Business war gaming (Corporate war gaming) or business wargaming is an adaptation of the art of simulating moves and counter-moves in a commercial setting. In a complex global and competitive world, formulating a plan without testing it against likely external reactions is the equivalent of walking into a battlefield without the right weapons or a plan to win. In situations where the cost of being wrong is high, war games can be very helpful to understand from a 360-degree perspective the external opportunities and challenges of all the key stakeholders in the industry.
Unlike military war games, or fantasy war games which can be set hundreds of years in the past, business war games are usually set in the present and are a relatively recent development, but they are growing rapidly.
The rationale for running a business war game is that it is a tool of particular value when the competitive environment is undergoing a process of change, as it allows decision makers to consider proactively how different players can react to the change, and to each other. The benefit of teams role playing competitors and developing more robust strategies is especially notable, and can be inferred from a quote such as the one below from Richard Clark, CEO of Merck and Co., who in an interview to USA Today said: "I am a strong believer in if you’re going to develop a vision or a strategic plan for the future of a company that you have to engage the organization in doing that…it can’t be just the CEO or top 10 executives sitting in a sterile conference room."".
At the Paul Merage School Of Business at University of California, Irvine the final exam for the competitive intelligence class is a war game in which the students role play various companies to try to win in the marketplace. Each year student teams have developed strategies - some of which have actually happened in the market place indicating that a war game is a very powerful predictive tool for business when planned properly.
Methodologies
Market level
Currently there are three schools of thought about business war game, depending on the underlying philosophy of their creators: "Business is War" war games, "Business is a Game" war games, and "Business is Business" war games. The three types have accordingly, different strengths and weaknesses, and are useful for different applications throughout business.
"Business is War" Sometimes abbreviated as 'BIW' war games, 'Business is War' games are a direct adaptation from the military war games, and envision competitors as the "enemy" and the goal as "victory" in a market "battle". These games are based on mathematical modeling of contestable markets, including chaos theory, random variable generation (Monte Carlo simulations), and econometric modeling of demand and supply conditions. Participants’ generated moves are fed into computer program which generates optimal solutions in the mathematical space. Not surprisingly these games come with a high price tag, and are advocated by large consulting firms which tend to work with the US military establishment.
"Business is a Game" 'BIG' war games regard business transactions as a game between participants with potentially conflicting goals. BIG advocates apply game theory, a branch of mathematics to business situations with the goal of finding an equilibrium, or "stable" solution (so called Nash equilibrium) whereby no one can further improve on the outcome. The solution can be computed over a large space of all possible (hypothetical) moves of the players. A leading proponent of this type of war games is Niall Fraser, a game theorist and the founder of a consultancy called Open Options. A variant on BIG is computer simulations’ games using simultaneous equations to solve for demand and supply equilibrium (not a game theory solution). Participants input numerical values for decisions on a wide range of business investments (in production, sales force, advertising, etc.), and receive a computer output of the equilibrium results. Another variant on BIG involves large numbers of simulations to explore the interaction of multiple competitors' strategies, without assuming an equilibrium or a mathematical solution exists. This approach, focusing on active competitors, recognizes that the number of possible actions and reactions is prohibitively large, while also recognizing that simulation can better explore and test decisions than the unaided human mind. Mark Chussil of Advanced Competitive Strategies uses this technology in simulators such as a pricing tournament.