War Gaming for Business
(Foresight is Your Best Insight: Prevent Unforeseen Consequences)
War Games for businesses are a means to anticipate and counter any competitor actions or reactions to threats and opportunities in their specific industry.
For example, if your company introduces a product that is seen as a threat by competitors, how are they likely to react? And what are their likely actions to counteract the product?
Another scenario may be that a competitor hires a new CEO? What actions did the new CEO take at the previous company that was successful? What were the circumstances? Is it likely that the CEO would take the same actions? Are they applicable to your industry? How successful would such actions be in your industry?
In short, war gaming is a means to forecast future actions by competitors and to anticipate the likely scenarios and results.
In this article, we will show the unintended consequences faced by a company that did not use war gaming before launching a new product.
Case Study: Insurance Agency Seeks to Increase Market Share
In this case study, we will discuss what happened when an insurance agency tried to increase its market share in a specific market by selling excess malpractice insurance to dental professionals.
The base malpractice insurance (up to $2 million) was provided by a regulatory college.
The insurance agency was not looking to substantially increase revenues by selling excess malpractice insurance, since the fee for base malpractice insurance was much higher than that of excess malpractice insurance. The objective, however, was to increase awareness insurance agency’s products and develop interest in other insurance and wealth management products it offered to dental professionals.
With this in mind, the insurance agency negotiated with insurance carriers to develop excess malpractice insurance (up to $25 million) to dental professionals.
A History of Discord
For many years there existed a history of discord between the executives of the regulatory college and the insurance agency. We will not dwell on the reasons behind the discord. Suffice it to say it played a major role in the relations between the college and the insurance agency.
The insurance agency assumed, correctly, that the selling of excess malpractice insurance would not affect the revenues of the regulatory college, since the agency was not competing for the lucrative base malpractice insurance market.
The insurance agency also assumed, incorrectly, that the regulatory college would not take actions to subvert the agency’s efforts in the much less lucrative excess malpractice insurance market. The history of hostile relations was not taken into account and for that the agency paid a dear price.
When the regulatory college became aware of the insurance agency’s intention to sell excess malpractice insurance, the college’s executives began negotiations with insurance carriers to develop an excess malpractice insurance offering which was cheaper than the one offered by the insurance agency.
Even though the college’s excess malpractice offering will bring little in terms of revenue – and it may be discontinued for lack of interest among dentists – the point is that the college’s reaction could have been anticipated. As a result, the insurance agency’s marketing efforts – including intensive negotiations with insurance carriers to develop the excess malpractice insurance offering – were frustrated and the hopes of increasing interest among dentists came to naught.
The case study shows an example where even the simplest form of war gaming could have been used to anticipate a potential rival’s reactions and to prepare the necessary countermeasures. By not conducting a war game scenario, the insurance agency saw its efforts result in failure and embarrassment.
Forewarned is forearmed. Foresight is your best insight.