Winning the Uncertainty Game

Turning Strategic Intent into Results with Wargaming

Daniel F. Oriesek, Jan Oliver Schwarz

• Publisher: Routledge
• Year: 2020
• Print ISBN:
  9780367418526
• eBook ISBN:
  9781000289879
• Topic: Negocios y empresa
• Subtopic: Negocios en general

This book is about the challenges that emerge for organizations from an ever faster changing world. While useful at their time, several management tools, including classic strategic planning processes, will no longer suffice to address these challenges in a timely and comprehensive fashion. While individual management tools are still valid to solve specific problems, they need to be employed based on a clear understanding of what the greater challenge is and how they need to be combined and prioritized with other approaches. In order to do so, companies can apply the clarity of thinking from the military with regard to which leadership level is responsible for what and how these levels need to interact in order to produce a single aligned response to an outside opportunity or threat. Finally, the tool of business wargaming, while known for some time, proves to be an ideal approach to quickly and effectively bring all leadership levels together, align them around a common objective and lay the groundwork for effective implementation of targeted responses that will keep the organization competitive and in the game for the long run.

The book offers a comprehensive introduction to business wargaming, including a historical account, a classification of different types of games and a number of specific real-world examples.

This book is targeted at practicing managers dealing with the aforementioned challenges, as well as for students of business and strategy at every level.

Part oneCHALLENGES OF A VUCA WORLD AND THE NEED FOR A NEW APPROACH

1VUCA AS A DRIVER FOR CHANGE

Nathan Bennett and G. James Lemoine (2014) in their Harvard Business Review article “What VUCA Really Means for You”, dissected the elements of VUCA (Volatility, Uncertainty, Complexity, Ambiguity) and offered ideas on how to approach each of the VUCA elements individually (see Figure 1.1). However, from Bennett and Lemoine’s overview, one may get the impression that each of the elements of VUCA can be addressed individually and that by doing so in sum VUCA can be effectively managed.

Figure 1.1VUCA examples and approaches as defined by Bennett and Lemoine (2014).

While their observations and proposed approach are valid individually, looking at solutions to VUCA this way is more a theoretical exercise than a practical approach. Addressing VUCA in our view and from our observations and experience needs to be done holistically. In order to do so, many individuals from the hierarchical organization and possibly from outside an organization need to understand the big picture, what the departments and people involved are currently doing, what their needs are and how they should all work together effectively along some structured process to reach a common objective.

Today’s environment is more VUCA than ever, partly driven by the magnitude and nature of global challenges, such as geopolitical developments and insecurity, environmental challenges, as well as general challenges posed by the highly networked global economy.

Geopolitically, we are moving from a unipolar (USA) post–Cold War world toward a multipolar (USA, China, Russia, as well as a number of major regional powers) power system, characterized by a combination of regional and global challenges, which are linked. For example, low economic development, coupled with natural disaster can lead to migration streams toward more wealthy regions of the world. This can lead to significant security challenges along migration routes or within entire regions. In today’s security environment, it is not only (nuclear) military power but to an ever greater extent economic power that defines a country’s role on the global stage. The recent COVID-19 crisis has the potential to dramatically affect economic power and thus political constellations within countries and beyond. The geopolitical constellation and the respective alliances have a great influence on global trade, the flow of people, the dissemination of ideology and culture, the flow and sharing of information, the protection of intellectual property and the protection of assets and investments in different parts of the world.

Environmentally, and as the COVID-19 crisis has taught us recently, we are facing situations where failure to effectively work together across national boundaries on issues like global warming, pandemics or the general overuse of nature’s resources will have severe negative effects on the global population, although the effects may appear sequentially and will not affect us all with the same severity at the same time. This said, we will with high probability see more local or regional conflicts over resources like water, key medical supplies, arable farmland, meadowland, fishing grounds, etc., and as a consequence thereof, a fierce competition for resources. This competition, unless resolved diplomatically and via mutually beneficial sharing agreements, will lead to more conflict at various levels of intensity, as well as internal displacements or major migration streams. Such conflicts, the challenges from displacement and migration of people, as well as the likely interruption of local production processes will not only affect local economic development but because trade routes may be affected and potential shortages of key supplies (i.e. rare earths) ensue, the economies of more developed parts of the world will be affected as well.

So not only environmentally but also economically we operate in a highly fragile system, which is global, highly networked and specialized. With the advent of globalization, countries are more and more forced to contribute based on their absolute or at least comparative advantage (Gupta 2015). Absolute advantage refers to what a country can produce better than any other country, and comparative advantage refers to what a country can produce best of all goods and services it could produce. While this is good from the perspective of global efficiency and output, it leads to more specialized local economies and is highly dependent on a functioning trade system, which includes the free flow of goods, capital and talent. This specialization and the need for low transportation costs as an enabling factor, makes the global economy as a whole more vulnerable and sensitive to any kind of influence or disruption.

Beyond the aforementioned global challenges, society at large has become more networked as well. Figure 1.2, using the example of mobile subscriptions per 100 people worldwide, illustrates how the dissemination of devices and connections has increased exponentially, almost doubling in the time since the publication of our book in 2008. Plenty of other graphs could be used to illustrate this development, but for the moment it should suffice to say that the degree to which we are all networked and interact via digital channels has grown dramatically.

Figure 1.2Mobile cellular subscriptions (per 100 people).

Source: World Bank.

By 2025, at the current speed of development, computers will have reached the processing capacity of the human brain. Subsequently the possibilities of Artificial Intelligence (AI)¹ are also progressing at an impressive speed and we are beginning to approach the phase, where AI can not only solve narrow problems, such as beating a world champion at chess², but increasingly can take on broader, holistic and networked issues, previously reserved for human agents³. While such development may bring better, previously unrecognized solutions to complex problems, we are not there yet. Furthermore, we must keep in mind that the eventual replacing of human knowledge workers in more and more areas, will pose tremendous challenges to current systems, such as income tax, social security, education, just to name a few.

The access to and the speed of how information is disseminated today across multiple platforms are mind-boggling. While technology allows more people access to information than ever, at the same time it also allows for the systematic capture of data relating to individual interactions of all sorts. Today, data is captured more quickly and in gigantic quantities, while elaborate algorithms help us in mining, structuring and preparing this data for on-the-spot decision-making.

At least in the developed world, we now all have access to the same open-source information. This changes the value of the former source of competitive advantage, which came from exclusive access to information by only a selected group of people, i.e. via education, membership or simply access to organizations in possession of that information. It still holds true that competitive advantage can be sustained by supplementing open-source information with proprietary information, i.e. through active legal and possibly illegal intelligence collection, from funding and/or conducting primary research or applying superb analysis. The ability to take available information from public and possibly other sources and turn it, faster than anyone else, into a reliable, actionable basis for good decision-making is the real competitive advantage going forward. The rise of machine learning and artificial intelligence (AI), at least with respect to routine decision-making by humans, will play a significant role in this development.

Organizations today operate in an increasingly complex, networked and thus vulnerable environment. At the same time, they operate in an ecosystem of numerous stakeholders within partly diverging interests. In sum, this makes it very difficult, if not impossible, to consider, respect let alone bring in line, all these interests and allocate management attention and resources accordingly.

There is plenty of literature on conflicting stakeholder interests, so, for example, financial short-term investors think from quarter to quarter and expect profit growth (Moura and Teixeira 2009). If they are not happy with the earnings, they will simply sell the stock and invest somewhere else. From this perspective of “make money quick”, they, by definition, do not really care about how this money is made or if short-term profits will hurt the company in the long term. In this quest for quick profit by short-term investors, management—unless they are significant shareholders—is the short-term investors’ most important ally because if they make sure the quarterly numbers are good, they will be rewarded in the end with handsome bonuses or stock options.

However, when incentivize like that, top management may take major risks and run cost-cutting and sales promotion programs to drive short-term profitability in order to please the stock market, while ruining the company long-term. This is because they tend to neglect important investments (PWC 2016) or ignore necessary adjustments today, which may have no immediate payoff but are essential for the survival and continued success of the organization.

To illustrate this point, we can look at a comparison of privately held companies with less exposure to short-term thinking vs. public companies. The privately held companies tend to significantly outperform their counterparts on the stock market (Winfrey 2014). According to data from Sageworks, now part of Abrigo, collected between 2010 and 2014, privately held companies in the United States with more than $500 million in annual revenues outperformed public companies on the S&P 500 by more than 8 percentage points in sales growth (approximately 11% for private companies vs. approximately 3.5% for public companies). This same group of private businesses has also generated slightly higher net prof...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• List of Figures
• List of Tables
• List of Abbreviations
• Introduction
• Part 1: Challenges of a VUCA world and the need for a new approach
• Part 2: Background to wargaming
• Part 4: Business wargaming in teaching
• Part 5: How to get started
• References
• Index