Game Theory in Management

Tom Peters published In Search of Excellence (Harper Collins, 1982) with Robert Waterman, and it led to a sharp correction in the way many executives viewed their organizations and their places in it. The problems with Mr. Peters’ scholarship, in my opinion, are varied, but certainly the most irksome element of them is that they are conveyed with such certainty that many managers will embrace them without a sense of proportion or perspective, and then attempt immediate implementation. Peters was right when he challenged the notions of the asset managers, that the point of all management is to “maximize shareholder wealth.” And I must admit a certain level of glee over watching him address an auditorium full of Sloan School MBAs, and essentially mocking them to their faces over what they had paid thousands and thousands of dollars to learn.

But the reality of Peters’ work is that it is often lacking in conveying a sense of perspective or proportion. He advocates, for example, much greater emphasis on customer satisfaction, but offers absolutely no upper boundary as to when the organization might want to ease off on such an emphasis. He simply loves the idea of empowering the rank-and-file, but, again, offers no evaluation method for testing when this empowerment might have gone too far. He presents as if his scholarship was predicated on an even-handed, honest attempt at identifying high-performing organizations and learning their secrets to success, but, later, in an interview with Fast Company magazine entitled “Tom Peters’ True Confessions,” asserted that the process for identifying the organizations profiled in In Search of Excellence was far less ordered than presented.

But the damage has been done. In Search of Excellence, and his books that followed it, have sold millions of copies, mostly, I would imagine, to managers desperate to improve their skills and the organizations for which they are responsible. How do you know if your organization is headed by such a manager? Well, here are some tell-tale signs:

1.      The people in your organization who interact with your customers on a day-to-day basis are trying to give away all of your assets. Peters stresses over and over the need to abandon the previous, moribund notions of generating profit, and embrace the need to satisfy your customers at all costs, and I do mean at all costs. So, if your staff is caving in to any and all customer requirements, no matter how outlandish or outrageous, you might be in a Peters-influenced organization.

2.      The so-called rank-and-file members of your organization are suddenly engaged in activities that are somewhat tangential to their original job duties. Did you, as an entrepreneur or manager, have a clear idea of the technical approach your team should take in tackling their day-to-day issues? Well, forget it. Any worker without the word “manager” in their job title must be assumed to have a better handle on the work than you do, so, in the name of superior management approaches, deal with it.

3.      Your accountants are visibly agitated on an ongoing basis. I actually believe that this is Tom Peters’ greatest contribution to management science, the pointing out and socializing the idea that there is much folly emanating from the asset managers’ playbook (though, to my knowledge, he never articulated it as such). As I have pointed out, both in this blog and in my second book, the flawed (if not utterly invalid) theories coming from eminent business school academicians are legion, but are not only accepted, they have many people paying a lot of money to learn them. When Tom Peters writes about companies making money hand-over-fist while maintaining business models very different from these conventional theories, he is actually doing the management science world a huge favor. But he’s also frustrating the stuffing out of those members of your staff steeped in this set of narratives, and chief among them are your accountants.

4.      The parts of your facilities that the customer never sees are showing signs of neglect. Since customer satisfaction trumps all other business considerations in Mr. Peters’ world, and there’s only so much budget to be spent on facility upkeep, we all know which parts are getting short-shrift here.

5.      Everybody’s suddenly on a first-name basis. This is also an area where I tend to agree with Mr. Peters, since the flattening of the organization does indeed enhance communications and information sharing, and information is the life-blood of any organization. However, if your candy-stripers are referring to the head of your hospital’s neural surgery ward as “Bob,” then a copy of The Pursuit of WOW may be on your administrator’s desk.

I’m confident that, overall, Tom Peters’ impact on the business world has been a positive one. But, as is the case with so many business model advocates or management science theory marketers, without some sort of acid test to evaluate where your ideas lose efficacy, or even stop working altogether, those ideas invariably are applied where they do not belong.

And then disaster ensues.

In my previous blog I compared and contrasted consultants who provide valuable information with those who provide a narrative as a contest between Gandolph and Grima Wormtongue from The Lord of the Rings trilogy. Now I’d like to take that analysis a bit further by again invoking another character from epic literature, Cassandra.

Cassandra was the daughter of King Priam and Queen Hecuba of Troy. As seems to be the case with every female renowned for their beauty in Greek mythology, she was desired of the gods, specifically Zeus, who granted Cassandra prophetic power. When she subsequently rebuffed his attempts at seduction, Zeus added a curse to her – she would retain her prophetic power, but none would believe her.

Now, if there (in mythology, at least) exists those who are right but not believed, the inverse of this curse – far more deadly, in my opinion – is that there are consultants out there who are usually wrong, but are always or often believed. This is undeniably true. There are simply millions of people whose internal narrative is chock full of delusions, many of them rather preposterous, who yet influence decision-makers who, in turn, have impacts on our lives. Does anyone remember Carl Sagan predicting that the fires from the oil rigs set alight by Sadam Hussein’s troops at the end of the first Gulf War would lead to an environmental disaster, similar to the (also fraudulent) “Nuclear Winter?”

Consider the asset managers’ axiom, that the point of all management is to “maximize shareholder wealth.” Umm, no, it’s not, and it’s provably not. Look at what happens in a hostile takeover. The targeting company is willing to spend considerable sums of money to purchase a controlling share in a rival, and subsequently liquidate its assets. At the beginning of the attempt, the targeted company’s shares usually jump in price. Isn’t this good for the targeted company, by the asset managers’ rule? Yet somehow, mysteriously, the targeted company will often resist, and a favorite tactic is to take a “poison pill.” A poison pill in business refers to a company’s attempts to make it a less attractive candidate for takeover. It involves taking on significantly more debt, since, unless you’re an American car manufacturer, liability owners must be satisfied prior to equity holders in any bankruptcy proceeding. So, if the point of all management (their usage, not mine) is to maximize shareholder wealth, then no targeting company would ever initiate the attempt, and no targeted company would ever resist. And yet the attempts are made and resistance offered over and over again. But the asset managers’ axiom still undergirds much of what passes for contemporary business theory as well as a significant share of the business schools’ textbooks, textbooks written by Ph.D.s from very prestigious schools.

My regular readers know that there is no way that I can have a discussion of consultants who are usually wrong but often believed and leave out risk managers. The notion that the future will unfold bounded by the precepts of Gaussian curves is, well, idiocy, and yet it’s highly coveted idiocy. Maybe it’s their jargon – all that talk of “80% confidence intervals on the cost baseline” works on those unfamiliar with relevant management science information streams like catnip. Another possibility has to do with the searing, sneering treatment of those who recognize current risk management theory as the farce that it is from its practitioners. In my previous gig, as columnist for PMNetwork magazine, it was almost automatic: refer to the risk management types in any way that even slightly implies they might, just might have it wrong, and the nasty e-mails would pour into my e-mail account. The other columnists from that time have told me of similar experiences.

No, the answer to being able to realize when your consultant is providing high-sounding irrelevancy is to…

Oops! Out of time. I guess you could look into my must-have book, Game Theory in Management, or wait until I get around to addressing this more specifically in this blog.

For those who steadfastly refuse to expose themselves to epic literature or epic motion pictures, Gandolph and Wormtongue are characters from J.R.R. Tolkien’s Lord of the Rings trilogy. Gandolph is a very wise and helpful wizard, and all who take his words to heart are greatly helped. Grima Wormtongue (what a name, right?) is actually an agent of ultimate bad-guy Saruman as he “advises” Theoden, king of Rohan. Theoden in particular, and Rohan in general, are greatly diminished and made more vulnerable because of Grima’s council, until Gandolph finally rides up to the castle (on a white horse in the movie, naturally), confronts Wormtongue, and drives him away, even though Gandolph initially encounters resistance from Theoden himself, who is not convinced that Wormtongue is an agent of Saruman. Got all that?

Okay, back to the office. Is there in existence a sure-fire test that can determine if your consultant is on the up-and-up, or a devious weasel, short of having an appearance that suggests that the consultant in question appears to be applying for a job as a model in Vogue by pursuing the “heroin chic” look? Yes, there is, but to learn how to invoke this test I’m going to need to cover some management information theory first.

As I discuss in my must-have book, Game Theory in Management, management information (not data, but information) is extremely powerful if it’s timely, accurate, and relevant. (How can you test for relevancy? Click here.) Indeed, the mediocre or even poor manager who has command of, say, 75% of the information he needs to make the best decision in a given circumstance will out-perform the exceptional manager who only has 50% of the information she needs, every single time. This effect is probably why real scientists tend to have such disdain for managers – their decisions are almost universally made based on complete information, whereas managers are often (always?) compelled to decide based on incomplete information. When I was in graduate school, one of my textbook’s authors asserted that information is the life-blood of any organization, and I’m not at all sure I disagree with that notion. And, from an organizational behavior and performance point of view, think of the groups or divisions within your organization that attempt to gain or leverage power over other groups by hoarding, limiting access to, or altering the flow of coveted management information. Timely, accurate, and relevant management information is power, and if you’re the person delivering that information to the upper-level managers who need it, and can convince them that you are the only source, than you have the same power over the organization’s decision-makers that a pusher has over a junkie. They simply cannot function without you. And, like Sargent Foley in An Officer and a Gentlemen, people will use any means, both fair and unfair , to be perceived as such a one.

Let’s jump back to consultants. They are usually brought in due to some realization on the part of the host organization, either that some vital piece of management information is missing, or else, given that a vital piece of information is missing and may not ever be provided, some level of expertise in making the right call working from an insufficient data set is needed. In my humble opinion, the vast majority of the perceived demands from consultants can be fulfilled with superior management information systems (and, no, I’m not talking about Wall Street “quants” – those guys are barking up the wrong epistemological tree) rather than the seat-of-the-pants advice, but I digress. How can one ascertain whether a consultant is performing their function with fidelity (Gandolph), or if they are engaged in a deceit that will allow them to collect their fee without truly advancing the attainment of the goals of the organization they serve (Wormtongue)?  Here’s the acid test:

·         A Wormtongue is advancing a narrative. Always at its core this narrative will make the decision-makers feel good about themselves, reinforcing their conceits and leaving them with an inflated view of their importance in the organization. The need to be recognized for our abilities is near-universal: all humans believe that they are under-appreciated.  Wormtongue knows this, and will push a narrative, often at variance with reality, that will insinuate himself into a position analogous to the provider of essential information, whether he actually provides this service or not.

·         Gandolph will analyze the current management information system architecture, reject as irrelevant some of the streams, and seek to set up others that are essential. If he is politically savvy, he will throw the occasional bone to the egos of those who hired him, but that’s not his primary focus. Of course, this puts him at odds with those who have sought to manipulate the clear and healthy functioning of the existing information streams, especially those that serve no legitimate purpose (like the risk managers’). But, if he has read my book, and is successful, then, suddenly, your organization’s 50% managers are out-performing your competitors’ 75% managers, every time.

And that’s how you tell if you have a Gandolph or a Wormtongue.

Some years back I was attending the wrap-up luncheon for a just-complete project management seminar, hosted for the paper presenters, track designers, and other instructors. The lady who was in charge of this particular wrap-up session posed a question to the room: after encouraging us to be open and frank, she asked what we would do to improve the next such seminar. I held up my hand.

“Waive the entrance fee for all paper presenters.”

The sponsor was incredulous, and made no attempt to mask her contempt for such an idea.

“Think about it” I continued, “these people are coming here, presenting original research,” (okay, I admit that I’ve endured endless sessions where the presenters go over the same old stuff, and it seems to happen at every seminar, but, for now, bear with me) “and you charge them for the privilege of doing so. Since your organization’s stock and trade is the collection and dissemination of new ideas, shouldn’t you be encouraging them, rather than discouraging them?”

My idea died on the ballroom floor, amidst much harrumphing.

But I believe it bears re-examining, if for no other reason than this concept serves as a kind-of bullstuffing detector when it comes to the presentation of project management concepts and ideas. I know one prominent author/practitioner of Earned Value Management concepts who has made quite a bit of money without expressing a single original idea about EVM, its implementation, or its place in the portfolio management universe. He just keeps blabbing on about known precepts, and thinks of himself as having a legitimate place at the advancement-of-management-theory table, while every person who knows the score simply rolls their eyes at this fellow’s material.

Consider one of my favorite targets, the risk management consultants. What are these guys selling, really? A partial quantification of the future. However, the future cannot be quantified. So, again, what are these guys really selling? A chance for a given project’s management to appear sophisticated and advanced in the selection of the sort of information that persuades their decision-making. It’s reminiscent of that iconic episode of the American situation comedy Cheers, where presumptuous waitress Diane is beating everyone else at the bar in their football pool by basing her decisions on things like which team hails from a city with a foreign-born symphony orchestra conductor.

I also like picking on communications consultants. Hey! Communications consultants! Guys, get this through your heads: conflict exists! It has since Eve bit the apple! And it will continue to exist until the Second Coming! Now, put this in your peace pipe and smoke it: talking it out will not eliminate it! My enemies despise me, because they are all jerks. Letting them know “where I’m coming from” will not make them less jerky, and my having a more thorough understanding of what makes them jerks will not make me like them. It really is that simple.

Most of the major management institutes, associations, and societies do not pay their columnists and bloggers. This simply invites charlatanism, and lots of it, and it is reflected in their material. The Project Management Institute® has an entire section of the PMBOK Guide® dedicated to risk management, and another to communication management, for crying out loud. And the last time I actually opened and looked inside an edition of my old venue, PMNetwork, more space was devoted to graphics than to the actual articulation of ideas, let alone new ones. I belong to another project management-esque organization that also provides certifications and a monthly magazine, and they refuse to pay their writers. This organization’s monthly magazine’s contribution to the advancement of management science can be measured in microns.

In the universe of consultants, bloggers, and columnists, specifically within the project management world, you do, indeed, get what you pay for.

In his best-selling book Games People Play (Ballantine Books, 1964), Eric Berne theorized that we all walk around with scripts running in our heads, collecting all the facts we gather in to a structure that resembles a story line – sort of the stories of our lives. Berne also asserted that we have three personas when it comes to interacting with others: the Child, the Adult, and the Parent. These three are somewhat similar to Freud’s Id, Ego, and Superego, but Berne’s analysis turns on how these three personas behave when we communicate with others – hence the “transactional analysis” he presents in his book.

In my not-bestselling (yet) but must-have book, Game Theory in Management, I take Berne’s theory one step further: we don’t have one script running, but three (or one story with a main plot and two subplots). These three scripts mirror the three personas, but with a twist:

·         The Child persona’s script is what we tell ourselves about ourselves. It’s entirely internal, or self-centered.

·         The Adult persona’s script provides the structure for how we ought to interact with others, primarily to in order to fulfill the needs of the Child.

·         The Parent script tells us what we should aspire to, and is often based on our perceptions of those around us and their status.

Because the child persona is the Berne equivalent of Freud’s Id, its narrative tends to be both highly emotionally-charged and irrational in the extreme. If we convince ourselves that we are superlative in some area, and evidence arises that suggests otherwise, or even the exact opposite, we will often reject that evidence, for the simple reason that re-writing any part of our Child’s script is usually excruciatingly painful. A truly humble person has a far easier time of integrating facts-on-the-ground into their narrative(s), and we all know how predominant the truly humble are among executive-level management. One more element – when our narratives are inconsistent with reality in profound ways, we are said to be delusional.

Okay, Michael, you ask, what does all this have to do with June’s theme, of consultants and outsourcing? Well, I’ll tell you. The act of hiring a consultant is a tacit admission that the organization recognizes that at least some elements of its narratives that are in need of revision. However, if the script needing amending is within the purview of the organizational equivalent of the Child’s, then look out. It will not end well.

There’s the story I heard while in graduate school, of a quality consultant brought in to work with an automobile manufacturer. Frustrated in his attempts to call management attention to what he perceived were the basic problems with this firm’s product, he supposedly showed up to a board meeting with an example of this company’s piston, which was cast, along with a competitor’s forged and polished piston, and simply put them down on the table, side-by-side. The difference in quality was so stark that upper management…

…threw him off of the site, and forbade his return. The organization’s internal narrative could not stand the infusion of facts that pointed to a narrative of their being the creator of substantially inferior goods, and they responded in a most child-like fashion in order to maintain their comfortable delusion. The company named in the story eventually went bankrupt.

Of course, many (if not most) consultant relationships do not end poorly, with both the hiring organization and consulting firm benefitting from the eventual outcome. But in cases of extremes in this relationship – where either the organization’s narrative is perfectly sufficient (or even superior to that of the consultant) and no consultation is needed, or else the problem causing the hiring of the consultant is so deep-seeded and prevalent that it challenges the very basis for what the organization believes of itself – then it is very hard to see how any good could come of the relationship.

But then, that’s just one consultant’s (strikethrough) blogger’s advice…