Game Theory in Management

The construction of the Antonine Wall, begun in 142 A.D., marked the farthest northward extent of the Roman Empire into Britannia. From around 165[i] on, the Roman military’s ability to secure those territories was uneven, at best, and by the mid-6^th century Rome had no controlling interest in England at all.  In the aftermath, Jutes, Saxons, and Vikings would raid, or invade, or settle, or …

It all boils down to arriving, and either leaving with all the stuff they could carry, or not leaving at all. But even this overly-simplified version of the span between the Romans leaving and the Normans arriving is fuzzy, since the aforementioned Jutes, Saxons, and Vikings were all peoples from Northern Europe and Scandinavia, each of whom had spent considerable time raiding, invading, and settling in each other’s “territory,” as much as such areas could be defined by the present-day concept of borders. Indeed, immediately prior to the Battle of Hastings in 1066, English king Harold Godwinson had just defeated a Viking army at the Battle of Stamford Bridge, leading an army of Anglo-Saxons against their distant cousins.

Meanwhile, Back In The Project Management World…

As GTIM Nation well knows, I have oft complained of the prevalence of the Asset Managers’ business model, especially when it conflicts with Project Management's version. But there’s simply no denying that that approach to business was in place from the dawn of the Industrial Revolution up to the present day, albeit in an ever-lessening capacity. The reliance on this model is never going away, since it is almost universally the basis for governments levying taxes. Sure, there are other ways for governments to raise revenue, but the major portion has been and almost assuredly always will be the information gleaned from companies’ general ledgers. So, as more and more organizations replace their business models with the demonstrably successful and aggressively effective PM versions, leading the industrialized world to move towards a Project Economy (ProjectManagement.com’s theme for July), those organizations with a overarching management schema more closely aligned with the Asset Managers can be expected to continue to lose business opportunity territory to their more PM-centric competitors. As this effect becomes more widespread, what other vestiges of the traditional, Asset Management-predicated business models can we expect to see slip by the wayside?

When discussing a shift from a focus on Asset Management towards Project Management may sound anodyne in the abstract, one concrete example is the movement away from defined-benefit pensions and to defined contribution plans. According to Investopedia,

Up until the 1980s, defined-benefit pensions were the most popular retirement plan offered by employers. Today, only 17% of private-sector workers have access to one, according to the Bureau of Labor Statistics’ 2018 National Compensation Survey.[ii]

Actually, this trend makes sense in an increasingly projectized macro economy. As labor and expertise become more aligned, however subtly, with a commodity-like supply and demand curve, it makes less sense for organizations pursuing project work (which is, by definition, a series of unique undertakings) to sign up for long-term asset care, which is what defined benefit pension plans are at their core. Another sign that the projectized economy warriors are knocking at the fortified gates of the business college faculty redoubts can be found in none other than the Harvard Business Review. This is from an HBR article from five years ago:

A better way to frame the debate? We should be talking about “good work” not about “good jobs.” Replacing the idea of “good jobs” with the idea of “good work” doesn’t diminish the value and importance of regular full-time employment, but it places it in a context that acknowledges emerging work options — and it holds those new options to a higher standard, rather than simply dismissing them in favor of regular full-time employment.[iii]

Since “work” is synonymous with “scope,” and “job” is equal to “function,” I’m interpreting this passage by Mr. Boudreau as a full-throated endorsement of the need to more completely recognize a change that has already taken place, a move towards a Project Economy. Any large-scale shift in the prevailing business model is going to be difficult, and more so to those still enmired in the non-PM approaches to management.

To summarize, while the Project Management incursion towards a more dominant role in executive-level business decisions won’t, of course, come close to representing the type of violent upheaval documented in the Anglo-Saxon Chronicles referring to Viking raids, it will signify a kind of slow-motion large-scale paradigm shift. And, for you Chief Financial Officers, if the head of your organization’s PMO has everybody else at the board room table talking about Work Breakdown Structures instead of the profit and loss statement, you may be witnessing the modern-day business equivalent of seeing a longship sail up the river past your village.

[i] Retrieved from https://www.antoninewall.org/ on July 27, 2020, 18:44 MDT.

[ii] Retrieved from https://www.investopedia.com/articles/retirement/06/demiseofdbplan.asp on July 26, 2020, 18:27 MDT.

[iii] Boudreau, John, ”We Need To Move Beyond The Employee vs. Contractor Debate,” Harvard Business Review, July 8, 2015, retrieved from https://hbr.org/2015/07/we-need-to-move-beyond-the-employee-vs-contractor-debate on July 26, 2020, 18:41 MDT.

GTIM Nation is familiar with my go-to delineation of the three management types, and how they use different tools, methods, and processes, because, well, they’re really different. For newcomers to this blog, these types are:

• Asset Management, whose goal is the cliched “maximize shareholder wealth,” Their main source of information in pursuing this goal is the general ledger, which has led to the rather strange business model pathology of believing that any piece of information having to do with costs must be derived from the GL.
• Project Management’s goal is to achieve the customers’ terms of scope, cost, and schedule. The PMs’ primary source of management information is derived from Critical Path or Earned Value Methodologies (CPM/EVM) in the form of Gantt Charts or Cost Performance Reports (CPRs).
• Strategic Management is often confused with a hierarchical function, such as that typically performed by personnel rather high up on the org chart. This is inaccurate. Strategic Managers seek to maximize the organization’s market share, either through such benign actions as investing in an advertising campaign, or via more belligerent tactics, such as hostile takeovers.

Rather than spend pixel-ink re-defining these categories, I thought I’d introduce a table that more clearly supports that these three are different by type, and not degree.  Consider the following delineation of the three types’ goals in various industries.

This table makes clear a few takeaways, including:

• The Asset Managers’ focus is almost exclusively inside the organization. If making a customer happy or acquiring greater market share is not capture-able in the notorious Return on Investment analysis (and, for the record, these are not), then it simply does not enter into their realm, and, therefore, will not have a place in the Asset Managers’ array of recommended strategies.
• The Project Managers’ central efforts are always customer-oriented. To engage in a bit of hyperbole, they couldn’t care less about the decision to rent or buy the copier, unless it impacts their ability to meet customer expectations.
• Strategic Managers may not realize it, but they are more heavily dependent on the PMs than they are the Asset Managers. Making customers happy on a consistent basis easily segues into more market share, based on (if nothing else) the old axiom that it’s five times more difficult to attract a new customer than it is to retain an existing one.[i]

Which brings us to the topic of talent management, ProjectManagement.com’s theme for July. Based on all this bloviating analysis, the cues for the most appropriate approach to attracting talent become:

• If you are consistently achieving your clients/customers’ goals, and enjoy a high rating from them (from whatever feedback mechanism is available), and are moving up in market share, but are still losing money, then (mark this moment, GTIM Nation, for it will never happen again), you need to attract more Asset Management talent.
• If you are making a good profit margin, and your customers are consistently seeing their needs met (or even exceeded), but there are organizations in your industry who still dominate, then your talent needs are in the Strategic Management world.

However, if your organization is hurting for lack of clients/customers, then there’s really only one type of manager who can set things aright. (Just BTW, I’ve occasionally wondered if I could write a blog where my signature transition phrase would be appropriate as the very last sentence. Today’s that day.)

Meanwhile, Back In the Project Management World…

[i] Retrieved from https://www.invespcro.com/blog/customer-acquisition-retention/ on July 18, 2020, 19:25 MDT.

As we note the movement towards a project-based economy (ProjectManagement.com’s theme for July), I can’t help but recognize much of the scenery coming through the windows of our 1983 DeLorean. Is it just a fit of déjà vu, or has some serious scholarship already gone into such a trend, and would therefore be available to PMs now that the trend is accelerating?

Of course, it’s the latter.

David Cleland was the first writer I was aware of that tackled the difficult subject of organizational and macroeconomic changes inherent in shifting the business model towards producing goods and services in a way that satisfied the customers’ parameters of scope, cost and schedule – the very heart of Project Management. Indeed, Cleland has been called “the father of Project Management,” being, as he was, one of PMI®’s founding members. PMI® actually has an award named after him, the David I. Cleland Project Management Literature Award. I referenced him extensively in my own Master’s Degree thesis, based on his seminal work in (what was then called) Matrix Management. Dr. Cleland pointed out something we PM-types tend to take for granted now, but was actually rather novel in the 1980s, that organizations tend to focus on either their project portfolios at the expense of their resources (including personnel), or vice-versa, with the standard being to focus on the resources. This duality was called Matrix Management, owing to the recognition that PMs would pursue their customers’ objectives, whereas resource (or “line”) managers would focus on keeping their people paid, trained, and capable, and that these two goals were not entirely compatible. The former organizations were referred to as having a “strong” Matrix, with the latter categorized as a “weak” matrix.

So, what changes did occur in organizations that qualified as Project Management’s early adapters? One of Hatfield’s Incontrovertible Rules Of Management (I’ve lost track of the actual number) is a derivative of the Pareto Principal, and it goes like this:

The 80% best managers who have access to 20% of the information needed to obviate a given decision will be consistently out-performed by the 20% worst managers who have access to 80% of the information so needed.

This being the case, early PM theory adapters, by generating valid Work Breakdown Structures (WBSs), and using them to create Earned Value and Critical Path Management Systems would become the beneficiaries of critical information streams, vastly increasing the odds of their bringing in their projects on-time, on-budget. As “strong matrix” organizations began to out-perform their more traditionally-structured competitors, they could point to an ever-lengthening list of happy customers and successful outcomes, always helpful at bid evaluation time. Once the strong matrixed organizations won more project work, they had to get their resources from somewhere – usually, the most talented members of the losing weak-matrixed organizations.

There was, however, a dark side to this cycle (cue the sound of challenging bellows from Biff Tannen in the background), and it was this: a key component to being cost-competitive was to minimize overhead rates, meaning that an almost maniacal emphasis would be placed on employees being able to charge their time directly to a project. At one extremely strong-matrixed company where I worked, those workers who were 100% direct billable would command significantly higher salaries than those belonging to indirect-funded groups, while, paradoxically, the latter category were expected to put in far more than 40 hours per week, without charging for it. This kind of widespread but never articulated hierarchy brought with it some rather bizarre business model pathologies, such as the poor engineer who nevertheless had a knack for writing winning proposals being considered far more valuable to this organization then the more technically advanced engineer who failed to attract more work.

The company’s org chart was pretty useless. Very little or no effort would be made to smoothly transition personnel away from ramping-down projects, or any other employment-confirming action. If the new PM knew of available resources needed, he would hire them away directly, saving their targets from the oh-so-casual receipt of a pink slip. The only training that occurred was either offered in-house (unpaid overtime for both instructors and students), or else paid for directly by the external customer. Their view that the project portfolio was all-important came with a very dark corollary: despite the “our employees are our greatest asset” proclamations, the project teams were golden, while the line organizations were held in virtual contempt.

Granted, this strong-matrix organization was, in all probability, a badly-managed anomaly. They were, however, one of the top ten employers in my State at the time, so they were doing the PM-stuff effectively, if ruthlessly. I’m not saying that these trends will automatically afflict the management world as we move towards a project economy, but I do think it would be a good idea to keep an eye out for them, lest we find ourselves returning to a future where whole landscapes have been altered for the worse, and our DeLorean in critical need of repair.

The discussions swirling around the topic of the macroeconomic trend towards a “project economy” tend to skirt past a question: if we’re moving towards a “project economy,” where are we now? Where have we been all this time? GTIM Nation regulars are aware of my high-level distinction between the three types of management: Asset, Project, and Strategic Management. For newbies, my working definitions are:

• Asset Management concentrates internally on the organization’s assets, and seeks to “maximize shareholder wealth.” Its main source of usable information is the general ledger.
• Project Management looks outside the organization to its customers, and seeks to deliver goods and services on-time, on-budget, fulfilling all of the conditions of the customer-specified/expected scope. Its main source of usable information comes from the output of Earned Value and Critical Path methodologies.
• Strategic Management is all about market share. These guys couldn’t care less if the organization is leasing or purchasing equipment, or processing record-low Baseline Change Proposals. They do care very much about how the organization is doing in relation to its competitors.

As I’ve been pointing out for some time (hey, when I’m right, I’m right) the fundamental principles of business and management taught at the college level are firmly rooted in the Asset Managers’ domain. Virtually all of them still teach the easily-disproved drivel about how the point of all management is to “maximize shareholder wealth,” and its adherents have been known to actually disparage anyone who disagrees with that notion.

But the wheels have been coming off of that epistemological vehicle for some time now. In the 1980s it was the Strategic Managers’ insights running counter to the Asset Managers’ that led to the business world phenomena of the hostile takeover, which by itself should have overturned the “maximize shareholder wealth” mantra. Previously, the (rather simple) formula for deciding whether or not a company should stop doing business was based on the idea that (from Investopedia):

…a firm should never produce whenever it cannot cover all of its production and distribution costs in the long run. In the short run, a firm's willingness to produce should continue up until the point where its marginal cost curve is no longer above average variable costs.[i]

Notice how each of the parameters listed above are both (a) internal to the organization, and (b) derived from the general ledger. It’s as if those who created the classical models for deciding whether or not a given company should continue doing business could never dream of a scenario where a competitor was willing to take a short term loss in order to buy up a controlling share of the target company, and force them into bankruptcy, with no thought whatsoever of the target’s variable costs, marginal cost curve, or any other factor other than its market share. (As an aside, right there is another hint that the Asset Managers don’t have a handle on the ”point” of “all management.” Market share is obviously very valuable, and yet never appears in the asset side of the ledger.)

Meanwhile, Back In The Project Management World…

To the extent that those aspects of the PM codex that mildly challenged (or even out-and-out overturned) the long-standing Asset Managers’ take were adopted by project-centered organizations, those organizations began to (generally speaking) out-perform those that didn’t. In classical survival-of-the-fittest style, the companies whose business strategies were entirely enmired in the maximize-shareholder-wealth model began to lose out to the ones with a greater customer-focus, who were willing to sacrifice asset performance if it meant greater customer satisfaction on a broad basis. I can just imagine the reaction that an early-adapter of PM would receive the first time she said out loud in a board meeting “I don’t care if it reduces shareholder wealth! We’ve got to do something about delivering our product/service on-time, on-budget, or we’re toast!”  In this sense we have been moving towards a Project Economy since the time PMI® came on the scene and began to codify and publish these strategies, in 1969.

Okay, but what about that anchor business?

The one anchor that’s been holding back the natural macroeconomic move towards a Project Economy is the whole maximize-shareholder-wealth business that I’ve been ranting about for literally my entire business-writing career. The other one is far more subtle, but almost as difficult: the notion of economies of scale.

PMI® President and CEO Sunil Prashara discusses some key factors in the move towards a Project Economy in this YouTube video, including workers’ ability to perform more than a single or limited number of functions. While this is undeniably true, it does raise the question, How did we get to a broadly-adopted model predicated on a narrow set of functions for each worker? I believe its material (if not proximate) cause was the American industrial revolution, with its centerpiece being the introduction of the conveyer-belt method of manufacturing, which took full advantage of economies of scale.  Prior to Henry Ford’s remarkable innovation, more broadly and highly skilled workers would produce fewer automobiles, and at a greater cost. The conveyer belt allowed Ford to dramatically out-perform his competitors, but the tradeoff was that the consumer had to accept whatever Ford was willing to produce within that price range. When Henry Ford himself famously said that he wouldn’t even offer any color other than black for the Model T, I don’t think he had accommodating the customers’ varied stylistic tastes in mind.

So, where does this leave us in 2020? Yes, we’re headed toward a Project Economy, but the progress is slower than it would otherwise be, weighed down by two management axioms taken from the Asset Managers’ narrative, and at odds with the PM version. We PM-types have been fighting the ideological battle since 1969, but perhaps we don’t have to do that any longer. The macro-economy, with its (somewhat merciless) tendency to separate winners from losers based on the validity of their business models, will do this for us as we inexorably move towards the Project Economy.

It would still be fun to see how much faster we’d get there if we cut those anchors loose.

[i] Retrieved from Investopedia, https://www.investopedia.com/ask/answers/062415/what-factors-go-determining-businesss-shutdown-point.asp, July 5, 2020, 15:16 MDT.

In last week’s blog I pointed out some elements that might put a downer on the PM who is successfully attracting talent to her Project Team, along the lines of the high-aptitude additions detracting from team cohesion, unless they also just happened to be humble. Such team members have the unfortunate habit of hijacking some of the functions of the PM, such as setting the technical agenda, or trying to decide the optimal way of responding to unexpected events or circumstances. In pathologically extreme cases, should the gifted addition also happen to be a narcissist, they will invariably pressure the PM to establish some sort of hierarchy of the value added by each member of the Project Team, and steer rewards accordingly. The “value added” parameter, of course, is always highly influenced (if not out-and-out determined) by the narcissist (GTIM Nation is aware of my fondness for quoting Michael Maccoby. Maccoby actually wrote two books on the topic of narcissist in managerial leadership positions[i].).  And, like the Jungle Fighter archetype, the highly-talented narcissist will never self-identify, or provide some other easily-observable characteristic that would give the PM a clue about their intentions or deviant tactics. But there is a way of handling this type, and the GTIM Nation member will want to know it for all those times when they find themselves the head of a high-performance team. It’ rarely easy – even in those teams blessedly bereft of narcissist, some organizational behavior and performance pathologies can be expected to creep in, and the PM would be well-served to know how to identify them.

But first, the narcissist. They will present as the most coveted of Maccoby archetypes, The Gamesman – experts in the field, willing to take risks, true leader material. However, what’s really going on is, like I mentioned earlier, an attempt to create and enforce a kind of pecking order, or hierarchy, upon which whatever benefits are available to the PM to dole out are predicated. Close or pure meritocracies simply will not do. And – wouldn’t you just know it? – the most “deserving” are always (in this order) (1) the narcissist, (2) those whose contributions are so obvious that they can’t be overcome through calumny, who happen to be on the narcissist’s good side, (3) those whose contributions are so obvious that they can’t be overcome through calumny, who aren’t on the narcissist’s good side, (4) so-so contributors, (5) detractors, and (6) the narcissist’s enemies, regardless of their contribution.

To establish this hierarchy the narcissist(s) will engage in extensive ex parte conversations with the PM. In legal environs, these types of discussions are strictly verboten, as they represent a grotesquely unfair tactic where only one side of an argument or position is presented, meaning that the decision-maker(s) is likely to be influenced towards a bad call. The ex parte conversation, however, is the narcissist’s bread-and-butter, their go-to strategy. To block this tactic, the PM must never allow any ex parte conversations in their presence. If any employee – regardless of perceived Maccoby archetype – attempts to have a private discussion about any aspect of the Project Team that involves other members, stop the conversation immediately, and invite the referred-to parties to join in. Soon the narcissists will get the message, and they will be deprived of their favorite tactic.

Meanwhile, Back To The Answer To The Equation In The Title World…

The answer to the equation in the title is, of course, axiomatic. Talent plus hard work leads to success, almost automatically. The problem here deals with how easy the truly talented make what they do appear, even in the absence of a narcissist attempting to spin the actual events unfolding within the project. To deal with extremes in the interest of illustration, a highly-talented Project Team member will accomplish the same amount of scope that an averagely-abled team member could do, but in much less time. If the highly talented team member goes on to chase down and perform more work, it will tend to provide an example to the other team members, and they can be expected to mirror this behavior. If, however, the highly talented team member does not make an overt show of taking on more responsibility, then the message that sends is one of small effort becoming equated with impressive results, which is organizational poison. This is particularly true if the Project Team member in question joins the team after it has already experienced considerable success. Surrounded by achievements on every side, why should they have to put maximum effort into something that’s already destined to accomplish its goals? Essentially, high-performing project teams are vulnerable to a very specific organizational behavior and performance pathology, one that will invariably remove them from the “high performing” bracket should it permeate the Team even moderately, and that is the belief that hard work isn’t as essential to success as talent.

So, sure, PMs should work hard (get it?) to attract talent, and be glad when they are successful at doing so. Just remember – there’s still another parameter in the equation.

[i] Maccoby, Michael. Narcissistic Leaders: Who Succeeds and Who Fails. Boston: Harvard Business School Press, 2007.

Maccoby, Michael. The Productive Narcissist, the Promise and Peril of Visionary Leadership. New York: Broadway Books, 2003.

Wikipedia contributors. (2020, April 17). Michael Maccoby. In Wikipedia, The Free Encyclopedia. Retrieved 01:18, June 28, 2020, from https://en.wikipedia.org/w/index.php?title=Michael_Maccoby&oldid=951527900