Business is War - So Let's Have a War Game

Oh, what a lovely day for a war game.

"Good morning troops!" barks Adrian Cruza — a pipe dangling from his lips, general's stars glistening from his epaulets, a paratrooper's beret from Vietnam — where he was a decorated platoon leader — perched on his head.

"Good morning," comes the polite response. About 40 mid level managers from the Latin American division of SmithKline Beecham PLC, the $9 billion pharmaceutical giant, are gathered around an elegant mahogany table. They are outfitted in combat fatigues, although more than a few also sport tasseled shoes.

"I can't hear you!" shouts Cruz, a Puerto Rico-born, Harvard-trained MBA who exudes a zesty, take-no-prisoners management style. Cruz was running Sterling Pharmaceutical's Latin America unit when it was acquired by SmithKline in December 1994. He beat out two SmithKline counterparts to lead the combined operation.

"Good morning!" boom the suddenly inspired executives, their words echoing off the richly paneled walls of a conference room high above Mexico City's Insurgentes Boulevard.

Oh, what a lovely day for a war game. Cruz has spent more than $100,000 on a computer-based simulation to help his executives think through plans to introduce a new consumer product in the rapidly growing Mexican market. The product, which leverages off an existing SmithKline brand, makes great strategic sense — at least on paper. This two-day simulation, developed and run by Advanced Competitive Strategies (ACS) of Portland, Oregon, is designed to help the team convert ideas into action — and hopefully create a sense of urgency and esprit de corps.

"This experience will change your mind-set," Cruz tells the group. "Nobody dies and no money is lost, but nobody comes out of a war game thinking the same way. You become more analytical, more comfortable by testing contingencies and scenarios."

The Mexico City meeting uses classic simulation techniques. The managers divide themselves into four opposing camps — one representing the new SmithKline product, one for each of its three main rivals. The computer model driving the game contains lots of real-world data. Indeed, it took a SmithKline manager one month to compile the data and feed it to ACS. Whenever the SmithKline team makes a move — discounting the product's price, changing its package design, developing a new ad campaign — the computer generates performance results based on consumer reactions and competitive countermoves.

Competitive simulations come in several varieties. Mexico City is a "closed-loop" game; it describes an established market with well-understood competitive dynamics. The computer model reflects the actual strengths and weaknesses of the players in Mexico. Cruz believes that's more powerful than "horse race" simulations, where rival teams start out in the same position.

There's no denying Adrian Cruz's enthusiasm for war games. He oversees at least three ACS-run simulations per year in Latin America. "I don't know anyone in the world who does war games as much as he does," marvels ACS President Mark Chussil. (SmithKline has sent managers from Japan and London to Cruz's operation to learn the process.) Cruz even maintains a permanent "War Room" in his Mexico City headquarters. Decorated in camouflage, it contains a Theater of Operations Wall (competitive map), Battlefield Reports (performance indicators), an Intelligence Cabinet (field notes), and an Enemy Arsenal (competitor's products).

Cruz says he believes in simulation because of the dividends it has paid. In 1993, for example, Cruz (then at Sterling) learned that a competitor was going to introduce a new over-the-counter analgesic into the Dominican Republic. So he convened a simulation. The team representing the competitor developed a mock ad campaign highlighting the product's support among U.S. doctors. The war game concluded that this technique could easily generate a 5% market share, much of it at the expense of Sterling's share. The team representing Sterling responded with a campaign that emphasized its product's leading position with Dominican doctors. The company launched a campaign based on this scenario two weeks after the war game — a preemptive move that delayed the rival launch by six months. Today the competing product has a 1% share; Sterling's share has increased by 10%.

Standing at the head of the conference table, Cruz prepares his troops for today's battle. "You have to know your enemies and anticipate their actions," he says. "Crystallize your strategies. Don't be afraid to think outside the box."

The game unfolds in a rhythm of planning, executing, and evaluating. Teams meet separately and run their own simulations to devise strategy. Then they deliver their moves to ACS. The consultants enter the decisions into the computer and project the results of where the three products stand. As the game unfolds, and as each team becomes more comfortable with its strategy, Cruz tosses in surprises — a big devaluation of the Mexican peso, changes in consumer behavior that make people more price-sensitive. The teams return to their huddles, adjust their strategies, and look at the results.

The game is as much about tactics as strategy. At one point, during a lecture to the group, ACS President Mark Chussil discusses potential diversions by the competition — essentially, strategic dirty tricks. "Don't we have at least one dirty trick on our side?" asks Jose Pepe Puente, general manager of SmithKline's Mexican consumer-product unit. In fact, the team representing SmithKline's product debates the value of issuing misinformation — putting out the word that SmithKline will launch the product in Brazil rather than Mexico.

Chussil urges caution on that tactic. "Confusing competitors can make them stupid," he warns. "And that can lead to knee-jerk reactions — like cutting price. It's better to figure out what you want the competition to do and how to get them to do it."

As the game draws to a close, the SmithKline team worries that it may be how loyal Mexican consumers are to the brand off of which it's leveraging the new product. The response : invest in usage-and-application studies to analyze the depth of brand loyalty, and whether it can carry the line extension. The team also reaches an eye-opening competitive insight — a massive price cut by its chief competitor could wipe out the new product before it gets a chance. The solution : introduce the product with a niche strategy rather than launch a head-on assault in the marketplace.

Cruz thinks that's a smart move. "The point is not to trigger a price war," he agrees. "If we're only going for a segment, they won't kill themselves [competing] because in the end they'd lose more than we would. They won't feel as threatened by a niche product."

In general, the group feels positive about the outcome. The simulation concludes that if all the pieces fall into place, the new product could break even in the second quarter of its fourth year on the market. For Adrian Cruz, that's reason enough to declare victory and start celebrating. In a restaurant named after Winston Churchill, the participants receive certificates recognizing their participation in the war game. Their leader is beaming. "This is real life," he tells his team. "The competition is out to get us."

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