Stress Test Your Strategy Before It Fails

Welcome to HBR on Strategy, case studies and conversations with the world's top business and management experts, hand-selected to help you unlock new ways of doing business. If you really want to compete in your industry, you have to think like your rivals. How might they respond to your next move? What happens if they outmaneuver you? What's your plan then? This is called corporate wargaming or competitive simulating. And according to Southern Methodist University adjunct professor Arjun Singh, this disciplined approach to scenario planning helps companies test how their strategies and tactics hold up in the market. The exercise also helps them avoid blind spots. He talked to host Allison Beard on HBR IdeaCast in 2024 about how companies can get started.

Now, I do want to be sensitive about this term war games because, as we know, many people in the world, from Ukraine to Israel and Palestine, are dealing with actual war right now. But explain explain for us why you use it and what exactly it means.

Wargames are essentially dress rehearsals for companies to really test and stress test their strategies before they deploy them into the marketplace. Wargaming is very popular in the military. It crossed over into the business world about 40, 50 years ago. The terminology has stuck on since then. It is also referred to as competitive simulations. Most of the applications of wargaming in the business environment build on the concepts from the military. So there's a lot of similarities. Obviously, the content, the topics are very, very different, but it follows a very similar structure in terms of understanding, you know, your key competitive landscape, your environment, who the key players are, you know, what typical situations may emerge as you're getting into the battlefield. So very similar in the military world, and it crosses over into the business world very, very seamlessly.

And how does it differ from traditional scenario planning?

So traditional scenario planning, the notion there is really around thinking through different outcomes that may happen in a competitive environment. You hope for the best, but you prepare for the worst. And you work out strategies built on these alternative worlds that are, that are there. Wargaming takes scenarios to another element. So it's not just about what's possible in the future, but then the wargaming adds layers on in terms of the likely actions of key competitors and stakeholders in the marketplace. And then the actions that a company should take in response to that as well. So it really drives home the actionability and moving it beyond an intellectual exercise to really pragmatic next steps for organizations to really bring them to life.

So give me an example of a wargame exercise that you might give your students.

So the one that we're running currently at SMU is the Battle for Mobility. And so the whole notion there and the central theme there is around who's going to control mobility in the future. And so we've got 6 different teams that are represented there. We've got a few traditional automakers like GM, Volkswagen, Toyota. We have next-generation providers like Tesla. We've got Uber as well as Waymo represented there. And the whole notion there is around, you know, who's going to win in this battle, the battle for mobility? What will mobility look like in the future? And what if the world evolves to a situation where there's non-ownership of cars, technologies, AI? How would that affect how people commute and use transportation in the future?

So that idea of the battle for is maybe how companies or teams should be thinking about it, the battle for this particular market or this group of consumers.

Yeah, exactly. It's, it's, it's really around the battles, but also around defining what that battle is. And how do you define your industry and the battle place and who you're, who you're competing against? So I'll give you an example. You know, when we went into the COVID situation, everyone was at home and got familiar with online collaboration toolkits. When we got back into the post-pandemic world, you know, business travel came back with a big force. And so, you know, when you look at traditional competitors, you could see the airlines are competing with other airlines and other transportation providers. But then in this new reality, you know, there were a lot of other competition, you know, so it was American Airlines, Zoom, Microsoft Teams, you know, the virtual world versus the actual necessity to be able to go travel. And so definition is really, really important in terms of what that competitive set looks like. Companies that define it too narrowly can end up in situations where they may be blindsided by new competitors coming in.

What are the major types of games or scenarios that you teach your students and use with clients?

So when you look at wargaming, it really fits into 3 different levels. There's strategic wargames, which is really anchored around long-term strategy, looking at how core macroeconomic trends are changing the competitive environment. And they're essentially answering the question, what will the game be in the future? And that tends to be much more senior-level executives that can get involved in strategic games. The next level down is operational games. And when you've got a defined space, you've got defined competitors, and it's really thinking through, you know, where to play, what areas does a company need to be competing in. And then you get down into the executional type of games, which are the tactical games. So these tend to be much shorter term. This tends to be focused in on on selling and usually has a 1 to 2 year time horizon. The core questions there is really around how to win, how do we sell more product in the marketplace, how do we message against our competition, and how do we ultimately end up winning in that space?

Yeah. And then how do you come up with the specific scenarios?

So scenarios is an area which, you know, it's been very well documented and written about in the business world. And there's different ways of looking at scenarios. Scenarios can be very simple. So it could be as simple as having the group that's in a war game brainstorm a set of key things that may affect the environment and then voting on it and prioritizing which ones they would, would like to address. At its most simple form, it's a very quick exercise. It can take a few minutes. The criteria for looking at scenarios is really around impactful situations. So things that will have an effect on a competitor the environment and really thinking of it from an impact perspective, not likelihood, because you really want to play out the scenarios that will be the most impactful.

So when you're selling this proposition of wargaming to your students and to clients, what specific opportunities do you point to that this will yield versus other types of strategic planning? And then what specific problems or risks do you see as it helping companies overcome?

So the opportunity part of wargaming is really around helping companies avoid blind spots. This tends to happen a lot with incumbent players that have large market shares, you know, so the attitude tends to be, this is how the industry is. We're experienced in the space and we know it well, hence our success, and we expect this to continue. And there's a lot of business school examples and case studies of how That's led to the downfall of a lot of companies, including a lot of iconic names that are there. And so—

Kodak, Blockbuster, all of those.

Exactly. And so this is a forum for having these conversations. And it's particularly important when the conversations are going to be uncomfortable. It's going to challenge the status quo. It's going to make an organization think differently. And that's one of the real kind of benefits that are there, because in a war game, you have different companies that are represented and you break up the group into these different groups and tell them, you know, think through it like that company. Think about what does winning mean for this organization and how are you going to attack our organization and what are you thinking? And you start getting really deep into that thought process and it generates a lot of insights. You know, doing this analysis inside out, like really getting into the heads of the competition and looking at the marketplace from their vantage point is immensely valuable.

Why do you think that a lot of organizations struggle to engage in that kind of in-depth thinking about different potential futures and where their assumptions might be wrong?

It's, I think, a function of— a lot of times it's a function of resources and time, you know, because businesses are busy. They're busy in terms of executing. There's always things to do, right? And And a lot of times I get pushback when companies talk about doing war games and they say, oh, can we do this in 2 hours? And the answer is, well, you could, but it's probably not going to be very good. And to do a well-thought-out game, you need between a day to day and a half. And so then there's logistics around getting people together, especially if you're doing a strategic game and there's senior management involved. You know, their calendars are very guarded and hard to get onto. Let alone asking for 8 to 12 hours of their time for this, right? So time and resources tends to be part of it. And the other part is cultural. Some organizations are not comfortable having their assumptions challenged. There's a lot of structure hierarchy that comes into play. And if you're questioning some of the senior people and their thinking, it's just, it's not taken the right way. So culturally, it can be an issue as well.

What information do participants need or should they be given before they start?

So generally, for a game, you should have a briefing document that's got enough background for everyone to be knowledgeable in an area. And one of the key distinctions is for companies that are in a particular area and they're doing a game with that space that they know really well, your pre-briefing documents tend to be a lot lighter because it's an area that people are familiar with. For areas that companies are looking to get into or build knowledge very quickly, games actually have a great way of doing that very, very quickly. And in those instances, the briefing documents would be a lot more comprehensive. Generally speaking, the briefings are based on market information, competitive intelligence that you might have, and then really deep diving into the companies and not only the core sort of obvious metrics, but really delving deeper into previous battles, what they've done in previous instances, other lessons from history that can be applied here.

And so then what happens in the actual game?

So the game is a series of plenary sessions followed by breakout rooms where the teams work together. So in a typical game, you'd start with an introduction. You would give perspective in terms of the topic, the core issue that you're trying to solve, what actions you're expecting to come out of it. You may present a little part of the briefing document so that everyone is at the same level of knowledge. And then you go through a series of exercises. And the first round, you would typically say, okay, you know, for the company that you represent, build a strategy to win in the marketplace and think through, you know, various levers that you're going to use. But also, you know, really think about what does winning mean for you? What does winning mean for your organization? Because in a marketplace, even though you may have direct competitors, each company usually has a different definition of winning. And so it's really to understand what that thought process is, winning, and then the core sort of strategic themes that they're going to come after. You can also put in specific asks around how would you attack your organization? You know, how do you view the organization? And what are the specific things that you're going to do to take away market share or sales or other metrics that you might be might be looking at. And then from that point onwards, the teams will prepare their presentations, they'll come back, they'll present, there'll be a panel of judges potentially that will give feedback. Then the teams will generally go back, they'll revise their strategies based on feedback, based on how the competition is going to be attacking that. And then you start going through a series of exercises that delve deeper and deeper and deeper into that whole topic area. And then the games normally, they conclude at the end with turning it around from the company's perspective And the core question there is, based on these rounds of wargaming and battles that you've gone through, what are the key insights that you've generated? Where do you think are the biggest opportunities to your business? Where are the biggest risks that are there? Are you prepared? The plan that you have right now, are you prepared for some of these situations? And then ultimately, it's really around driving actions and you prioritize what are the core things that need to be done right now proactively? What are the things we have to wait until they start playing out in the marketplace? Successful game actually has names of departments or individuals next to each of those action items and who are responsible and accountable for moving that forward.

Yeah, that's useful. I think we've all had the experience of going to an offsite and brainstorming great ideas and then just sort of nothing happens after. You talked about the battle for mobility that you did with your students. Can you give us an example of a war game that you've done with a client recently?

So wargaming tends to be a very common activity in the pharmaceutical biotech space. I don't think I know of one large pharma biotech that has not done a war game. So all of them do it. And part of the reason there is, you know, you're spending over $1 billion to bring a drug to market. There's significant skin in the game. And so generally in the pharmaceutical industry, there tends to be a lot of war gaming as assets are brought to market, end of Phase 2, end of Phase 3, commit to file, and then once they start launching into the marketplace. And so One recent game I've done in the pharmaceutical space, and it was a potential blockbuster they're bringing to market. So their expectations are over $5 billion in revenue for the product. And so the game, you know, followed a similar structure to what I defined. We got into details, and when we started getting into scenarios, you know, one of the scenarios that came up in the discussion was around, you know, what if the FDA doesn't approve the product? And so as you can imagine, you know, there was a lot of opinions in the room around, well, that would never happen. We've 'You know, we know what we're doing.' A lot of defensiveness as well. And we said, 'Look, this is what you have to do is to really, you know, prepare for the worst and hope for the best.' And so they went through the scenario and they looked at, you know, if the FDA doesn't approve the product, what will they do? They came up with a playbook on what to do there. And about less than a year later, when their approval date came up from the FDA, the product was not approved. And so instead of panicking, instead of saying, oh, now what do we do? They went and looked at the output from the war game and said, look, we have a playbook here. We know exactly what we need to do. There's certain signals in the data that we have to reanalyze. There's this, you know, these other things that they had to do. And they kind of executed on that and resubmitted with the FDA. The product was approved afterwards.

So it seems like part of the goal is to figure out sort of how you might fail before you actually do, or how you're going to deal with a crazy shock like COVID.

Exactly. Like how you might fail before you actually do. The COVID shock was actually an interesting one. We'd done with the students in 2017, the Battle for the Traveler, which was a game in which you had— we had a couple of airlines, American, Delta. We had the OTAs, Expedia, Booking.com, we had TripAdvisor, Marriott, which is traditional hotel chain. The whole notion is everyone's trying to control the traveler and everyone's saying, hey, book on our website, you don't have to go somewhere else. Airlines now are saying, you know, we'll give you loyalty points for not just flying, we'll give you loyalty for credit card expenditure and dining and other, other parts as well. And in that game, interestingly, in 2017, we actually had the COVID scenario. Which was the students had gone through, you know, building base case strategies for the companies they represent, how they're going to win. And one of the things that came out after round 1 was every single company that was in the room had one explicit assumption that their strategies were based on, which was the travel boom in the United States is likely to continue. And so the scenario we gave them is we made it very generic, just saying that, you know, events occurred in the world where it's gonna have an effect of declining demand for travel by up to 95%. And then there was, we put a comment in there from a fictional analyst saying that, you know, the travel boom in the United States, the way that we've known it is dead, leisure travel is dead, and business travel is gonna take about 3 years to recover. So that was essentially the COVID situation. And the students' reactions, you know, first was, oh, no way, this is never gonna happen. Silly scenarios. And we said, no, go through it. And every single company had to rework their strategy and their playbook based on that one assumption changing that the market boom's over.

So it seems like the output from these sessions is a playbook for a variety of scenarios that then you can put into action and make sure is implemented if those scenarios arise.

That is, and that's really the key to driving actionability after a war game. As you've mentioned, all of us have been to those meetings, which I call interesting, right? Great discussions, a lot of great thought process that's there, but then it doesn't really lead to anything, right? And actionability really from a war game comes from the playbook, and the playbook's typically structured around what actions should an organization take, what those next steps are, what are the actions to take versus some of the scenarios. So if a scenario happens, build a playbook in response to that. Understand the key insights that you've generated on your competition, what their hot topics might be, what are the areas where they're vulnerable, where you could really focus in on, and having all those details in a very simple format to use moving forward. Then the other benefit to a playbook is that, you know, this is the output of the stakeholders in the organization. You know, so this is not a third party telling them what to do or one person. It's everyone aligning as a group in terms of, you know, we understand the core issues, we understand where our opportunities are, we align on what our next steps are going to be. It's a much quicker way to mobilize an organization towards a particular goal or actions.

Yeah, I love the point you made in the book about how, you know, consultants might come in and say, right, this is what you should do. And then they're not ever responsible for the outcome of what they've recommended. So there's a big difference. And so how often should organizations repeat this process?

So a lot of organizations do wargaming on an annual basis. So some of the best-in-class companies have integrated wargaming into their planning process. So their annual planning process. And so, they'll kick that off with a war game, look at different aspects of their competitive environment, and then they get into doing their planning. So that's kind of best practice, but depending on industry, it'll vary. So if you're looking at strategic issues and you're in a traditional industry, you probably need to do one once every couple of years or so. If you're in a fast-moving area like technology or others, you could do it once a year, you could do it multiple times a year. And then it also depends on the topic area as well. So for example, if you're bidding on a large contract that's worth billions of dollars and you've got an 18-month to 24-month sales cycle, I know of companies in those situations, they war game every week. When there's $10 billion on the table, you try and figure out what, not only what you're thinking, but all the key stakeholders and what that battle might look like and all the, permutations and combinations there. So for which you would need significant amounts of rounds of scenario planning and wargaming.

Yeah. So it sounds like you're saying that specific teams within organizations can also use this process to think about their competitive strategy on a smaller scale, like, like signing a big deal.

Absolutely. You know, the sales team can find a lot of benefit from, from being able to, to sell more product and, you know, meet their, their goals. It can help from a marketing perspective. There have been others, you know, research and development, finance, strategy, a lot of different functional areas can benefit from this, but their topics will be different. You know, marketing would be interested in very different things from, say, R&D and others. And so it definitely has a space for different areas within an organization, as well as for startups. You know, this is not just a toolkit for large organizations. The larger organizations do spend a lot of time and effort on it. This is a very simple toolkit that startups can use in terms of, you know, if you're bootstrapped, you're bringing a product to market, you know, just role play and see how the competition is going to react. You can save a lot of costly mistakes by doing that internally before you start deploying your strategies externally.

And have you ever had an instance where a war game led a company in the wrong direction? Because they didn't come to the right conclusions?

There's been a few. So wrong direction in terms of optimizing assets and prioritizing their developmental plans. It's happened a couple of times. And one of the major main reasons for that was around not really having the right background information on the area. It was an emerging area. And so they had to make certain assumptions on what was likely to happen. And the big issue there was the way that they thought about it was from their company's lens, not the competition's lens. And that was a mistake that happened where they ended up, you know, going in a different direction. But with tracking and continuing to look and having early warning signals that you look at, you can kind of course correct very, very quickly. And so in that instance, you know, there are certain assumptions and hypotheses that they had in an action plan getting out of the, the workshop, they started deploying it, and then very quickly based on feedback, what they discovered was that they were thinking through it the wrong way, and then they course-corrected fairly quickly.

So you did talk about pushback and the fact that sort of especially in emerging markets, it's hard to predict what's going to happen. For those people who say to you, you know, everything is changing so quickly, I already have so much on my plate, I think we can develop a good strategy without going through this process. What do you say?

That's a great question. And you know, that happens a lot of times, you know, the time commitment and, you know, taking, you know, 15, 20, 30 people from work and having them in a, in a day or two to workshop, you know, that's always a challenge. And sometimes it's quicker to overcome it through just, you know, showing previous examples or value. Sometimes it takes time. I had a company that had that same pushback and they didn't do a game for, I think it was almost 3 years, and then finally they were ready to do it. And once they completed it, you know, the first reaction was, why didn't we do this earlier? This would have saved us a lot of time, effort, heartache, and resources. And sometimes, you know, companies just have to kind of go through that whole process to get that realization, you know, because ultimately it's around, you know, blind spots and costly mistakes and and opportunities that they could have identified earlier. A lot of times the catalyst for breaking that is if someone in the team's actually been through a game and they're the champions of talking through wargaming and the benefits that are there. But that's a process to go through. That's one of the reasons I wrote the book was to just educate everyone in terms of the benefits of doing this and having effective actionable games in their organizations.

Arjun, thanks so much for talking to me today.

Great, thank you.

That was Southern Methodist University Adjunct Professor Arjun Singh in conversation with Allison Beard on HBR IdeaCast. Singh is the author of the book Competitive Success: Building Winning Strategies with Corporate War Games. We'll be back next Wednesday with another handpicked conversation about business strategy. From Harvard Business Review. If you found this episode helpful, share it with your friends and colleagues and follow our show on Apple Podcasts, Spotify, or wherever you get your podcasts. While you're there, be sure to leave us a review. And when you're ready for more podcasts, articles, case studies, books, and videos with the world's top business and management experts, find it all at hbr.org. This episode was produced by Mary Dooe and me. Hannah Bates. Curt Nickisch is our editor. Special thanks to Ian Fox, Maureen Hoak, Erica Truxler, Ramzi Kabbaz, Nicole Smith, Anne Bartholomew, and you, our listener. See you next week.