Chess and Business Strategy
By Luigi Morsa
September 29, 2020
Undoubtedly the chess game is fascinating because it implies deep thinking, strategy, and prediction ability. It is often seen analogous to a business strategy. Each player fervently studies the board, patiently waits their turn, anticipates the opponent’s next move, and runs through potential scenarios in their head. This is not so different from strategic planning in the business world. However, in some markets, the competitors attack simultaneously from all sides, the internal struggles of a company can have a negative effect, and a host of other elements which can all be put into play at the same time. Nevertheless, the parallels between chess and business are clear.
Companies put chess principles into action on a regular basis, often without even realizing that they are strategically positioning their pieces in a series of moves that have been utilized multiple times through the years. No wonder, therefore, that we can find a chessboard in the home or office of top CEOs or world leaders. The list of US presidents enthusiastic about chess is long, from Lincoln to Jimmy Carter to, more recently, Bill Clinton and Barack Obama; outside the USA we can mention Mikhail Gorbachev, Yasser Arafat, Angela Merkel and even important historical personalities like Mandela or Napoleon, and even some European dictators.
Sometimes chess is even an obsession: the President-elect of Mexico, Enrique Pena Nieto, who credits his success to his chess playing ability, was said to have delayed a strategy meeting simply in order to finish a chess game! Most of the world’s billionaires are chess players: Gates, Ellison, Soros, van Oosterom, and others; even quite young entrepreneurs today, like Miami’s Care Cloud founder Albert Santalo, A.J. Steigman, founder and CEO of Soletron, and co-founder and CEO of Facebook, Mark Zuckerberg, have a history of playing chess and using its principles in creative business transactions.
Peter Thiel, one of the early investors in Facebook and the founder of PayPal, has history as a chess master. He maintains that it is essential “to know the value of the pieces”. Each piece in a chess game has a specific value. By knowing the value, it is easier to make decisions about game strategy and placement. Similarly, by knowing the value of employees and other associates, it can be easier to make business decisions regarding job responsibilities and other related decisions.
Justin Moore, child chess prodigy, was ranked in the top 20 youth chess players in the United States by the time he was a teenager. Moore is now CEO of Axcient, a cloud services provider. According to Moore, too many companies lose sight of their goal and get sidetracked into reactionary activities. As a chess player, Moore understands the value in planning an endgame, and explains that businesses must model the same behavior. By not being waylaid by the activities of a competitor, it is easier to remain focused on the ultimate goal of the company. Due to the importance that in the business strategy is given to the chess game, two researchers, Hunt and Cangemi in the study, “Want to improve your leadership skills? Play chess!” came to the conclusion that in order to bridge the gap between scholarship and entrepreneurship, and to build better leaders capable of handling future demands; the well-researched and powerful tool of Chess should be incorporated into the early grade curriculum, as well as in graduate leadership, business, industrial, and educational programs. Chess can be the catalyst to enhance the skills of graduates and leaders alike to remain competitive in a global economy.
We could say that according to people in business, in order to succeed, it is becoming more and more advisable to have the mindset of a chess player. In literature, there are several examples about the parallelism between chess and business, but rarely there are specific examples on a real chessboard; the scope of this article is to discuss a clear and real example of chess strategy in business.
The chess game is a competition between two subjects. Therefore, from a business point of view, this fits well when we refer to a duopoly. One of the most interesting and fascinating duopoly markets of the last several years is the one between the two giant airplanes manufacturers: Boeing and Airbus. It is difficult to find other markets where two actors play. In the case of the big airplane market, there are only Boeing and Airbus because the barrier to entry into this market is quite high.
Having only two players, the market dynamics and strategies can be displayed on a chessboard and can be interpreted through the eyes of a chess player. A tangible example is given by the competition between the models of the Boeing 747 and Airbus 380. Boeing introduced the B747 in 1970 and for the following 37 years had the monopoly in big, long range airplanes. This allowed Boeing to gain enormous profitability with the advantage of investing and competing in other segments of the market where Airbus had a presence. For this reason, people at Airbus realized that if they really wanted to compete with Boeing, they needed to attack the B747. Therefore, after a long gestation period starting in 1988 and continuing through the early months of 2000, the board management at Airbus decided to develop the A380 (introduced in 2007), a four engines aircraft like B747, but 20% more efficient and with an entire second floor along its fuselage, able to provide seating for 555 people in a typical three-class configuration or up to 853 people in an all-economy class configuration; while the B747 carries up to 524 passengers.
The precondition for success looked to be close at hand, but something went wrong. While the European engineers were working on the A380 project, their counterparts in USA were figuring out a different scenario. Instead of proposing the classical schema of connection between great hubs and then taking a second flight to the final destination, the idea was to connect directly two minor airports. In other words, instead of taking a short range aircraft from Stockholm flying to London, then London-New York (major hubs connection) by flying a big long range aircraft and then a short range aircraft to cover the distance New York-Las Vegas, the proposal was to fly directly from Stockholm to Las Vegas.
Hub and Spoke
Point to Point
The challenge was to create an aircraft remaining competitive by carrying less passengers compared to A380 or B747. This was a necessity because the demand for direct flights is not the same as among major hubs. In order pursue this task, engineers in the USA developed the 787 Dreamliner (introduced in 2011, 224-330 passengers seats versions), with a carbon-composite fuselage (lighter material than aluminium), equipped with two engines and able to fly longer distances while consuming less jet fuel than the A380. Without going into so much detail, we can say that history has shown that the airline companies have preferred the new model introduced by Boeing with B787, and for this reason Airbus started to develop its own version of a long-range, fuel-efficient airplane, called the A350-XWB (300-350 seating), which entered in service in 2015.
If we now look at a chessboard, we can imagine B747 and A380 as the two queens of the black and white pieces set (actually, one of the B747 nickname is “Queen of the Sky”). The idea of the player with white pieces was to attack undisturbed the black queen, but as shown in the picture, the black bishop (B787) was moved to block the white queen’s attack, and as a consequence the player with the white set moved the rook (A350) to contrast the bishop. It has to be underlined, especially for the chess experts in order to avoid outraging them, that the description above is clearly inappropriate; it is not entirely in agreement with the chess logic, but it is important because it gives a remarkable image of the strategies.
In economic terms, there are models that allow us to understand and above all to predict the impact of the introduction of a new aircraft in a market. One of these relatively simple models is for instance “the Cournot competition” that was applied in 1988 by the professor Richard Baldwin and by Paul Krugman, the laureate economy Nobel prize in 2008, to study the competition between the aircraft models of Airbus and Boeing. The model worked quite well, but as shown in the example above it is a matter of hypothesis and therefore strategies because if we do not take into account that our competitor could introduce something new in the market, inevitably our prediction will be wrong.
Other important economic studies have often taken into account the “static” situation of the market, similar to very interesting works of Klepper (1990, 1994) and Neven & Seabright (1995). Even relatively recent studies like Irwin and Pavcnik in 2004, which examines exactly the competition between Airbus and Boeing after the introduction of A380, did not consider a possible aircraft outside the segment of A380 and B747 that could affect the market. However, in 2004 in defense of the authors, the idea of the B787 Dreamliner was very vague. Nevertheless, the history of the aircraft market evolution has proved that a certain degree of unpredictability should be taken into account.
Finally, the example of the competition between A380 and B747 is meaningful because is a good example to highlight the importance of having a vision of the future and to avoid the limitations of near-term thinking only. We can also say that even though we have good tools to perform the economic analyses and we choose models that do not take into account some possible moves by our competitors, our prediction will fail in any case; for this reason it is important to have in business the attitude of a chess player!
- Samuel J., Hunt,; Joseph Cangemi; Want to improve your leadership skills? Play chess!, Education; Spring 2014, Vol. 134 Issue 3, p359
- Luigi, Morsa; The Airbus A380 Airplane, case study for the book “Project Management Case Studies” 5th Edition by Harold Kerzner, Wiley, April 2017
- Richard Baldwin, Paul Krugman; Industrial Policy and International Competition in Wide-Bodied, chapter for the book “Trade Policy Issues and Empirical Analysis” by Robert E. Baldwin, University of Chicago Press, 1988
- Klepper, G., 1990. Entry into the market for large transport aircraft. European Economic Review 34, 775– 803.
- Klepper, G., 1994. Industrial policy in the transport aircraft industry. In: Krugman, P., Smith, A. (Eds.), Empirical Studies of Strategic Trade Policy. University of Chicago Press for the NBER, Chicago.
- Neven, D., Seabright, P., 1995. European industrial policy: the airbus case. Economic Policy 21, 313– 358.
- Douglas A. Irwin, Nina Pavcnik, Airbus versus Boeing revisited: international competition in the aircraft market, Journal of International Economics 64 (2004) 223– 245