Business As War

"It is critical to keep in mind," notes Warfighting, "that the enemy is not an inanimate object but an independent and animate force. The enemy seeks to resist our will and impose his own will on us. It is the dynamic interplay between his will and ours that makes war difficult and complex."

Strategy, like warfare, is an interactive, dynamic process. Most executives understand that business is no longer a one-move game. The CEO who says, "The competition is gaining market share, let's cut price," is a dinosaur. Managers need to look several moves into the future and anticipate the feedback loops and time lags built into any competitive situation.

Competitive simulation provides an opportunity to practice that interactive dynamic. It trains executives to anticipate the unexpected. It helps build a management team that can roll with the punches, deal with unanticipated situations, and work together when things don't go according to plan. In fact, in business and in war practically nothing goes according to plan. Strategy dissolves when the first bullet is fired. Practicing real-time strategy is the essence of simulation.

Consider a key business unit in one large high-technology company that recently completed a war game. One of the first principles of simulation is that it has to be real. Executives have to engage intellectually and emotionally, and that requires an accurate map of the "battlefield" and moves that correspond to the dynamic complexities of business competition. These conditions, in turn, require serious investments of time and resources.

In the case of this simulation, 15 people on three continents worked for four months simply to "map the battlefield." Their preliminary work produced a rough-cut description of the competitive shape of the industry, the assets of the competitors, and their company's own assets. It took another two months to turn that rough map into a dynamic computer model in which the industry evolved in plausible ways and strategic choices produced credible results.

The parameters of the game and the structure of the exercise were straightforward. The simulation covered a seven-year time horizon during which two teams - a blue team and a green team, both representing the company - competed against seven rivals across 15 product lines. The game progressed in four strategic moves: the first move represented one year of competition, each of the next three moves represented two years. To make a move, each of the two teams made choices in four categories: business unit choices such as pricing and advertising; infrastructure choices such as deploying new technologies; strategic choices such as acquisitions and alliances; and corporate-level choices such as issuing debt or stock. In all, each team controlled roughly 300 mathematical inputs with as many as 3,000 independent variables that represented their choices in allocating company resources.

That was the part of the game the teams saw; behind the scenes, game referees and "control" converted their choices into financial results and market share consequences using software programmed with 40 pages of algorithms and more than 1 million data points - and seven NeXT workstations crunching the data.

To add even more credibility to the simulation, during each move the teams received extensive factual information on their performance: accurate financial and market data broken out by product category, corporate income statements, balance sheets, cash flows, and key performance ratios.

The teams also received information on what their rivals were doing. But here, in keeping with the "fog of war," the information was limited, intentionally sketchy, and available only after a time lag. The simulation included updates on new products, cost-reduction opportunities, acquisition candidates, and an industry newsletter that carried news, gossip, and rumors concerning major trends. Just like in real newsletters, the articles were a mixture of accurate reports and erroneous items. Just like in real business, the teams had to discern fact from fiction, information from misinformation.

To begin playing the game, the two teams were briefed on the goals and rules at company headquarters. With just four hours to prepare their first move, they were challenged to develop their own definitions of victory, to make strategic choices that met the definition, and to respond to specific industry events that would begin to unfold as soon as the game commenced.

Six weeks later, the teams reassembled at Jupiter Beach, FL to play out the remaining moves over the next four days. What had been an interesting mind-teaser at company headquarters became an intense competition in Florida. In move one, for example, the blue team, responding to an announced regulatory change, committed itself to holding market share by cutting price to whatever level was necessary. The move triggered a disastrous price war. In Florida, the team got its first printouts which showed how severely the computer and the war game referees had evaluated their strategy. The team's response: "We've got a stock price. The guys in the other team have a stock price. We're still going to beat them."