Gaming and Disruptive Innovation Strategy - Toyota Motor Corp.
War gaming: virtual reality, real lessons
Benjamin Gilad
I n today’s brutal markets, competition often quickly counters the best laid strategies,
reducing or canceling the competitive advantage they were designed to produce. So
what is a leader seeking superior returns, or even just survival, to do before committing
to a strategy? One practice is to stress-test a potential strategy against a competitor’s best
moves in order to find one that is robust enough to withstand such retaliation.
War gaming one’s way to reality
An effective methodology available for strategy testing is war gaming, an old military favorite
– dating back to Frederick the Great of Prussia – that has been adapted for commercial use.
Over the years it has been practiced at a number of Fortune-500 companies and the lessons
learned from the methodology are widely applicable.
War games often are used to simulate market dynamics by teams’ role playing competitors;
they test strategic moves and countermoves in as realistic a setting as possible. There are
three basic types of war games, each with its own advantages and disadvantages:
computer-based war games, game-theory-based war games, and competitive-intelligence
role-playing-type war games. This article examines the use of intelligence-based,
role-playing war games, but the other two types also have important roles in setting strategy.
Intelligence-based, role-playing war games
As the name implies, intelligence-based, role-playing war gaming takes market
intelligence–from published reports, Internet, employees who come in contact with
competitors and customers – and uses that intelligence to create true-to-life competitor
personas. Role-playing helps avoid a syndrome called ‘‘mirror imaging,’’ in which managers
attribute behaviors and predictions to competitors that are actually those of their own
company. Recent research shows that role playing is superior in its accuracy of predicting
behavior than other methods available to planners.[1] Intelligence-based role-playing takes
into account both constraints and blind spots of market players, rather than assuming
unrealistic fully rational behaviors predicted by neoclassical economic theory – that is,
game theory. There is a significant body of knowledge gathered from the field known as
Behavioral Economics that supports this approach over restrictive mathematical
modeling.[2]
The beauty of war games is that in a role-play environment teams are safe from the undue
influence of their colleagues and have permission to blow holes in their company’s intended
strategies. Many players do it with relish. The result is an eye-opening experience for
leaders, one that fosters healthy humility, and an appreciation for the fact that plans will likely
be attacked by competitors soon after they are implemented and therefore need as much
‘‘proofing’’ as possible before being launched. Externally-focused leaders relish war games
PAGE 38 j STRATEGY & LEADERSHIP j VOL. 38 NO. 6 2010, pp. 38-42, Q Emerald Group Publishing Limited, ISSN 1087-8572 DOI 10.1108/10878571011088050
Ben Gilad (ben@GiladWar
Games.com) is the author
of Business War Games
(2009) and President and
co-founder of The
Fuld-Gilad-Herring
Academy of Competitive
Intelligence in Cambridge,
MA (www.academyci.com).
A former associate
professor of strategy at
Rutgers’ School of
Management and the
founder of a war-gaming
consultancy, www.
GiladWarGames.com, he is
based in Boca Raton,
Florida.
precisely because they impart a clear sense of reality in the shortest time to key
gate-keepers and various constituencies in their companies.
War games for leadership development
In recent years, war games have been adopted by some leadership-development
programs. The rationale is that part of being an effective leader is the willingness to
periodically re-examine assumptions and beliefs openly and critically. One often-cited
partisan of this approach is Andy Grove, co-founder of Intel, who advocates that companies
cultivate a healthy sense of paranoia.
War games have been living laboratories of strategic thinking among hundreds of managers
and dozens of the world’s leading corporations. Over the past 20 years of war gaming I’ve
observed that the process can influence strategy and inform leadership in surprising ways.
Three myths about strategy
The three big myths that war games expose are:
1. Leaders intuitively know what strategy is and what it is not.
2. Execution and implementation are tough; strategy formulation is easy.
3. Leaders and their managers share an understanding of and enthusiasm for the
company’s strategy.
1. The leader-strategist myth
Most leaders grasp the essence of strategy as saying a clear ‘‘yes’’ to some choices, and a
deliberate ‘‘no’’ to others. But too often this realization occurs after the strategy is completed,
not during the developmental phase. Compounding the problem is that many executives
tend to confuse strategies with goals or slogans, such as, ‘‘we need to be number one in
market share,’’ or ‘‘innovation is the key to our success,’’ or ‘‘we need to understand our
customers better than everyone else.’’ Some executives also confuse strategy with
operating effectiveness, a concept Professor Michael Porter created to describe the
continuous race to do things better, faster, and cheaper than competitors, which has nothing
to do with strategic positioning. And in some firms, executives wrongly see strategy merely
as an ever-increasing portfolio of products and services that offer everything to everybody.
In such cases, executives never seem to say no to an opportunity, perhaps on the theory that
their firm needs to play everywhere to be competitive. Business strategy requires leaders to
clearly delineate what is and what is not the competitive distinction of the company in the
market. The role of the strategic leader is to continually sharpen this distinction or create a
completely new one if the old one is losing its power.
This is a lesson learned by every successful entrepreneur. However, professional managers
who inherit a successful company, brand, or product, sometimes need to be reminded what
superior strategy is and is not. By war gaming, professional managers who joined their firm
after it was founded can rather quickly understand what entrepreneurs learn the hard way –
identifying, rigorously testing a superior strategic position and adapting it if necessary, is a
survival skill.
‘‘ War games often are used to simulate market dynamics by teams role playing competitors; they test strategic moves and countermoves in as realistic a setting as possible. ’’
VOL. 38 NO. 6 2010 jSTRATEGY & LEADERSHIPj PAGE 39
As teams role play competitors in a war game, they employ both analytical frameworks and
competitive information to predict competitor actions. The analysis reveals competitors’
strategies and their underlying assumptions about the market, as well as existing
capabilities and capabilities being developed. The result is that war games clearly highlight
areas of explicit or implicit ‘‘competitive convergence’’ and ‘‘competitive distinction’’
between market players. The simulation forces managers to defend differences they have
crafted from imitation by competitors. They learn quite quickly that only differences not easily
erased by imitation are real sources of uniqueness. War gaming teaches managers to think
more like entrepreneurs about what it mean to be different, and to plan to defend distinctive
differences against copycats and strong incumbents.
2. The formulation vs execution myth
In war games, the business unit must put a plan on the table to be stressed-tested against
competitors’ reactions and industry’s evolutionary background. Too often the executive in
charge spends only a brief amount of time working with the planning team to actually
formulate strategy. In most firms, executives concentrate instead on developing the action
plan for execution. ‘‘Develop a marketing communication plan,’’ ‘‘design promotional
events,’’ or ‘‘train salespeople in the message’’ replaces the substance of ‘‘what is our
strategy to win?’’
The problem with allowing teams to focus on competitive advantage based on tactical
execution instead of aspiring to identify truly effective strategic differentiators is twofold:
First, perfectly executing an ineffectual strategy usually leads to a dead end. Second,
improving execution can not in itself create more distinction in the firm’s strategic positioning.
Most war games that focus on better execution tend to become a ‘‘check list’’ of the obvious.
Does one need a war game to decide that the firm should try and lower its cost? Is there a
reason to gather 30 people in a room to simulate market dynamics just to conclude that the
firm should adopt better IT to create a more effective distribution system? War games ought
not to be used interchangeably with simpler common sense activities such as a meeting
between the relevant parties to calmly and efficiently discuss improving operations.
So why are war games often misused to reaffirm the obvious ‘‘should’’ activities that fall into
the operational excellence realm? Sometime companies are truly ignorant of competitors’
capabilities, and a war game is a trigger for realizing they need improvements in areas
where they thought themselves strong. Other times, however, games turn to operational
effectiveness due to the cavalier attitude of executives who regard strategy formulation as
easy (or worse, an academic exercise) and execution as the core of their responsibility.
However, as Phil Rosenzweig, the author of the seminal book The Halo Effect observes,
‘‘Whenever someone says, ‘We have the right strategy, we just need to execute better,’ I
make sure to take an extra close look at the strategy.’’[3]
The temptation to focus on execution rather than strategy is especially strong in
consumer-product or service industries. When pressed hard on what is the reason their
company wins in the marketplace (or why a competitor is winning), executives in these
industries often fall back on execution explanations:
B The winner better executes the same activities that their company does.
B The winner’s marketing message is more effective.
‘‘ The beauty of war games is that in a role-play environment teams are safe from the undue influence of their colleagues and have permission to blow holes in their company’s intended strategies. ’’
PAGE 40 jSTRATEGY & LEADERSHIPj VOL. 38 NO. 6 2010
B The winner’s salespeople are more motivated.
B The winner’s share of voice is larger.
B The winner is better at managing relationships with retailers.
But if better execution of the same activities is the main reason for success, by implication
the strategies of the winner and the ‘‘loser’’ are not truly different. When these players all do
the same things – employ the same advertising agencies, engage the same consulting
powerhouses, distribute through the same channels, adopt the same best practices and
train people similarly, their wins are typically transitory, because sooner or later the ‘‘loser’’
throws more money at execution and retakes the lead in market share. Without truly superior
strategy there is no basis to assume an advantage based on execution that can last more
than year or two. While war games do not guarantee superior strategizing, their true
advantage is that they very quickly expose bad strategizing and rampant competitive
convergence.
3. The shared-understanding myth
Hard-charging executives who have invested their careers in the proposition that their
company’s strategy is distinctive can use war gaming to test whether everyone shares their
assumption. They can quickly find out whether the market regards competing products or
services as similar. Gleaning intelligence from middle managers, salespeople, and
competitive-intelligence professionals, war gamers can ascertain whether their market has
become, or will soon become commoditized.
The current pharmaceutical industry offers a prime opportunity to learn from war games.
Launching a new drug can cost more than the research that developed it. In recent years,
introducing a new product often initiates fierce advertising battles of similar drugs from
different manufacturers, all following similar marketing routines. Launching a me-too drug
into a crowded market using the identical strategy as everyone else is not a recipe for
success. The failure rate of new drug launches, partly as a result of following such a practice,
is estimated at about 60 percent. So why do these executives and their brand teams
champion such thankless strategies? One explanation is that the regulations of the drug
industry, from discovery to clinical development to marketing practices discourage radical
medical and marketing innovation. But regulation does not mean that effective, distinctive
strategies are impossible; it does mean that creating them requires input from wide variety of
knowledgeable sources. That suggests that in the pharmaceutical industry, and other
consumer-product industries, war games should never be confined to top executives alone,
but should also include key managers from every functional area in the company.
Many war games I’ve played in the pharmaceutical industry involved at least one ‘‘moment
of truth’’ in which salespeople, who live daily with the reality of selling pharmaceuticals by
knocking on the doors of skeptical doctors and negotiating with cash-strapped hospitals
and their tough purchasing groups, questioned some of the initial marketing assumptions
about new products, and then steered the strategizing towards creating real distinctions.
Sometimes, the usefulness of war gaming lies in actually producing stress for those decision
makers who are otherwise reluctant to confront reality. Exposing the ‘‘shared understanding’’
myth can open up alternatives that are truly worth pursuing.
‘‘ Over the past 20 years of war gaming I’ve observed that the process can influence strategy and inform leadership in surprising ways. ’’
VOL. 38 NO. 6 2010 jSTRATEGY & LEADERSHIPj PAGE 41
Practical lessons for leaders
War games can teach leaders the value of allowing the realities that can be achieved in the
virtual world to exert their influence for a short while. For executives willing to experiment with
war gaming, here are some action recommendations:
1. Role-play third parties’ responses before making major decisions or engaging in crucial
negotiations. Your decisions and negotiations can only benefit from realistic
stress-testing.
2. Role-playing does not have to be a huge production – small teams, focused homework,
and clear rules of engagements are enough. Make your teams create their characters by
collecting available data about the firm’s competitors and their leaders.
3. Bring in an outsider to referee the game objectively, to keep the game a ‘‘politics free’’
zone and to keep it focused on strategy.
4. Give the winning team(s) a specific period of time to prepare, present, and sell their
proposal to management. Ownership will drive entrepreneurial spirit, and action will send
a message to the organization about their leader’s willingness to acknowledge reality.
Notes
1. Kesten C. Green, ‘‘Game theory, simulated interaction, and unaided judgment for forecasting
decisions in conflicts: further evidence,’’ International Journal of Forecasting, Volume 21, 2005.
2. Benjamin Gilad, Business War Games (Career Press, 2009).
3. Rosenzweig, Phil, The Halo Effect, Free Press, 2009, p. 156.
Corresponding author
Ben Gilad can be contacted at: ben@GiladWarGames.com
‘‘ War games clearly highlight areas of explicit or implicit ‘competitive convergence’ and ‘competitive distinction’ between market players. ’’
PAGE 42 jSTRATEGY & LEADERSHIPj VOL. 38 NO. 6 2010
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