When making substantial strategic decisions, a profound understanding of the strategic interaction patterns of all relevant stakeholders within the market is essential. To help our clients in planning their strategic actions, we use proven analytical game theory and wargaming concepts to deduce recommendations based on stable and likely scenario outcomes. For this, our standardized Straint process — from an initial understanding of the issue to the final management recommendation — typically requires two to three months and is divided into four steps.
When planning strategic actions, firms often evaluate their options based on various environmental scenarios they think could potentially happen. Often, however, strategic actions and industry dynamics depend on and mutually influence one another. The same may be true for a handful of key players or stakeholders: competitors’ strategic actions mutually influence one another, and certain customers, suppliers, or even regulators and NGOs determine the competitive arena. Such strategic interdependencies are especially significant and important to understand in markets with few major competitors and players when a specific decision must be made.
In a first step, together with our client, we define the strategic question to be tackled and agree on the key players that are relevant to properly capture all relevant aspects of the industry dynamics. To gain a deep understanding of these players and their respective strategic options for action, we conduct interviews with executives inside our client’s organization. By the end of this phase, we have agreed on all relevant stakeholders and their respective options for action, which is key to answering the strategic question at the heart of the issue.
The essential basis for analyzing strategic interactions is a proper understanding of each player’s individual objectives and preferences. Every player uses his strategic options as levers to optimize his position according to his individual goals. Identifying a competitor’s objectives is not always easy and straightforward, and executives often feel uncertain when asked to do so. However, our process is particularly designed to guide our clients through this challenging task and form valid assumptions about each player’s interests and preferences.
To collect the knowledge required to model each player’s preferences, we typically conduct a one-day workshop with the client’s team and executives, bringing together the required knowledge about all players’ options. During this workshop, we go through a proven process to collect all facets of the issue and achieve consensus about the relevant preferences player by player. In some cases, consensus about the exact preferences cannot be achieved or simply cannot be estimated with the information available. We have several ways to cope with such situations, e.g., by running sensitivity analyses and distinguishing critical strategic breakpoints from less important factors.
Finally, the workshop results in a catalogue of specific preferences for every relevant player in the decision to be made, and these preferences subsequently form the basis of our computer-aided analysis of strategic interaction (sometimes also called strategic wargaming).
Based on the players’ strategic options and specific preferences, we analyze the issue or pending decision using proven analytical concepts. These concepts stem from multi-player, multi-period game and wargaming theory. By using highly sophisticated, customized computer analysis tools and simulations, we test all resulting outcome scenarios of action-reaction chains and deduce the likely results of the conflict. In doing so, we calculate and test literally thousands and sometimes even millions of possible outcomes.
Based on this knowledge, we – together with the client’s core team – resolve the issue, answer our client’s strategic questions, and develop recommendations for action for our client, which are also based on sensitivity analyses and robustness checks. In addition, we deduce higher-level action-reaction patterns regarding subsequent changes.
It is key for us to create buy-in and work together with the client’s core team to understand the why’s and how’s of these analyses.
Analyzing the issue at hand analytically is an important step but not the final step in our process. All our projects aim to derive a recommendation for action together with the client based on an intimate understanding of the underlying dynamics. To achieve this, we work with the client team to come to an overall recommendation, taking qualitative issues, discussions, and executive judgement into account as well. Our objective is to develop a result that is understood, accepted, and actionable.
In doing so, we do not claim to be able to know what the players will be doing. We admit that we do not have a crystal ball that gives perfect foresight or removes uncertainty. Rather, Straint’s approach to analyzing strategic interaction helps executives make the best fact-based decisions, taking upside potential and downside risk into account.