May 8, 2003
The seven deadly sins of business war games, part 1.
by Mark Chussil
The seven deadly sins of business war games, part 1.
Mark Chussil, Founder and CEO, Advanced Competitive Strategies, Inc.
I’ve been involved with strategy decision-making for nearly 30 years, and in business war gaming and strategy simulation (its key enabling technology) for more than 16 years. I’ve learned a lot about what to do, and what not to do, in developing and implementing business war games. That’s what this two-part article is about.
With business war games, strategists rapidly uncover opportunities and threats that they otherwise would not have seen. They credit war games with boosting their bottom lines by tens and even hundreds of millions of dollars. [Especially in times of international tension, some managers are reluctant to use martial terminology. At ACS we have found that some clients embrace “business war game” while others prefer “virtual competition” or “strategy game.” You can use any of these terms without loss of meaning.]
Making the game work
Strategists find that business war games work for several reasons.
- Surprise. Getting one or more surprises about your business gives you proprietary insight that you can parlay into greatly improved performance.
- Experimentation. The safe, private, rigorous, and impartial environment of a good business war game lets you experiment with your strategy options before you have to commit real money.
- Consensus. The intense, shared experience, in which strategists see the same numbers and have ample opportunity to ask what-if questions, is effective at defusing conflict and building commitment.
- Expertise. A business war game also helps strategists learn about rigorously analyzing their markets, customers, and competitors, and therefore about effective decision-making.
- Decisions. The bottom line is that a business war game helps you, directly or indirectly, make much better strategy decisions. If it doesn’t, what’s the point?
Although those benefits are available, they are not guaranteed. Here, then, are the seven sins of business war games that you should avoid as you select and deploy your own business war games.
1. Not having a clear objective
What do you want to accomplish with your business war game?
- A bonding experience for managers.
- A catalyst for a sales meeting.
- A stimulus to generate ideas or provoke thinking.
- A rehearsal of a specific strategy.
- A rigorous way to make a critical strategy decision?
You want theatricality and excitement for a business war game that kicks off a sales meeting. You need advanced analytic power for a business war game that tests a strategy or contrasts multiple scenarios. If you use heavyweight analysis at the sales meeting, the worst you’ll do is put people into a bad mood. However, if you invest in theater when you’re making strategy decisions, you can put people out of a good job. Great drama only looks like great thinking.
You can avoid this sin by making sure the business war game you pick fits your objective. Remember that there are many forms of business war games; shop around.
Objective
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Typical example
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Desired characteristics of business war game
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Look for
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Don’t invest in
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Raise excitement
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Sales meeting
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Theater, hoopla, fun, energy
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Event planners and facilitators
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Sophisticated analysis. The outcome is preordained: victory!
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Raise consciousness
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Internal management development courses
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Knowledge and culture transfer
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Solid, non-obvious analysis tailored to your business
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Mind-numbing detail, which (incorrectly) says that precision wins
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Raise questions
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Scenario planning
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Out-of-the-box thinking
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Process to generate and summarize “wild” ideas
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Industry analysis, which implicitly constrains thinking
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Raise performance
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Strategy decision-making
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Much better strategy decisions
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Realistic simulation, rapid what-if analysis
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Do-it-yourself models, extrapolations of history
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2. Gaming the game.
Strategists in a business war game want to win, so they do their best to figure out the game itself. It’s natural; it’s part of being human.
I saw an extreme example of this behavior in business school, where a friend a year ahead of me convinced her team to slash expenses and raise the price of their product (which normally was a few dollars) to a million dollars. She gambled that the game software wouldn’t let unit sales go down to zero, and she was right. As a result, her team had a million in sales, negligible expenses, and the highest profits. Clever and victorious; not very realistic.
A simple business war game (that is, one based on a simple computer model or one with familiar consultants or analysts serving as judges) makes it easy for participants to game the game. They know what the model or judges want to hear, and so that’s what they say. Clever and victorious; not very realistic.
A more-subtle version of this sin occurs when participants know too much about the war-game parameters. For instance, if you know you’ll be rated on profits and if you know that the game is about to end, you have an incentive to stop spending money and let your business coast for the last year or the last quarter. You inflate your profits, and the damage you do is invisible because it’s beyond the game’s horizon.
The cure is as obvious as it is challenging: pick a game that’s hard to game. The way to find such a game is to talk to potential vendors about what drives their business war games. It’s relatively easy to game a game that predicts results with human judges or with computer models based on historical trends or financial analysis. It’s much more difficult to predict which actions will work, and which won’t, when using a highly realistic model based on competitive dynamics.
I remember the day when I could no longer predict what ValueWar would say. I realized that that’s when it became really useful: when it told me something I didn’t already know.
Look for that experience when you select a business war game. You want something that makes sense, and yet you also want something that doesn’t simply confirm your expectations. If it always does what you think, then it isn’t helping you think.
3. Relying on conventional wisdom
No one consciously selects a business war game that favors conventional wisdom. After all, part of the allure of business war games is that they can help strategists break out of traditional ways of thinking. However, even though business war games don’t intentionally favor conventional wisdom, some do so inadvertently and invisibly.
At ACS we ran a war game for a company whose managers insisted they sold a commodity. If we had built their assumption into the war game — as an inexperienced model-builder or an industry specialist might do — we would have limited their market moves to changes in price. We retained ValueWar’s market-differentiation factors and temporarily turned them off. It turned out that price moves would not produce positive profits, so we re-opened the topic of differentiation moves. Those moves proved successful. If we had built in conventional wisdom, our client would not have found a strategy that improved their bottom line by hundreds of millions of dollars.
Conventional wisdom can infect your business war game in two ways:
- how you generate strategy options.
- how the business war game determines winners and losers.
Generating strategy options:
Ask the vendor how their war-game process generates strategies to test.
- If you can create free-form strategy options for your business and its competitors, that’s good. It’s especially good if the strategy-creation process encourages out-of-the-box alternatives, even those that neither you or your competitors have ever implemented.
- If you must select options from a canned list of strategies (“low-cost strategy,” “cut budgets 10%,” etc.), that’s not so good. Such a list implies conventional-wisdom constraints or limited analytic capabilities.
- If you select a strategy for your business and not for your competitors, that implies they will remain passive no matter what you do. Run screaming. Note, by the way, that a spreadsheet of your business alone implicitly assumes that your competitors will not respond to your moves.
Determining winners and losers:
Ask the vendor how his or her war game allocates market share among the businesses in the war game.
- If there’s a causal model that directly links customer preferences and business moves to market-share results, that’s good. Such a model mirrors customer thinking. Better is a model that uses data from the market to calibrate customer behavior. Best of all is a data-based model that supports what-if tests to see if future shifts in customer wants will change the strategy option that’s best for you.
- If human judges or “umpires” decide among themselves which competitors get how much share, that’s not so good. Human beings are not calculators; we don’t do so well at balancing many quantitative factors. In addition, we humans tend to favor the familiar, including our interpretations of our experience, which means we impress our individual conventional wisdoms on our judgments. [One wag felt that he was so expert, he doesn’t have ‘gut feeling,’ he has ‘gut fact.’
- If their technology allows you to specify a strategy that includes the outcome — for instance, “our strategy is to gain seven points of market share” — run screaming.
- Subtle point for model mavens: if the market-share allocator assumes that shares stay stable unless something changes in the market, then the war game effectively protects the status quo. Such a model will tend to underestimate market volatility and the ability of new competitors to make inroads.
Forecasts, history, trends, experts, judgment, experience… in short, the more you hear those words as a vendor describes his or her business war game, the more you should look carefully for signs of conventional wisdom.
[Part 2 will appear in issue 32, May 22, 2003]
About the author
Mark Chussil is Founder and CEO of Advanced Competitive Strategies, Inc. (www.competing.com) and lead creator of the award-winning ValueWar® strategy simulator. He and his colleagues at ACS have implemented business war games for dozens of companies, in many industries, around the world. He has spoken at numerous conferences and companies, has published extensively, and has been quoted in Fast Company, The Wall Street Journal, and other publications. Prior to founding ACS, Mark worked at The Strategic Planning Institute (The PIMS Program) and Sequent Computer Systems. He earned his B.A. from Yale and his M.B.A. from Harvard. Mark may be contacted at mchussil@competing.com .
copyright 2003 Society of Competitive Intelligence Professionals
scip.online, issue 31, May 8, 2003
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