Business War Games
MARKET LEADER UNDER PRESSURE
The situation: A food processing company, a large player in the ready to eat (RTE) market faced growing pressures from competitors in one of its business units, and a threat to its leadership position. The business unit management decided to run a war game to determine whether the source of its presumed competitive advantage remains valid and sustainable in light of changes in the RTE industry.
The war game: revealed that the company suffered from a pricing disadvantage against its largest rival, and its belief in its technology lead was a blindspot (management assumption which was out of sync with the competitive reality). Analysis of the company competitive advantage focused on its leading position in healthy foods, but also a need to strengthen this image which was lapsing slowly, with concrete actions.
The outcome: The Company embarked on "nutrition first" long term strategy, including an acquisition which highlighted its commitment to health. Over a period of 5 years it regained profitability and leadership position as the industry slowly caught on to the imbalance discovered in the war game between health and taste preference.
ACQUISITION BRINGS NEW COMPETITION
The situation: Following a large acquisition, a division of this multinational beverage company found itself facing a larger and more focused rival with significant cost advantage. The division needed to test a new strategy to combat the rival and gain market share critical to achieving economies of scale.
The war game: revealed a company suffering from antiquated products, inefficient production, and lack of competitiveness in the organization which was benignly neglected by the former parent company. The game also highlighted the new owner's significant capabilities with large distribution channels, and the competitor's blind spot regarding a new direction in consumer preferences in the market, brought about by the aging baby boomers.
The outcome: following the war game recommendations, the division retrenched to reorganize and restructure and completely turned the tables on the rival. While the rival was bleeding, the division's turnaround strategy, coupled with reorganization throughout the company led by a new and energetic CEO, increased its market share in all critical markets. The company was rewarded by a rising share price as Wall Street expressed enthusiasm about the new CEO's direction, and the division's success was one prominent reason cited by analysts.
INDUSTRY CONSOLIDATION CREATES IMBALANCE
The situation: A software company was facing a growing market imbalance as one of its competitors was being acquired by a larger company, who could offer customers a one-stop-shop service.
The war game: revealed a company steeped in academic-like culture, proud of its sophisticated products and quite blind to its own limitations. While competitors were financially and business oriented, the company's main advantage was in its baseline capability, more than its business applications. The war game predicted further market consolidation, and named the most likely new entrants.
The outcome: The market consolidation which took place in the next 3 years confirmed participants' precise predictions. Despite this shifting structure of rivalry, management made a strategic decision to keep going at it alone (as of 2008). Facing up to its real strength (corporate IT managers), the company shifted focus to exploit opportunities through its valued customer loyalty, rather than embark on money losing expansion through channels with which it had no real advantage. It also completely retrained its sales force to make better pitches to business oriented customers. Despite the much larger competitors, as of 2008 it retained its leading position in one of the most profitable business applications.
NUMBER 3 TO MARKET
The situation: A pharmaceutical company was about to launch a new molecule in one of its therapeutic areas, which was a "me too" product in a crowded market, with little or no real advantages over the "gold standard" in treatment in this disease area.
The war game: revealed competitors were already pre-positioning the new drug as inferior, and sending marketing communications which manipulated efficacy and safety data to dissuade physicians from adopting the new product. The launch plan was perfect in all respects, expect one: it was a classic launch using the exact same routines as every other Pharma company in this market (sales people using communication based on clinical studies trying to reach busy specialists and obtain reluctant Key Opinion Leaders' endorsements). The company's only advantage was in a subset of the market, with a sub segment of patients, and with physicians whose personal philosophy leaned towards higher efficacy and not higher safety.
The outcome: The Company adjusted expectations to meet the narrower market, and adjusted the clinical and marketing message to focus on a sub set of patient. More importantly, it focused on specialists whose business was hurt by other products from competitors which targeted their competitors, a different class of specialists. The company worked with a patient group through an emotional message which was quite different than the clinical "dry" data it intended to use originally. While the product was not a blockbuster, it grew by 25% each year for three years following the launch.
FIGHTING COMPETITIVE CONVERGENCE
The situation: The insurance market is heavily regulated and offers limited venues for differentiation. This insurer found itself lagging in growth in a particularly important market against larger rivals.
The war game: revealed conventional thinking about the segment in question which was not backed by insightful analysis of customers' real needs. The strategy used in the plan called for obvious tactics of approaching this segment and was not expected to survive competitors' likely reactions. It became amply clear that corporate expectations were therefore not going to be met using the existing plan.
The outcome: Despite the obvious difficulty of differentiation "insurance" products (other than by pricing), the participants did identify one superior strategy which would provide the company with a real chance of a breakthrough. Since the game was held in 2007, it is too early to determine the results of this initiative. One benefit was unexpected: The unusual thinking about the market imbalance and competitors' conventional approach proved this company had a much deeper managerial talent than top executives believed!
The situation: an industrial manufacturer was considering a new line of products to add to its existing portfolio. Management wanted to assess competitors' response to the new line, which would bring the company into a market with which it was less familiar.
The war game: revealed a company with considerable market power but with little real differentiation from other players, and little strategic rationale behind many products in its portfolio (many were part of the history of the parent company). The new product line did not have enough distinction to stand up in the competitive battle, and one large competitor in particular was predicted to create significant problems with distribution channels. The product was low in value added, and low cost providers, especially from China were bound to make margins disappear over time.
The outcome: The division decided not to produce the line, and probably saved about $ 40 million in direct investment. More importantly, though, the war game prompted a divisional review of its total portfolio. That review resulted in a strategic decision to focus on system oriented/solution based approach to the market, and on products with high value/proprietary components.
War Games' Failures
Since we believe in facing reality, here we face our own failures as well, rather than hiding them away in the
conventional consultants' tradition.
ASKING FOR TROUBLE
The situation: A business unit of a large consumer product conglomerate was launching a new product line consisting of 5 new product variations in a market dominated by two large competitors.
The war game: revealed significant weaknesses in the positioning of the product, in the relationship with distributors, in the advertising theme, as well as in production planning and sales force deployment. Most importantly, the marketing component of the strategy was confrontational and was sure to antagonize one of the rivals.
The outcome: The war game was run too late, and the marketing/advertising plan was not flexible enough to accommodate the war game's improvements. The product line was launch, competitors responded with aggressive advertising and promotion campaign, loading retailers and consumers with products and coming out with a quick succession of innovative "new and improved" versions of their own leading products. The line languished for two years, failing to achieve corporate goals and never capturing a significant market share. In 2004 it was sold to a private investment group.
TIME WILL TELL
The situation: A division of an energy giant needed to face emerging imbalances in its industry at a time of falling prices for its output and changing role of governments.
The war game: revealed a company with no sense of its own uniqueness, with significant cost disadvantages, and with management, steeped in tradition, which insists on a fixed way of doing things.
The outcome: Management was replaced a few years later, and the new management embarked on cost cutting. However, as the price of the resource rose, and profitability improved, the division's management did not address the strategy issue in a meaningful way. When the price comes down again, as is expected at one point in time, management will have to face the same old questions, as the industry imbalance grew even worse since the war game.