Telematics Competition Research: Business War Games

By Donald E. Baul

The purpose of this article is to present an experiential view of business war games that provides some insights into their usefulness, and their application for businesses in today’s highly dynamic and competitive market environment.

My first experience with what is now known popularly as war games occurred during a seminar on strategic planning a number of years ago. An element of the seminar which was unique at the time was the use of computer generated scenarios to model a dynamic business environment.

The participants were given a baseline business situation and environment, and assigned the part of a player in that market. The exercise required participants to make specific business decisions that could be modeled and processed by the computer to simulate the actual market impacts of those decisions. These decisions included areas such as marketing expenditures, research and development, plant and equipment investment, etc. The numerical values of these decisions were then processed to yield changes in the market environment in terms of product sales revenue, market share, etc., for each participant team, and for the market as a whole. "Winning" the game was achieved by realizing the greatest increase in revenue and market share by the end of the time period. The period, in this case, was defined as two years, or eight quarterly sub periods, with decision points occurring at the beginning of each quarter.

The exercise also modeled the market place in terms of "surprises" such as the entry of a new participant, or changes in the overall market economic environment to better reflect the situations that could be produced in the "real" market place.

Perhaps the greatest value of this exercise was to better enable participants to think in terms of the "big picture" of a market, and to improve their understanding of the implications of business decisions on the participating market players and on the market as a whole. I also came away with a much greater appreciation for the dynamic nature of markets, and the complexities of the forces that move and motivate participants in those markets.

The exercise I described above was more appropriate to what would today be called a "business scenario." In fact, business war gaming from my perspective is more of a subset of business scenarios, modeled more closely on military concepts as applied to the business environment. Later in my career I was fortunate to be able to experience war games at the executive level of a Fortune 100 telecommunications provider, as a member of a competitive intelligence (CI) group that served as advisors and facilitators for the exercise.

It seems difficult today, looking at the telecommunications industry as it now exists, to recall that in 1984 AT&T, the old "Ma Bell," was mandated by the FCC to split into seven regional companies. As an example of how things have changed, one of the resulting Regional Bell Operating Companies (RBOCs), formerly Southwestern Bell, later acquired several other of its sibling RBOCs. Eventually, Southwestern Bell renamed itself SBC and purchased what remained of the "old" AT&T, to become the "new" AT&T. During this period of telecommunications upheaval, there was an interval of gut wrenching transition from the de facto monopoly status of AT&T to the current hyper-competitive environment which has become a virtual free-for-all between cable companies, telephone carriers, satellite vendors, Internet providers and a host of other players.

During this transition, I worked in the CI unit at a regional Bell company, which I will refer to as RBOC X. The leadership team at RBOC X had anticipated the need to develop a more competitively oriented mindset. A CI organization had been formed at RBOC X that was well funded, staffed and had the ear of senior management. It was not unusual for the CI organization to receive a "back of the envelope" question from the CEO who had seen a thought provoking article in that day’s Wall Street Journal and wanted to know what the implications of the activity described in the article were for our business. We would respond by assembling a team of qualified experts to develop a reply to the CEO’s question that incorporated appropriate recommendations for action.

Conceptually, business war games were a good fit for the culture and mind set of RBOC X at this stage of its market evolution. After being introduced to the benefits of war games, the CEO authorized an exercise and required participation in the games by all of his direct reports. Each direct report was assigned leadership of a team that was to represent one of our major competitors in the telecommunications industry. The CI group was designated as a support organization for the overall war games process, and to act as a resource for participants. The overall war games process and execution were conducted and facilitated by a third party vendor who had extensive expertise in this area and a strong track record of conducting this kind of business exercise.

One of the early and interesting developments for the exercise was the sudden and unexpected involvement of our legal department. News of the games had somehow reached the State Utilities Commission which took exception to the concept of a dominant incumbent carrier such as ours making "war" on our competitors. We were instructed to change all documentation relating to the exercise from "war games" to "business competition scenarios." RBOC X understood that its position as a public utility required great sensitivity to the perceptions of all stakeholder organizations as well as the public, and the requested changes were promptly implemented.

Over the next several weeks the teams conducted the exercises and produced their results, which were not shared outside the corporate officer team. While we did not know the specifics of the outcomes in terms of strategic changes, there was considerable feedback on the change of mindset experienced by the officer team.

As in most large companies, the senior management team had been operating under long held assumptions about the telecommunications industry and our company’s place in it which did not reflect the rapidly changing market environment. All of them, to an individual, expressed surprise and a certain level of discomfort from the experience of viewing the business through the eyes of our competitors. Having intimate knowledge of the business’s vulnerabilities, and then being put into the position of a competitor intent on exploiting those vulnerabilities, was an eye opener for all of them.

In my opinion, there could not be a more rewarding payoff for war games than a change of attitude that more closely reflects the realities of a dynamic market environment. This kind of enlightenment does come at a cost. The expense and resources required to effectively implement a business war games session are considerable. Involvement of high level management potentially generates the greatest benefit, since these are the people who are best positioned to implement the learning gained from the war games experience. At the same time, games can be a major distraction from normal business operations over a period of several weeks or even months. The need to maintain a focus on core business processes and issues must be actively managed, and included in war games planning.

It is critical that any business considering conducting a war games exercise be absolutely clear on the objectives of the games, and committed to developing plans and actions to implement the lessons learned. Otherwise, considerable time and resources can be consumed learning things that are, at best, just "nice to know."

There are a number of reputable, highly qualified third party vendors that specialize in conducting business war games. These firms have considerable expertise and experience gained from years of consulting with highly complex and dynamic Fortune 500 corporations. The fact that many of these Fortune 500 firms see value in conducting war games is a testament to the effectiveness and utility of insights gained from seeing your business and industry through the eyes of your competitors. The Society of Competitive Intelligence Professionals (SCIP) can be a valuable resource in helping companies to identify qualified firms who specialize in conducting war games.

If your company is considering conducting war game exercises, due diligence is a must in determining the benefits and trade-offs of such commitments. If executed properly and implemented effectively, war games can provide valuable insights that are difficult to replicate, and can help the business to develop innovative approaches to today’s ultra-competitive and dynamic market environment.

Published Wednesday, August 16th, 2006

Written by Donald E. Baul

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