Business War Gaming
How to consider the unimagined
It is easy for business leaders to focus on what’s right in front of them — the business they’ve always run, competing against the same competitors, and serving the same customers with the same products and services. But our modern world is full of surprises that can quickly disrupt existing business plans.
War gaming is one of the best tools I’ve used for getting decision makers to recognize how uncertain the future is, and to be prepared to respond to surprises. In this article I will explain the concept, describe a general approach, and share an example.
War gaming, like many strategic planning tools in business, has its roots in the military. For centuries, commanders have staged simulated battles, setting their own forces against one another to sharpen situational awareness and anticipate how real opponents might react — without risking lives. This practice not only exposes the strengths and weaknesses of a plan, but also gives leaders and troops valuable experience, honing their skills and improving their ability to make quick, sound decisions under pressure.
After World War II, business leaders returning to the workplace began experimenting with war-gaming-like exercises within their businesses. Several different approaches emerged for how to run a war game, but in general, teams are formed with one team representing the company performing the exercise and other teams representing entities outside the company (competitors, customers, suppliers, regulators, etc.). There also is typically an independent facilitator who runs the game.
How to Run a War Game
The way I like to run a war game is with four or five teams:
- The company
- Two established competitors (perhaps the market leader and an aggressive challenger, smaller than the company)
- An adjacent player with the potential to disrupt the industry (Google seems to show up often in this role)
- (Optionally) A team representing external environmental forces — introducing economic changes, regulatory changes, and other unexpected potentialities (e.g. a global pandemic)
I also like to assign someone to be the “score keeper”. When working with a senior leadership team, I like to ask each of them to include 2 or 3 of their most creative team members in the exercise. If the company’s strategy team is strong, I also like to include one strategy team member on each team. I populate the teams from all of these participants, distributing senior leaders across the 4–5 teams and making sure that no team has more than one participant from a given organization. I usually assign the CEO either to the company team, or let them play the role of score keeper.
The teams are named and given their assignments at least a week before the actual war game so that they can research and strategize. Each team is directed to act in a manner consistent with the nature of the industry player they are representing. A conservative market leader should make decisions that are consistent with maintaining their position, probably while trying to reduce risks. An aggressive challenger should take more bold actions.
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On the day of the war game, all the teams gather in a large meeting room. Each team has a table set apart from the other teams where they can brainstorm and strategize. The score keeper works from a laptop that is displayed on a large screen in the room. On the laptop is a shared spreadsheet that might look something like this (link):
The teams take turns. Each team has 5 minutes after the previous team’s action to submit their action. They describe the action to all of the teams and enter a brief description in the appropriate cell of the spreadsheet. The score keeper then determines how much the action is likely to help that team and hurt each of the other teams (columns D-G). Depending on the action, this might be in the form of market share, revenue, or profitability gains or losses. The score is represented as 1 point for each percentage of impact (so a 5% increase in market share would score +5 points). The score keeper also judges how likely he believes it is that the action will succeed (column C). This discounts the impact of the scoring on the current scores (row 2).
The scoring makes the exercise competitive and motivates teams to take impactful actions, but it is clearly imprecise and subjective. The main goal of the exercise is to learn to think “outside the box”, to learn to respond, and most importantly to consider possibilities that would not have otherwise crossed your mind. The exercise also helps build better cross-functional rapport, injects new energy into otherwise subdued strategy discussions, and often sparks creative new proactive competitive moves.
An Example
I’ll use an old example featuring companies that no longer exist to avoid the risk of exposing anyone’s strategic approach. In the late 1990s I served as vice president of strategic development for Williams Communications Group. We were the telecom division of The Williams Companies and we operated three main subsidiaries, one focused on building a nationwide fiber optic network, a second focused on selling communications equipment and services to business customers, and a third providing multimedia services (broadcast television transport, videoconferencing, and distance education) across our telecom networks.
It was a particularly turbulent time in the telecom industry. Williams was one of several companies building new nationwide fiber networks (the other prominent builders were Qwest and Level 3). The Telecom Act of 1996 had opened local telecom markets to competition and provided a path for the local telephone companies to offer long distance services. The industry was constantly being consolidated and restructured through mergers and acquisitions. And all of this was happening as the Internet bubble was beginning to build, driving seemingly unlimited demand for telecom capacity (and irrational valuations of Internet-related companies, providing currency for consolidation).
My team organized a war gaming session with teams representing Williams, Qwest, WorldCom, and AT&T. As the rounds progressed, teams introduced new products and services, announced major new capital programs (building networks in new geographies), and major mergers and acquisitions. The teams remained true to character (e.g. AT&T was the most conservative in their actions) but also identified some very creative and disruptive actions they could take. I don’t remember who “won” the game, but I remember several times throughout the day when the entire room was shell-shocked by a potential competitive action we’d never considered.
We also walked away from the exercise with several ideas of proactive actions we could take, as a company, to either create tremendous value for our company, or preemptively neutralize risks from potential competitor actions.
A few months after the war game exercise WorldCom announced plans to acquire MCI. When I first heard the news, I thought the one telling me must be mistaken — it didn’t seem possible. Just a few years earlier WorldCom had been a small reseller of long distance services. They had grown through a series of aggressive mergers and acquisitions, but the MCI deal was almost beyond belief. It was the largest business acquisition ever, in any industry, at that point in history. MCI was the second largest long distance provider with 1996 revenues of $18.5 billion and net income per share of $1.73. WorldCom had 1996 revenues of $4.5 billion and net loss per share of $5.56. And yet, WorldCom was the one acquiring MCI.
In our war game exercise, the WorldCom team had not been so bold as to propose an acquisition of MCI. That likely would not have been accepted as an event with any likelihood of success.
But, the other aggressive combinations considered during the war gaming session had forced the management team to think through the implications for Williams and what actions could be taken in response. As a result, Williams was prepared. Williams was active in the discussion as regulators evaluated whether to approve the WorldCom-MCI combination and benefitted as parts of the combined company were divested to gain regulatory approval. In short, the company was better prepared for a shocking turn of events in the industry because of the war game exercise.
In Summary
It can be hard for busy executives to recognize threats and opportunities that exist even slightly outside of the current industry trajectory. All of us are prone to confirmation bias, anchoring bias, groupthink, availability bias, and overconfidence. War gaming can enable us to remove our blinders and constraints and prepare for a future we wouldn’t have otherwise considered.
Let me know if you’d like to discuss how war gaming might help your business.
