Ex Ante Strategy Evaluation: The Case for Business Wargaming

Summary

This article examines how business wargaming can benefit business managers with strategy-making in comparison t0 using computer-based simulations and scenario planning. The author, Jan Oliver Schwarz, finds that business wargaming  helps facilitate an ex ante evaluation of strategy; which he describes as the act of testing strategies prior to their implementation. Schwarz defines business wargaming as a "dynamic strategic simulation". The main difference, as described in this article, between business wargaming and scenario planning is that business wargaming focuses on the views of competitors, whereas it is difficult to incorporate competitor views in a scenario exercise. In regards to computer-based simulations, Schwarz states that these simulations represent the perspective of the analyst that created them. This contrasts from business wargaming, as Schwarz explains, because business wargaming may include computer-based simulations, but it is driven by its participants and not by the model of the simulation.

Before explaining the business wargaming process and its advantages, Schwarz highlights the important steps in the strategy-planning process. According to Schwarz, planning a strategy within a business begins with setting objectives, an analysis of the company and its environment, creating a set of strategic options, and then developing strategic plans from the proposed strategic options. Business wargaming allows for this, as it utilizes the participation of  an industry's competitors, clients, market experts, and wargaming experts. The business wargaming process begins in the present and is based on available data retrieved from extensive research on the industry in which the business takes place. The client team, which consists of the business manager's role, must create and adjust its strategies according to the decisions made by the stakeholder and customer teams. A diagram of the business wargaming process is illustrated below in Figure 1. Following the completion of the process, the managers of the client company and the wargaming experts carry out an analysis of the exercise and discuss their findings.


 


Schwarz  explains that managers can benefit from using business wargaming because it allows them to actively participate in developing a strategy that is future-oriented. This is crucial for an ex ante evaluation of strategy.  Business wargaming also allows the managers to experience the consequences of their strategies, and in turn allows them to identify the early signals of change that pertain to their industry. In Figure 2, Schwarz provides a chart of these advantages, which he pulls from previous research and literature, to portray how business wargaming is a useful form of ex ante strategy evaluation.

 


Source 

Schwarz, J.O. (2011). Ex ante strategy evaluation: The case for business wargaming. Emerald Group Publishing Limited, 12(3), 122-135. Retrieved from: https://www.researchgate.net/profile/Jan_Oliver_Schwarz/publication/254191296_Ex_ante_strategy_evaluation_The_case_for_business_wargaming/links/53dca7430cf2cfac992909ff.pdf
 

Business Wargaming for Teaching Strategy Making

Summary

This research primarily deals with how the notion of developing foresight in order to deal with complexity and uncertainty, particularly with respect to the future, has translated into the education of business students. Schwarz (2013) argues that “an increasingly complex and dynamic business environment requires new approaches to teaching strategy to management students” (p. 59) and notes that simulations not only have positive effects on learning, but are also appropriate for educating management students. This observation points to business wargaming, which is essentially a dynamic strategic simulation.

Schwarz contends that business wargaming is necessary in management education because it can help close the gap between theory gained in a classroom setting and the application required by professions. Schwarz (2013) also maintains that the notion of gaming in regard to simulations is relevant in this context, because “gaming is credited with providing concrete experience that is processed through reflection” (p. 60). Schwarz states that the advantage of simulations and gaming is that it more deeply involves the participants through the emotional elements of simulations, which produces a different and less traditional kind of learning experience.

Kurtz (2003) describes a business wargame as a role-playing simulation of a dynamic business situation. Each team in the wargame is cast in the role of a certain stakeholder, such as a competitor, in some sort of business situation. The typical business wargame lasts several rounds, each one representing a defined time period. A business wargame is usually preceded by extensive research on the industry in which the wargame is supposed to take place. “Wargame” is the literal translation of the German Kriegsspiel. In the business environment, there is some discomfort with the words “war” and “game.” Hence, wargames are often referred to as “strategic simulations” and can have several purposes, such as strategy testing, crisis planning and management, change management, planning, training, and education.

Roots

Although the application of wargaming in the business context began in 1957 when the American Management Association (AMA) developed the first widely known business game, “The AMA Top Management Decision Simulation,” business wargaming itself can be traced at least as far back as ancient Greece. Perla (1990) credits the Chinese general and military philosopher Sun Tzu for developing the first wargame about 5000 years ago. This game was called ‘‘Wei-Hai,’’ meaning ‘‘encirclement.’’ ‘‘Go’’ appeared around 2200 BCE, ‘‘Chaturanga,’’ around 500 CE, and, later, chess could be perceived as its successor. Even though chess is much more abstract than a wargame, it contains several elements of warfare and can be regarded as a wargame in a broader sense.

How Business Wargames Work

The following is an excerpt from Schwarz’s paper:

A typical business wargame evolves over three moves, representing a certain length of time (e.g. three to ten years). A business wargame is predominately designed to evolve into the future, eventually describing scenarios of competitive business situations. The first move starts in the present, and is based on available data and information. A ‘‘move’’ is a decision cycle, which begins with the stakeholders or competing companies and the client team taking the initial actions, including competitive offerings, alliances, investments, or lobbying efforts. In general, four types of teams exist in a business wargame: a client team, competitive or stakeholder team, market team, and control team.

Competing teams will have to think about strategy, product, pricing, capacity, and technology, while also considering the business environment. The members of the client team have to execute and adjust their own strategy. An essential part of each move is the reaction of the customers, usually played by a market team, consisting of a group of market experts. The market team will provide the reactions of customers, providing figures such as size of the market, market segments, market share and revenue, and how these figures have changed in the course of the moves. All this data will be passed on to the control team, usually run by the wargaming experts, who use a financial model to calculate profits and losses. In addition, the control team is in charge of supervising the wargame and introducing discontinuities (e.g. technological developments or policy issues) to add real life dynamics. The control team can also assume the role of other stakeholders, such as regulators not represented in the business wargame as competitors.

At the end of each move, the control team calculates the results of the competing teams and the client team, and uses these results as the starting point for the next move. While the market team reacts and the control team calculates the figures, the competitive teams and the client teams plan their next move. They then learn the results of the previous move. As pointed out earlier, concerning computer-based simulations, models are supportive, adding reality to the business wargame but not intended to drive the simulation.

Prior to carrying out a business wargame, the objectives must be laid out, and a database of all information that is potentially useful to the players is created. The model translates the game’s data and the players’ decisions into game events, quantifying the moves and results of the wargame. After a business wargame has been played to completion, the wargaming experts and managers of the client company carry out an analysis, which is important for discussing lessons learned during the exercise. This analysis allows the managers to describe their experiences, to reflect on what they have learned, and to discuss subsequent steps, which will then result in additional lessons learned.

Source

Schwarz, J. O. (2013). Business wargaming for teaching strategy making. Futures, 51, 59-66. 

War gaming and its role in examining the future

 Summary:

This article written by Kenneth Watman, the Chairman of the War Gaming Department for the Naval War College espouses his beliefs in the effectiveness of war gaming as an analytic methodology. Surprisingly, his opinion is that war gaming by itself is not an effective method for predictive analytics. He begins his article by comparing war gaming to producing a theatrical play. A play, Watman says, is only a representation of specific aspects of life. When creating a play, the author must first decide what to focus the extent of the details on to get his/her point across to the audience. It is impossible to show everything in as great of detail as real life given the constrictions of time and space. Therefore, a play is a form of model which seeks to represent something in real life of interest to the creator. In war gaming, the creator must similarly choose what to portray in detail, what to represent in a more thematic practice, and what to omit. He furthers this analogy by cautioning any war gaming participants of the importance of understanding that a war game is only a depiction of specifically chosen details intended to analyze certain outcomes. For those actors in the war game scenario who complain of not being able to smell gunpowder or see real explosions, they are missing the point and ultimately detracting from the exercise. Watman continues with the notion that the iterative relationship between the “red teams” and “blue teams” which make up traditional war game scenarios are the features that distinguish war gaming from simply being an organized discussion, seminar, or workshop.

The primary benefit of war gaming as identified by Watman is that it allows participants and decision makers to develop a familiarity with problems and the choices they contain so that when the real thing happens, they have a knowledge bank of experience from which to draw. These types of exercises, regardless of the domain (i.e. military, law enforcement, business, etc.) allow participants to predict the behavior of adversarial forces, even if only slightly. This ability is extremely important in terms of utilizing ones staffing and resources to counter this threat. Watman writes that war games are effective means of predicting potential outcomes, but suggests they are most useful for suggesting questions, issues, and providing insights that must be analyzed more thoroughly with other methods. War gaming alone is inefficient for effective predicative analysis.  

In order for a scientific experiment to be deemed acceptable to the academic community, repetition and control over the variables are necessary. In war gaming, this is not possible. Even if the same individuals were chosen to complete the exercises multiple times (almost impossible to do by the way), their experiences, behaviors, and moods would always be different resulting in various outcomes. Not to mention that war gaming exercises typically require large time and monetary commitments from creators and participants. Watman warns of the dangers of participants falling under the impressions that they are now more informed about what will happen because they participated in a war gaming exercise. These exercises are designed to give participants experience in potential outcomes to allow them to practice their responses. Simply participating does not make one “all-knowing” as to the number of scenarios that can play out in the future. Also, war gaming can lead to participants building up incorrect preconceived notions about an opponent based on war gaming exercises. The results of which can lead to underestimation of an opponent’s abilities or an overestimation in one’s own abilities to counter.

Watman concludes by agreeing that war gaming is a useful tool for saving the time and money of the experimentation program. He believes that constituted correctly, war games can replace much of the need for experiments themselves. But in order for this to happen, these games must be carefully conceived and coupled to the actual field experiments. These games, like their accompanying experiments, must be detail oriented from the lowest level up. Only then can war game scenarios be compared to experiments to reveal their accuracy at predicting outcomes.

Critique:

Although Watman’s article did slant toward the military side in terms of some of the analogies and terms used throughout, I found this article particularly interesting and useful for other domains. Most notably, that as the Chairman for the War Gaming Naval College, Watman is not afraid to profess his worries of people utilizing war gaming as their singular means of predictive analysis. He comes right out and says it is basically a modifier to generate new ways of thinking which other methods would be better suited to answer. This understanding of how war gaming was used in the past and how it should be used in the future speaks to all disciplines interested in conducting war gaming exercises, not just the military. This article very clearly laid out the authors opinions on the benefits and drawbacks of war gaming in an easy to comprehend manner which personally expanded my understanding of the subject. Through my own limited experiences with military experiments (field exercises) and war games (computer simulations), I agree with Watman’s assessment that the war games must be as closely tied in detail to the experiments as possible in order for them to be anywhere near accurate at predicting outcomes. I also agree with his assessment that war gaming is primarily beneficial to participants by allowing them to practice their “battle drills” so if/when a similar scenario plays out in the future, they have a reference to what they did in the exercise and if it worked and why.

Source:

Watman, K. (2003). War gaming and its role in examining the future. Brown J. World Aff., 10, 51.