GS_Stories1sBusiness problem:

Serious games used:
Custom-designed business war game

By the mid-1980s, the heavy truck industry was facing a host of challenges. The industry was suffering from poor profitability, driven by deregulation and European and Japanese expansion into US markets. Improved fuel economy and prices had fallen 25%, making it a buyer’s market. Part of the uncertain future for the industry was the potential for a wave of vertical integration, a structural change Caterpillar executives feared would leave them behind. The company felt it was on the horns of dilemma: Focus on satisfying their existing customers, or prepare for the demands of a different market?

Understanding the need for a strategy to deal with possible alliances or mergers between truck manufacturers and engine makers, Caterpillar executives commissioned a business war game designed to create a virtual world that would mimic the changes going on in the real world. Executives were split into six competitor teams as well as a market team. The competitor teams met each morning to make decisions based on the scenario for that day’s move, and then briefed the market team on their actions. The market team responded to what the manufacturers had done, and the control group calculated the financial impact in several categories, such as research and development, new products and services, and income.

Caterpillar came away from this exercise with a few key understandings. First, even if vertical integration was inevitable, the company’s position in the industry was such that it did not need to lead in pressing for such change. Second, a key discovery was the realization that Caterpillar was investing in technologies their customers did not want, like the ceramic engine, in spite of the potential advantages it offered. Customers preferred proven technology over innovation. By making the decision to follow change as it occurred, rather than lead, Caterpillar continues to compete with its two major competitors at home and abroad, and has established vertical alliances with suppliers and customers around the world.

For more information…
Wargaming For Leaders, which provides more information about the Caterpillar case study.

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