Game Theory in Management

I was reminded of the quote in this blog’s title from Dicken’s A Christmas Carol (that actual line of dialogue is from the ghost of Christmas Present – he’s throwing a paraphrase of one of Scrooge’s previous assertions back in his face) while attempting to get a handle on all of the business model pathologies that have been inflicted by our friends, the Asset Managers, by the acceptance of the axiom that the point of all management is to “maximize shareholder wealth,” with its accompanying metric, the Return on Investment (ROI). Of all of the ironies attached to the ability of this management worldview to misdirect, one of the most profound has to be that the tenets of Project Management actually provide the best remedy, the best hope for those advancements in the management sciences needed in an ever-advancing, technology-driven business world.

The idea that the prominent (if not only) litmus test for evaluating a given business strategy ought to be how it impacts the organization’s equity probably pre-dates Luca Pacioli’s seminal work in bookkeeping, published in the late 1400s[i]. I would go so far as to speculate that the double-entry bookkeeping method, already the basis for assessing profit and, therefore, tax revenue, became truly accelerated into management philosophy preeminence as the industrial revolution spread across the world, necessitating heavier and more complex interactions with the banking and finance sectors. Now, don’t misunderstand: I’m not saying that all, or even most of the theories, techniques and practices emanating from Asset Management arena are invalid, or harmful. What I am suggesting is that, when those theories, techniques, and practices are employed outside of the Asset Managers’ appropriate purview, they create business model pathologies that not only can detract from the organization’s ability to achieve its mission or goals, they can actually harm the organizations’ members, or even the management science realm writ large.

To support this bold assertion, let’s return to A Christmas Carol for Exhibit A. Two “portly” gentlemen are appealing to Scrooge for charity dollars, to help feed and clothe the poor. While not said explicitly, it’s safe to infer that Scrooge refuses them on the basis that (a) the poor have recourse to other, non-charity resources, ones that require no sacrifice on his part (hence the quote in the title), and (b) there’s absolutely nothing for him to gain by engaging in charity. To Scrooge, every shilling donated is a total loss – no return on investment, and a negative ROI. Of course, by the end of the story he has reversed this world-view, but only through the extraordinary intervention of the three spirits.

My next example comes from the publishing industry. It’s been said that Frank Herbert’s novel Dune was rejected by over twenty different publishers before Chilton Books picked it up, and they were better known for printing automobile repair books. While I’m sure that each of those twenty publishers had subject and thematic bases behind their manuscript evaluation process, I’m also pretty sure that the major criterion for accepting or rejecting a given work was its predicted ROI. But this only points to a major failure of the ”maximize shareholder wealth” paradigm, as well as the failure of ROI to return a reliable quantification: there are simply too many variables to recognize, much less accurately quantify.

Besides leading to poor managerial decisions, overuse of Asset Management approaches can introduce business model pathologies into the organization. I had a dear Uncle who had worked as a Vice President at a utility supply company. Most of the employees were paid a regular salary, but the sales staff was paid based on commission. Once, one of the other veeps became upset upon learning that one of the sale staff had received a larger paycheck than the veep. In his mind, his placement in the organization’s hierarchy above the sales person should have precluded this event. My Uncle pointed out that the sales person in question was only paid more because he had brought in more business for the company, which was good for the entire organization. But the thought that human resources ought to be renumerated based on their placement within the organizational structure rather than actual contribution had permeated the company. And when I say that this represents a business model pathology, consider the “remedies” to the perceived problem: either raise the ignorant veep’s salary (a mistake), or lower the performing sales person’s renumeration (a huge mistake).

In contrast, Project Management theory focuses on attaining a specific outcome, accomplishing set scope. To engage in a bit of hyperbole, if the Project Team accomplishes this goal on-time, on-budget, we PM-types really don’t care if they did so by working fewer hours, or if their renumeration was better than our own. Those are elements of Asset Management, with its infernally over-used Return on Investment calculation. In short, as long as we’re attaining scope on-time and on-budget, we’re actually happy that the personnel didn’t have to exhaust themselves in a workhouse-like environment.

So, I’ll pose this question: does pre-enlightened Scrooge present as a Project Manager, or as an Asset Manager?

[i] Wikipedia contributors. (2021, November 24). Luca Pacioli. In Wikipedia, The Free Encyclopedia. Retrieved 19:14, December 13, 2021, from https://en.wikipedia.org/w/index.php?title=Luca_Pacioli&oldid=1057012804

The Agile/Scrum Project Management strategies and techniques were developed to address the business model needs specific to information technology (IT) projects, specifically software engineering work. The major driver, of course, had to do with configuration management. Traditional PM techniques for processing baseline changes typically entailed the creation of a Baseline Change Control Board that would meet once per month, and review the baseline change requests’/proposals’ (BCR/BCP) scope variations, along with the accompanying modifications to cost and schedule. One of three outcomes would be produced: the BCR/BCP would be accepted and implemented, rejected, or sent back to its originators with instructions on how it should be modified in order to gain acceptance. If either of the latter two outcomes were to happen to a critically-needed change to the project, the resolution to the subject BCP/BCR could potentially drag on for months, a time interval fatal to all but the most drawn-out of IT projects.

To accommodate the far more fluid and fast-moving IT project configuration management process, three “roles” are defined, specifically:

• Scrum Master,
• Product Owner,
• Development Team,

…with their specific functions and areas of authority spelled out in such a way as to allow for processing baseline changes quickly and efficiently, all while avoiding the outcome of a poor or non-existent configuration management process, the dreaded rubber baseline. There is, however, another aspect of IT Project Management that is also very different from its product or building-oriented cousin, and it has to do with the nature of the Work Breakdown Structure. To make this distinction, I want to propose a mental exercise that includes a water pump, the kind that’s installed on automobiles (well, the ones that burn fuel).

For those of us who haven’t had the experience of having to replace one of these things ourselves, the part is really very simple. It’s usually an impellor and a pully wheel on a shaft, with a housing and a pair of hose flanges in-between. They typically fail when the bearings that hold the shaft in-place wear down, and the pump assembly is no longer water-tight. When it’s working correctly, it pulls coolant from the heat exchanger (the radiator) and pushes it into the engine. From the engine, the coolant returns to the radiator, and the process continues as long as the engine is running. In fact, it’s a little amusing that the pump is still referred to as a “water pump.” These things haven’t been circulating just water for decades now. Indeed, some car manufacturers used to require a very specific coolant formulation (e.g., GM® and “Dexcool”) to avoid damaging the motor.

Meanwhile, Back In The IT Project Management World…

The focus of most IT projects is its eventual end-goal, a computer program. Veteran GTIM Nation members know of my basic Management Information System (MIS) architecture scheme:

1. The data is collected based on some criteria or discipline,
2. it is processed into information,
3. and transmitted to its intended audience in a manner that they can readily understand and use.

The end-product of manufacturing a water pump is, of course, an in-spec water pump. But data is different. An in-spec water pump for, say, a 1998 Cadillac Deville will be an in-spec water pump for its lifetime. For IT projects, though, one of Hatfield’s Incontrovertible Rules of Management (I forget its number) is that all valid management information must have the following characteristics:

• It must be accurate,
• It must be timely, and
• It must be relevant.

Old data can, and usually does, become irrelevant. Depending on the MIS application, this exceeding of the data’s shelf life can be measured in weeks, or days – or, sometimes, just hours. So, in addition to the configuration management challenges inherent in IT work, there’s also the issue that, even when the software’s function is performing exactly as intended, as time goes by the output is not only losing relevance, it may even be becoming misleading. It’s analogous to putting the wrong formula of coolant into your radiator. The water pump may be working perfectly, but what it’s pushing along is actually damaging to your business engine.

All of which brings us back to the WBS problem I referenced earlier. If the intended outcome of the IT project is delivering valid information to decision-makers, then we’re firmly in PM space. However, if the intended outcome is to simply pump coolant between engine components process the data into information, with the actual cooling of the engine validity of that information no longer part of the final scope, we have ventured into process management space, which is very different. Without some capability to ensure that the collected data is accurate, timely, and relevant, the best processors and programs in the world are going to fail to deliver pertinent information. It would be like putting green coolant into a radiator that’s only supposed to have orange.

And that would be bad.

Back when I was in fifth grade, I was troubled by the suspicion that my homeroom teacher wasn’t assigning grades based exclusively on academic merit. In a foreshadowing of a phenomena I would encounter from then on well into college, I came to believe that she would essentially take a reading of which clique the cool kids belonged to, and grade them more leniently, with the harshest evals going to the un-cool kids, the set that I definitely belonged to. I arrived at my belief after having taken a standardized test and scoring rather highly in three of the four categories, and at-grade level for the fourth, all while struggling in this person’s class. Even in my undergraduate program there was a professor notorious for never giving a man a grade better than C, nor any woman a grade less than B. I finally learned to avoid these frauds when I could, somewhat out of a concern for grades, of course, but more because these people’s whacked-out sense of perspective and proportion pretty much precluded them from having anything useful to teach me. Then there’s also the effect of under-correction where it’s needed makes the target weaker, while over-correction will often make it stronger.

Meanwhile, Back In The Project Management World…

While I do make an attempt to not be as naïve as a fifth grader in my expectations of institutions being managed based on performance or merit, I still find it highly disconcerting when I encounter examples of this not being the case. Unfortunately, virtually everything that I’ve seen written on the topic of project portfolio management addresses things like optimal resource allocation, or how to measure the individual project’s performance, or recommended ways of capturing scope, etc. I’ve never come across any discussions that key challenges of the PM working a project within a larger program or portfolio may have less to do with cost or schedule performance – the meritorious aspects of PM, if you will – and can be more influenced by some of the more gnarly aspects of organizational behavior and performance.

So, in a meritocracy, how should projects be placed hierarchically within an organization’s portfolio? Based on Corner Cube theory[i], the optimal criteria would include:

• Asset Management: how profitable is this project? Note that the Contract Budget Base and Fee amounts are different figures.
• Project Management: how successfully is this project being executed? This matters for a couple of reasons, one, to avoid overruns or delays eating into the expected profits, and two, as an indicator of which kinds of work the organization does best.
• Strategic Management: does this project enhance the organization’s market share in a targeted industry?

At the other end of the scale, some of the sub-optimal criteria for the hierarchical placement of a given project within the portfolio include:

• Does it have a large budget? While large projects are generally good for the organization, one that is performing poorly can easily wreck its home company.
• If the project does have a large budget, is it somewhat routine work? This may be significant if there is a number of highly-placed, highly-paid managers who are not the most talented (think Maccoby archetypes Company Man and Jungle Fighter), but are nevertheless in need of a charge code. If the project is both big enough AND not requiring novel technical approaches to its problems, then it is probably safe to assign this category of manager to it.
• Is it interesting, high-profile work? The gee-whiz factor should never be underestimated when it comes to which projects are perceived to be preferable within the portfolio.

Why does it matter where a given project is placed within the portfolio’s hierarchy? By no means absolute, but generally speaking the higher-status projects have better access to limited resources and greater latitude of managerial action (these projects have an easier time of bending procedures to attain a desired end), both of which are benefits of enjoying higher visibility among the organization’s executives.

As I’ve noted in previous blogs, complaining about such deviations from a merit-based rendering of the project portfolio is most likely futile. The silver lining here is that, if the projects enjoying premium placement within the portfolio are truly there due to the sub-optimal evaluation criterion in the second set of bullets, then they are more likely to attract the (Maccoby archetypes) Jungle Fighters and Company Men within the organization, leaving the coveted Craftsmen and Gamesmen for use on the other work.

Besides, the over-appreciated but under-scrutinized projects are more likely to go off the rails.

[i] Hatfield, M. A. (1995). Managing to the corner cube: three-dimensional management in a three-dimensional world. Project Management Journal, 26(1), 13–20.

My interpretation of the famous Don Eberly quote, that politics is downstream from culture[i], is that those things which become acceptable in a nation’s or society’s culture will make their way into public policy, sooner or later. It follows, then, that if the things that said culture embraces lead to a more productive, wholesome zeitgeist, it will become more successful; and, if this culture accepts and ultimately embraces the darker aspects of human behavior, it will eventually collapse, absent some form of a great awakening and subsequent reversal. If this axiom is reliable in the socio-economic sense, I was wondering if it was also relevant in the…

Meanwhile, Back In The Project Management World…

For the purpose of this analysis, I want to define a couple of terms that get used a lot, but have such broad connotations associated with them that they’ve become almost meaningless:

1. A person is engaged in office politics when they behave in such a way as to enrich or benefit themselves while detracting from their organization’s or team members’ interests or goals.
2. Organizational Culture is that set of beliefs commonly held by the members of the organization that determine each members’ place in the hierarchy. Note that these beliefs can be (a) openly articulated (e.g., mission statements or policy documents) or (b) not acknowledged formally, but should still be considered operative (e.g., not getting drunk at the company’s Christmas Party).

Did any member of GTIM Nation snicker at that last example? I actually worked for a large and (for a short time) successful, but ultimately dysfunctional company that would celebrate large project proposal wins with an open bar caterer for the Friday afternoon following the announcement. No other event would warrant this kind of celebration. This was a heavily project-centric organization, and the message that this particular aspect of its corporate culture was sending was clear: winning more project work is the ultimate good, far better than actually performing well on existing work, or mentoring younger workers, or anything else. So, at the only Christmas Party that I attended for this company, there was a disc jockey (a person who plays records in lieu of a band), some meatballs on toothpicks, cubes of cheese, crackers … and an open bar for the entirety of the party. I’ve never seen so many people unfit to drive in one place at the same time. And yet, since this type of behavior had all but received a green light from the organizational culture, it carried with it no political repercussions.

This particular company was out of business within a decade of this party.

Of course, one of the most (if not the most) common and effective tactics that those who engage in office politics employ is calumny against their perceived rivals. Here is where this all gets interesting, because the person who is actively engaged in office politics cannot do so safely if they are perceived as doing it. Nobody likes a (Maccoby archetype) Jungle Fighter, so they must do the office politics stuff in a way so as to not appear to be doing office politics. This is where we circle back to the concept of office politics being downstream from organizational culture: if the target of the office politician’s defamation or slander is actually at variance with the openly articulated (2a above) organizational culture, it’s easy to make such a variance known. It can be openly pointed out at a project review, or other meeting-type venue. But if the target hasn’t done anything “officially” wrong, what’s a Jungle Fighter to do? They must attempt to create a narrative that the target has done something that’s inconsistent with the informal set of rules employed by the organizational culture (2b above). Make no mistake – a sufficiently politically-savvy Jungle Fighter can still make really bad things happen, even within this relatively restricted arena. Look how much death and misery just one Iago did in Othello.

So, what can be done in organizational culture to dissuade such negative outcomes from this type of office politics? Two tactics can be very effective:

• Introduce (or maintain), either formally or informally, a strong resistance to ex parte conversations. I once worked with a manager who would insist on bringing in to the conversation any third-party being discussed. This brought the then-routine practice of engaging in calumny to a screeching halt, at least within his organization.
• Conduct yourself in accordance with your organization’s stated rules, of course, but moreover behave in ways superior to the unspoken code, as you learn what those standards are.

These modifications to the corporate culture won’t guarantee you safety from the office politics swirling around you. They will, however, make you a less tempting target for the Jungle Fighters, as they will be losing both their favorite weapon and likely targets.

And you just might end up making the corporate culture better for everybody.

[i] Eberle, Don, Building a Healthy Culture: Strategies for an American Renaissance, ed. Eerdmans, 2001; pp. 75-100

Before Paul McCartney, John Lennon, and George Harrison were joined by Ringo Starr to become the version of the Beatles that attained world-wide fame, they played in low-income, high-crime area clubs of Hamburg, Germany. By almost any measure the conditions were deplorable, and yet this environment led to their attaining many of the performance skills that would lead them to becoming the most acclaimed music group in history. Indeed, the difficult environment appears to have brought Paul, John, and George closer together as they not only survived, but advanced to the point of releasing the recording that brought them to the attention of Brian Epstein, whose talents as producer would bring them success. Paradoxically (perhaps), they were closer to one another during the difficult years, and more distant as they became successful.

Meanwhile, Back In The Project Management World…

In my last couple of blogs I’ve been discussing the possibility that most organizations – including Project Management Offices, or PMOs – go through an observable and repeatable cycle, oscillating between levels from difficult and marginal to effective and successful, and back again. While I have become convinced of the near-inevitability of these cycles, I am also confident that the time spent in the difficult-and-marginal stages can be shortened, and effective-and-successful ones prolonged if the PMO Director recognizes the cycle and the place the PMO is occupying within it. But to distill the relevant elements of the transitions between waypoints in the cycle, we have to figure out the probable causes of such transitions to see if there’s a way to manage them better. And for this analysis, I want to return to the Fab Four.

In 1966 The Beatles released the album Revolver, immediately prior to what would turn out to be their last tour. The year before they had performed live at Shea Stadium, a venue so loud that they had difficulty hearing themselves play. What’s clear is that, in this phase of their association, they had virtual complete economic and artistic latitude to do whatever they wanted in the music realm. However, within a year three events would unfold that, in my opinion, lead to their assuming a downward trajectory, eventually splitting them apart.

The first of these events was Paul McCartney’s idea that their next album should be a concept album, created as if by a fictional group who could function as a sort of stand-in for The Beatles. While Sargent Pepper’s Lonely Hearts Club Band would end up as an unmitigated commercial and artistic success, George Harrison was quoted later as saying that he wasn’t particularly keen on the concept, and enjoyed recording Revolver much more than Sargent Pepper’s. It also marked the point in the history of the group when Paul McCartney took on a notably larger role in setting the artistic direction, or what we PM-types would refer to as the strategic approach. I think that the significant takeaway from this is that, even though Sargent Pepper’s was a success, not everyone on the Project Team was completely okay with the shift in direction.

The second event came about when the group decided to stop touring, also in 1966. McCartney had maintained that performing live was an essential part of their function as a music group, but the others disagreed. It was only after a pair of weather-impacted appearances in the United States made the whole touring experience untenable that McCartney changed his mind, and the group stopped doing live performances (well, at least on a scheduled basis. Their last live performance, on the roof of Apple Corporation, was somewhat impromptu when it happened in 1969.). While all four agreed to stop touring by 1966, I think it’s notable that all but McCartney wanted to stop earlier, showing yet another crack in strategic agenda consistency.

Finally, when Brian Epstein died in August of 1967, the cracks in their strategic agenda cohesiveness became fissures. Paul wanted the managerial functions to be assumed by his in-laws, while the other members of the group wanted to work with Allen Klein. While McCartney would eventually abandon his push to have his wife’s father and brother work as The Beatles’ managers, he would, interestingly, refuse to actually sign his name on to the contract the others drew up with Klein[i].

What do these events all have in common? I think a significant amount of conflict was introduced into the strategic decision-making of the group because some questions had never been adequately addressed, specifically:

• Whose artistic vision/strategic approach was most responsible for their amazing success?
• If the answer to the first bullet was clear, should that person also be setting the artistic/technical direction for the group going forward?
• Who was best able to manage the non-musical interests of the group?
• If those decisions should not have been made by one person, were all four ready to accept the choices rendered by a simple majority vote?

And so it is, I believe, with the lifecycle of the PMO. If the team is objectively performing at a high level, but the reasons for the realized success aren’t obvious, the door has been opened to conflicting versions of the success narrative. These conflicting versions will necessarily obfuscate whose vision for the PMO going forward should be heeded, and whose should be dismissed. Additionally, if and when the difficult decisions on the subject of the PMO’s strategic direction are made, but at least half of the organization is opposed, then the PMO becomes fractured, unable to respond to changing business environments, or even maintain its previous status.

Oh yeah, one last thing: if one of the principals of the PMO wants to bring in a spouse who knows nothing of PM for technical advice, the organization is definitely on the downward slope in its lifecycle.

[i] YouTube video, Why Did The Beatles Break Up?, https://www.youtube.com/watch?v=uVlaaH_1Ig8. Most of the hard data in this blog came from that source.