Using a business simulation to test a strategy
Wargaming is a dynamic simulation of real business situations. It allows top decision makers to gain experience and insight into shaping their strategic decisions. With this tool, managers can test their strategies without risk and at low cost. They therefore learn how to move in the right direction.
Strategy development is a task for top management. This process considers market conditions, competitor behavior and other factors in-depth. However, traditional strategy development is a static approach and often fails to adequately take market dynamics into account. Examples of these include competitors' reactions to strategic moves, player interdependencies as well as management character and objectives. Furthermore, traditional strategy development cannot simulate how business conditions will develop over time.
Wargaming is a powerful tool for overcoming these pitfalls. It simulates the market environment and the actions of competitors. You can use this tool to rigorously test and redefine a developed strategy. Wargaming does not replace traditional strategy development, but rather complements it. It includes the dynamics needed to gain additional insight into market mechanics and shows whether the strategy tested is valid. At the end of the day, management can discover what impact various decisions may have on the company in years to come. Wargaming can be applied to strategic topics such as acquisitions, market entry, bidding processes and pricing strategies.
Preparing the game
Wargaming can be an integral part of a general strategy project (e.g. market entry strategy) or be used as a stand alone tool to verify an existing strategy (e.g. bidding process). However, no matter what the application, the game's content and objective must be defined at the beginning. This includes stipulating which markets, products, competitors and time frame are to be included in the simulation.
We then collect market intelligence from internal and external sources. Player profiles are established, including character studies and detailed financial analyses. The market information and profiles are compiled into briefing material that we give to the participants so they can prepare for their wargaming roles. We also create an economic model to simulate the game environment in terms of markets and financials.
The war game is conducted at a remote location to remove the participants from their daily working environment. Key executives split up into predefined teams that represent the most important market players. The exercise generally lasts two days. In the course of several rounds, each team tries to win the game by achieving its own strategic objectives. One team represents our client and has the opportunity to test its own strategy. The whole simulation is monitored by a control team. This team runs the economic model to simulate the impact of strategic moves, and records the game history for later analysis.
Analyzing results and implications
After the game, we critically analyze whether the client's strategy works. Key lessons normally include not only new strategic aspects, but also insights about the sequence of moves. We also learn how possible changes in the market environment and unexpected responses of other market participants can affect our client. The lessons are then applied in defining the final strategy. The game also increases the client's trust in the company's own strategy and provides advice on practical implementation.