War Gaming Decisions: The Newest Risk Management Tool

I am a former strategy professor, a former intelligence officer and a current war game facilitator. I run war games. I have been running war games since 1982: dozens and dozens of them in every industry imaginable and too many Fortune 500 companies to remember them all. No, I don’t believe every one of my games was spectacular nor had huge effect on the bottom line. In other words, I am not going to sell hyped marketing like those consulting companies with flashy ads in airports.

Sometimes war games work wonders. Other times they are a waste of time and resources. The trick is to know in advance which is which. Hopefully this brief will clarify some of the mystery surrounding this new hot tool called "War Games."

For clarification, they are neither wars nor games. A more appropriate title would be a simulation of actions and counteractions in a competitive setting by major players in an industry or market, with the objective of determining one’s own optimal strategy and tactics.

See why I prefer to stick with "war games"?

Most managers grasp the essence of a war game without excessive explanations. It is a role playing exercise that attempts to have you think in advance about potential risks and opportunities stemming from your intended actions. In the context appropriate for the readers of this publication, a war game will answer questions such as: How would competitors react to your choice of locations? What is the optimal location strategy given trends in the market and competitors’ intentions? War games are just a very effective tool – at least in theory - to facilitate thinking ahead, which is the planning methodology preferred over looking-back-with-bewilderment. It is all about this new corporate mantra of "managing risks": risks to a new product launch, risks to a market entry, risks in an upcoming acquisition (Oh, that’s a big one. It could potentially have saved Mattel, Daimler, AT&T, Lucent, Tyco and a dozen other infamous flops a few billion here and there over the years).

There are four basic criteria that must be met for you to consider running a war game:

An opponent. War gaming is about figuring out how to outsmart competitors.
Competitive intelligence. You need a starting point for predicting opponents’ actions and reactions. Armchair reasoning by a small set of insulated executives or a navel-gazing brand team is not a good beginning. Observable behavior is much better.
High stakes. Otherwise, why bother?
Desire to make decisions. Otherwise, why bother (part 2)?

Once these necessary but not by themselves sufficient conditions are met, you need another very important ingredient - an analytical framework which will make the game more than an exercise in guessing what competitors are likely to do to you. Otherwise, you end up with a room full of either docile or opinionated managers (depending on the company’s culture) who spend eight hours recycling their deeply rooted beliefs and what I call "management myths and taboos."

Having the right analytical framework in place, I’d stay away from simulations using computers, stochastic equations, or expensive consulting firms. The former are flashy and useless tools for peering into an uncertain future, the latter is just common sense. Expensive games run by the top management consulting firms are aimed at top executives and are a complete and utter waste of shareholders’ money. They should rank up there with excessive CEO pay as a target for legislation. As Richard Clark, CEO of Merck and Co., said in an interview to USA Today on Monday, Feb 27, 2006 (page 2B), "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." His predecessor, Raymond Gilmartin, was not so smart.

The new paradigm of risk management places high value on coordinating risk management activities across functions. A war game, as one of this new paradigm’s foremost tools, places high importance on selecting the right multifunctional team of managers to assess risks by playing competitors and the host company. Thus, risk (and opportunity) identification is wrestled away from the silos of Marketing or Finance. Also, strategy personnel in some of the world’s leading companies have increasingly been using war games for strategic early warning, especially the "blind spots" version of the war game.

So, at this point it sounds pretty good, doesn’t it? Not so fast. The chance of a war game actually accomplishing anything is about 60%.

First, ask yourself what you would like to achieve. A war game has three major goals: 1) make decisions; 2) make decisions based on field intelligence, not ego or politics or executive guts; 3) make decisions based on realistic assessments, not executives’ ever-optimistic rose-colored glasses. Things do go wrong, and 90% of the time it is because the executive champion refused to go through a reality check.

A few things you should watch for: culture, culture and again, culture. I once worked with a very famous consumer product giant, running a war game for one of its divisions. In the middle of the game, senior executives in the room severely chided several young managers for daring to bring up some weaknesses in the division’s strategy (blindspots). That was the end of the game (one year later, it was the end of those executives).

I once ran a war game for a hugely admired Fortune 500 company where the object under consideration was specific actions taken by one competitor and the appropriate reactions to them. At the introduction stage, a lawyer gave a warning to the participants that they should be careful about what they say. That was the end of that game.

I once lead a war game where management was so dominant that no one in the room had any new ideas to share with them. They all rehashed the old corporate line. That game was not worth a penny.

I once ran a war game with a group of brilliant engineers and marketers in one of the world’s leading high tech firms, which produced some brilliant thinking about a strategic threat to that high tech company. At the end, the chief marketing officer waltzed in, took one look at the results of their hard work and pronounced them irrelevant. He wanted the teams to help design a three-to-six month communication strategy for the company’s web site.

And so on.

War games are not for everyone. The culture must be open to constructive confrontation. The decision makers must have some trust in their people’s creative thinking, and a willingness to listen. The politics can not be too thick. War games have been used for thousands of years by the most brilliant military minds in the world and have produced some amazing results. And yet the most recent example, the Millennium War Game of the US military in 2002, produced nothing. It actually predicted insurgency similar to what is bogging down the US military nowadays in Iraq. Do you think anything was learned from it?

Before you run a war game, think hard: Is your company ready to move decisions along? Is your management actually interested in middle management opinions? If the answer is yes, a war game can do for you what it did for a large pharmaceutical firm I worked with: saved some serious bucks and helped make a new drug number one in its market. But if management is not open and prepared, save your precious resources; your "war" may be with self-absorbed executives, not with any opponents.