Game Over

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.