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War Gaming for Business during Turbulent Times

COVID-19 has had a devastating impact on companies around the world. Could the use of war gaming assist companies to respond, recover and thrive?

While there is no way to tell exactly what the economic damage from the global COVID-19 novel coronavirus pandemic will be, there is widespread agreement among economists that it will have severe negative impacts on the global economy. Value lost in economic output in 2020 was in excess of 3.5 trillion U.S. dollars1.

The economic damage caused by the COVID-19 pandemic is largely driven by a fall in demand as consumers stop, delay or scale down the purchase of goods and services. This has been exacerbated by countries placing restrictions on movement (travel, social gatherings). The impact has been widespread – cancellation of flights, holidays and business trips, staff layoffs, reduction in manufacturing output, have all had severe economic impacts.

Governments around the world have learned from previous crises that the effects of a demand-driven recession can be countered with government spending. Consequently, many governments are increasing their provision of monetary welfare to citizens, and ensuring businesses have access to the funds needed to keep their staff employed throughout the pandemic. It is true that some sectors have benefitted from the crisis – e-commerce, food retail, and the healthcare industry among others.

While the South African government has attempted to follow suit, its modest means have placed a ceiling on exactly what it can do to support industries and companies.

While COVID-19 was not the first pandemic faced by humanity, it will also not be the last. Recent history shows that COVID-19 had precursors in previous pandemics such as HIV/AIDS (1981-present) and the Spanish Flu (1918-1920). In 2004, US virologists warned about a strain of swine flu but the warning was widely ignored and the pandemic came as a surprise even to many virologists. In recent years, virologists have warned about potential pandemics from bird flu to coronaviruses like those behind SARS and MERS – warnings that came true with COVID-19.

It is common cause that COVID-19 has had an extreme impact on the world and has forced us to rethink the way we work, how we shop, the role of government, how the economy works at a national and global level. Above all, it has shown us how fragile everything is.

Against this background, the challenge to executives is how they can manage in an environment where the only constant is change, and what tools they might use to navigate their way to exceeding shareholder expectations.

With the advances in armed warfare that accompanied the industrial revolution in the 18th and 19th centuries, new techniques were developed to test strategies and tactics. Big leaps were made by the Prussian military in the 19th century which continued with the German General Staff in the early years of the 20th century. The increasing complexity and scale of warfare, together with rapid improvements in technology and equipment, forced the pace of change following the first and second World Wars.

The Cold War, with its static armies and emergence of nuclear deterrence, spawned new mathematical and game theory approaches, many of which have not had the same staying power as developments in the human-centric approach to decision-making. Modern war games use techniques and insights refined over many years and are an essential part of any military operation.

While much of this knowledge has not yet transferred widely to the non-military and private sectors, there is a small and growing adoption of war gaming techniques in these sectors. Organisations have used elements of war gaming to develop crisis management capabilities such as dealing with civil emergencies. Some private sector companies have used business war games as educational tools and to test marketing strategy. The idea being that war games can be used to evaluate strategies, explore scenarios and reveal unexpected weaknesses.

A war game or simulation forces participants to make decisions and respond to the external environment (represented by experts) in a "war game", to test the robustness of their assumptions and see the consequences of their decisions in a "safe" environment.

Business war games employing role-playing and competitor analytical techniques are most beneficial in business strategy at the business unit, market, brands, product and project levels. War games have been applied with great success to new product launches, offensive and defensive moves against specific competitors (whose response is analysed using advanced competitor analysis techniques), in organisational development (training the next generation executive cadre) "competitive landscape" games, and in brand revival and new market entry situations.

Most war games are oriented in some way to the future either explicitly or inherently; accordingly, the predictive value of knowledge emanating from a game is critical. Corporate war games which simulate the interactions of multiple actors in a market provide fantastic insight and improve organisational agility.

The secret of successful war gaming does not simply lie in mathematics, however. Interaction, not algebra, is the best way to win support for a new strategy. Game players must be senior for the same reason – although having the top boss on a team can stifle feedback. Strategies also must capture competitors' hard-to-quantify corporate cultures highlighting the need to seek out employees who have worked at competitors for that reason. But perhaps war games' greatest value lies in the way they encourage managers to think differently about the consequences of their actions. To know your enemy, you must become your enemy, as Sun Tzu would say.

We are seeing increasing demand from our clients for sophisticated testing, simulation and validation of strategy and contingency plans through predictive analysis that war gaming can provide.

Deloitte has harnessed the war gaming methodology and applied it to businesses, using the years of experience among the senior staff at King’s College London. Each Deloitte simulation is a role-play of a dynamic situation involving a number of players who each have their own identity within the game. Political, economic, social, environmental and technological factors are simulated; these are regarded as important external factors that may influence and impact upon the future. Deloitte can generate simulations that can be applied to businesses in various ways: from modelling changing market patterns, to ensuring business continuity during unexpected events. Deloitte simulations can help businesses to plan by producing data and intelligence; which companies can then act upon. Deloitte simulations can also be applied to test the robustness of businesses’ existing plans and to train and equip employees to deal with the unexpected. In fact, Deloitte simulations can be used to model virtually any possible business scenario, and to train people to deal with it.

There are numerous benefits to war gaming, they include:

  • Improving collective decision-making and focusing attention on the human dimensions of decision-making. As Paul Bracken, professor at the Yale School of Management wrote: “The problem with many strategy techniques is that they are too cold and bloodless. They fail to capture human emotions, and because of their icy rational character, people don’t really pay attention to them. They are soon forgotten … Gaming is a profound learning experience, one that is not soon forgotten.”
  • The experiential impact of war games means that participants have ownership of any resulting decisions, strategy and actions
  • Developing and testing strategy. Wargames have a unique advantage in the ways they can deal with time and scale. A 2-day war game can comfortably cover a period of 10 years, simulating as many players and functions as required
  • Within this framework, ideas, proposals and theories are put under pressure and can be examined to breaking point if required. This takes place within a benign environment and in confidence, if required.Improving business resilience, crisis management and negotiation skills are extremely receptive to the dynamic and progressive nature of war games
  • Improving consequence management through a better understanding of unintended consequences, which can be factored into game play
  • Addressing risk and safety and optimism bias
  • Competitive intelligence
  • Education and training are key elements for participants within the war game itself but can also extend throughout the organisation after the event to ensure that all staff are aligned with the top-level strategy and decisions. The military have made particular progress in this area, joining the tactical actions of junior soldiers to the strategic mission of commanders
  • Business war games are repeatable.

Using War Gaming techniques during turbulent times allows executives to stress test various scenarios for better outcomes.

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