Honey, We Shrunk the Automobile Industry

A business war game. Five automotive teams: Ford, GM, Hyundai, Toyota, Volkswagen. One set of customer judges, one set of investor judges. Three market segments. Fascinating, unexpected results.

The teams were smart and they wanted to win. Yet collectively their decisions subtracted value from the industry: four out of five would have been better off if they’d done nothing at all and repeated last year’s moves for two more years. The fifth team had problems of its own – appearing to be successful, but leaving many billions of dollars on the table.

The automakers’ decisions were individually sensible but harmful in combination. They worked by the book, but the book didn’t work. It appears that company-centric financial approaches (what are our costs, how much capacity should we mothball) instead of  competitive analysis (what will our competitors do) led to those problems. The good news: anyone who’d gone through the war game would be less likely to make those mistakes in real life.