War Games as a Strategic Tool

My previous blog discussed the concept of how War Games could be used to address the flaws inherent in the strategy development process. To recap, there are two primary reasons for the flaw:

  1. Strategy development is a backward looking process that anticipates known trends and alternatives;
  2. Most strategy is developed by a team not responsible for execution.

The second point is obvious so I won’t spend any time on that issue here, focusing instead on just the first point.

The key problems arising out of the first point are twofold:

  1. Competitors have access to the same information we do and they will be making market moves based on the same information at our disposal;
  2. Competitors will react to our strategic moves, potentially impacting the outcome of our strategy.

The essence of competitive moves goes to the concept of War Games.

In both these cases the traditional strategy development process is not equipped to factor competitor moves into the process, resulting in a strategy that is based on incomplete information, resulting in a sub-optimal strategy. Ideally, if we could understand how competitors will react to our strategic moves or the moves they will make based on market trends before we invest in our strategy, we would be able to develop a strategy that anticipates and capitalizes on this knowledge.

Obviously, it is impossible to predict exactly what a competitor will do, however using principles of Game Theory and Military War Games, we can develop scenarios that are surprisingly accurate in their predictions. I have used this approach with a number of clients over the years and have continually been amazed at how well the exercise predicts what certain competitors will do. In one case, we successfully identified the emergence of a new competitor in the Canadian retail market, including identifying how they would enter the market (through acquisition) and who the most likely acquisition target company would be (our client).

The key here is to understand how competitors could potentially react and the likely alternatives they have based on an understanding of their company DNA. This is critical. The moves we predict have to be ones that a competitor could potentially make. Certain moves might make more sense for one competitor and not another and this has to be factored in. Once we understand that, we can use that as information to inform our strategy, either modifying it to blunt any potential competitive threats, or put down markers that act as an Early Warning System to warn us if a competitor is in fact going to make the moves we have predicted.

The predictive nature of the War Game makes this an invaluable tool and can be used for a variety of purposes, including:

  • Strategy Development
  • Selecting between alternative strategic choices
  • New Product introductions
  • Price changes
  • Market entry strategy

In any of these situations, we can play out the likely impact of our plans before it actually happens, and make adjustments based on this insight.

While this may sound like a complicated and long process, and it can be, but having done this a number of times, the bulk of value can be derived from a relatively short process (2 weeks or less), assuming it has been structured correctly. More on that in a future blog.