"The term ‘War Gaming’ comes from military War Gaming. I think often business leaders are experiencing competition as being something very brutal when they fight over market shares."
In this episode, we welcome Prof. Dr. Jan Oliver Schwarz, a renowned expert in strategic foresight and trend analysis. As the head of the Bavarian Foresight Institute and a member of the World Economic Forum's Global Foresight Network, Jan brings a wealth of knowledge on how businesses can anticipate industry disruptions and stay ahead of competitors through innovative role-playing simulations known as business War Gaming. Discover the origins, mechanics, and real-world applications of these simulations, and learn how they can reveal surprising insights about market dynamics and competitor strategies.
Tune in to gain valuable lessons on future-proofing your organization and driving successful outcomes in an ever-evolving marketplace. Don't miss this opportunity to enhance your strategic toolkit and navigate uncertainty with confidence.
Below you will find the full transcript for the episode.
Chris: Jan, you showed me an article from Nature from 2020 entitled “The Problem with Pandemic Planning”. The article was in the context of business War Gaming, foresighting, predicting, and these areas. The article says, and I'm quoting from the article, “Two decades of war game scenarios, predicted leaky travel bans, a scramble for vaccines and disputes between state and federal leaders, but non-predicted Donald Trump”. So what exactly is it that no one was able to predict about Trump?
Jan: Well, I mean, first of all, I would be a little uncomfortable with the term "prediction" because that kind of implies that we can predict the future. I think what it's more indicative of is that maybe 20 years of War Gaming has helped to anticipate pretty well what happens with such a pandemic and what's involved, but that somebody like Donald Trump, who is in some ways dysfunctional in dealing with the crisis, it couldn't be anticipated. And that, of course, points to a major theme within foresight, which we cannot predict with 100% accuracy, but we probably have tools that help us anticipate pretty well what might happen. At the time, probably when these war games were being developed, nobody could have imagined that someone like Donald Trump would be in the White House.
Chris: This is without any evaluation of whether his being in the White House is good or bad. It's just interesting to understand this from a business War Gaming and also a strategic perspective. Tell me a little bit more about your background. So you're a professor of strategic foresight and trend analysis, and you're also the head of the Bavarian Foresight Institute at the Technical University of Ingolstadt in Germany, Europe. And you're also a member of the World Economic Forum's Global Foresight Network. So your scientific background goes back to early studies, including future studies in the math program, PhD at the intersection of management and foresight. So there is a lot of background. And of all of these research areas you could have chosen, why strategic foresight?
Jan: I think in a way this goes back probably, to be honest, over 20 years with an internship I did at Deutsche Bank in a department that was experimenting with what they called 'strategic early warning systems'. I found this idea totally fascinating to try to find an approach to early understanding on what was happening around an organization to give an organization time to react appropriately. And then to really think about, well, what might the future look like? And I think one of the fascinating things that still stays with me is that the future is so relevant to us as people, as organizations, we make decisions about the future all the time. And it's still something that we don't really understand. It is not something that we can, you know, put on the table. And I think that is something that I still find really fascinating, on the one hand, the relevance and on the other hand the difficulty of dealing with it as an individual or as an organization. And that's what I still find fascinating in some ways about the field of futures and foresight.
Chris: Now specifically, you're known for not only, but particularly known for your work on “Business War Gaming”. Jan, is business war?
Jan: No, not predominantly. I mean, the term comes from military War Gaming. I mean, it depends on the industry you're in. I think often business leaders are experiencing competition as being something very brutal when they fight over market shares, when they are in an industry that in a way might not be growing at a high rate or even declining. I'm not quite sure if they would all perceive it as war, but that competition is something in a way sometimes brutal that you need to deal with. However, and maybe we'll talk also about that, War Gaming also has those aspects of understanding how to cooperate with others. And so it's not only just about war.
Chris: Yeah, yeah. Interesting. I mean, the name kind of is there for a reason, right? So for those that are not familiar with it, can you explain what “Business War Gaming” is and where it comes from?
Jan: Yeah. I mean, it comes from the military. And it probably goes back in history back to ancient Greek times when military leaders tried to understand "When I do this or that, what will my opponent do?". And this has been ever since and something which has been or is still being used in the military to train military officers. But also to understand or try to anticipate what could be situations within military interactions. And in a way, this idea has been adopted into a business context and then kind of that, just the term business has been added to War Gaming. I mean, predominantly, Business War Gaming is a role-playing situation in the business context of a dynamic business situation. So managers step into the shoes of maybe their competitors and try to understand and anticipate how the future of their industry could evolve.
Chris: And in what situation do you find Business War Gaming to be most useful?
Jan: You know, I would say that nowadays, where pretty much every industry is under pressure in terms of change, transformation. So that probably all, in a way, industries are kind of forced to think about how the future could evolve. And it is then in a way maybe that you have different approaches to how to use a business war game; for example, in an industry that is declining. The goal of a war game would probably be more about fighting for existing market share and thinking about M&A activities, if I'm in an industry that's growing, it's probably more about finding cooperation partners or thinking about innovation. And most of all, I would argue that it is useful to ask questions like, "How will my competitors act and react in the future?", "Do I see new competitors coming into the game?", "How will they act and react?" and maybe overall, what are the most likely dynamics in my industry?
"The future is so relevant to us as people as organizations we make decisions about the future all the time. And it's still something that we don't really understand."
Chris: So let's walk through some of the mechanics of a typical business war game. So how can I imagine a game to look like? Is this a group of managers in a room just battling each other? Probably not, right? So what is the process? How long do you play it? Who is playing? Are there some rules? How does a typical business war game, if there is a typical business war game, look like?
Jan: Well, I would say that the structure is usually the same. And it starts with a research phase. So I'm thinking about what I have in terms of knowledge available in my industry. Do I have trends available, maybe scenarios already, and how the industry might evolve, and then really understand my competitors as best as I can? So really doing competitor analysis, having comparable data, which can get very complicated in some ways when I try to simulate competitors that are, for example, not publicly traded, that do not have certain reporting requirements. It also becomes more complicated to understand, for example, what is the culture of an organization. How do they make decisions? What are their core competencies beyond their physical resources? And then it is usually a one-day workshop. So you bring together about 30 managers, and as an example, I'll use Ingolstadt, my neighbor Audi, as an example. So you bring together for example 30 managers from Audi and one group of those managers will represent Audi in the simulation and others will represent their main competitors, like Mercedes or BMW or Tesla or somebody else can also be a software solution provider. And then the managers that are assigned to these groups, and they have sort of the analytical material that we call a game book. So that they can kind of immerse themselves in that role. There will also be a team representing customers also usually assigned with managers from, from the company. And then usually the task is to think about how you would position the company that you're representing in the next two or three years. Like starting with a smaller time horizon. And you come up with maybe a strategy, a product offering, a service offering, and you present that to the market and customer team. And then you kind of go to the second step, which is further into the future. And so you learned about what your competitors are doing. You get feedback from the market and customer team. And then you also have to take into account that trends are you're moving further into the future. And then you come up with something again trategy, product offering, and so on, uh, present that again to the market and customer team. And then you usually go into a third step that goes even further into the future, and maybe beyond the usual planning horizon. And those are sort of the iterations that you have at the end. That group of managers then comes back together and can kind of share the experiences that they had in looking at their industry but also the company that they work for from different perspectives and kind of share those insights and then maybe really get into the concrete questions of what have we learned, what do we need to do?
"Predominantly Business War Gaming is a role-playing situation in the business context of a dynamic business situation. So managers step into the shoes of maybe their competitors and try to understand and anticipate how the future of their industry could evolve."
Chris: And how good are the managers of a company, let's say, Audi, at pretending to be managers of a competitor? Because there are a lot of assumptions involved, right? They have to learn and assume in a very short amount of time in the game book, for example, how other managers make decisions depending on the culture, the risk aversion, their strategies and goals, and things that they have. So there are a lot of assumptions that you learn and then pretend are actually from a competitor, let's say, Tesla.
Jan: Yeah. I mean, that is kind of a critical point. So part of it is having a kind of solid analytical research on the company that you're representing. You would also try to kind of get into the soft factors, which sometimes includes having material in the breakout rooms where these teams are with the company if they have products, marketing material, and so forth so that they can be more immersed in that role. And that usually works quite well. And sometimes you also have people in the company that come from those competitors. Yeah. Yeah. So let's just say that usually helps. And then you usually have that competitive dynamic in the room. And that managers enjoy being in this different role. And in a way competing with the company that they work for, maybe have worked for a long time. And that creates quite a dynamic. My experience is that usually, the structured comparison of competitive intelligence is already a benefit for many because often you would find a lot of information about competitors scattered across an entire organization, but not somehow put together. And that helps
Chris: What are some of the boundaries and rules of the game? Because being a manager, let's take the example just for the sake of having a tangible example, I work at Audi, and now I'm representing a manager, let’s say from Tesla. I could go and just say, well, I'm going to push for diesel to be banned. We at Tesla are so good at electric mobility. We're going to win the game. Done. It's like a 30-minute game. Well, that's not how it should work and how it's supposed to work. So are there some boundaries, or rules that the team has to sort of, the teams have to adhere to?
Jan: Yeah. So, I mean, what you usually do is with the rule book and the material that's in there, you kind of, in a way, it's already set the boundaries of the simulation. And then there is a control team that people like me would sit on. And the goal of the control team is to make sure that it doesn't get completely out of hand. And that you make sure, for example, that the competitors or the competing teams can't just make up external events or anything like that, which would then be provided by the control team, for example, to kind of avoid things like that. So you always try to find that balance between stretching the thinking of the participants without getting too wild.
Chris: Yeah. Okay. So there's a referee or somebody who actually takes care.
Jan: Okay.
Chris: Now imagine the business war game from the perspective of a manager. How does it play out for them? How do managers typically react, for example, when you tell them, "Hey, tomorrow you're going to engage in a role-play?". What does their day look like? Do they know which team they are before starting the day? How would I experience a business war game as a manager being invited to it?
Jan: Well, usually you would try to have like a 30-minute call with the participating managers weeks before to kind of introduce the concept so that they are aware of it and also to take away some of the concerns that you might have about playing something over the day or being in a role-playing simulation. And then usually the ideal setup is if I can have something like an evening before the war game where everybody comes together in groups and kind of have an initial discussion like "Okay, tomorrow we're not going to be the usual manager and the company, we're going to be in a different company in a way!" and with that idea in mind, they go to bed and wake up the next morning and say, okay, this is going to be a different day now. And then that is supported in a way by having a room with the material in it. Sometimes, with the logos on caps or even on T-shirts, they kind of feel connected to the company that they're assigned to. And then it starts in the morning with, "Okay, here's your analytical material. This is your breakout room with some marketing material, maybe watch some of the videos to get an idea of the tonality of the culture as well. And then we start to work together". And what usually happens is that it is a very intense day in some ways of discussing trends, scenarios, futures, strategy, and competition. And it is usually something that I, as a participating manager, really, really enjoy. So usually the time flies by very, very quickly and it is very engaging. And of course, most of the time, the participating managers want to win. They want to be on the winning team. It doesn't matter if they're competing against their own company or not. They want to be on the winning team.
"Most of the time, the participating managers of such a war game want to win. They want to be on the winning team. It doesn't matter if they're competing against their own company or not. They want to be on the winning team."
Chris: What does winning mean? Is it putting the other company out of business? Is it like, I want to strive for a checkmate? I want to make sure they lose as much market share as they have. Is it that quote-unquote simple of a goal? Is it more complex? What is it?
Jan: It depends on the setup in a way. It can also be about which team is more innovative than the others, but it can also be the one that gains more market share than the others. It also depends a little bit on what kind of effort has been put into maybe developing a quantitative model that evaluates the results and gives feedback. But I would say that the idea of winning is more something that is kind of motivating. I think it plays a certain role in the simulation to say, OK, this team did particularly well, maybe even given that they had a difficult competitor that they were simulating. But at the end of the day, it brings the different perspectives together. But the momentum of winning is something that motivates the managers involved.
Chris: Yeah, of course. Is there any, I don't know, illustrative or prominent case study that you could share? A specific example where we can understand what the goal was. What were the days of the day like? Anything that you can take us through a story of a specific war game?
Jan: I mean, from an academic perspective, the difficult issue is that nobody wants to talk about a business war game to anybody from the outside because it's really about strategy in a way. I mean, your strategy is constantly being challenged in such a simulation. I think there's one case study that's been published that's nice, and that's the one of Swiss Air. And I mean, the story there is an interesting one, because not only did Swiss Air go bankrupt, but it was then sold to the German Lufthansa, which caused quite a debate in Switzerland at the time, and a lot was published about it. But it's an interesting case and I can take you through it briefly. So, I mean, what happened in the '90s was the massive deregulation of the European airline industry, which led to the creation of the alliances that we know today. Swissair at that time had created its small alliance and was thinking about how to move forward, should they join the larger alliance like Lufthansa Star Alliance? Should they stay independent? And the question for them was, what would be the critical success factors in the future? But also to prepare their management to change in a way that they could maybe compete with the larger alliances. And they simulated the industry for the next 10 years in three iterations, as I just described, and 10 years into the future. The result, of course, was that the participating managers felt that Swiss Air should join one of the big alliances. The One World Alliance seemed to be the choice they had at the time from British Airways. And it turned out that the CEO had more of a perspective to say, okay, now the own qualifier group, the own alliance of Swiss Air was the right approach. It's more branding, marketing, and marketing issues, and felt more that the strategy he was convinced of should be the one they should go forward with. And it turned out that the managers involved had anticipated the dynamics of their industry quite well. And then a few years later, Swiss Air went bankrupt because they had the wrong strategy. And I think it's a nice case in two ways because, on the one hand, it underscores the fact that leadership should, in a sense, embrace and respect the opinions that they have within their management team. But on the other hand, the simulation did a pretty good job of roughly anticipating how the industry was going to evolve.
"Participants actually learn changing a perspective on their own industry on their own company and engaging deeply with changes in their industry like that deep engagement with trends and maybe even scenarios."
Chris: So in essence, it was a wrong decision by the CEO back then to stick to the strategy. So why did he engage in the business of War Gaming in the first place? Just to ratify that his strategy is already the best?
Jan: In hindsight, it seemed more about ratifying and having the momentum of having everybody together and saying, okay, this is the right path. And then that simulation developed differently and came to a different conclusion in a way.
Chris: Interesting. What do participants learn? What are some of the most impactful lessons they learn? For example, by the managers, maybe also the CEO, depending on the participants. Does it at least have an impact on their approach to the strategy, the tactics they use, their leadership even? Based on your experience, do you think they leave the room as a different person or at least a different manager than they entered the day?
Jan: I believe so. And I think what they learn is changing a perspective on their industry, on their own company, and engaging deeply with changes in their industry, like that deep engagement with trends and maybe even scenarios. So I think that is, in a way, a change. And having that interaction with their colleagues for the day, I think that makes a difference.
Chris: Because I think if you go into a business war game, you're very much convinced of maybe their strategy you have, depending on if it's a corporate strategy or just a product strategy or whatever is part of the business war game. And then you find out through engaging with some of the trends and maybe scenarios you've put together and maybe even a quantitative model that you can, of course, it's a model and models always are not perfect, but they can help in understanding some aspects and maybe some dependencies. So you go out and say, well, actually this is interesting because I thought we have the best winning strategy, but if competitor A makes a certain move and competitor B is kind of maybe just buying competitor A and then they join forces and then our strategy is worthless or at least not a winning strategy anymore. This probably leads to a realization and maybe a shift in strategy. Over the years, have there been any unexpected outcomes you've witnessed? Like a surprise, something you say, well, I didn't know that that was coming.
Jan: Do you mean how a war game evolved?
Chris: Yeah, for example, did somebody start to cry? Something very unexpected where you say, well, Jesus, I never thought this was going to happen.
Jan: Well, I think I had several times that moments when participants would say what, we've been focusing on competitor A all the time. But to be honest, I don't think that A is the issue. We'll be able to deal with A, but if B or C evolves, or if we have like a completely new type of competitor, this will hit us hard. And I think those are kind of the revelations that I found several times interesting. That there was that moment that said, "OK, now we better understand maybe also what to focus on".
Chris: And I imagine the stakes are pretty high, right? So if you have senior executives, they've seen a lot. They've gone through many strategic exercises. And in most of the cases, of course, at least they think they know quite what's going on in terms of trends and maybe even competitive intelligence. So, from your experience, what does it take to make a business war game successful and also be accepted by the participants in the first place?
Jan: I mean, in a way it starts that you have maybe a leadership team that is open to having a joint discussion and of course to have the openness to say, "Okay, there will be a team that will be representing our own company.". And that might be starting with the strategy we have worked on maybe for quite some time. But they need to have the freedom to do it completely differently then. So then there needs to be that openness and willingness to engage together in such an exercise. And I think that's in a way the precondition so that something like that can be successful. Often I've seen war games also being an opportunity to bring in different stakeholders, cross-hierarchical or cross-functional within an organization. So there also needs to be that openness and having those discussions that everybody can be heard, and nobody is being voiced down. And if those conditions in a way exist, then I think business war games can be pretty successful.
Chris: Do they show up or do they just send a representative sometimes?
Jan: No, I mean, it depends. If this is something that is sponsored by the CEO, then everybody will show up who is invited. And then, of course, that's also a strong signal saying, "Okay, I'm not the I'm not the type of either that knows everything, or be working on this together.". And I think then most of the time, often people are also just curious if they've never been in one of those exercises, they're interested in, okay, I'll take a look, I'll figure out what it's about. And the format often I find also just attracts people saying, okay, I never heard about that, or I heard about it, but never participated in one. So I'll be joining something like that.
Chris: Yeah, I agree. So of course, it's maybe easier to get participation rates up if it's supported by top-level management or senior executives, for sure.
Chris: Are you already using AI in business-world gaming? Is there a role of artificial intelligence, more specifically maybe generative artificial intelligence? Because it's maybe an interesting way to synthesize trends and come up with some scenarios that may or may not be likely with a high or low likelihood. Is it already being used? And if so, how?
Jan: I haven't used it yet. I'm not aware yet of any examples, but I could picture that being helpful in particular when it comes to maybe better understanding or quickly understanding certain aspects of a competitor you're representing. I could, I could see there being a lot of potential. I think in general, as it is with the question of how can AI, for instance, be used in foresight. Where do you need the kind of interaction between participants and those discussions and those moments of learning and where can AI support? But there are certainly, I think there are certainly opportunities for including AI in war games.
Chris: Because if you think about it, I think it would be interesting because you could literally design AI agents that represent a competitor with certain goals in mind. So you could simply go ahead, use a large language model, maybe just the existing ones, even an open source one if you want, and then give a specific task. In the case of Swiss Air, for example, you're a competitor. This is where you want to go, this is all the trends and the goals you want to achieve instead of having a team of humans or in addition of having human teams also involve a couple of certain agents with specific goals and tasks and let them even interact with each other. I mean, that's kind of possible with the technology we have. And then you go, well, there is maybe also an artificial intelligence player representing a company, or representing political decisions, or something that's projected throughout the game. And maybe even challenge the company, for example, in that case, Swiss Air, provide them with assistance, AI assistance, maybe an agent, or as said, as competitors. I think it would be an interesting thing to do because it could bring new dynamics to Business War Gaming.
Jan: Yeah, I totally agree. I want to experiment with that. Yeah, I agree. That could be really interesting. Especially since I've seen attempts in the past to sort of train AI to take a certain perspective and represent a certain perspective. So I think that could be interesting.
Chris: Yeah, exactly. All these things are being trained right now to put in, for example, an AI in the shoes of a consumer. Would you like this product XYZ if you were a 40-year-old male with two kids living in Miami, whatever... And then the AI comes up with, a simulation like "my kids go to school, so this would be helpful, and so on... with some basic reasoning? So with all the business war games that you have led, what would be your recommendations to leaders and innovators out there if they haven't been engaged in a business war game yet?
Jan: I think it has several advantages that make it attractive. And I think for one, it is an opportunity to bring together a lot of aspects around the future of your industry, trends, scenarios, but also the competitive aspect. And I think bringing all of that together in a workshop format, maybe over a day, is something that people tend to enjoy because it is engaging. I think that is very useful. Especially when we are talking about organizations that have been working on trends and foresight, for example, and have competitive information, it kind of brings it all together and then allows for a very structured discussion about the future of my company and the future of my industry.
Chris: Are there any scenarios or goals that work better in business war games, like the entire corporate strategy or specific parts of the product strategy? Should they go for the large, overarching strategy or very narrow and specific scenarios they want to test? What have you found to be more effective?
Jan: I think in a way it becomes more tangible and more effective if I can boil it down a little bit. I'm saying, okay, we're not doing like a corporate strategy, but we're doing a strategy for a business unit or for a particular market segment, which becomes more tangible, and you probably get more concrete ideas and suggestions out of a war game. But if you are on a corporate level, it is probably more of an overarching idea of where the industry might be going. Maybe even what are the things that I need to change or reasons to change. It depends a little bit on what you want to achieve, but if it becomes more concrete, then of course it leads to more concrete discussions than in a working environment.
"I would like to experiment with AI in war games. That could be really interesting, especially in training AI to take a certain perspective and represent a certain perspective."
Chris: So Jan, this has been a fantastic, very insightful conversation. Thank you very much for this. And before the conversation ends, we do have a new tradition on this podcast. So my previous guest leaves a question for the next guest without knowing what we're going to talk about. So there's a question for you from my last guest, and the question goes like this: If you had the power to halt all AI development worldwide, but choose one specific area where AI still progresses, what would that area be and why?
Jan: Wow, this is an interesting question. Oh my God. Any particular area and why? I mean, I'm an academic as well, so I think it would really help the creation of academic knowledge, I would find that really interesting to have as much support as possible to understand what's out there in a structured way. I think that could really enhance academic research. I would find that fascinating. If that was the only thing that could be developed.
Chris: This is very powerful. I like it a lot. So to help advance science. Yeah, that's pretty powerful. I mean, there's literature coming out right now that argues that there are some diminishing returns to scientific progress in the last decade or so because there's been a lot of progress specifically. You know, the '70s, '80s, '90s, also coming from the military, and then you had the Internet and machine learning and all the math and physics. But right now it seems a little bit like, and nobody knows why, by the way, the question is, is it because things are repeating themselves, but there are no more breakthrough discoveries? Could AI actually help with more groundbreaking discoveries and then help accelerate how we move forward with science in any field? Okay, I understand. I think where you're coming from is pretty powerful. Yeah, I love that. Well, that's it for this episode. Jan, thanks again for being my guest. It was really interesting. It was a pleasure listening to you.
Jan: Thanks a lot for having me indeed.
Chris: And to our listeners, if you have not subscribed yet to this podcast, please go ahead and do so. It is a small thing and it will help us continue to make the show better. So our promise to you is that we'll continue to do our best to deliver exceptional value at no cost to you. So if you're already subscribed, thank you. If not, please go and subscribe now. Thanks for listening. Take care and bye-bye.
Dr. Christian Mühlroth is the host of the Innovation Rockstars podcast and CEO of ITONICS. Prof. Dr. Jan Oliver Schwarz is a renowned expert in strategic foresight and trend analysis and head of the Bavarian Foresight Institute.
The Innovation Rockstars podcast is a production of ITONICS, provider of the world’s leading Operating System for Innovation. Do you also have an inspiring story to tell about innovation, foresight, strategy, or growth? Then shoot us a note!