Why Do War Games Work?

Why Do War Games Work? Or, Better Questions, Better Answers

by Mark Chussil

(An enhanced version of this essay appears as an article in Competitive Intelligence Magazine. You can see the PDF here.)

Attorney: All your responses must be oral, okay? What school did you go to?
Witness: Oral.
(Source: One of those humor emails that circulates eternally)

You ask a silly question, you get a silly answer. That much we know. But how do you skip the silly and go for better?

Questions and business war games

Business war games, in my experience (see Appendix), provide outstanding insights that greatly impact bottom lines. But why? What is it about business war games that produces insights that evidently elude other approaches?

I think the answer lies in the questions business war games ask. You ask a better question, you get a better answer.

The first, worst question

“For a moment, nothing happened. Then, after a second or two, nothing continued to happen.” — Douglas Adams

Imagine that we expect a new competitor to enter our market, or we plan to launch a new product, or we want to see what would happen if we cut our price, or we need to set performance goals.

We pull out our trusty spreadsheet, full of estimated sales and costs and with quarterly profits lined up in the traditional hockey-stick formation.

What is the question that our trusty spreadsheet implicitly answers? If it’s like most that I’ve seen in corporate use, it is this:

What will happen to us with this strategy, assuming it works?

“What will happen to us with this strategy” is fine as a first question. What makes it the worst question is stopping after we answer it. Which strategists are prone to do, because spreadsheet analysis looks detailed, precise, and definitive, and thus makes us forget the second, often-unspoken “assuming it works” part.

Here’s why accounting-based spreadsheets assume our strategy will work:

• They do not take competitors’ actions or reactions into account. Equivalently, they assume competitors will behave as we wish.
• They further assume that costs can be cut without affecting sales. It is a rare spreadsheet that explicitly links costs to the top line as well as to the bottom.
• They assume sales will grow as we command, costs will slow as we demand, and profits will flow as we expand.

Those assumptions, of course, leave us open to surprises, mostly unpleasant.

Further reading: Do Not Overtighten and With All This Intelligence, Why Don’t We Have Better Strategies?

A better question

Rick Blaine, Humphrey Bogart’s character in “Casablanca,” on Captain Renault: “Oh, he’s just like any other man, only more so.”

Of course savvy strategists worry about stopping after the first question. Fortunately, it’s a cinch to find a second, better question. The better question is this:

What do you think they will do?

“They” usually refers to competitors, although it may be anyone whose actions can affect us. Here, we’ll stick to competitors.

The need to answer this better question is obvious enough that people have provided an assortment of tools to do so. The tools include competitive intelligence, trend analysis, and SWOT (strengths, weaknesses, opportunities, and threats) analysis.

“What do you think they will do” is a major step forward because it explicitly looks at relevant others, especially competitors. Where it falls short is not in theory but in practice.

When human beings answer “what do you think they will do,” they tend to start with past behavior. They figure that future behavior will be like past behavior, only more so or less so. (This is called anchoring. See further reading, below.)

• Done well — say, by noticing that a competitor has hired a person with an unusual background to run their R&D — competitive intelligence can help you anticipate even quantum shifts. That, and much more, is truly valuable. Done less well, you may get only raw facts and figures. And no, numbers do not speak for themselves.
• Trend analysis, by definition, extrapolates the past into the future, and thus, by definition, will not expose possible shifts in direction. That makes it least useful precisely when you need it most, which is when the future will not look like the past.
• SWOT analysis theoretically can assay what competitors might do. In practice, it may not work out that way, as we’ll see when we get to the next question. By the way, the very act of assigning labels — strengths, weaknesses, opportunities, threats — prejudges effects and biases our thinking about what we should do.

Think, though, about how you make decisions. You don’t aspire to be as you were yesterday, only more so or less so. You strive to get out of the box and do something innovative and magnificent. So do your competitors.

Further reading: Decision Traps, J. Edward Russo and Paul J.H. Schoemaker, covers anchoring. See also Anchors Weigh Down Competitive Thinking. On trend analysis, Predicting Competitors.

An even better question

“The guy who invented the first wheel was an idiot. The guy who invented the other three, he was a genius.” — Sid Caesar

The previous question unintentionally leads us to start with the past and make adjustments. But what if (and notice the mind-shift in “what if”) we don’t default to the past? We could ask this question instead:

What would you do if you were them?

Logically, the two questions are related. The new one even seems like a precursor to answering the prior. But in practice they work differently.

“Oh, if I were them, here’s what I would do!” The even-better question triggers an imaginative, even playful, reaction not at all like what emerged from the previous two questions. Now we’re brainstorming, we’re role-playing, we’re exploring scenarios.

People are so eager to answer “what would you do if you were them” it’s hard to shut them up. They have fun and indulge their creativity. They get to show off their imagination and cleverness. They build on their knowledge and even their fears.

We can beef up this question with the information we may have compiled for the other questions, especially competitive intelligence. CI helps us tour competitors’ heads. We learn they’re struggling to survive, and we imagine desperation. We learn they’re outsourcing, and we infer future price cuts or long-distance distribution chains. We learn they have a radical new product almost ready to launch, and we imagine what else they would be getting ready to do.

Plus, we can think about CI from their perspective, where we are the target. If they learn our customer satisfaction is dropping, they may consider launching a switch blitz. If they learn we’ve hired a hotshot senior executive from a different industry, they may infer we’re planning to make big changes. If they learn our relations with our foreign distributors are stormy, they may give those distributors a discreet call.

There’s one more question to go because we’re still missing three things. Voluntary exercise in creative thinking: can you figure out what they are?

Further reading: I Didn’t Know You Could Do That.

The last, best question

“The enemy is anybody who’s going to get you killed, no matter which side he’s on.” — Joseph Heller, Catch-22

With the previous question we get into competitors’ heads and imagine where they could go. With the last, best question we put on competitors’ shoes and see where they could go. The best question, at least until you or I come up with a better one, is this:

You are them. Go forth and win!
Now what happens?

I mentioned that the previous question, “what would you do if you were them,” was missing three things that this question supplies. Here’s what they are.

1. Dynamic interaction. It’s easy in the previous question to think only of one move; that is, action at one point in time. (You might avoid that if you use role-playing.) In this question, multiple actions and reactions are built in.
2. Calculation. Here, with the “what happens” part, we explicitly address consequences. We did that in our first, worst question too, but here we take competitors into account and, with proper design, avoid the other mistakes as well.
3. Emotion. We human beings feel emotion when our strategies succeed or fail, and we respond with emotion: fear, desperation, retaliation, embarrassment, overconfidence, hubris. Competition isn’t computer against computer, it’s human against human. To understand our markets and our future, we have to include emotion.

That’s why our last, best question answers my initial question of why business war games work better than conventional techniques. Unlike the other techniques with which I am familiar, business war games alone combine dynamic interaction, calculation, and emotion:

• Dynamic interaction through teams role-playing their business, its competitors, and relevant others, through multiple moves.
• Calculation through simulation models that use team decisions to estimate results.
• Emotion through war-game design and humans’ natural competitiveness.

Further reading: About dynamic interaction, Predictable Competitors. About calculation, All About Models, What The Model Says, and The Model Whisperer. About emotion, Feeling is Believing.

The bottom line

My point isn’t that business war games are the only way to gain better answers to tough strategy questions. Perhaps other techniques can be made to produce similar benefits.

My point also isn’t that the business war games that I conduct are the only business war games to achieve those benefits. Other fine firms conduct business war games too.

Rather, my point is that we don’t improve answers only via precision or speed. Often it’s best to improve the questions we ask. We’ve all felt the magic of a great question.

Appendix

I’ve worked with business war games a lot. I’ve conducted a couple hundred, for Fortune 500 companies and at conferences and universities, on six continents. I’ve conducted others, involving millions of scenarios, in the privacy of my computer. All in all, I’ve observed the behavior, decisions, and performance of thousands of real-life strategists.

For some war-game case studies, see this page on ACS’ website.

You can view and download a bibliography of three dozen articles and essays by ACS on business war games, with summaries and links to full text online.