What expectations do executives have when they come in?
Herman: There are three categories of how people come into wargames.
The first group includes CEOs who have been in their business for their whole life, but then something comes into their world and rocks it. For example, we once worked with a company where the pricing in its market had changed. There hadn't been a price war in that market for 60 years, so there was no one in the room who was around the last time it happened. So the rules they'd learned over 30- or 40-year careers all flushed away.
Look at the financial crisis. The last depression was in 1929. We had a bad recession in the 1980s. There are a bunch of people around from the Reagan years, but no one from 1929. So what are the rules? And how do we react?
The second group--this is an unusual case--comes from businesses in which everything is going well, but they have enlightened CEOs who are worried and looking around at what's out there that could bite them.
Caterpillar was one of these. The company's president said things were going great, but once, long ago, Ford told them it didn't want [Caterpillar] to supply a new set of pickup trucks. So the president was worried about his line of business, and he wondered how he could figure out what he couldn't foresee.
The third class of individuals do strategic planning all the time and have done it a certain ways for a decade or more. They might not be doing badly, but they're not satisfied or think they might be doing it wrong. So wargaming presents a cathartic event for them to look at the world differently and get a different result.
What does military strategy and war teach business leaders about what they do?
Herman: The only difference between business and war is that in business, they don't take prisoners. Let's say there are a hundred definitions of strategy and a hundred people in the room--and it's possible for everybody to have a different one.
It's not that they vary so widely from each other, but it's a spectrum: There are different takes on strategy. So the first problem you face when you use that term is identifying what it is you think you're saying.
In warfare, they talk about the science of war and the art of war. The science of war is the logistics--supply chain, delivery, etc. Right off the bat, anything to do with military logistics has close to a one-to-one fit with business. Many generals who come out of the logistics side of the military get hired by companies like Wal-Mart--companies that have big supply chains and distribution.
The art side is where people think about strategy. People say, "I have a big organization and a lot of interactions going on." Strategy gives people a vector to see the individual transactions.
Collectively, they get more out of their transactions than just the sum of what they are, because they build on each other. They are self-reinforcing and gain momentum in the marketplace--all the things military leaders try to accomplish.
One of the big things the military does is set priorities, because you always have resource constraints. People think business can do whatever it wants, but that's nonsense. They always have limitations on what they can invest in R&D, what they have in certain accounts.
It's the same thing in the military. So it's the art of setting priorities, learning what works, shutting down the things that don't, out-maneuvering opponents, trying to change business models at the right time to gain leverage--these are all things that translate directly out of the military.
In the wargames, you sometimes find that what people assume strategy is actually is orthogonal to it.
How easy is it for them to wrap their heads around strategy and come to a consensus?
Herman: My view of strategy isn't important. What's important is that they commonly adopt their view of strategy. If they don't have the same view of what they're trying to do, it's not going to help them move forward very rapidly. We tell them that, and it works very well.
What matters is that everyone in the room knows we're using a common take on what we're doing. Everybody has different preferences, but as long as you take a common approach, you take a lot of the Tower of Babel effect out of the conversation. The wargame helps bring everyone onto the same sheet of music.
I'm guessing the concept of wargaming seems unique to business leaders.
Herman: It's been around a lot longer than people think. Most of the analytic techniques people think are conventional actually have been around a lot shorter period of time than wargaming.
But when you're in intense mental thought for that period of time, it can be more exhausting than some physical exercise. Most people don't like to think that hard for that long.
Most companies work on a strategic planning cycle. There's only a short window when there's a right time for wargaming, because the other times, they're basically operating. If you're in the widget business; you're making widgets all the time.
How real is the impossibility theorem? Are there times when executives aren't open-minded enough?
Herman: Once a company decides to embark on a wargame, there's a certain motivation. The games are not inexpensive. I've never met anyone who wasn't interested in it or what they could get out of it. I haven't heard anyone saying they didn't get anything from it.
You always see some core changes made at a company based on the outcome of the wargame. Something definitely happens.