation. This “me versus you” and “us versus them” mentality has led to problems. It has resulted in an industry that has been, I believe, “undermanaged.”

Unbalanced Value Equation
The simulation industry has been facing a situation where the value equation is out of balance. In other words, our customers—quite normally and rationally—often ask for more than they are willing or can afford to pay. Budgets are tight and resources are scarce, so the military services simply are trying to get the most for their limited dollars. There’s nothing wrong with this. After all, if I ask for the moon and the stars and someone commits to delivering me the whole universe, why would I refuse?

And therein lies the problem confronting the simulation and training industry: Too many companies are willing to sign up for the extraordinary expectations requested by customers, but these companies have signed up at prices that didn’t match the expectations.

There are many reasons why companies have made these kinds of commitments. One of the primary reasons has been some level of over-capacity in the simulation and training market. Whatever the reasons, the results have been predictable. Frequently, customers are unhappy, because programs are delivered behind schedule and costs run way over budget. At the same time, industry faces not only disgruntled customers, but also displeased shareholders, when stock prices fall.

The result is a value equation that is out of balance and a simulation and training industry that is “undermanaged.” This is not to say there are bad people running simulation companies or bad people running programs for the services. What it does say, however, is that too many companies have been too quick to tell customers that they’ll give them what they want, only to find the demands far exceed what the company will be paid. For this industry to succeed in the long term, there has to be a return to equilibrium.

Return to Equilibrium
A business environment of “overpromising and overcommitting,” also comes with a track record of missing delivery schedules. It’s been a problem plaguing the simulation and training industry for much of the past two decades. The ramifications of failing to meet delivery commitments are well known. For industry, it means higher costs, unhappy customers and extraordinary demands on the workforce—creating a ripple effect that runs through the entire organization.

At the same time, the military customers suffer because they have made training commitments that now will be missed, thus impacting budgets as well as force readiness. The bottom line is a lose-lose situation for all involved.

It should be pointed out that there are many other variables that contribute to a program meeting its deadlines. Some of these variables, such as political circumstances, are many times beyond the industry’s direct control. However, this does not dismiss the fact that meeting delivery schedules is a top-of-mind issue for the customers.

Late last year, BAE Systems commissioned an independent researcher to look at the simulation and training industry and survey a variety of customers. The goal was to find out what factors were most important to customers, what issues or problems impacted their organizations, and how the company could improve its products and services. The answers to some of the more general questions we asked show that customers are beginning to notice the value equation in this industry is out of balance.

One of the questions in the survey was for customers to rank the factors they considered most important when evaluating training and simulation suppliers. More than 70 percent of the respondents stated the quality of the product or service was most important, followed closely by the ability to deliver on-time and on-budget.

Price still was a factor to be considered, but not more important than quality or meeting delivery commitments. When customers were asked to discuss the issues or problems they perceive in the simulation and training industry, the most common response (73 percent) was that performance on programs and meeting delivery schedules was poor.

The results of the study confirmed much of what I had suspected. Customers are asking for a more disciplined approach to their programs. They want more comprehensive communications up-front, in order to avoid major problems down the road. In the past, the industry, in general, had tended to “dance along the mountain peaks.” Programs, for example, were handled at a very high level, instead of forcing ourselves into sufficient detail to make tough, rational decisions from the outset.

As Stephen Covey explains in his best-selling book, “The 7 Habits of Highly Effective People,” win-win is not a technique, but instead, a philosophy of human interaction. It’s a mindset that agreements or solutions can and should be mutually beneficial and mutually satisfying. The win-win mindset is based on this paradigm: There is plenty for everybody and one’s success is not achieved at the expense or exclusion of the success of others.

Win-Win Approach
The win-win approach is the only realistic way to achieve a healthy and productive industry. A win-lose scenario means one party gets its way, while the other doesn’t. This approach fails to recognize that the desired results depend on cooperation between both parties. One party giving in and letting the other have its way characterizes a lose-win paradigm. This often is worse than a win-lose scenario, because there is chaos from the beginning and no clear direction. A lose-lose approach results when both parties become vindictive and want to “get even” with the other.

I know that we can all think of situations where one or more of these paradigms might be appropriate, but in general, I think it’s clear that our industry is ready for a win-win approach. This approach is consistent with achieving a balanced-value equation, where both the customer and supplier secure value. The win-win approach also can be used to address the issues facing our industry. For example, we already know that customers consider delivery schedules to be very important and a problem in this industry. By taking a win-win approach up front, and both parties committing to a detailed action plan, the problem can be overcome.

We have adopted a simple principle in our organization: “We will commit to what we can deliver, and we will deliver on our commitments.”

Living up to this has not come without its share of pain, and we’re not completely there yet.

Along the way, we’ve probably made some customers unhappy, because we wouldn’t bid a particular program or wouldn’t meet a specific price. But that’s the philosophy behind the “no deal” portion of win-win or no deal. We don’t want to make commitments to our customers that we can’t keep, and we also don’t want to make commitments that do not produce value for our shareholders.

If we can’t find a solution that benefits both the customer and us, we want to take the approach to agree to disagree and then move on. We’re trying to create a business environment between us and our customers that says it would be better to not have a deal at all, than to live with a decision that isn’t in the best interest of both parties.

It should be said that this is a risky strategy. There are irrational or undisciplined players in the simulation and training market who are willing to “overpromise and overcommit,” and customers who are willing to take a chance on these companies. For that reason, the return to equilibrium will take longer and the value equation will continue unbalanced.

There is also a possibility, however remote, that irrational or undisciplined companies will continue to survive through consumption of corporate equity. Since this can’t last for too long, the survivors in the simulation and training industry will be those companies that seek to establish a balanced value equation and consistently think “win-win.”

Topics: Training and Simulation, Contracting, Budget