war gaming
TRANSCRIPT
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WARGAMINGA short introduction
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Contents Page
A. What is strategic Wargaming? 3
B. Wargaming in practice – Roland Berger project examples 8
C. How to do it? 11
D. Why to co-operate with Roland Berger 17
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A. What is strategic Wargaming?
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CONCEPT Wargaming is a dynamic simulation of real businesssituations – providing information and experiences to shapestrategic decisions
APPROACH The game consists of– Testable hypotheses or issues to be resolved– Several teams that conduct game moves representing about
1-2 years of market development– Analysis and evaluation of major initiatives– Feedback on planned and/or not expected results
ADVANTAGES Wargaming allows– to test hypotheses and strategies at low cost– to analyze how an industry may evolve– to demonstrate how "personalities" influence decision making– to acquire an insight into implementation issues
We apply strategic ("War") Gaming to deal withhighly dynamic strategic situations
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Wargaming allows to deal with interdependentstrategic action and counteraction
• Risk of unforeseeablebehavior exists in allsituations with two ormore players
• Strategic developmentsare influenced by interde-pendent behavior of allplayers
• Strategic goals can onlybe reached if all playersand their possibleactions are analyzedsystematically in theirtimeframe
TIME
Option 1 Option 2
Option 1
Option 2
Player A
Player B
1st round
2nd round
3rd round
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In a range of real business situations, linearstrategy development has its limits…
• Telecoms licence• M&A• Vertical integration(e.g. bancassurance)
Examples
Broad StrategicInitiatives
Specific TacticalManeuvers
• Pricing changes
Bidding/com-petitive tendering
Acquisition/consolidation
Strategic movetesting
Analysis of thecompetitive land-scape
Limits oflinearstrategy
• May not reflectmotives of otherbidders
• Lack of detailedanalysis of com-petitors' reactionsand their impact/implications
• No focus on inter-dependencies ofcompetitors' moves
• More reactive thanproactive approachto competitors'strategies
• Defence contracts• Hostile takeovers• New productintroduction• Major reorgani-
zations
• Too rigid to provideinsight in highlyintuitive moves
• Limited insight in'how exactly' theythink and act
• High probability ofpaying too little ortoo much
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…which is why companies can benefit fromWargaming
SpecificBenefitsfromStrategicGaming
• Rehearsal for actualbidding process
• Gain "real" expe-rience of acquisitionprocess
• Identification of valuedrivers
• Understand barriersto entry
GeneralBenefitsfromStrategicGaming
• Involvement of both top-management andsecond-levels in the game
Create acceptance for a strategy Allow a risk-free simulation• Makes learning from mistakes easier
Bidding/com-petitive tendering
Acquisition/consolidation
Strategic movetesting
Analysis of thecompetitive land-scape
• Assess risks andgains in a dynamicenvironment
• Capture interactionwith market andcompetitors
• Optimize operationalparameters, i.e.timing, resourceallocation
• Gather competitiveintelligence and vali-date competitors'strategies
• Identify partner/target and definePMI & synergyprospects
• Take into account"personalities" ofother players
• Ascertaining "true"cost of losing (andwinning)
• Understand themoves and nego-tiation tactics andbetter anticipatecompetitive reactions
• Strategy has been "lived" in the game
• Participants are multipliers for the strategy
• Even radical moves possible – e.g. moves thatchallenge basic assumptions of an industrysector
• Reaction to different situations can be tested
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B. Wargaming in practice– Roland Berger project examples
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Roland Berger has conducted eight strategicWargames over the last three yearsRecent strategic Wargames conducted by Roland Berger
2007
2006
2005
Insurance company1
Airline simulation2
Prime contractor3
Tier 1 supplier4
Engineering company6
Aerospace equipment manufacturer7
2004 Insurance company8
Airline5
• Deep understanding of how to use Wargaming toachieve the best results, e.g.– Need to focus on one core issue (or a very limited
number of issues)– Balance between sufficient complexity to be
realistic, and too much detail– Requirement to define the boundaries of the War
Game carefully
• Detailed knowledge of the practicalities of WarGaming, e.g.– Establishment of successful teams– Set-up of dedicated IT system
RB Excellence
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We have gained Wargaming experience with avariety of business situations and industriesCLIENT Aerospace equipment
manufacturer
Large scale biddingcompetition
BInsurance company
Long term competitivemarket dynamics
A
Value chain interaction
European airline
Objective • Rehearse bidding processfor major long-term contract
• Test robustness of chosenstrategy against potentialcompetitor responses
• Decide how best to capturevalue from other industryparticipants
Outcome • Great stimulus to existingpreparations
• Business improvementinitiatives revealed
• Refinement of plan ofcampaign for initiatingchange within distributionnetwork
C
• Strategic success dependenton competitor response
• New strategy shown to berobust
• Client won the realcompetition
• Alert to threat from specificcompetitor actions
Broad StrategicInitiatives
Specific TacticalManoeuvres
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C. How to do it!
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Intensive pre-game preparation and extensive post-game analysis is critical for successful Wargames
1 2 3Pre-game preparation Wargaming Post-game analysis
• Issue definition • Team briefing • Outcomes and winners
approx. 9 weeks 2 days withfull Executive team 1 week
Strategic Wargaming is a three stage process
• Inter-move analysis
• 3-4 moves of about 4 hourseach
• Definition of near termstrategy and implementationagenda
• "What if" analysis andgeneral introspection
– Competitor businessmodels
• Economic modeling
– Market economics
• Infrastructure planning
• Personality profiling andteam formation
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The emphasis of the pre-game process is on thedevelopment of a realistic market simulation
Pre-gamepreparation
• Market economics, e.g.- Price elasticity of demand- Advertising effectiveness- Channel dynamics
Economic modeling• Competitor business models
- Revenue and cost structures- Investment restraints- Shareholder value
• Identification of major marketparticipants requiring representation
• Character sketch of key personalitieswithin identified teams
• Assigning executives to variousteams to maximize learning
Personality profiling and teamformation
• Context – What isthe core hypo-thesis? (e.g. pricecompetition)
• Constraints – Whatproducts/marketsshould the gamebe restricted to?
Issue definition
• Site selection (off-site)• Technology support
(intranet/ telephones)
Infrastructure planning
1 PRE-GAME PREPARATION
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The Wargame itself consists of 3-4 moves whereteams interact in the process of strategy executionGame structure Team Roles & responsibilities
Customer/Market
Others(e.g. supplier)
Client
NewCompetitor
EstablishedCompetitor
ControlTeam
• Total responsibility for running theGame, and deciding on what is(and is not) allowed within theGame
• Representing other market partici-pants e.g. customers, suppliersetc…
The client • Representing the behavior of theclient during the Game
Client'scompetitor
• Likely response of the competitors
• Also played by Client employees
2 WARGAMING
GAME INTERACTION
ControlTeam
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Between moves, a control team models the impact ofteam decisions and updates the game environment
2 WARGAMING
Inter-move analysis and feedback
ECONOMICMODEL
Teamdecisions
Control Teamoutput
• Price• Marketing• Product focus
Core operating decisions
• M&A• Product innovation• Market entry/exit
Strategic initiatives
MARKETMODEL
FINANCIALMODEL
• Market size• Market share
'New' game environment
• P&L• Balance sheet• Economic value
Team-specific financials
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Understanding strategy drivers and the 'what if'analysis form the basis for strategy implementation
Which strategy led to maximum:
• Shareholder value creation
• Change in market share
• Change in share of industryprofit
Identification of key success factors
Analysis of:
• Different move permutationsand combinations
• Identification of little realisticoutcomes
• Impact of high probabilityevents
Detailed 'what if' analysis
Discussion anddebate on lessonslearned, capability
and knowledgegaps
3 POST-GAME ANALYSIS
• Definition of near term strategy and implementation agenda
• Significant knowledge transfer to the client's strategy team
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D. Why to co-operate with Roland Berger
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Two key competences, which we have, are neces-sary to conduct Wargames successfully
WARGAMING EXPERIENCE
• Real practice experience inrunning War Games to:
ECONOMIC/FINANCIAL MODELLING
• Strong modeling and industryskills to map value and costdrivers comprehensively
• Financial capabilities to buildmodels that ‘feel real‘ toexperienced industry executives
– correctly identify issuesand scope the "game"
– profile the players
– engage the clients’executives to play therelevant roles
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For further questions – contact our teams inGermany or in London
Partner
Hamburg
Hauke Moje
Senior Consultant
Munich
Philipp HattrupSenior Consultant
Hamburg
Florian Berndt
Partner
London
Robert Thomson
+49 160 [email protected]
+49 160 [email protected]
+49 160 [email protected]
+44 79 6767 [email protected]