Game Over

Now let's get down to business. Simulation lets you play to learn — without having to play for keeps.

How to Practice the Game of Business

First the bad news: I'm in the middle of a big software project and things are not going smoothly. My five-member team is weeks behind schedule and 100% — that's right — 100% over its $400,000 budget. And morale? It can't get any worse.

This week has been particularly hellish. Following a new round of complaints about my key engineer's abrasive style, I sent him out for some interpersonal training. That's three days of work we'll never get back. Then I hired an "admin" on the cheap — only to learn, once again, that you get what you pay for. I had to fire her, which was a huge distraction.

My internal sponsor is as frustrated as I am. He's taken to abruptly summoning me to his office — which has grown darker along with his mood — and questioning my leadership skills. "Don't you realize we could both lose our jobs?" he pleads.

I trudge back to my desk, pore over my budgets and schedules, and devise a catch-up strategy. What if I offered productivity bonuses to get people moving again? What if I brought in an extra code writer? What if I fired everyone and started over?

Now the good news: Despite my rocky performance, I didn't get fired or demoted. That's because this nightmare scenario didn't happen at Microsoft, Intuit, or any of the hundreds of fast-moving companies where people like me — young, unprepared, a bit overwhelmed — are put in charge of complex, demanding projects. In fact, it didn't happen anywhere in what we call "real life" and in some sense it didn't "happen" at all. The entire experience unfolded on the screen of a laptop computer running "Project Challenge," a just-released business simulation.

At one level, "Project Challenge" is an impressive piece of technology. Its object-oriented software uses "adaptive agents" that learn from each player's moves so that a simulation never occurs the same way twice. At another level, it's just a game, complete with animation and sound effects. Think of Doom II for business. But rather than square off against undead imps, Hell's Knights, and fire-belching demons, players contend with deadlines, budgets, and some (rather corny) characters labeled "your boss" and "project sponsor."

"Project Challenge" is also the most user-friendly example of a tool that's sweeping business. Computer-enabled simulations cover the spectrum from PC-based systems that take an hour to play to custom-designed software that requires millions of dollars to create and days or weeks to experience. The latest simulations even incorporate virtual reality. Business people wear goggles and headphones to "live with" the results of the decisions they make.

John Fay, a vice president and partner with Mercer Management Consulting of Lexington, Massachusetts, specializes in big-ticket simulations for corporate clients such as Spoornet, the South African railway system. Fay loves the technology. He recently built a simulation for a brewing company that created "virtual annual reports." Make smart moves and the computer generates a cheerful document full of exuberant text about growth and profits. Make bad moves and you read a none-too-convincing account of the company's "rightsizing" effort.

But even techno-enthusiast Fay agrees that simulation's real value is not in the technology. The uncomfortable reality in most companies is that people are making more complex decisions in less time, with fewer resources and no margin for error. Being great requires something few people have — opportunities to practice. That's the value of simulation.

Actors, athletes, and musicians wouldn't dream of performing without practicing. But how do business people practice? Mostly they attend the school of hard knocks — encountering new situations, making mistakes, learning from what goes wrong. But learning from real mistakes gets expensive — both for the company and the people who make them. Simulation creates a "virtual practice field" that allows people and teams to test assumptions and experiment with ideas without having to suffer financial reversals or career setbacks.

Fay compares business simulation to what goes on in the NFL between games. "Football coaches and players look at game film because it helps them understand what happened," he says. "In a game film, away from the confusion of real action, each player can step back and look at the whole field, not just his corner of it." Simulations create that same whole-field perspective, Fay argues, and then add an element of control: "Imagine if you could run game films — and change the play! What if the coach could say, 'Armstrong, you should have blocked this guy, not that guy, and if you did, here's what would have happened?' That's what simulation does."

John Hiles, the president and CEO of Thinking Tools, Inc. , the software company that created "Project Challenge," draws his comparisons with rather than athletics. These days, he says, the business environment is so turbulent that that running a business or managing a team can be as treacherous as piloting an aircraft. Business simulations let executives sit in a virtual cockpit and practice their technique.

"The flight simulator for a 747 doesn't tell the pilot, 'Three days from now you're going to do a takeoff from LAX and the hydraulics on the right wing are going to fail,'" Hiles notes. "What it does say is, 'If you are in take-off, and 10 seconds off the ground the hydraulics on the right wing fail, here's an opportunity to understand — safely and sanely — exactly what you need to do to recover.' Business simulation does the same thing. It helps prepare you to deal with surprise in a safe environment."

How to Practice Strategy

By far the most popular form of simulation focuses on competitive strategy — practice sessions about entering a foreign market, acquiring a competitor, introducing a new product. To conduct these simulations, companies have borrowed many techniques from the Pentagon's experience with computer-based war games. Indeed, "business war games" are breaking out all over.

Mark Chussil, cofounder and president of Advanced Competitive Strategies (ACS), a consulting firm based in Portland, Oregon, runs simulations for AT&T Wireless Services, British Airways, Weyerhaeuser, and other clients. His firm uses proprietary software called ValueWar to conduct the sessions, which usually last two days.

The comparison is not as far-fetched as it sounds. Armies rehearse for battle because it's so hard to "think strategically" when bullets are flying past your head. Soldiers who've never faced the pressures of combat are much more likely to break and run when the shooting start than are soldiers with experience — even is it's the pretend experience that comes from war games. That kind of courage and self-confidence plays a role in business too. Business teams that have encountered fast-changing situations before — if only on a computer screen — are more likely to stay composed than are those who haven't.

"This stuff is just taking off," Chussil marvels. "A few years ago we'd say to a company, 'We work in strategy simulation - we do war games' - and we'd get blank stares. Not anymore."

Monitor Company, a strategy-consulting firm based in Cambridge, Massachusetts, has been organizing war games for years. It recently created a separate division, Decision Architects, to conduct its simulations. John McClellan, the unit's CEO, says the minimum cost of its war games is $200,000. Some clients have spent several million dollars collecting the data and writing the software required to create a compelling environment. Why would companies devote such massive resources to simulate the real world? Because they recognize the need for practice — and the enormous value of making smarter decisions.

Last summer, for example, Harris Chemical Group, a New York-based multinational, conducted a two-day simulation for 30 of its top managers. There was a compelling reason: Executives at Harris were trying to decide whether to complete a $100 million acquisition of a boron mine in Argentina. It was a big strategic move, with the potential to let Harris close the market-share gap with its two biggest rivals. Company executives had studied the opportunity for a long time. Now, says McClellan, they were looking for "the courage to take action — to go ahead with the much-debated deal or abandon it once and for all."

D. George Harris, a crusty CEO from the old school, says it was an unusual situation for his company. "We're very aggressive," he says. "We like to think we can solve our own problems. But on this deal, we'd feel one way at the beginning of the week and the other way at the end of the week. We couldn't get consensus."

The company gathered every piece of data it could about its position, its competition, and the world market for boron. It poured the data into a computer model that calculated the financial impact of various strategic moves. Harris locked the workstation in a backroom, out of site, to emphasize that the point of the gathering was the practice itself, rather than the power of the computer model.

Then it was time for the war game. The Harris executives checked into a Long Island conference center. They divided into three teams : one representing Harris, the other two representing each of its main rivals in the boron business. The home team, headed by CEO Harris, proposed a variety of strategies: buy the mine for $100 million; don't buy the mine; buy it, but at a lower price. The other teams responded with strategies of their own. The computer processed the moves and calculated likely outcomes. To keep the exercise dynamic, the computer also generated market-sensitive "news reports" that changed some of the game's key strategic assumptions. The teams informed each other by issuing "press releases" that described their strategies and tactics.

George Harris says the exercise was serious fun. "People got into it," he reports. "One of our competitors is from Turkey, so the guy who was running that company in the simulation — one of our best guys — became 'Ali-Ben' Donahue. Unfortunately, he made some bad decisions and crashed the company. The next day we put out a press release announcing that Ali-Ben had been shot for crimes against the state. He was running a nationalized company."

As the simulation unfolded, an interesting pattern emerged. No matter what the Harris team did with the Argentine mine, it couldn't gain ground on the competition. Meanwhile, as the other teams made counter moves, they recognized that Harris's strategic decisions didn't much affect their performance. "The guys running the other two companies said, 'We just don't worry about what you do except when it screws up the market,'" reports George Harris. "I don't know if that was a surprise to them, but it was a surprise to me."

The game changed how all 30 executives looked at the company's position. Harris didn't need access to more boron; the real problem was global overcapacity. Efforts to grab market share would weaken prices for everyone. The company reckoned with the results for a few weeks and took action. It passed on the Chile deal.

The Harris war game was valuable, McClellan says, because it recognized the basic rules of successful simulation. First, the exercise felt real. The computer model was a convincing representation of the market in which Harris operated, and each team's moves and counter moves represented its best efforts to approximate real life. "A good simulation generates counter intuitive but believable results," says McClellan. "People should see things and say — "I've never seen that before. But now that I've seen it, I believe it."

Second, the exercise focused on a well-defined choice. The executives weren't trying to "get better at strategy" or "learn to work together." Those long-term benefits were outcomes of their concentrated efforts to wrestle with a narrowly defined question: Should we buy the mine and at what price? A clear focus makes the simulation manageable and its lessons — no matter how surprising — more concrete.

Third, the players saw a direct connection between their decisions and the company's performance in the market. One of the most powerful virtues of simulation is that it compresses the time between action and outcomes. In reality, it would have been years before Harris knew whether a decision to buy the mine was sound. In the simulation, the team initiated a range of strategic moves and saw the consequences in minutes. "Simulation kills bad ideas fast," says Mercer's Fay, "and it breathes life into good ideas that might be politically unpalatable."

That's why the best simulations often produce surprising insights — even when "surprise" means verifying the status quo. ACS's Mark Chussil recently ran a war game not unlike the Harris exercise; a company was practicing in order to choose between several strategic options. As part of the game, the computer generated quarterly performance data that captured the impact of various strategies.

"One of the teams adopted the company's existing strategy and saw its profits decline every quarter for the first year," Chussil recalls. "So we asked them how they felt about that. Did they want to change their strategy? They said, 'No, we're confident our strategy will turn around.' Next quarter, profits were down again — and then down again. Now there were five seconds between quarters. 'Dammit,' they said, 'we have to change our strategy. And their profits immediately started going up. You could hear the sighs of relief, and by the end of the five years they'd made lots of money."

"Then we said, 'Let's go back to when you changed strategy and run the simulation again. But let's assume you stuck to the original strategy.' It turns out they would have made twice as much money. It was an incredible learning experience — for me, as well as for the people in the room."

How to Practice

In reality, of course, most business people won't use agent-based software to hone their project-management skills or spend a week at a war game. Still, these tools offer important lessons for anyone who wants to get better at business — best practices on how to practice. Simulation experts point to three major principles.

First, never forget that the point of practicing is to learn how to get better. That means getting comfortable with failure. According to John McClellan, practice sessions work best when they encourage people to take chances in a blame-free environment. "If people experiment and fail," he says, "they get frustrated." Which is precisely the point. The best learning, he says, comes from "creative frustration in a safe environment."

Second, good practices also force people out of their existing mind-sets and routines. "People have to check their titles and territories at the door," says John Fay. Participants should be encouraged to come at problems from perspectives other than their own — salespeople can represent the company's arch competitor; finance specialists should speak for manufacturing; manufacturing experts might play the role of marketers. That's because the goal of team practice is not just for people to learn, but for everyone to learn the same thing.

"The idea is to create a 'mental model' of the business that everyone shares," says Fay. "Everybody has to think like a CEO."

Finally, practice works best when it puts people on the spot — that is, when it requires them to take decisive action. The most basic value of simulation, argues Fay, is that it snaps business people out of their "infinite planning loops" and forces them, under time constraints, "to make decisions in real time." Indeed, one of Fay's cardinal rules is that people can't criticize a decision with proposing their own alternative. "Good simulations don't let people kill ideas just by challenging them," he says. "They co-opt everyone into becoming a proponent of something — even if it's the status quo."

John McClellan agrees. In the real world, he estimates, executives face a big decision every three months or so. They spend most of their time figuring out how to avoid making it. "A good simulation compresses six of those [every-three-month] decisions into two or three days," he says. "And you don't allow people to hide their conflicts. You don't have armies of subordinates fighting it out among themselves."

The ultimate result of good practice, says Mark Chussil of ACS, is to develop leadership qualities that are all-too-rare in business today: courage and confidence. "Simulation helps managers be more aggressive," he explains. "Accountability is important these days, and managers aren't always willing to adopt risky strategies — even if they might pay big rewards. Managers almost always have more freedom than they think they do. Simulation lets them try options they'd be too 'prudent' to try in real life."

Peter Carbonara (pjcarbo@worldnet.att.net) is a frequent contributor to Fast Company.

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