Business war gaming solves complex issues
Chaturvedi, Alok RTrends and perspectives from CUNA's center for professional development
War is hell-but it holds some valuable business lessons. One tool that applies Defense Department concepts to business situations is the Synthetic Environment for Analysis and Simulation (SEAS), designed to give decision-makers a new tool for handling complex strategic issues.
Background
The job of decision-makers has grown increasingly complex due to the rapid pace of technological innovations, the increased rate at which new products and services are introduced, market globalization, heightened competition, and stiff regulatory reforms.
As a result, managerial and technical staffs at all levels face immense challenges. They need a guide to organize the rapidly changing business landscape. They need to be aware of their strategies' impact on competitors and vice versa. They need to realize the business climate can change rapidly at any moment. They need to be prepared to deal with changes. They have to learn to anticipate and adapt to risk. They need to adopt a systems perspective to solve complex interdependencies. Never has it been more important for strategic savvy to permeate corporate walls at all levels.
In addition to the internal corporate environment, there's an entire set of external rules governing business today. Senior management needs to be aware of consumers' current and future needs and how to mold those needs to new innovations. Management must also be aware of consumers' interactions with the company through various touch points.
There are numerous factors heightening the need for higher levels of strategic management: market share and profitability dependencies on customer satisfaction, reduction in service and sales defect rates, employee satisfaction and associated service attitudes, economies of inflation/recession, interest/currency rates, opportunities presented by political situations, taxation in different industries and countries, and the impact of decentralized operations.
Strategic thinking and SEAS
The traditional way to handle strategic issues has been to engage in high-level planning. This deals with "point forecast," in which the focus is narrow and deep, rather than broad and complex. The results are discrete rather than continuous and integrated. The process results in a "straight-line" extrapolation of history, rather than 3-D simulation, experiential learning, and a strategy-tuning process for the future.
SEAS achieves simulation, experiential learning, and strategy tuning through the techniques of "business war gaming," which borrows concepts and methods from the Defense Department. SEAS is a powerful, yet highly intuitive tool that goes far beyond what's been possible up to this time.
The setting
Take the consumer banking industry as an example. The key players in this industry need to be aware of the implications of various actions taken by themselves, regulators, and competitors. In the SEAS environment, there's a "synthetic mirror" of the consumer banking industry, re-creating key features of the real environment in a synthetic environment.
The rules of the game (economic growth, taxation, interest-rate environment, market shares, price controls, regulatory constraints, etc.), plus the parameters for the model (service capabilities, credit, operations, people, infrastructure, consumer valuations, satisfaction levels, defect rates, product and service needs, etc.) are set to reflect reality.
Member segments (low income, emerging affluent, students, and high net worth) and producers (credit unions, banks, finance companies, and investment brokers) then buy/sell financial products and services, and the market keeps track of all transactions and generates profit and utility reports.
Senior managers then have to make the same decisions they make in real life: Should we enter new markets? Should we invest in new technologies? Should we counter a competitor's aggressive move? What combination of price and service quality is a winning formula in my market? What impact on member segments can we expect if we go with a relationship pricing strategy vs. an individual product/service strategy? How should we track results? When/how should we change or fine-tune our strategies? The effect of each strategy is immediately visible in terms of outcomes in the game.
SEAS provides customized decision support for each player, helping them make fast, accurate decisions. Part of this technology consists of real time 3-D visualization that helps the players and observers assimilate enormous quantities of data quickly. This is made available through a virtual game board.
LiveCase methodology
LiveCase exercises can run anywhere from a few hours to two weeks to a continuously running global game over the Internet. Shorter versions of the game consist of three distinct steps: pre-exercise briefing, exercise-time activity, and post-exercise analysis.
Pre-exercise briefing. Before taking part in the exercise, participants are assigned to different groups representing their presence in the marketplace and the presence of other industry competitors. Each group is briefed about the competitive landscape, product lines, cost and demand functions, industry strategies, and rules of engagement. After the briefing, participants undergo a few rounds of training. Novice users can become adept at using the software in less than an hour.
Exercise-time activity. Several rounds are played in a typical LiveCase exercise. Each round could represent a month, quarter, or year. You have the ability to dynamically change scenarios within an exercise. For example, depending on the level of customization, regulations can be changed to reflect potential legislative/regulatory changes various state or national authorities are considering.
You can change the pace of technical progress, economic growth, staffing and service levels, and rate environment factors, and you can introduce new products and competitors. Participants respond to changes in the environment by altering current strategies or devising new ones. The underlying market captures every move players make, and generates prices, quantities, market shares, revenue-to-expense ratios, and returns on investment and equity, exactly as they would be determined in real life. The outcomes in these scenarios are available for post-exercise analysis.
Post-exercise analysis. This is the most crucial and fun part of the simulation methodology because a significant part of learning happens there. It's a team effort using group dynamics and techniques the Defense Department developed. The Army calls it the "after-action review" while the Air Force calls it "hot wash."
Senior executives with substantial business experience, players, consultants, business professors, students, and people with extensive military experience conduct these sessions. You conclude by formalizing strategies devised and tested in the exercise, market idiosyncrasies, and other lessons.
The time is right
War gaming technology receives a lot of press coverage these days. We think you'll find it useful to glance through these articles:
"Army devises system to decide what does and does not work," Wall Street Journal, May 23, 1997;
"Playing the game of life," Forbes, April 7, 1997;
"A new laboratory for economists," Business Week, March 17, 1997;
"How lightbulbs, Hootie contributed to change," Wall Street Journal, March 28, 1997;
"Oracle plays the knowledge game," Fast Company, June-July 1996;
"The dance steps get trickier all the time," Fortune, May 26, 1997.
-Reported by Alok R. Chaturvedi, associate professor, Purdue University, and an instructor in CUNA's Executive Institute Series
Copyright Credit Union National Association, Inc. Aug 1998
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