John Horn: Inside the Competitor’s Mindset

Competitive insight

The point of competitive insight is not to explain why a specific action occurred in the past but to get a better understanding of what might happen in the future.

Through the Looking Glass

Companies Do the Darndest Things

Two reasons why it’s hard to predict competitors. First, we tend to chalk up competitor moves we don’t like as irrational. The second reason it’s harder to predict competitors is the changing nature of competition.

When I hear a business leader claim their competitor is irrational, I usually respond by asking, “Are they gaining market share? Are they profitable?”

These are the types of strategic moves I’ve often seen referred to as “irrational” by those outside the organization that made them.

Acting Irrationally on Purpose
Looking in the Mirror
Purposefully Destroying Value
Midas Touch, or Out of Touch
Being “Little Brother”
Falling Victim of Circumstance

Often, we project onto our competitors the actions we want them to take (such as not purposefully engaging in a price war we don’t want). These desired actions are the ones that would be best for us, helping our organization to perform better. When the competitors don’t oblige, we chalk their behavior up to being irrational.

Tesla attacked the market from the top instead of from the bottom. They sold high-end cars that helped provide them with extra financial cushion (they were still losing money early on but they would have lost even more if they sold cars at a lower price). In 2017, Elon Musk, the chairman and CEO of Tesla, tweeted that “we started Tesla when GM forcibly recalled all electric cars from customers in 2003 & then crushed them in a junkyard.”

The same principles apply to any type of asymmetry: different resources, relationships, knowledge, or competencies. We need to view the world from the perspective of having those different “toys to play with” and mindsets for using them.

War games are fantastic exercises for uncovering why competitors behave the way they do.

Finally, competitive insight exercises are great for team building and alignment. If a small team develops the competitive insight in closed-door meetings, the results may not be broadly accepted by the rest of the leadership team. But if the whole team is actively participating in developing the insights, there is a shared understanding and language.

In reality, there are always individual competitors that every company focuses on — either as a potential roadblock or an aspirational target.

How business strategists think of industries is shifting from a value chain perspective, where upstream suppliers sell to downstream producers who then sell to customers, to an ecosystem perspective.

We often mistakenly think our competitors (and other stakeholders) are making irrational choices because we’re imposing our frame of reference, our fact base, our timeframe, and our analytic technique to their problems.

Your Irrational Competitor

How Can You Get inside Your Competitor’s Head?

Understanding the competition involves these four steps:

Review public communication and actions.
Assess competitor assets and resources.
Consider the human factor.
Predict, observe, and adjust.

Review Public Communication and Actions. The first step of competitive insight involves what most people think of as competitive intelligence: paying attention to what the competitors say and do. The competition won’t always repeat past behaviors, but if there are strong patterns in the competitor’s past actions, it helps paint the picture of the competitor’s general mindset.

Assess Competitor Assets and Resources. At this stage, you should start looking at your competitor to assess what exactly they can bring to bear when executing their strategic plans. I like to call this step “What toys can they play with?” What are their assets, resources, capabilities, and competencies that would allow their organization to be successful? Mystery shopping and reverse engineering are two other techniques that can be used to gather information, especially for product-based competitors. There are two key principles to keep in mind. First, you need to focus on the assets and capabilities that matter in your industry. The second principle is to pay attention to the drivers, not just the outcomes.

Consider the Human Factor. In this third stage, you need to pay attention to the decision makers, and there are two elements that come into play here. The first is determining the history and background of the person — or group of people — who are making the decisions. The second element at play in this step is assessing the potential for principal-agent problems at your competitor: the incentives of the agent may not align with the incentives of the principal. Agency problems come into play in understanding competitors because the person you listen to may not be the one executing the decisions. As a competitor, you need to understand the individual incentives of the people executing the decisions. The competitor is not a black box that makes decisions — instead, every organization is made up of people who make choices based on their job responsibilities and incentives.

Predict, Observe, and Adjust. You are now in a position to make a prediction about what the competitor is thinking and how they’ll likely act in any situation. Philip Tetlock and Dan Gardner’s Superforecasting provides a great overview of good and bad practices when making predictions. Ask specific questions. Make short-term predictions. Be curious. Be comfortable with numbers. Update frequently by small amounts. Create supportive teams.

Learn from the good and the bad in order to improve the organization’s forecasting ability. Hone this capability by continually updating your process for understanding the competitor to gain better insight into their mindset.

Were there statements about their intentions that you missed? Did you misunderstand their capabilities or competencies ? Did you focus on the wrong decision maker ?

Artificial intelligence (AI) and machine learning (ML) have very limited ability to predict competitors, other than predicting them to continue on their current trajectory, precisely because of how AI and ML work. Competitor data is historical and necessary for predicting the future, but it is not sufficient for generating insights.

Using the four-step process forces you to confront the asymmetry across different organizations.

Being empathetic with your competition is incredibly challenging and not a natural way to think. For starters, being empathetic doesn’t mean you have to be sympathetic. Sympathy is feeling sorry for someone else’s misfortune or supporting them in their (often negative) feelings. Being empathetic forces you to ask a key question: “If I were she, what would I do?”

The competition is not irrational — they merely need to be understood.

Thinking about All Kinds of Competitors

We can categorize competitors by comparing two dimensions: Are they employing competitive strategies currently prevailing in your industry? Are they an existing company?

The 2 × 2 matrix. This book focuses primarily on the lower left quadrant — the current set of known competitors. This chapter will focus on those other three boxes.

Adjacent Invaders

Corporate scope insights also help identify invaders from adjacent industries. Companies that move into new industries almost always leverage core capabilities and competencies that help them succeed in their current markets.

Entrepreneurs

They present an interesting challenge with competitive insight on two fronts: How should you track competitors if you’re an entrepreneur and new to the industry? How should incumbents go about getting inside the head of an entrepreneur?

One particular question that is extraordinarily important for entrepreneurs: how will incumbents react to our entry into the market or the introduction of our new product? An entrepreneur should start with the one or two competitors they will be directly trying to go after with their new product or service.

In step 2, the entrepreneur should focus on the individual division or region they will be competing against.

Finally, the entrepreneur should focus on the division-level manager who will be tasked with competing against them (step 3 of the framework).

Step 4, entrepreneurs should track and adjust as quickly as possible to find gaps in the incumbents’ competitive response in which to survive, thrive, and grow.

The flip side is developing competitive insight on entrepreneurs from the incumbent’s point of view.

First, what has the entrepreneur said publicly about the market or their company?
Second, look at the resources their company has to use.
Third, and possibly more important, research the founders’ backgrounds.

Fast-Moving Innovators

The difference is that you obviously have less time to do any of the four steps, so focus on the decisions that matter most.

Just because you’re aware of the entrepreneur doesn’t mean you should attack them, or can attack them, head-to-head.

Does mean, however, that the incumbents need to constantly be scanning to identify those disrupters and make plans to mitigate their impact to the greatest extent possible.

There is one governance structure spanning all four quadrants that is important to call out: are there differences in applying the framework to private versus publicly traded companies? There are two particular ownership structures to highlight with regard to understanding privately held competitors: private equity owned and family owned.

How Will They React?

The whole point of understanding your competitors is to be better able to predict what moves they may make in the future.

Exploring two particularly challenging competitor moves most companies face: How will competitors react to the strategic move we are contemplating? Will the competitor make a new strategic move of their own, and what might that be?

In 2005, David Montgomery, Marian Chapman Moore, and Joel Urbany tested what businesspeople did when they thought about making strategic decisions.

Internal factors, like capabilities and assets and resources at the executive’s company, were used over 80 percent of the time for both kinds of decisions. Customer information was used for 75 percent of the new product introductions but just over 50 percent of the pricing decisions. Overall market conditions were factored in 60 percent of the time for new products (only 44 percent of the time for pricing).

For pricing decisions, only 11 percent considered future competitor behavior, and only 5 percent talked about future competitor reactions! The percentages for new product introductions were even worse: 7 percent discussed future competitor behavior, and only 2 percent considered future competitor responses.

When thinking about how a competitor will react to your planned strategic initiative, ask yourself three key questions: Will it matter to them? What will they consider? What will they choose to do?

How will the competitors view this new strategy? To answer that , there are three subquestions you must address. Will They See the Threat? Will They Feel the Threat? Will They Prioritize the Threat?

Over 75 percent of the time, your competitor won’t see the threat with enough warning to counteract your move before it hits the market.

Game theory has five critical building blocks for defining the game at hand:

The list of participants (who are the players?).
Their objectives (what do they want?).
The strategic options (what can they do?).
The information about the game — including the game’s rules (what do they know?).
The payoffs (what do they get?).

Game theory tells us to consider all viable choices a player could make in the game, whether they actually use those choices or not.

For pricing moves, the most obvious competitor reaction is to match the initial price change.

For new product introductions, there are two obvious counteractions. First, if the competitor is capable of introducing the same type of product or service, they’ll consider reacting with “let’s introduce a copycat product.” The second common counteraction is “let’s drop our price.”

The key to understanding the “obvious counteraction” lies in looking at the history of moves within your industry, not at what a strategy textbook says to do.

A manager pressed for time will almost certainly try to repeat a past success.

The second most common source of inspiration for the innovation responders was advice from board members or external advisors: “What do consultants say we should do?”

If the competitor is most likely to spend time assessing two or three options when considering a response, the top two or three are the following: The most obvious counteraction. What the same division did last time. What external experts say.

Game theory asserts that players will make a selection among all the possible choices to help achieve the best possible outcome for themselves.

We have to identify the competitor’s objective. Most often, innovation moves are considered in light of their impact on market share, while pricing moves are evaluated according to their impact on earnings or cash flow.

The second way game theory helps is with thinking through the dynamic reactions. This is called multiround sequential game theory: each round is a choice, and players make those choices in sequence one after the other. Model their potential response (the second move after your initial strategic change) based on what provides them with the best outcome according to their goals and objectives — likely shorter-term earnings or market share. There is one more consideration regarding your competitor’s reaction: will they overcome their own internal organizational inertia in order to respond?

It might appear that the three-stage set of key questions only applies to publicly held companies, but these questions can be asked of any organization.

The final question — how will they decide what to do? — is analyzed identically with regard to the number of rounds and back-and-forth reactions they’ll consider. The difference is that the competitor might try to achieve alternative objectives. Instead of earnings and market share (and possibly NPV).

The entrepreneur can walk through the three key questions in this chapter to assess if the incumbents think the entrant matters to them, what responses they’ll consider, and which one they’ll choose.

The three questions apply to all types of organizations. Your competitors still have to feel like your move matters to them before they will explore doing something about it. They will select a handful of options to analyze (because they don’t have the luxury of time) and will pick the one that best helps their own organization achieve its objectives.

Are They Getting Ready to Pounce on Us?

Is it worth even trying to predict your competitors’ next move, or should you merely react to moves they make when they are revealed?

A different set of three questions can help you assess the likelihood that your competitors are in the process of revisiting their strategy and are about to make an adjustment.

Question # 1: Are They Ripe for a Change ?

One reason a company might be ready to make a strategic shift is because their old strategy has fully played out.

Research by Peter Boumgarden, Jackson Nickerson, and Todd Zenger. They found that while some companies can both search for new ideas and execute on those new ideas at the same time (being ambidextrous), many companies have to switch back and forth between creating organizational structures to explore new opportunities and those that allow them to exploit those new strategies (vacillation).

New leadership may be another reason the competitor is ready to make a strategic realignment.

“Insider” CEOs can also change the company’s strategic direction, but that will often happen if they have a different functional background from the previous CEO.

When a company is struggling and not meeting their financial and other strategic performance goals, it’s natural to think they would be questioning their strategy.

It may feel obvious that a company facing challenges will change course, but they may be so busy putting out fires and preventing the whole thing from collapsing that they don’t have the time or space to be strategic. They’re reactive, not proactive.

The final consideration for whether your competitor is ripe for a change is the appearance of any stimuli that would “force” them to reorient their strategy.

External stimuli should be relatively easy to track because your company needs to be aware of the same types of effects. Internal stimuli, on the other hand, are much harder to track.

Question # 2: What Is Their Likely Direction?

Most often, the competitor’s brilliant new strategy doesn’t replace their current strategy — it runs alongside it.

There are questions you can ask yourself to better assess the path the competitor might take if the new strategy isn’t a continuation of their existing strategic direction.

Gather information on the decision maker’s past choices: what kinds of strategies did they implement or manage in their previous roles? If the strategies were successful, they will likely be considered strongly again.

The more choices that are considered, the more difficult it will be to figure out which one will be selected.

Instead of spending a lot of time evaluating dozens of different ideas, companies explore just a few.

The final dimensions influencing potential strategic directions come from the external environment.

Question # 3: What Tactics Will They Choose?

The first point to consider is when they might make their move.

With regard to the timing, there are four important subdimensions to consider.

The first is when the planning occurs, the second is the length of time from beginning a search until a decision to proceed is made, the third is how long it takes from decision to implementation, and the fourth is the implementation process. It sometimes feels like the competitor has developed a new strategy overnight, but often that’s because we haven’t paid attention to the clues and signals they have given off along the way. Even if it takes several months for the competitor to decide (which makes sense since new strategic shifts are often part of a strategic planning process), they might still surprise you with the actual launch. The final element affecting your ability to forecast your competitor’s strategic shift with enough time to prepare a response before it affects your organization is determining the method they’ll use to launch the new strategy.

The second dimension that affects the competitor’s ultimate choice is the potential size of the new strategic initiative. What share of annual revenue does the initiative represent? How does it compare to their market cap? How would this change their outstanding debt? Companies seek additional funding to implement a new strategic direction only about one-quarter of the time.

Sticking to existing processes and procedures, even when seeking to change the strategic direction, indicates potential risk aversion on the part of most companies. This is our third dimension to explore. Previously, we’ve assessed the financial implications for the competitor. Now we want to consider the risk inherent in the potential choices and how they align with the competitor’s risk preferences. Examine the previous risks the competitor has taken with its strategic initiatives . The payback period of the initiative is one measure of the potential riskiness of the strategic move.

Overall , industries tend to exhibit patterns, and we know that executives do too. Use these historical habits to help assess which of the potential moves your competitor will likely select.

Don’t do this for all your competitors, all the time! This is a selective process. Apply these steps periodically for competitors that have most often surprised you with moves that felt “out of the blue” or for those you feel would have the biggest impact on your operations if they made a strategic shift.

For family-owned businesses, strategic changes often accompany changes in leadership.

Pull Back the Curtain

Lessons from Other Professionals

There are ten lessons for competitive insight that emerge from the interviews . Some of them are relevant for how to structure your analyses ,

The rest are for structuring your organization.

Lesson 1: Build a Diverse Team. One of the strongest results from the interviews was the recommendation by virtually all of the interviewees to surround yourself with a diverse team. As a competitive analyst, look for a coherent answer between all the perspectives on your team. Include strategists, supply chain experts, marketers, and individuals with different cultural backgrounds and of different genders to provide you with a broad set of perspectives.

Lesson 2: Know the Question You’re Trying to Answer. Should you gather a multitude of facts about the competitor and see which story falls into place to explain their pricing behavior (inductive)? Or should you start with a hypothesis of why your competitor prices their products a certain way and then gather data to prove or disprove it (deductive)?

Competitive strategists should be collecting lots of information on their competitors from many different sources , both within and outside of the organization .

You never know what data you will need tomorrow when you collect today . To help with that , have a detailed list of what you plan to collect so you don’t get distracted when you’re in the field .

Another challenge with finding the right data is the need to find a place where others haven’t looked yet .

Sometimes all the data is already there — you just need it organized in such a way that you can draw out the necessary insights.

It is sometimes as valuable to decide what not to do when formulating strategy, and the same can apply to competitive insight.

The competitive insight function must systematically collect and organize the knowledge so it’s available to anyone when it’s needed for a strategic decision.

A corollary challenge to systemically collecting data is the issue of whether you are measuring things correctly. Trust data quality over quantity. Business leaders have had “big data” ingrained as a mantra, but bigger is not always better. It’s important to collect the data and get the measurements correct, but you also need to have a plan for what to do with the data once you have it. This is connected to lesson 2: know the question you’re trying to answer.

The ability to find and use analogies is a skill every business strategist should have in their toolkit. To be successful, you need to be able to select the right parallels and similarities. As you search for patterns, you still need to be sensitive to outliers. Analogies and patterns exist throughout the business landscape.

Technology is always creating new opportunities for businesses. Big data mining provides customer insights. The digitalization of supply chain interactions allows for greater efficiencies. Even employee satisfaction metrics and profiles can help improve retention and engagement. If you develop a method to assess the competitor’s intent and don’t have the technological capability to execute the idea, don’t discard it. Save those ideas and return to them in the future.

One of the biggest challenges of any decision-making process is the confirmation bias risk. Cultivate a network of critics; the more you have identified, the greater chance they’ll be available when needed. Seek out those who won’t be afraid to provide constructive criticism. Another trick is to continue collecting data even if you think you have the answer.

Not everyone should be making the same choices because they have different perspectives, capabilities, and starting positions. Deliberately give yourself time to step back and think about the world from someone else’s point of view. Surround yourself with others who can help supportively stress test your competitive insights by providing different perspectives.

Even if you can complete the analysis appropriately, if you can’t convince other leaders in your organization that you have the correct insight, your work will have gone for naught.

As a strategist, you may not need to initially convince the CEO that the competitor’s predicted reactions are the correct ones, but if you can build up enough support with the junior staff that the competitive insights are accurate, they’ll consistently use those in their recommendations to their managers.

Competitive insight strategists should also think clearly about how to communicate their findings to the various audiences that matter.

The competitor organization is a group of individuals making choices, and their motivations drive their behavior. It may not always be obvious what that motivation is — and you may not perfectly understand it — but it is there in the background.

Competitive insight yields an understanding of the behavior of other organizations.

Be humble — you don’t know the answer going in.
Don’t make broad sweeping conclusions — stick to what you can say.
Keep the big picture in mind — your work will be important and provide new insights.
Don’t be afraid to challenge yourself and go outside your comfort zone.
If you can’t be surprised by what you find, then you can’t do a good job.
Finding errors in your work is a source of inspiration.
Failure is part of the learning process.
You can’t do science until you’ve done the people work.
“Obvious” is a flag that others don’t know what they’re talking about or want to ignore assumptions.

Remember, nothing is ever 100 percent provable.

How Can I Put These Concepts into Practice?

There are three steps to conducting a competitive insight workshop regardless of the specific form: Design the exercise. Build the content used in the workshop. Run the event.

Design: Engage with multiple stakeholders to answer the common “six W” questions: who, what, where, when, why, and how.

Who are the relevant players that need to be role – played ?
What types of choices do we want each of the role – playing teams to make in the exercise ?
Where will the teams’ choices be played out? What are the geographic regions, the customer segments, and the industry subsectors the players should be addressing?
When will the choices play out? What is the first time period in the real world for which you will be simulating actions?
Why do role-playing teams care about the simulation outcomes?
How will the interactions be evaluated, and how will they produce insights?

Build: Once you have sketched out the basic framework through the six Ws, you need to build the materials to be used in the workshop.

Run: In actual calendar time, this may be the shortest step of the entire process, but in many ways, it is the most important.

This step includes the interactions of the role-playing teams, which are almost always composed of participants from your organization.

This step also includes the debrief session. In some sense, this is the most important part of the whole competitive insight exercise. If you don’t allocate time during the workshop to discuss as a team the insights you develop, then there won’t be any organizational learning. The entire group must leave the exercise with the same insights.

Guiding all three steps of the competitive insight exercise process is a fundamental question: what core problem are you trying to solve?

Research tells us that deliberative practice is the key to expertise.

You can run a competitive insight exercise for many decisions and many iterations in the same exercise, but you should not do so.

In summary, competitive insight exercises should not be used for every decision you make — they would lose their impact as a decision-making tool. Be selective about when and how you apply them.

Force your team to confront choices and situations they’ll face in the real world, not in some hypothetical construct.

As a competitive insight exercise, a Black Hat session helps you understand what it’s like to wear the competitor’s hat (instead of walking a mile in their shoes). A Black Hat exercise is focused on a particular strategic situation you are facing — for example, your plan to introduce a new product to the market , a competitor’s potential entry, or a change in government regulations. You can focus the entire exercise on role-playing one key competitor. A Black Hat dives deeper into the particular tactics they’d use than the overall strategy viewpoint.

Design: The design of the Black Hat exercise answers the following questions:

Who else wears a Black Hat besides our primary competitor? Do we want to role-play them in this session too?
What types of tactics can the teams choose to execute?
Where will we focus our discussion geographically, on which customer segments, and in which industry subsectors?
When will the teams’ decisions be introduced to the market (or at least announced)?
Why is the Black Hat competitor considering this strategic decision (what is their objective?), and how will other players view their potential move?

The Black Hat exercise is more strategic than tactical, so you can omit the details of the competitor’s payoff.

Build: To provide participants with materials that will help them in the workshop, you want to create the following:

An industry fact pack so all the participants are on the same page. You will waste time if teams use different assumptions. The fact pack includes all relevant information about the market, such as market shares, average pricing, customer segments, demand growth, key government regulations, and technological changes.
Role-playing fact packs so the teams have a fact base to use when making their decisions. What is their objective , and what has their historical performance been along key metrics? What are the key choices they’ve made in the past along the dimensions the team will examine in the game? What are the leadership profiles?
A couple of scenarios around the question at hand to which the teams have to react.
A common template for all the teams to use, that contains spaces to note which tactics they will use along each dimension (e.g., price, customer segment, product portfolio, R & D investment, marketing spend).
A scripted agenda to ensure everything gets done on time.

Don’t give all the role-play fact packs to every participant!

Run: Establish the session’s purpose at the beginning of the day.

Have participants break out for forty-five to sixty minutes into individual team rooms. After all the teams craft their own strategic plans, they’ll regroup in the plenary session. After all the teams have spoken, they can question each other and probe assumptions and aspects that might have been omitted in the strategy descriptions. What you do not want to discuss is the “why” behind each team’s choices.

After the teams have discussed the first set of plans, you can introduce a new scenario. The teams would break out into their rooms for forty-five to sixty minutes to explore how they’d attack the market under the new constraints. They’d subsequently gather again in plenary to announce their choices and discuss them.

After all the planned scenarios have been analyzed, the teams remain in plenary to discuss implications and debrief the entire session. What was your team’s objective? What was your most interesting insight about playing your role today, either as it relates to that organization or to the industry overall? What remaining “unknowns” would you like clarified about your role or the industry in order to have better insight? I generally like to leave at least an hour at the end of the workshop for this summative debrief session.

I would generally not recommend running a Black Hat exercise where multiple teams role-play the same competitor.

A military war game involves a country (and its allies) splitting up to role-play themselves and the enemy forces. A business war game is fundamentally the same. You and your competitors are the combatants, with other stakeholders playing supporting roles. The market is the battlefield where you are competing. The assets and resources at your disposal are product portfolios, production facilities, and partnerships (among others). Tactics include pricing, marketing, innovation and R & D, and operational efficiency efforts. At its core, it is a simulated exercise that allows an organization the opportunity for focused practice of its strategic (and sometimes tactical) decisions in a risk-free environment before having to commit to those choices in the real world.

Designing the game:

What is the learning objective? What information do you want the organization to take away from the exercise? “What is the decision (or set of decisions) keeping you up at night?” You have to think about the market conditions that will constrain those choices. These market conditions can be thought of as the game board on which the exercise will be played, while the choices are the actions the players take during the workshop. The prisoner’s dilemma works for some situations — like price wars — but not for games where players move sequentially (one after the other). In the real world, you can’t assume the game you’re playing. Your task is to figure out the actual game you’re playing.
Who are the players? Who are the organizations and groups interacting with each other? Each role-playing team should have three to six members.
What do they want? What are each of the players trying to achieve?
What can they do? What choices does each player have? Be sure to give the teams multiple options; otherwise, they’ll simply choose the only option given, which can bias your insights.
What do they know? The game’s options are also subject to industry-specific and governmental rules and what each player knows about those rules and the overall game. The rules of your game include defining who moves when and what each player knows about the others’ choices.
What do they get? What are the outcomes for the players at the end of each round? The payoffs are fundamentally tied to the player’s objectives. Whatever the rules of the industry may be for how market share is allocated, and to a lesser extent how profits are computed, the calculation rules need to be fleshed out so each player will see the relevant payoff measures they are pursuing.

This process is practical applied game theory; it’s not an off-the-shelf game. There are some key elements that must be built.

Role-playing fact packs.
Industry fact pack.
Decision templates.
Decision-making calculator: This is a pro forma spreadsheet to help the teams perform basic P&L calculations.
Agenda: To determine the length of time needed for the entire workshop, first decide how many games to play and how long each round within the games needs to be.
Facilitator’s guide. You plan to have individuals in these roles, you should enumerate the basic ground rules.

Games with computer models typically require six to eight weeks to build.

It should follow this simple design formula:

Define the choices the players will make.
Determine the outcome metrics of interest for assessing player performance.
Build the model to link (1) and (2), nothing more.

The alternative to using a computer model to determine the results would be having a panel of experts assess the teams’ submissions and assign outcomes based on their knowledge of the market.

You will need to decide the number of games and rounds within each game. Within each game, you would have multiple rounds (three is optimal in my experience; in the first-round teams make choices, in the second round they react to the other teams, and in the third round they get to respond to the other players’ reactions) that cover the relevant time periods.

At the end of each round, teams would make their decisions, submit their template of choices, and receive feedback from the model or expert panel.

At its most basic level, running the game is executing the agenda laid out in the build stage.

First, be careful about trying to script the insights and answers ahead of time. Don’t guide the teams to predetermined outcomes.

The second key point is that, similar to the Black Hat exercises, the debrief session at the end of the workshop is as important, if not more so, than the actual game play itself. Again, these three questions are the following: What was your team’s objective? What was your most interesting insight about playing your role today, either as it relates to that organization or to the industry overall ? What remaining “unknowns” would you like clarified about your role or the industry to have better insight?

I’ve run games completely in person or fully virtual because hybrid structures do not work.

The second format is what I call war gaming lite. In many ways, it’s very similar to a traditional war game, especially in its design phase, but there are some key differences in the build and run steps. In most cases, you won’t need to build a pro forma calculator or a model to calculate outcomes. Building models generally accounts for the biggest time commitment in a traditional war game process. This is where most of the time savings come from in building a lite war game. Author like to position war gaming lite as similar to gathering a group of colleagues to discuss what’s going to happen in the future of the industry. Often, these conversations are biased toward what you want to have happen in the future.

Lite war game has the same “future of the market” discussion but each person at the table approaches the conversation from the perspective of the organization they represent.

Lite war games are great for capability building. They help you think like your competitors.

The discipline of repeating these exercises also helps ensure you’re constantly updating information and insights on competitors.

Over time, I’ve found more and more value in the war gaming lite model. Set up a fact base on the market, assign teams, provide them with a small set of four to five strategic levers, and then jointly discuss how the industry will evolve, with each participant taking the perspective of a different role.

Before you decide to design, build, and run a war game (traditional or lite), there are four questions you should ask first.

Is a war game the best tool? War games are most useful when there are relatively big uncertainties in the market that are not easily quantified, with a wide range of potential outcomes, and when the market participants’ choices are interdependent.
What is the objective of the exercise: strategic or tactical? If the objective is strategic, consider using the war gaming lite format. If it’s tactical, a traditional war game would be more appropriate.
Who will design, build, and participate in the workshop?
How often should we play?

Mock negotiations are a very specific format of a war game, while premortems are sometimes referred to as “reverse” war games.

Are we getting our point across?
Did we seem too aggressive? Not aggressive enough?
Is the conversation advancing the discussion, bringing us closer to a conclusion?

Postmortems are conducted to determine why something happened in the past.

At the end, a debrief session will pull together the collective insights. Areas to address include the following: What portions of the winning strategy are realistic? What parts of the strategy could we pursue first? Are there other events that could block the strategy’s success? What remaining uncertainties must be resolved to enhance the clarity of the winning strategy?

There are two management techniques, often confused with war games, which have grown in popularity and use.

The first technique is gamification, which broadly refers to setting up incentive mechanisms like those used in video games to encourage employees or customers to improve their performance.

The second tool that isn’t war gaming, but is often thought of as such, is a red team/blue team exercise. One team is assigned to be the red team, one is designated as the blue team, and they compete to see which one has the best ideas and strategies. Another common red team/blue team construct has one side arguing “for” and the other side “against” a particular position. Red team/blue team exercises are closest in spirit to our Black Hat workshops. Other common Red Team events are vulnerability probes (seeing if the team can break the security protocols in place) or alternative analyses (having a fresh pair of eyes review the information and develop their own conclusion).

There’s an old adage in the medical profession: “See one, do one, teach one.” We can adapt this for competitive simulation exercises to “See, do, lead.”

The most common skepticism I hear when designing and building a war game is “How can we accurately simulate what others will be doing? We can’t really understand what they’ll do [because they’re irrational].”

The mindset of thinking about your competitors (and other stakeholders), their potential reactions, and the implications for your strategy should be ingrained in every decision you make.

Integrate Competitive Insight into the Organization

First of all, most companies that have a function focusing on competitors call it a competitive intelligence function. Author prefer the term competitive insight function because it puts the attention on implications derived from that acquired knowledge, which can be used in decision-making.

The competitive intelligence function at most companies is like a library: information is collected and stored, and when a business leader asks for competitor information, the competitive intelligence staff send the leader a large stack of documents.

Best-in-class competitive insight functions require the appropriate staff.

Rule number one for a best-in-class competitive insight function is not to fight the organization.

If there are five business units (or divisions), then have one person track competitive insight for each division, with one person to manage the group, for six in total.

What you don’t want to do is to assign one person per major competitor.

Start small, fitting the areas of analysis to those that are the structural foundations of the organization. Then, grow the competitive insight group over time so the analysts become more granular in scope.

Seek analysts from inside your organization first, before hiring from the outside.

The analysts also need communication and relationship-building skills.

Most importantly , structure these roles as temporary positions (say, two years, max), after which the individual will transfer into a line role.

One final reminder is to build a diverse team.

How do you systematically incentivize employees to share the knowledge in their heads? First and foremost, you must create systems that make it easier to share the information.

There are three primary areas where competitive intelligence functions are located. If the organization has a chief strategy officer (CSO), competitive intelligence will almost always be housed within their group. There are a significant number of large companies where the CFO is responsible for strategy, while the third place where competitive intelligence functions often reside is in the marketing department. Locate the competitive insight group where it will have the most impact for your organization.

Regardless of where the competitive insight function is placed within the organization, be sure they’re tasked with evaluating future competitor moves and that they aren’t lulled into looking only at existing comparative data.

Since competitive insight has to help decision makers with their choices, having the competitive insight group sit at the organizational level where decisions are made is the first consideration. The second is to align the group with specific types of decisions being made.

Should the competitive insight group be centralized or decentralized? It depends. Make the group fit how the organization is structured and be as flexible as the organization is. Support the decision makers by integrating within their preferred decision-making processes.

Another critical question concerns the type of information the competitive insight group should track.

Every strategist worth her salt will tell you that developing a good strategy includes being explicit about what you will do as well as what you will not do. The same should be true for your competitive insight function.

Start small and select one or two competitors to track.

Start small, stay focused, and earn the right to build more capability by delivering on the group’s promises.

Begin by using existing reporting processes and start by adding a small number of questions that gather competitive intelligence.

You’ve set up the right format, you have the right people in place, and you’ve determined the types of competitive insight they’ll focus on first. The final issue to address is when to require the group’s use in strategic decision-making.

One option would be to require the competitive insight function be used before any C-suite strategic presentation.

A second way to nudge the use of the competitive insight group is to require senior leaders to set aside 10 to 25 percent of each monthly/quarterly/annual strategy meeting to discuss the industry’s evolution. The twist, however, is each participant would be assigned to debate the topics from a different competitor’s or stakeholder’s perspective. This second approach spreads the responsibility for tracking competitors among the senior leaders. Instead of having to track three to six key competitors, each executive only has to track one.

Possible starter topics for these regular meetings include:

Current news and developments in the industry.
Potential strategic challenges the organization faces.
Longer-term changes in the industry.

As with any organization, the metrics used to assess the competitive insight group’s performance should be related to the objectives the company wants to pursue.

Internal metrics fall into three categories: individual, group, and corporate.

For each individual in the competitive insight function, you could measure:

Satisfaction surveys from the business unit and C-suite personnel the competitive insight analyst works with
How accurate the analyst’s predictions were.
The growth in the number of staff who have competitive insight knowledge.
The growth in the number of staff from whom competitive information is gathered.

For the group, you can use metrics similar to the ones above but aggregated across the entire competitive insight function. You can also measure:

The percentage of senior-level reports on which the competitive insight group signed off.
The revenue (and growth in revenue) of all products the competitive insight function interacted with.

Corporate-level performance should be measured relative to (tracked) competitors’ performance. Metrics could include:

Earnings per share (EPS) growth relative to competitor EPS.
Market share (and growth) relative to competitors.
Profit (and growth) relative to competitors (using whichever profit measure, e.g., EBIT, EBITDA, net income, is most relevant for the industry).
New product introductions relative to the competitors’.

Many competitive insight functions wither and die because they’re an easy target for cost cutting in times of need.

Marketing dashboards track consumer sentiment and pricing, while operations dashboards track inventory levels and supplier pricing. And other dashboards keep track of financial metrics. There are a few that will track historical information on competitors’ pricing, patents, market share, and publicly available financial data. The dashboard should also track information on competitors’ capacity, partnerships, R & D spending, job postings, and brand value.

Everyone thinks they understand what competitive intelligence is, but most people don’t. It isn’t just reading about competitors. It’s pulling together data from multiple sources and triangulating an independent estimate of likely behavior.

Conclusion

You Can Understand Your Competitor

Creating value is where platforms, partnerships, joint ventures, and consumer-centric concepts really flourish. But capturing value is still a contest, one between you and your platform partners, between your organization and downstream suppliers, and even one between you and your customers.

Competitors are truly irrational when they make choices that don’t help achieve their objectives or when they make random choices that aren’t supported by the fact base they face.

Pick a competitor (one you regularly confront in the marketplace) and write down what you think is distinctive about them. Your job is to figure out what that “something” is.