Archive for the ‘War Gaming’ Tag

Don’t plan, tack

Companies that fail to plan, plan to fail. Or do they?  It is very common for organizations to spend significant time and effort each year developing strategic plans that are used to analyze the market, set goals and priorities and allocate resources.  However, there is often no correlation between plan quality and market results.  Relying on a formal, long-term strategic plan is not for everyone and can, in fact, be dangerous for many companies.  Here’s why.

Strategic planning is predicated on a number of shaky assumptions, three of which are:

  1. Managers can predict the future. It is virtually impossible to dependably predict the future given the unknowns — competitive reaction, technological change and likelihood of Black Swan events.  No matter how thorough a plan is, it cannot account for every contingency. For example, few firms anticipated the 2008 Financial Crisis and the speed at which it unfolded.  When unforeseen change happens, an inflexible plan can turn into a strategic blindfold.
  2. Target goals are attainable. Many plans feature BHAGs (Big Hairy Audacious Goals) that are used to motivate employees and spur breakthrough thinking and effort. The problem with having these stretch goals is that often they are  divorced from market and financial realities, and are set for other reasons like management incentives, ego or head office needs.
  3. Everyone aligns to the plan. Though strategic planning is typically a cross-functional exercise, its implementation is often uneven or compromised. Poor implementation arises when metrics or objectives that are at odds with the plan’s targets and measures are used as incentives for departments. Promoting unrealistic goals can demotivate employees or lead to unethical behaviour.

Strategic planning has other drawbacks. The exercise can consume an inordinate amount of time, effort and resources.  The value of the plan is highly dependent on having customer, channel and cost data, which is often unavailable or of poor quality.  Finally, the planning process can often lead to win-lose outcomes, triggering infighting and limiting collaboration.

There is another approach to coping with competition and uncertain future.  We call this method, “strategic tacking” — a sailing term used to describe how a boat sails towards the finish line in an indirect way making allowances for changing weather and water conditions plus race position. Through strategic tacking, companies pay less attention to creating a plan and focus instead on producing the essential knowledge and operational adaptability to compete well in a dynamic environment. Strategic tacking does not mean an enterprise is not systematic or rigorous in its thinking. Rather, management prioritizes process over a finite outcome or plan.  Strategic tacking includes the following elements:

Core assets

Whether they know it or not, every firm competes best across one to two dimensions such as customer satisfaction, product performance or low cost. Understanding this differentiation and the capabilities that support it (taken together are core assets) is the first step to achieving clarity of purpose and action. These assets would act as a strategic lens to help leaders decide what to prioritize with what resources, given the potential benefits and risks.

Analytical competencies

Companies need a regular and objective view of their competitors, customers and costs.  To get this, managers need to undertake a thorough analytical process that includes as many internal and external people as possible. This activity will help management quickly identify and meet competitive challenge and exploit new opportunities without over-stretching capabilities and partners.  Where possible, simulation-based analytical tools like war gaming should be used to explore real-life, risk scenarios and drive internal buy-in.  As well, the firm should have market intelligence mechanisms that capture information, turn it into knowledge and share it quickly.

Organizational Agility

The right structure and processes need to be in place to make quick, fact-based decisions that lead to rapid enterprise mobilization.  We have seen firms maintain a SWOT-like, decision making group, made up of senior managers and experts from across the company.  Instead of earmarking 12 months of investment in a budget, firms can hold back discretionary funds to capitalize on opportunities.  Once decisions are made, there also needs to be mechanisms for deploying people, capital and expertise.  We have created market-specific, rapid-deployment teams made up of project managers, marketers and product managers who are ready to execute high-priority initiatives.

Many companies strategically tack whether they recognize it or not.  This approach may be one reason why leaders like Apple, Google, Amazon, Open Text and Nike can consistently outflank and preempt competition. Unsurprisingly, strategic tacking is not a realistic option for every company based on shareholder expectations and organizational issues.  Furthermore, well-crafted plans are still best suited for slow-moving sectors such as consumer & industrial goods, not-for-profits and services.

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

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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.