Battle-Test Your Innovations

You thought you did everything right—gathered market research and consumer insights; brainstormed, prototyped, and tested a promising new idea; developed detailed financial models and a solid marketing plan. Yet your company’s new product or service didn’t perform as expected and fell prey to the stats:

• On average, 80-95% of new product introductions fail across sectors
• An estimated 46% of all resources allocated to product development by U.S. firms are spent on products that are cancelled or fail to yield adequate financial returns
• One in 100 new products cover their development costs
• One in 300 make a significant difference in consumer behavior, the product category or the company’s growth trajectory

What did you overlook?

If you answered “the competition,” you’re far from alone. In our experience, companies making decisions about developing and launching new products commonly fail to anticipate their rivals’ motivations and actions.

Unfortunately, in the heat of competition it’s extraordinarily difficult for players to identify such threats, because the tendency to overlook rivals is deeply ingrained in human behavior. Indeed, neglecting to think about competitors is one of dozens of natural human biases—along with excessive optimism and overconfidence—that subconsciously affect strategic decision making.

Recognizing this problem, some companies are tackling it head on by integrating war games into their innovation activities. By simulating the thoughts, plans, and actions of competitors, these companies are improving their products and services, while gaining a deeper understanding of how their innovation assets compare with those of rivals—insights that help them better identify, shape, and seize opportunities.

There are three interrelated types of innovation decisions to which war games are best applied – those involving individual products, portfolios of offerings, and market entry strategies. And while it’s obviously important to keep an eye on rivals at all times, the biggest bang for the buck comes from war gaming the medium term impacts, since they are the most actionable.

Product-level decisions

These types of games focus on how to configure a particular product or service to succeed upon introduction. It focuses on that one product or service and assesses how competitors will respond to the introduction of that product (for example, through price changes on existing products, copying the innovation, focusing on specific distribution channels or customer segments). It helps organizations answer questions such as:

• How much of a lead or leap, technological or otherwise, must we make in the next generation of our product or service?
• How might our new product or service stand up to the pressures of the existing—and, potentially, the new—competitive landscape?
• What price point will our product or service support and sustain?

A consumer electronics company was debating the mix of components and features to include in the next version of an important product.

The company ran an in-depth war game over three days, with cross-functional teams of product designers, marketing and sales experts, and supply chain managers.

The game identified several new components and technologies the competitor might include in its own update of this kind of product. Fueled by these insights, the company went on to identify a host of moves it could make to seize the initiative—including partnerships, bets on particular technologies, and an attractive, untapped consumer segment it could target to spur growth.

Ultimately, many of the game’s predictions did materialize, and when the competitor moved as expected with its new product, the company was ready. Its own updated product was a hit with consumers, and it went on to sell more units than the competitor did over the following three holiday seasons.

To increase the likelihood of gaining such insights, the consumer electronics company included a range of framing questions when it designed and ran the game, such as:

Portfolio-level decisions

War gaming can also help companies develop and deploy their product portfolios more strategically across geographies and customer groups. These games include multiple products or services and allow organizations to explore questions such as:

• Which product classes will face the most competition and will supply-side dynamics or customer demand drive it?
• Can we adapt any of our existing products to differentiate them further for the geographies or segments that will face the most pressure?
• Which customer segments will our competitors focus on, and how do these segments overlap with the ones our new offering targets?

Consider the experience of the global high-tech company.

For years the company had sold a comprehensive range of specialized TV models to hotel chains across the price spectrum. Recently, though, new competitors had begun arriving on the scene in force, and competition had increased broadly.

The war game results suggested the threat was bigger than the company had suspected. Notably, several of the games quickly degenerated into value-destroying price wars. That outcome helped company leaders understand how quickly its high-end TVs would migrate down to the buyers from lower-cost hotels as rivals discounted prices on their own higher-end units to gain market share.

In response, company leaders essentially decided to ignore certain market segments, where price competition would be fiercest—areas it had strongly contested before. Instead, the company would place its biggest innovation and marketing bets on serving midscale hotels. 

Go-to-market decisions

Finally, war games are a useful way of testing and refining launch strategies to help ensure that new product and service offerings get the most traction in the market.

That’s what happened when a financial-services firm wanted to determine which of a handful of promising new services had the greatest potential to reach global scale quickly and thus should be fast tracked. Company executives were particularly keen to test one technology-driven service that they felt had the potential to catch rivals off guard and to capture additional revenues from much-coveted business customers.

Executives were surprised to learn through the war game how quickly and convincingly the opposing teams reacted to the offering and developed a version of their own. Worse, in some cases an opponent team’s offering appeared superior to the company’s, or at least close enough that company executives felt it would be tough for business consumers to differentiate between the two. “If we go to market with this offer,” said one team member, “we’ll get creamed.”

The company has since gone back to the drawing board and is using many of the observations gathered from the war game to help improve the new service and their market positioning.

Questions that it considered in the design and execution of its game included the following:

• What ideas could put our product or service out of business in the next one to three years?
• Can we create value and continued appeal with our service given the possible responses of attackers and other competitors, our responses to them, and their responses to our responses, over a defined period of time?
• What next versions and extensions are required to keep our idea in play, sustainable and scalable, and how do we start building them now?

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War games are a tried-and-true strategic tool, yet relatively few companies use them to innovate. Those that do so effectively can not only avoid the problem of overlooking what the competition might do but also determine how likely their new products and services are to survive in the crucible of the marketplace.