Business Gaming: Simulate to Success

Those who have participated in strategic planning exercises know the trials and tribulations of the process. For example, the outcome often results in poor decisions.  These could arise from management bias or an overtly company-centric view.  Moreover, traditional planning initiatives are typically time-consuming and onerous undertakings.  Finally, the planning effort will often fail to overcome functional silos, resulting in limited information sharing and inadequate compromises.

While a traditional strategic planning process has its merits, there is another way to develop strategy, preempt competition and secure internal alignment:  business gaming. 

War game simulations were first deployed by the Pentagon and the Rand Corporation (a U.S. think tank) in the 1950s.  Their purpose was to simulate the outcome of various military and diplomatic hypotheses.  Businesses recognized the power of this idea, and today, gaming is used extensively in companies that face high risk/high reward decisions.

Typically, an external consultant will work with management to design the game and create a market fact base. Different cross-functional teams are chosen to represent key competitors and stakeholder groups.  With the assistance of the consultant, these teams role play hypothesis-driven scenarios under real-life conditions which could include environmental or regulatory changes.  The scenarios represent important strategic decisions facing the firm such as whether to launch a product, make a price change or execute a M&A transaction

Business gaming is a powerful complement to all strategic planning approaches.  By their design, simulations bring reality directly into the planning process by incorporating competitive moves and by accounting for the human element in decision-making (e.g. fear,  hubris)  Our experience has shown that business simulations can deliver many benefits: 

Generates better decisions – Potential decisions are torture-tested against competitive moves.  Key assumptions and analytics are more easily challenged.  More creative strategic solutions often emerge.

Improves internal alignment – All participants will develop a much better understanding of the challenges and opportunities. As well, participants will align quicker around implementation strategies and resource allocations. 

Enhances learning and team-building – Business gaming is fun as it appeals to management’s competitive instincts.  Moreover, the level of strategic thinking and data sharing across the organization is usually enhanced. 

The following are some of the games we have run:

Should we raise our price? 

This medium-size software provider was worried about maintaining competitiveness against key rivals and lower-cost open-source tools following a price increase.  We role played the actions of key competitors, a strategic client and the open-source community in a simulation that ran over 1.5 days.  After experiencing a harsher than expected competitive and customer response, the company decided against a list price increase – but in favour of higher integration and support pricing.

How robust is the current plan?

A large financial institution was enjoying market leadership and high margins.  However, senior management was concerned that the existing strategic plan was overly conservative and paid insufficient attention to potential threats from new entrants. We undertook a 2 day game, simulating new product entry from current competitors as well as from disruptive players from outside the industry.  The game highlighted a number of product, service and operational vulnerabilities which the firm moved to quickly to address.

Do we acquire a larger rival?

This small but ambitious firm debated the impact of acquiring a larger competitor, which would immediately vault the firm into a global player.  However, the transaction would also bring considerable attention to bear on the company from large competitors as well as from important suppliers. Our firm role-played potential competitive and supplier responses to the transaction as well as the effect on the company’s tight culture and operational scalability.  The firm decided the opportunity out-weighed the risks and proceeded with the deal.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.


3 comments so far

  1. Anthony Wilkinson on

    It’s is a very interesting concept. How do you overcome bias as the “players” in the scenario are employees and have a stake in the outcome of the simulation?
    Running these must be a blast 😉

  2. […] in order to predict their potential behaviour.  To accomplish this, managers could run a business war game or simulation to model competitive reactions and identify an innovation’s vulnerabilities. For example, we […]

  3. […] complement, and not a replacement, to traditional and innovative decision making strategies such as business war gaming.  Like other management tools, GT’s effectiveness will depend on the skill on which it is used, […]

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