Game Theory in Management

Ahhh, causation, that fickle, fickle mistress. “Not so, Michael!” I can hear GTIM Nation say. “Sure, it’s widely misunderstood, but its basics, particularly in the field of law, have been thoroughly researched and vetted, and can be reliably used in uncovering the root causes of systemic failures, or other wicked problems.”

“Fair enough” would be my reply. “But can someone then please tell me why, whenever that most wicked of PM problems, the successful advancement of Project Management capabilities within a given organization, overcomes the PMO, the reason for the failure seems to always be laid at the feet of ‘culture’?” The main derivatives of Flip Wilson’s famous tag line, adapted here as “the organization’s culture is to blame for my PMO becoming overpriced and under-utilized,” include:

• Higher-level executives failed to force the organization to do PM “right,”
• Lower-level managers and Team members were averse to change, and
• Legitimate attempts at “changing the culture” met unexpected and unreasonable opposition.

The alert reader will recognize that these three are essentially the same causal argument, simply distributed to different targets. In my thinking, the same causal argument being used against several targets makes it rather fickle, hence my opening line.

Part of the reason “culture” is such an easy scapegoat is that its precise definition is rarely articulated, and the reason that its precise definition seems elusive might be due to the generalized confusion of its denotative meaning. For example, here’s the definition most relevant to this discussion, from the Merriam Webster online dictionary:

1 b: the set of shared attitudes, values, goals, and practices that characterizes an institution or organization.[i]

Interestingly, this definition (note that it’s 1 B) does not appear in Webster’s New International Dictionary, Second Edition Unabridged, published in 1949. The closest definition from the Second Edition Unabridged is:

5 a: A particular state or stage of advancement in civilization or the characteristic features of such a stage or state; as primitive, Greek, Germanic culture. b The complex of distinctive attainments, beliefs, traditions, etc. constituting the background of a racial, religious, or social group; as, a nation with many cultures.[ii]

A quick note on the sources: I’m confident that the Second International represents an authoritative source, if for no other reason that the thing weighs sixteen pounds. Also note that the closest definition that could apply to this discussion is all the way down to 5 a, whereas the online version is 1 b. The linguists in GTIM Nation will easily recognize that, when discussing a business model environment, the dramatic change in the generally-accepted denotative meaning of the word culture would almost certainly have been driven by the change in its connotative meaning. It’s this delta between the word’s denotative and connotative meanings that gives failing PMO directors ample room to misdirect blame for their failed PM-advancing initiatives. Those executives intent on enforcing accountability for failure can’t put their hands on “culture,” meaning that, if this excuse stands, there’s no accounting for the poorly-formulated technical agenda of the PMO.

But if the PMO director is intent on modifying (or out-and-out overhauling) “the set of shared attitudes, values, goals, and practices that characterize” the target organization toward a more PM-friendly footing, what’s their implementation strategy, specifically? ‘Cuz I can tell you right now that, in the order of the bullet points above,

• Capability maturity cannot be advanced by leveraging organizational authority,
• Very few Team members will follow a manager who has failed to articulate the optimal (or even workable) technical solution, and
• Any opposition to capability maturity isn’t a symptom of an incapable organization; rather, it is a sign that the implementation strategy is either weak, or actually unworkable.

I’m well aware that there are, in fact, some organizations that are highly resistant (if not impervious) to adapting even a basic PM capability. But I also know two other things about such organizations: (1) they are not based on anything resembling a meritocracy, since those companies that create and maintain a PM capability will generally out-perform their competition, and (2) non-merit-based organizations are a magnet for Jungle Fighters[iii] and Company Men[iv], and repel Craftsmen[v] and Gamesmen[vi]. In the former case, the organizational behavior and performance barriers that accompany non-meritocracies should be evident from the get-go, meaning that blaming the “culture” after the fact is disingenuous. In the case of the latter, it simply means that, in order to advance PM (or any other capability, for that matter) in the target organization, some way must be found to attract Craftsmen and Gamesmen, while repelling Jungle Fighters and Company Men, prior to engaging the implementation strategy. But in no case should “culture” be considered a valid version of a wicked PM problem.

It’s almost always just a convenient excuse for not developing an adequate implementation strategy.

[i] Retrieved from https://www.merriam-webster.com/dictionary/culture?src=search-dict-box on June 27, 2021, 10:18 MDT.

[ii] Websters New International Dictionary, Second Edition, G&C Merriam Company, 1949.

[iii] From [iii] Maccoby, Michael. The Gamesman: The New Corporate Leaders. New York: Simon and Schuster,1976.

[iv] Ibid.

[v] Ibid.

[vi] Ibid.

Any discussion of problem solving/wicked problems (ProjectManagement.com’s theme for June) should probably proceed from a very basic question: does the Project Team, particularly its PM, really want the problem solved? Of course, in PM space, the central “problem” is how to bring in the properly-executed scope on-time, on-budget, preferably in such a way that the customer would be willing (if not eager) to do business with the organization again. I’ve already spent considerable pixel ink exposing that our friends, the Accountants, do not necessarily share the belief that this is the central problem facing management, preferring instead to spend their efforts “maximizing shareholder wealth.” Indeed, of the four possible combinations of successful project/maximized fee, the Asset Managers’ preferences being at odds with the PM World becomes clear in the following payoff grid:

Since everyone’s on the same page in Scenarios B and C, I’ll jump straight to A and D. Scenario A isn’t as anomalous as it appears. Customer-recognized contingency events, or events of force majeure can easily make it impossible to complete a given project under the terms of its original cost and schedule baseline, but the customer still needs the final product/service. Any time an Over-Target Baseline (OTB) request is approved by the customer, though, one would have to believe that at least some level of consternation remains – unless, of course, you’re an Asset Manager, taught that the point of all management is to maximize shareholder wealth, and the contract in question is a Cost-Plus Percentage Fee. Based on their training, I would have to believe that this scenario is tolerable, if not acceptable to our friends, the Asset Managers.

Conversely, consider a relatively young organization that puts in a bid for some project work in a field that the company has targeted for growth. The Request for Proposal (RFP) stipulated a Firm Fixed Price (FFP) contract, and the organization, being new to this type of work, squeezes the Basis of Estimate (BoE) until it approaches the density of depleted uranium. The proposal team is elated when the contract is awarded to them, and most of their members become the core of the Project Team. They complete the work on-time, on-budget, down to the very dime. The Project Team is elated, the organization has attained a foothold in a targeted industry, has added the talent necessary to pursue more work in the field, and everyone attending the end-of-project celebration is in a good mood.

Well, almost everyone. That fellow in the corner, in the suspenders and bow tie, peering out at the Project Team members like he has an axe to grind? That’s the head of Finance and Accounting, who is well aware that, for FFP contracts, the difference between the final costs and the total project value is pure profit, and the organization didn’t get any. Those other benefits don’t appear on his Profit-and-Loss sheet, so he’s, well, unhappy.

There’s another dynamic going on in the whole does-everyone-really-want-the-problem-solved world, and for that I will turn to my favorite Organizational Behavior and Performance analysis structure, the Maccoby Archetypes. The absolutely brilliant Michael Maccoby theorized that there are four basic types of people in the organization:

• The Company Man tends to assume the persona of the team around him.
• The Craftsman really doesn’t care about for whom he works, but does care deeply about the quality of his output.
• The Jungle Fighter gets ahead by calumny and cloak-and-dagger tactics, and does not have the best interest of the organization in his heart.
• The Gamesman sees his compensation not as food on the table or roof over his head, but as tokens in some elaborate game. This archetype tends to be the most successful due to a combination of knowing the rules to the “game” better than others, combined with an enhanced willingness to take risks[i].

Now let’s consider the whole problem solving/wicked problem question with these archetypes in mind. The Gamesman would be the odds-on favorite for finding the optimal solution to a wicked problem, since he’s the type most likely to think unconventionally, and to take risks to pursue a non-template technical approach. Similarly, the Craftsman, caring deeply about the actual outcome of his energies, will readily recognize when a conventional approach will not deliver a satisfactory outcome, and will know when to abandon it.

But the Company Man? He’s going to be terrified of venturing outside of the norms set up by the macro-organization. He’d rather be chasing the wrong technical agenda while demonstrably within company procedures than actually right and outside the approved template. As for the Jungle Fighter, they live for the internal conflict generated by a Project Team confronted by a wicked problem. It gives them much more space to maneuver in those smoke-filled rooms.

Make no mistake: if your PMO is made up of more than a dozen PMs, the odds that they are all Gamesmen or Craftsmen is extremely small. Which brings me back to my original question: are you sure the PM even wants to solve the problem?

[i] Maccoby, Michael. The Gamesman: The New Corporate Leaders. New York: Simon and Schuster,1976.

When I saw ProjectManagement.com’s theme for June, Problem Solving/Wicked Problems, I asked myself what, exactly, makes a given problem “wicked,” by which I assumed to mean “excessively difficult,” as opposed to a problem that goes away if you pour water on it, as in The Wizard of Oz. I think the answer lies in the specific problem’s novelty: problems that are easy to address and correct may not have started out that way, but, once a workable solution was developed and demonstrated, subsequent appearances of said problem were readily addressed with a known remedy. Problems without precedent are a different matter. I remember seeing a definition of intelligence that asserted that true intelligence lay in the ability to encounter a novel situation or problem, recognize how it is similar to an analogous, previously-encountered difficulty, and providing a response that is either consistent with the previously-observed remedy, or the opposite of a previously-attempted but failed response. If you need to drive to work, and your Mazda automobile won’t start, and you recall that a Honda Accord of similar vintage had occasional battery problems, a suitable remedy might be to get a jump from a neighbor. If, however, your Mazda has somehow transformed itself into a large pterodactyl, seeking a pair of jumper cables would have to be considered a sub-optimal response.

Meanwhile, Back In The PM Robot World…

This aspect of truly difficult problems is one of the things that gives me hope that we PMs won’t be replaced by robots, at least not in the near future. Robots are essentially mobile computers, and computers (in 2021, anyway) aren’t that good at nuance, or recognizing analogous situations. Yes, I’m aware of the concept of Fuzzy Logic, where certain parameters do not have to be precisely stated or met in order to illicit a specific response, but this characteristic is a long way away from an ability to address unusual or unique problems. Interestingly, one of the definitions of the word “robot” refers to humans who behave in an automatic, reflexive fashion, which brings me back to the PM Robot world. I have worked with my share of PM robots (going by the latter definition), people utterly convinced that the solution to the problems they are facing is fully documented in procedures, the PMBOK Guide®, or even ProjectManagement.com blogs, and only awaits discovery. For these people, deviating from an approved template approach to PM problems represents some form of heresy, an unacceptable bending of the rules, automatically exposing its perpetrators as ignorant or incapable.

My take is more aligned with the Pareto Principle, this derivative being that, yeah, around 80% of the problems most PMs face has been dealt with before (“What has been will be again, what has been done will be done again; there is nothing new under the sun.”[i]). As for the other 20%, most of that set has also been encountered previously, it’s just that the most appropriate way to approach said problem hasn’t been agreed to, or documented, rendering it effectively unique. As for the residual, now we’re talking about the truly singular problem, in need of some sort of problem-solving technique.

Unfortunately, many problem-solving techniques don’t necessarily perform well in the PM world. Mazda is said to have engaged in an extensive trial-and-error approach to finding a suitable material to make its rotary engines’ rotor apex seals, resulting in hundreds of ruined engine casings before a suitable apex seal was discovered. But that was for an engineering process project, meaning that, once the apex seal problem was resolved, its “answer” could be replicated over and over. Most PMs, by definition, face work that is itself unique, aimed at delivering a product or service over a set period of time with a known quantity of resources. The trial-and-error approach, depending on the number of parameters being evaluated in combination, can take a very long time, and burn through many resources. Indeed, the team of engineers working the rotor seal problem at Mazda gained the reputation for wasting money that could have been better spent on other projects.[ii] Another problem-solving technique, using the process of elimination to discover a suitable technical approach from among a known set of alternatives, has the same time-and-resource-consuming issues.

So, what do you do if your Mazda has turned into a pterodactyl? Catch it, and sell it (it’s yours, after all, assuming you owned the car from whence it came). A living pterodactyl is, no doubt, worth millions, meaning you probably won’t have to drive to work for some time. Catching it shouldn’t be that big of a deal, as average adult pterodactyls were about the size of a large seagull. Now, if your car has turned into a Pteranodon, which could have a wingspan of over seven meters, that’s an entirely different problem.

But fetching a set of jumper cables is still not the solution.

[i] Ecclesiates 1:9

[ii] Retrieved from https://www.mazda.com/en/innovation/stories/rotary/newfrontier/ on June 14, 2021.

Referring to GTIM’s derivative of the Pareto Principle, that the 80^th percentile best managers with access to 20% of the information needed to obviate a given decision will be consistently out-performed by the 20^th percentile worst managers with access to 80% of the information so needed, I would like to point out that that does not necessarily mean that the latter category will always get it right. Even with 80% of the information needed to obviate a given decision, for the poor management set, a 20% missing or unavailable information window is more than enough to mess up any decision, particularly big ones. So, if you happen to be lucky enough to belong to an organization that takes its PM information systems (PMISs) seriously, and basic scope, cost, and schedule performance is available, timely, and accurate, what more can be done to ensure that the best available options are taken, and overall success virtually guaranteed? The answer is as brutal as it is inescapable: you’ve got to get rid of the bad PMs.

But, given that so much of management in general and PM in particular is at least somewhat subjective, how are the “bad” PMs to be recognized apart from “good” ones that just happen to be on an unlucky streak? I think I can help here. What follows is a few simple tests that can reveal the truly proficient and talented managers and leaders from the poor ones, those that, due to miseducation, poor attitude, or just plain lack of talent, should be removed from the PM pool.

Test #1: Are they trustworthy? Plenty of PMs will encounter an overrun or a late project finish, and it’s usually rather difficult to discern if that condition came about due to poor management, or a myriad of other factors. But here’s the Litmus Test: did the PM provide early warning of the overrun/late finish? Both Critical Path and Earned Value Methodologies (CPM/EVM) have the (uncanny, really) ability to accurately forecast overruns or late finishes, months in advance, if they are allowed. CPM networks can have this ability thwarted by imposing no-later-than constraints on key milestones, returning plenty of the so-called negative float when the forward pass/backward pass calculations are performed, but leaving the all-important finish milestone unmoved. Similarly, EVM systems that allow a “manager’s Estimate at Completion” (EAC) to be used instead of the calculated version will obscure the overrun until it’s too late for anyone to do anything about it. So, if the project in question did overrun or come in late, AND the PM provided no early warning, they’re untrustworthy, and should probably be avoided.

Test #2: Given the choice between successful project completion and strict adherence to procedure, which would they choose? I want to make clear right off the bat that I’m not talking about safety or security procedures or rules here. Those often come about due to something really unfortunate having already happened, and are in place to prevent a recurrence. Rather, what I’m talking about are things like a decree issued by a retail store where I worked for about nine months, that all employees had to put a company-touting bumper sticker on their personal cars. The top two salesmen refused. They were fired. The person doing the firing was a very poor manager. That instance was rather blatant, but the take-away test I wish to assert is this: if the manager cares more about being able to deflect or defend weak performance by pointing to strict adherence to non-safety or security-related policy, then they are probably not in the aforementioned 80th percentile best manager set.

Test #3: Is the manager extremely popular? This test is a bit more nuanced, but I believe it still applies. Good managers as well as talented Project Team members will be attracted to organizations that behave more like meritocracies. Conversely, poor managers and underachieving Project Team members will avoid such environments, preferring instead to “work” in an environment where things other than merit represent the vehicle for advancement, such as demonstrated personal loyalty to the upper levels of management. In the Maccoby archetypes[i], it’s the difference between arranging to have Craftsmen on your team, and allowing Company Men. It’s not that the Company Man archetype – the kind of team member who tends to assume the persona of the company’s culture – are necessarily inadequate. Rather, it’s the poor managers who will value personal loyalty above actual performance. A team of truly talented individuals is bound to have some differences. A group of sycophants usually won’t.

According to The Free Dictionary, one of the definitions of the word “tell” is:

Games An unintentional or unconsciously exhibited behavior that reveals or betrays one's state of mind, as when playing poker.[ii]

In the big game of Good PM/Bad PM poker, these three tells may well inform Project Team members (and executives) of the hand their PMs are holding, and how they’re likely going to play them.

Bet accordingly.

[i] Maccoby, Michael. The Gamesman: The New Corporate Leaders. New York: Simon and Schuster,1976

[ii] Retrieved from https://www.thefreedictionary.com/tell on June 7, 2021, 19:05 MDT.

In last week’s blog I asked whatever happened to “life cycle estimating,” and essentially made the point that it was a management fad, similar in performance and (ironically) life cycle to other management fads. Conventional wisdom holds that whether or not a given hypothesis in the management science realm is valid or a craze is the proverbial test of time – if a business model theory is valid, it will probably make its way into a significant percentage of companies – but even here some invalid but long-lived hypotheses can become regarded as theories, taught by colleges and adapted by many (if not most) organizations. This state of affairs afflicts the management world more acutely than others due to the near-impossibility to conduct a controlled-environment experiment – there are simply too many parameters to identify, much less quantify or control, in the free, open, and competitive marketplace. So, what’s the reading PM population, exposed to hundreds of guidance documents, journal articles, and, yes, blogs, to do when evaluating all of these ideas? I believe I have a usable tool for performing such a discernment: the null hypothesis.

According to Ann Marie Helmenstein, PhD,

In a scientific experiment, the null hypothesis is the proposition that there is no effect or no relationship between phenomena or populations. If the null hypothesis is true, any observed difference in phenomena or populations would be due to sampling error (random chance) or experimental error. The null hypothesis is useful because it can be tested and found to be false, which then implies that there is a relationship between the observed data.[i]

As an example, let’s look at one of the aforementioned long-lived and widely-accepted theories that’s being taught at business schools and has been broadly used throughout many industries, but is, in my opinion, invalid, that the point of all management is to “maximize shareholder wealth.” Can this statement’s null hypothesis be disproven? If “maximize shareholder wealth” had a null hypothesis, I would posit that it would be “there exists several valid management techniques that are highly beneficial to the organization that have a negative impact on that organization’s shareholder wealth.”

Consider the following payoff grid:

Let’s dispense with Scenario C right off the bat. Any management action that harms the organization and decreases shareholder wealth is patently invalid. Similarly, I think we can all agree that Scenario B represents good management.

But to disprove the null hypothesis as stated, one would have to prove that both Scenarios A and D are empty sets, i.e., there are no valid management techniques that benefit the organization while decreasing shareholder wealth, or that the original assertion should have been re-phrased as “maximize shareholder wealth, even if it harms the organization.” Is it true that the A bin is empty, or the original theory cannot stand as phrased?

As for Scenario A, consider a new business. Its owner(s), technically speaking, deplete shareholder wealth beginning the accounting period after they have purchased inventory, due to depreciation. But this effect carries on beyond mere accounting nuance: typically, new businesses’ owners will work themselves excessively, with little or no recompence, in the effort to attract customers away from the competition. Sometimes they will mark down their inventories to cost, or even below, in order to attain market share, a widely-used tactic that, by definition, decreases shareholder wealth. Then there’s my oft-referenced example of the hostile takeover, where the acquiring business will often take a significant hit to their reserves and share price, while the target organizations will almost always see an increase in shareholder wealth. And yet, the organizations performing the takeover do so fully expecting this to happen, and the target organizations will typically resist. If Scenario A is empty, how does one explain these observable phenomena?

Strategies that fall in to Scenario D are common, from “going out of business” sales to actions that can lead to a “piercing the corporate veil.” According the The Balance Small Business website,

Corporations are separate entities from their shareholders, and in normal circumstances, if a corporation is sued, the individual shareholders and officers cannot be brought into the lawsuit. But there are cases in which the corporation's officers and shareholders could be sued for negligence or for debts; the action of bringing in these shareholders to be sued is called "piercing the corporate veil" or "lifting the corporate veil."

In the same way as corporate shareholders, the owners of a limited liability company (LLC), called "members," may also be sued personally for business debts and actions.[ii]

Given these observable management phenomena, Scenarios A and D are not empty sets; therefore, the null hypothesis is not disproven, indicating that a basic tenet of business school teaching is likely invalid.

So, that’s my management fad litmus test: just ask yourself, for any given hypothesis, has its null hypothesis been disproven, or even articulated? If not, you may want to be wary of participating in a fad.

[i] Retrieved from https://www.thoughtco.com/definition-of-null-hypothesis-and-examples-605436 on May 23, 2021, 17:50 MDT.

[ii] Retrieved from https://www.thebalancesmb.com/piercing-the-corporate-veil-definition-398410 , May 23, 2021, 18:23 MDT.