Business war games

Business war games

Business war gaming is an adaptation of the art of simulating moves and counter-moves in a commercial setting. Unlike military war games, or fantasy war games which go back hundreds of years to the days of Prussia and H.G. Wells, business war games are a relatively recent development, but they are growing rapidly [ [http://www.economist.com/business/displaystory.cfm?story_id=9257879 "Shall We Play a Game?"] The Economist, June 2, 2007, p. 72)] .

The rationale for running a business war game, is a tool that is of particular use when the competitive environment is undergoing a process of change, as it allows decision makers to consider how different organizations can react to the change, and each other. Teams role playing competitors, is best expressed in a quote from Richard Clark, CEO of Merck and Co., who in an interview to USA Today said: "I am a strong believer in if you’re going to develop a vision or a strategic plan for the future of a company that you have to engage the organization in doing that…it can’t be just the CEO or top 10 executives sitting in a sterile conference room." [ [http://www.usatoday.com/money/industries/health/drugs/2006-02-26-merck-cover-usat_x.htm USA Today, "Merck CEO sets sight on change", February 27, 2006, p. B1] ] ".

Methodologies

Currently there are three school of thought about business war games, depending on the underlying philosophy of their creators: "Business is War" war games, "Business is a Game" war games, and "Business is Business" war games. The three types have accordingly, different strengths and weaknesses, and are useful for different applications throughout business.

"Business is War"

Sometimes abbreviated as 'BIW' war games, 'Business is War' games are a direct adaptation from the military war games, and envision competitors as the "enemy" and the goal as "victory" in a market "battle". These games are based on mathematical modeling of contestable markets, including chaos theory, random variable generation (Monte Carlo simulations), and econometric modeling of demand and supply conditions. Participants’ generated moves are fed into computer program which generates optimal solutions in the mathematical space. Not surprisingly these games come with a high price tag, and are advocated by large consulting firms which tend to work with the US military establishment. A leading consultancy in this application is Booz Allen Hamilton. This approach received its voice in [(Herman, Mark L and Mark D. Frost (2008). War Gaming for Leaders. New York: McGraw Hill)] .

"Business is a Game"

'BIG' war games regard business transactions as a game between participants with potentially conflicting goals. BIG advocates apply game theory, a branch of mathematics to business situations with the goal of finding an equilibrium, or "stable" solution (so called Nash equilibrium) whereby no one can further improve on the outcome. The solution can be computed over a large space of all possible (hypothetical) moves of the players. A leading proponent of this type of war games is Niall Fraser, a game theorist and the founder of a consultancy called Open Options [(Fraser, N.M. and K.W. Hipel (1984). Conflict Analysis: Models and Resolutions. New York: North-Holland)] . A variant on BIG is computer simulations’ games using simultaneous equations to solve for demand and supply equilibrium (not a game theory solution). Participants input numerical values for decisions on a wide range of business investments (in production, sales force, advertising, etc), and receive a computer output of the equilibrium results. Companies providing these types of games are Mark Chussil of Advanced Competitive Strategies [Chussil, Mark. "Business War Games", SCIP.online, volume 1 number 19, November 8, 2002] , and Jay Kurtz of KappaWest.

"Business is Business"

Also referred to as 'BIB' regard business as neither a war nor a game [(Gilad, Ben. "Neither a War Nor a Game", CI Magazine, 9(6), Nov.-Dec. 2006)] . The goals and tactics of war are incompatible with business goals; competitors do not aim to defeat each other but to satisfy customers’ preferences better than others. Government precludes total victories and cooperation is as prevalent as competition. Similarly, BIB criticizes "Business is Game" thinking on the ground that hypothetical or generic moves are irrelevant or trivial, stable solutions are not a substitute for specific, real life practical and innovative strategies for management, and computer/mathematical simulations do not approach the complexity of competitive dynamics in real markets. Instead, BIB advocates using state-of-the-art competitor analysis techniques and real life competitive intelligence to generate an in-depth profiling of competitors through role playing. The goal of BIB is predicting most likely moves by most significant competitors or other third parties (customers, regulators) so that strategy can be pressure–tested in the most realistic setting [Gilad, Ben (2008). Business War Games. NJ: Career Press] . The creator of BIB games is Benjamin Gilad, a former strategy professor at Rutgers University, an early pioneer of competitive intelligence theory and practice in the US, and the founder of the [http://www.GiladWarGames.com Academy of Competitive Intelligence] .

Applications

Given the high budget requirements and long preparations time, BIW games are more appropriate for big companies, and big decisions. Meaning corporate games, involving top executives with considerable staff and consultant support. Corporate games are played over major portfolio decisions such as diversification and/or divestiture moves of the parent company (i.e., which acquisitions to go for, which business to get rid of), and over longer term horizons. BIG games are less appropriate for business units, smaller companies, or business strategy decisions, as their high price tag and extensive time required from top executives are no match for small scale games with more tailored application and flexible format. To fully understand the difference between corporate games played over corporate strategy (portfolio management) and business games played over business strategy (competitive strategy), read Michael Porter’s articles [(Porter, Michael E. ["From Competitive Advantage to Corporate Strategy". Harvard Business Review, May-June, 1987 pp. 43-59 and "What is Strategy", Harvard Business Review, Nov-Dec. 1996, pp. 61-78)] .

Game theory and computer simulation games are appropriate for planning and decision support in industries in relatively stable state, known distributions of outcomes, and predictable competitors, as they are best suited for finding equilibrium solutions among a relatively large set of known variables (payoffs and moves). On the other hand, BIG games are handicapped in rapidly changing industries, markets where surprise moves by new players is a possibility, situations requiring innovative and creative approaches, and in decisions calling for specific practical ideas rather than more generic moves (such as raise, stay or lower prices by x%). Decision makers looking at war gaming should also be minded of game theory’s own lack of empirical support, as people seem to irrationally follow behaviors that do not result in their best outcome.

Business war games employing role-playing and competitor analytical techniques are most beneficial in business strategy at the business unit, market, brands, product and project levels. BIB games have been applied with great success to new product launches, offensive and defensive moves against specific competitors (whose response is analyzed using the advanced competitor analysis techniques), in organizational development’s (training the next generation executive cadre) "competitive landscape" games, and in brand revival and new market entry situations. BIB games are less useful in corporate strategy as they apply to business strategy and not across different industries. BIB are also more culture sensitive, and should be applied with caution in cultures where honest discussion of blindspots is less than appreciated [(Gilad, 2006)] .

References


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