Game Theory in Management

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Modelling Business Decisions and their Consequences

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Yoda on Portfolio Management, Part I

Overthinking It

What it is, what it isn't...

CMR? Yeah, well, just don’t act like Phil Donahue

Risk Managers’ Customer Relations “Management”

Yoda on Portfolio Management, Part I

Is there a dark side to portfolio management? You bet your tauntaun there is. In that famous mythological universe far, far away, adherents to The Dark Side are (usually) easily recognizable by being dressed head-to-foot in black, glowing yellow eyes, and a predilection for spreading misery during a personal quest for near-absolute power. In the management world, such external indicators are not usually present, at least not in such apparent manifestations; however, the signs are there, if you know what to look for.

As with The Force, the prime differences between the light and dark sides of portfolio management are centered on motivation. In the management world, there’s a certain naïve assumption that all businesses are ongoing concerns, and that managers seek to keep their enterprises going as long as possible. But that’s not what’s taught at college-level business schools around the world – they’re not instructed to “maximize shareholder wealth for as long as possible.” They’re simply taught to maximize shareholder wealth.

The differences between organizations that are on-going concerns and those that are not are as stark as those between Yoda and Emperor Palpatine. The ongoing concern will seek to enlarge its customer base by providing better, more economical products and services, whereas the organizations that have a pretty good idea of when their time is up will seek to exploit the existing customer base, maximizing the amount of money to be taken from them while minimizing the expense of providing goods or services.

The Dark-Side portfolio managers don’t (necessarily) taunt their perceived adversaries during one-on-one combat situations, but they do, by necessity, communicate differently. Organizations with a known term date range simply can’t be honest in their communications with employees or customers, since such honesty would dramatically accelerate such organizations’ demise. Employees would know that they had better seek employment elsewhere, and the higher the level of talent, the quicker they will be able to do so. Likewise, customers would instantly recognize the futility of entering into or maintaining any kind of an economic relationship with such an organization, and explore alternatives (i.e., seek their desired goods/services from providers who can be expected to be available long-term).

Okay, so if these portfolio managers’ eyes don’t glow yellow, how are their Dark Sided motives displayed? Consider the following table:

 

Management Function

Light Side

Dark Side

Employee Relations

Spends money on and encourages employee training and advancement; promotes a culture of teamwork and compassion.

Is only interested in collecting the difference between what the employee can currently contribute and what can be billed; demands “free” overtime, scrutinizes/ discourages time off for any reason.

Communications

Is honest; stated organization mission objectives are consistent with observed managerial decisions and behaviors.

Manifestly dishonest; will pay lip service to such ideas as the importance of employees, customers, or quality, but will make decisions that show only an emphasis on cutting expenses and maximizing billing rates/prices.

Customer Relations

Will go through extraordinary means to ensure quality, keep existing customers, and attract new ones.

Will go through extraordinary means to lower costs, keep existing customers’ money, and cuts their marketing budget.

Dealings with Competition

Tries to outperform their competition.

Seeks some form of accommodation with respect to market niche, no matter how temporary.

 

“For once you start down the Dark path, forever will it dominate your destiny!” While much of what is offered up as galactic theology in Star Wars sounds like it was written by a fortune cookie fortune writer on drugs, Yoda was largely correct about this particular insight, which leads me to speculate: which side is more consistent with the whole “maximize shareholder wealth” meme?

Posted on: April 20, 2014 08:20 PM | Permalink | Comments (0)

Overthinking It

I’ve recently received a rash of e-mails and snail-mails, offering classes on how to become a better business writer. The one I received on Friday had in-between my name and the rest of my mailing address an entry that was, I suppose, my profession: “Author, Blogger.” Now, I understand these things sometimes happen, and I’m sure virtually all of my readers who are already PMP®s still receive communications offering classes to attain the PMP®. Sometimes a reference to their PMP® is even included in the mailing address. I’ve even been spammed by a company in the Middle East that teaches portfolio management (ProjectManagement.com’s April theme) that uses my first book as its text (Things Your PMO Is Doing Wrong, PMI Publishing, 2008). But when I noticed the uptick in the number of business writing classes I was being offered, I had to stop to think – was this an attempt from Cameron to subtly let me know that I had to up my game? Did he pass my e-mail and contact information to these guys, or are the offerors really unaware that I’ve been writing professionally about business in general, and project management in particular, for some time? One of the brochures named its instructor, a fellow who apparently has never even published a book on business.

It’s not as if I could just shoot an e-mail to Cameron, saying, “Yo, Cameron, are you doing this?” For one, if he was behind this trend, then asking him if he was could be taken as an additional sign of my cluelessness. And, if he wasn’t, but I accused him of being behind it, then he would instantly recognize that I was overthinking it.

But, seriously, isn’t that what portfolio managers are supposed to do? Because when we start talking about PORTFOLIO MANAGEMENT (oooooh!), the automatic implication is that those engaged in that enterprise (pun intended) are soooo much more broad-minded than the rest of us project managers, mired, as we are, in our Agile, or Scrum, or Critical Path Method echo-chambers. Consider the following payoff grid (we Game Theory hacks love these things):

 

(1)   Irrelevant information, irrelevant topic

(2)   Irrelevant information, relevant topic

(3)   Relevant information, irrelevant topic

(4)   Relevant information, relevant topic

 

Now consider the portfolio manager, at the receiving end of a barrage of management information streams, situated similarly to a 50-pound catfish at the base of a dam’s spillway, trying to decide what’s good to eat (for a catfish, anyway), and what’s not. The information bits come streaming by, and they belong to one of the categories in the above table (Here’s an easy hint: virtually everything your risk manager tells you is in category 2). What’s the worst thing that a portfolio manager can do? Isn’t it to underthink things, to mis-identify something that is, in actuality, in category 4, as being instead from categories 1-3? And then, not acting on it until it’s too late? Clearly, if the error to avoid at all costs for the portfolio manager is to underthink things, then the only other two outcomes are to either think the exactly appropriate amount (which is next to impossible), or else to overthink them.

What the portfolio manager needs is a structure, a systemic method for identifying which information streams are truly relevant, and in what situations. Such a structure would take into account the three levels of information topics:

·         Internal to the organization;

·         External to the organization itself, but internal to its economic base (customers and potential customers), and, finally

·         External to both the organization and its customers, but internal to its business environment, i.e., the competition and government.

Some freakishly talented CEOs have a natural sense of how these three different management arenas interact and influence each other, but the rest of us could use a little help from our computers. So, how do you set up your management information systems to collect the pertinent data, process it correctly, and deliver the needed information to actually perform portfolio management? I cover this topic at length in my second book – or, you can just keep reading ProjectManagement.com blogs.

Assuming, of course, Cameron doesn’t fire me because he really was behind the whole writing-classes-marketing-onslaught thing, and I’m just not getting it.

Posted on: April 13, 2014 10:10 PM | Permalink | Comments (0)

What it is, what it isn't...

A major sticking point in my ongoing feud with the risk management-types (you’d think that after Kevin Kostner’s excellent mini-series Hatfields and McCoys that the RM-types would avoid engaging in a feud with a Hatfield) was that, while definitions abound on what risk management is, they couldn’t define what it is not. The basic definition offered up by your typical RMer (and, in this case, Wikipedia) is as follows:

Risk management is the identification, assessment, and prioritization of risks (defined in ISO 31000 as the effect of uncertainty on objectives, whether positive or negative) followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities.[i]

Two things jump out at me from this: the effect of uncertainty on objectives? Really? (And don’t get me started on the dictionary-bending term “positive risk.”) Which kind of leads me to my previous point, that “uncertainties” abound in all of management, and these cannot be tamped down with hyperventilated Gaussian curve analysis.

Which brings us to April’s theme, portfolio management. The definitions I came across for portfolio management (watch out for Investopedia – many pop-ups) are similarly expansive, but that’s kind of the point – the whole notion of managing a “portfolio,” as opposed to a project, program, or organization, is that, somehow, the Portfolio Manager takes into account the things that his more myopic management siblings ignore, either because of irrelevancy or incompetence.  Did the billing rates for your organization’s designers just jump upward? Not the project manager’s fault – the handling of the assets isn’t his bailiwick. But the Portfolio Manager gets no such get-out-of-jail-free card. She must have a handle on such things, with a foreknowledge of the future implications of these developments, live-time, even as they unfold. And that, dear readers, is quite the trick.

But I know how it’s done, and how it’s done has to do with what portfolio management is not. Unlike risk management, portfolio management’s proper definition is expansive in the extreme, since it encompasses all other management functions. Since it’s the whole kit-and-kaboodle, it will naturally brush up against that age-old question: what is the point of management?

In business schools across the globe, the pat answer to that question is: to maximize shareholder wealth. To those myriad Ph.D.s who teach this, let me state unequivocally, you are either profoundly mistaken (at best), or frauds (at worst). The folly of “maximizing shareholder wealth” being the be-all and end-all of management has been shown to be invalid, time and again. I’ve taken many a shot at it, but certainly the seminal work in highlighting this silliness belongs to Tom Peters.

To their credit the project management crowd never tried to claim the mantle of being the ultimate point of management (except, tangentially, the risk managers, who have been taken to task by me and others).

Well, then, if portfolio management needs to be defined, and it is brushing up against a clearly articulable version of the ultimate goal of management in general, what’s the ultimate goal of management in general?

Okay, everybody, clear the gunwales, and brace yourselves: Hatfield, via ProjectManagement.com, is going to articulate said definition. The ultimate goal of management is to influence behaviors and decisions in such a way as to bring about a favorable economic outcome.

Yeah, I know, this definition is very broad. However, it can be broken down into its basic components, as I described in my must-have second book. I’ll also continue to discuss it as April’s theme unfolds.

 



[i] Risk management. (2014, April 3). In Wikipedia, The Free Encyclopedia. Retrieved 00:56, April 6, 2014, from http://en.wikipedia.org/w/index.php?title=Risk_management&oldid=602522864

Posted on: April 06, 2014 09:43 PM | Permalink | Comments (0)

CMR? Yeah, well, just don’t act like Phil Donahue

No discussion of customer relations management – this month’s ProjectManagement.com’s theme – would be complete without a review of that relations epic FAIL, the interview of Katherine Hepburn by the, ahem, journalist, Phil Donahue.

It took place in 1991, when Hepburn was 84 years old. For an hour Donahue interviewed the famed actress, who discussed her life and career. At the end, Donahue asked Hepburn to autograph a copy of her autobiography, Me, and that’s when things got, shall we say, interesting. (Full disclosure – I’m not relaying all of the interaction, just some selected quotes.)

“What’s your name?” she asked.

Donahue, clearly put off, leaned forward and answered “Geraldo Rivera.”

Hepburn started laughing, immediately recognizing that Donahue wasn’t Rivera, but Donahue wasn’t about to give her a break. After some banter, he continued:

“You don’t know, do you? I bet you don’t know.”

Hepburn continued to try to write something – anything – special in the front page of the book, but Donahue wouldn’t stop pestering her.

“So, we’re going to sit here, and you won’t be able to sign this!”

“I’m just going to sign my name” she said, with a giggle. But Donahue wouldn’t let up.

“Twenty-four years on the air, over 5,000 hours, and you don’t know who the hell I am!”

Of course, not being a fan of Phil myself, I would count that last assertion as a compliment. Donahue eventually told her his name, and how to spell it, ending the interview.

At the time, Katherine Hepburn had been nominated for no fewer than 12 Academy Awards (a record surpassed only recently by Meryl Streep), winning four of them – a record that stands to this day. The American Film Institute named her the greatest female star in Hollywood history.

Donahue was listed #42 on TV Guide’s list of greatest television stars.

I’m thinking that any interviewer with a modicum of class (or perspective) would have given the aging icon a little room. It’s not as if leaping into a state of high dudgeon was going to suddenly re-introduce Phil’s name into her memory. Add to that the fact that Hepburn was in the process of complying with Donahue’s request to sign her book for him, and his intent becomes all the more incomprehensible. Did he want to humiliate her, on-air? If so, would that bode well for the prospects of landing future interviews with any Hollywood star over the age of 60? If his intention was to avoid having her appear aged and forgetful, why didn’t he just dispense with the dramatic re-telling of his resume, and just start spelling his name? Finally, by granting the interview in the first place, who was doing whom a favor here?

I believe Donahue’s out-sized ego interfered with his ability to properly manage the interviewer/interviewee relationship, which, I think, points to a truism that underpins all customer relations management: a little humility goes a long way.

Consider virtually any cataclysmic people-interaction/ relations failure – do they not have in common an inappropriate sense of self-worth on the part of the failing party? Napolean, Custer, the board of directors of IBM in the late 1970s – all must have felt invincible, right up to the time of their best-remembered blunders. As I discussed in my previous blogs (particularly about the Soup Nazis), if your product, project, or service is absolutely unique, AND in high demand, then and only then do you have a bit of latitude to indulge your superiority complex, and even in those circumstances the opportunity for epic failure is never really far away. You want a fast fix for your organization’s customer relations management issues? Introduce a little humility – that’ll fix most of what ails you.

And it will keep you from acting like Phil Donahue.

Posted on: March 30, 2014 08:21 PM | Permalink | Comments (0)

Risk Managers’ Customer Relations “Management”

As many of my regular readers know, I hold much of what passes for modern risk management to be transparently fraudulent, little more than institutional worrying tripped out in Gaussian curve jargon. But it seems that whenever anybody starts writing about the management sciences, everything suddenly becomes anodyne, as if it’s in bad taste at best, rabidly antagonistic at worst, to actually challenge bad theory openly. I don’t get that (aha! sayest the risk managers… Hatfield’s too stupid to understand our concepts!).

But March’s theme is customer relations management, so I’d thought I’d combine the two subjects to analyze – well, how does the peddler of fraudulent management science manage his customers? Is it not through deceit? Certainly, but that implies that the multi-billion dollar risk management industry is built on a foundation of sand, and that at some point in the future no amount of customer relations “management” will suffice to keep the façade up and functioning.

Soooo…. how does the risk manager manage his customers, knowing (if he’s smart and intellectually honest) that his epistemological bubble is bound to eventually burst?  Well, it’s been my experience that their favorite tactic is to assert that, should any manager eschew performing risk analysis, that they are ipso facto either failing to do due diligence in their managing of the project, or else too, ahem, ignorant to understand the vital importance of doing risk management. However, to the PM savvy enough to not be bamboozled into spending tens of thousands (at least) to avoid being so tagged, a few questions might, just might, be in order, such as:

1.      Can your analysis accurately predict future events?

2.      If so, why aren’t you already incredibly rich?

3.      If not, why should I pay you tens of thousands of dollars for your analysis?

4.      If, as much of your literature claims, risk management must be performed throughout the life of the project, can you show me the output from the information stream that your analysis provides – on an ongoing basis – that actually helps me manage this project?

If the risk management fellow performing the pitch for his company’s work is honest, the answer to question #1 is “no.” If he isn’t, then question #2 should probably snare him.

Question #3 is where we start to get to the root of the matter. The typical risk management “analysis” involves interviews with you and your principals, answering questions such as “what might go wrong?” “what are the odds of that happening?,” and “what would the cost impact be?” However, if you and your principals are aware of the things that might go wrong on your project, what possible information advantage can be attained by guessing (cross through) estimating the odds of occurrence? Don’t your principals already know what might happen? Isn’t that why experienced managers are preferable to inexperienced ones?

Taking question #3 further, let’s say that one of your project leaders tells the RM-type that there’s a 10% chance of something happening that costs the project $10,000. If the event eventually happens, does the estimate reduce the impact? If it does not happen, didn’t you just waste the amount of time and money it took to document that there was a 10% chance of it happening?

The final nail in the risk managers’ epistemological coffin is the answer to question #4. No, there isn’t a report that can be provided on an ongoing basis, derived from continued use of risk analysis techniques, that helps manage projects. It simply doesn’t exist. If it did, it would be as ubiquitous as the Cost Performance Report (format 1), or the Gantt Chart, provably legitimate outputs from valid PM analyses. Alas, if an unforeseen event hits your project, then the risk analysis will have classified it as an “unknown unknown.” If the event was foreseen, then the risk analyst can say “I told you so,” without any further assistance to your new circumstances. And, finally, if the event didn’t happen, then the waste of time worrying about it possibly having happened becomes all the more blatant.

Ultimately, my advice to risk managers on the best way to “manage” your customer relations is this: don’t let your clients think through the overall risk management process, ‘cuz if they do, they won’t be your customers much longer.

Posted on: March 23, 2014 09:01 PM | Permalink | Comments (1)
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