Champion-Challenger Model

The Champion-Challenger Model refers to a technique applied in business that enables companies to optimize processes, systems, and production and, consequently, business operations by selecting the most suitable options that improve performance, reduce costs, enhance decision-making, and boost innovation. It helps companies become more competitive and resilient.

The model studies champions and rival or competing options and selects the most suitable one. This technique is widely used in machine learning, and it has now gained traction in varied sectors, finding useful applications across industries. Businesses benefit from this approach since it empowers them to identify the best solution, product, service, vendor, partnership affiliation, etc., from various options available in the market.

The Champion-Challenger Model can be applied in various sectors and for multiple functions, including finance. A company can initiate improvements in vendor selection, marketing campaign management, internal processes, etc., and benefit from effective, timely, and data-backed decision-making.

In finance, this model can help investors finalize their investment strategy and determine the portfolio allocation for a given period. On a macro level, companies, governments, and financial institutions may use this model for credit risk assessment and fraud detection, among other things.

A/B testing in marketing shares certain similarities with this model, as both examine and compare different options to ascertain the best performer or optimum solution. The model examines multiple approaches involving challengers and champions rivaling each other to find the best variation. Hence, this cyclical process leads to ongoing improvement by comparing various options or approaches.

The model allows companies to evaluate potential alternatives using a comprehensive framework for assessment and comparison. Through this, companies can innovate, act on data-driven decisions, and remain competitive in the market. As it promotes continuous improvement, its implications include operational effectiveness, knowledge-based decision-making, process flexibility, and adaptability. It helps identify efficient solutions, offers key business intelligence, and supports rapid response to varied opportunities and problems under changing business conditions.

In production, predictive (machine learning-based) models are used to compare the performance offered by different production processes, models, and systems for performance optimization. By factoring in costs and risks, companies can evaluate champions and challengers and select the best, leading to the selection of an existing champion or switching to a challenger for better operational outcomes. For instance, a company can compare vendor performance, keeping the existing champion/s and potential challengers/rivals in view, and select the best vendor post-evaluation. 

The applications of this model vary based on the industry and function. In this section, let us study a few examples to understand the topic better.

Example #1

A July 2020 article discussed how the champion-challenger model was expected to affect outsourcing decisions in the future. It stated that several service providers and contact centers would compete for assignments in the future. Callzilla CEO Neal Topf said that new, not-so-well-known names (challengers) would be able to prove their competence in terms of innovation, operational capabilities, and strategic planning and bag key contracts.

Many believed that this model would help explore new technology, including AI-powered solutions for mundane or standard processes, resulting in significant performance improvements and cost savings. In this case, the AI-powered solutions would be the challengers.

This illustrates that the champions and challengers are constantly pitched against each other until champions retain their leading positions or challengers prove their worth in business.

Example #2

Suppose Stellar Investment Bank implements the champion-challenger approach to improve its trading algorithms. The stock model, known as QuantumEdge, designated as the champion, forms the established algorithm, which can deliver steady returns. A young and dynamic fintech company, TechQuant, presented a new algorithm called QuantumLeap. In this setup, QuantumLeap plays the role of a challenger trying to beat QuantumEdge.

Two separate parts of the bank's portfolio are used by each challenger and champion algorithm to grant the system an opportunity for real-time performance evaluation. As a result, QuantumLeap of TechQuant, surpasses expectations, giving an improved performance by 20% over QuantumEdge. Hence, the bank decided to integrate QuantumLeap into its trading strategies, which shows the champion-challenger method is a recommended method to ensure financial innovation.

When employed in business and finance, the champion-challenger model tests diverse solutions, services, products, and partnerships, among other things. Its importance has been discussed below.

• In this model, entities can evaluate champions and challengers operating against each other. This allows them to choose and implement the best option—service provider, product, vendor, etc.
• It offers companies the agility to review and select service providers, replace old ones in some cases, and adjust customer service strategies without spending an unreasonable amount of time on independent research.
• The model offers companies an opportunity to evaluate operators or approaches simultaneously in the context of the specific problem through which the best-fit solution provider can be found on time.
• The method reduces risks to some extent through effective evaluation, thereby addressing niggling issues before they become full-blown problems.
• This strategy promotes innovation across processes, enables the development of superior systems, and allows businesses to embrace agility. Through all this, it also facilitates cost reduction.
• This technique has applications across varied industries and functions, including finance, outsourcing, marketing, product development, supply chain and logistics, etc.