Understanding War Games:
For many years, Booz Allen Hamilton has used strategic simulations to analyze conflict situations — from conducting “share wars” to predicting which technologies will prevail in the marketplace. Teams of players representing opposing forces, methods, or ideologies compete against each other within a defined scenario.
Simulations, also known as war games, get at things that people don’t know they know, and the collective experience of the participants exposes solutions that are not apparent on the surface. The ramifications of decisions can be tested over time, and teams are able to assess the effects of a certain move after an opponent has countered with moves of its own, and then go back and make adjustments to strategy. The revised strategy can then be applied in the real world.
The threat of terrorism, as well as less-dramatic but also worrisome risks, such as internal theft of intellectual property, can be modeled using a simulation tailored to the circumstances. There is no standard way to conduct a simulation. Indeed, a simulation that tries to do everything will achieve nothing, so it’s critical to establish an objective and customize rules that will lead to achieving it.
AlliedSignal Inc., for example, used a simulation to help it decide to bid for a contract to produce avionics technology — an engagement that it initially thought would not be lucrative enough to develop. In a simulation, a rival team used the knowledge it gained in producing the technology for the low-margin contract to win a much bigger piece of business that was up for grabs a few years later. Caterpillar Inc. used a competitive simulation to break the truck market into several segments represented by teams of experienced executives who, in effect, did not know how much they knew about what the marketplace wanted until they matched wits against one another.
Assessing vulnerability is not a new application for war-gaming, but it has taken on heightened significance following the attacks of September 11.
Corporations around the world have beefed up security, run evacuation drills, clarified chains of command, and reviewed procedures for everything from handling mail to reporting suspicious people. Credit Suisse First Boston, for example, instituted Project Safe House, drawing on representatives from several departments to review, recommend, and implement changes to the company’s safety procedures. Beyond tactical responses, firms need to reassess the role of security within the corporate mission.
In particular, the threat of terrorism has reawakened many industries to supply chain vulnerabilities. Supply chain disruptions are nothing new, of course, but just-in-time production has led to thin margins for error. The General Motors Corporation was a victim of just-in-time delivery in 1996 when an 18-day strike by workers at two factories that supplied brakes idled 177,000 workers at 26 assembly plants, reducing quarterly earnings by $900 million.
Labor disputes certainly are more predictable than terrorism. But the effect of either kind of disruption can cripple an enterprise. That’s one of the reasons that many businesses now find the need to build a response mechanism that operates every bit as efficiently as the military. Since military strategists anticipate being hit and plan for supply-line disruptions, robustness traditionally gets the nod over efficiency in the military.
Strategic simulations could help CEOs determine the proper balance between just-in-time production and resiliency, especially now that the peacetime arguments for efficiency over robustness are no longer relevant. War-gaming between different management teams can answer questions that not long ago seemed unimaginable: What would the effect on earnings be if a company stockpiled three weeks of supply measured against a precipitous drop in its stock price should a crisis disrupt production? Are there innovative ways of creating these reserves besides just paying for them outright?
A move that looks simple on the surface often proves to be wrong-minded when it’s put through the discipline of a simulation. Pushing a particular lever may get the desired outcome, but it may also lead to other unanticipated effects. Corporate war-gaming helps bring these outcomes to light.
—R.W.S. and M.M.