Game Theory in Management

“No way that’s happening with Lindstrummer” Oscar muttered.

“He’s right” Jane confirmed. “What do we do?”

Jane’s question hung in the air (from last week’s blog), but I had no immediate answer, and heaved a sigh.

“You’re not in an impossible position, Jane, but a very difficult one. The thing about working in a business model that’s heavily predicated on the ‘maximize shareholder wealth’ paradigm is that it’s next to impossible to introduce, let alone implement, a management strategy that isn’t justified on that basis. That’s the reason Lindstrummer has phrased the decision on the best approach to monetizing your recent discovery using only those terms.”

At this point in the discussion I just happened to be glancing over the books on Jane’s office shelf, and caught a glimpse of a familiar title, right next to Jane’s PMBOK Guide®.

“I see you have a copy of In Search of Excellence.”

“Yeah, we all do.”

“Who’s ‘all’?”

“Management level and above. Daystrom loves Peters and Waterman. Attended a couple of Peters’ talks, and had the company buy every manager In Search of Excellence.”

I couldn’t help but to smile broadly.

“Oscar, fire up PowerPoint. We have a presentation to prepare.” Then, looking over at Jane, I added “We might have a real shot at this.”

*   *   *   *   *

I arrived early to the next day’s Operations Review meeting so that I could get a very specific place in the conference room.

“Where does Daystrom typically sit?” I asked Jane as we walked into the conference room.

Jane pointed to a place at the U-shaped table on the right-hand side, three away from the top of the U, where the projection screen was located. I walked over to one of the chairs along the wall on the opposite side.

“Aren’t you going to sit at the table?” Jane asked.

“Might come across as presumptuous.”

Jane understood. She went to her usual chair, right in front of me, and in the direct line of site to Daystrom’s chair. One by one the other attendees came in, some giving me a quick “who’s this guy?” second glance, others not bothering to notice. The next time the conference room door opened, Randy Jacobs walked through, followed closely by Acme’s CEO Lee Daystrom and Joel Lindstrummer, all engaged in conversation. As soon as Lindstrummer saw me, he exclaimed “Raspberry! What are you doing here?”

“I invited him, Joel. He has some analysis results for us.” Jane stated flatly.

“Raspberry? As in Stanly Raspberry?” Daystrom asked. He walked over.

“I’m Lee Daystrom, CEO of Acme. I’ve heard a lot about you.” Lee was a lean six-footer, with a surprisingly soothing voice and intonation which made quickly reading his frame of mind difficult.

“Hopefully not all bad” I replied. Daystrom laughed.

“Actually, it is mostly bad, but I overhear it from Monolithic execs at the country club, so it reflects well on you.”

“I hired Stanly to perform an analysis on our Project Management strategies” Jane began. “He has a few slides, if we can shoe-horn some time in this meeting.”

“By all means!” Daystrom responded, much to the chagrin of Lindstrummer.

The meeting began with progress reports from Acme’s major projects’ managers. I pulled the reports that Oscar had prepared for me, comparing the “bottoms-up” Estimates at Completion with their calculated versions, and waited for the most egregious example of an overly-optimistic EAC. By the time that PM was nearing the end of his presentation, nobody appeared to notice the absurdity of his asserting a negligible Variance at Completion.

“One moment, sir. This project is showing a negative two percent VAC – is that right?” I queried.

“Yeah, that’s right” the PM replied. Daystrom had been distracted, but suddenly focused when he heard me speak up.

“I’ve never seen anything like that before.”

“What’s unusual about it, Stanly?” Daystrom asked.

“Well, he’s 85% complete, with a Cost Performance Index of 0.83. At that rate, you would have to suddenly increase project performance by almost double – a To Complete Performance Index of around 1.57 is indicated – in order to come in even close to your stated EAC.”

“What about that, Jack?” Daystrom challenged. The PM stared intently at the figures he had projected onto the screen.

“Put that way, I think he has a point. I need to revisit my EAC.”

“Do so, and shoot me an update” Daystrom prodded. “Nice catch, Stanly.”

Not wanting to implicate Oscar for pulling the data, I merely nodded my acknowledgement. As the last of the major projects’ managers wrapped up their presentations, Daystrom addressed me directly. “Mr. Raspberry, take a seat up here at the table. What have you got for us?” Lindstrummer chimed in.

“We have a meeting in ten minutes to review some make-or-buy determinations” he reminded Daystrom.

“That can wait. I want to hear what this man has to say, Joel.” Daystrom responded.

Next week: I lay out my case.

It was a Monday, the day before the next Operations Review Meeting, where I would get my only shot at meeting with Glenn Daystrom, the CEO of Acme Corporation. In last week’s blog I had given Oscar Pennington a list of data points I needed collected, and how to process them into the information needed for loading a Corner Cube model, and I was simply reading the stenciled script on my frosted glass office door, yrrebpsaR .T ylnastS, eyE etavirP, waiting for Oscar’s call. Finally, the phone rang.

“Mr. Raspberry? It’s me, Oscar. I have all the data ready, but I don’t think I should take it off-site. Can you come down to Acme?”

“Are you in an office, or a cubicle?”

“Cubicle.”

“I’ll need an office.”

“If it’s okay with you, we can invite Jane, and ask to use her office. How long will you need to generate your analysis?”

“If you have all of the data, then only about an hour.”

“Okay, let’s shoot for 2:00.”

“I’ll be there.”

* * * *

Oscar was waiting for me in the foyer as I badged in.

“Jane’s office is over in one of the transportable buildings on North Campus.”

I smiled to myself. Oscar noticed.

“Is that amusing?” he asked.

“Not per se, it’s just that you can tell an awful lot about a corporate culture based on the relative placement of the Project Management Office as opposed to, say, the CFO’s office. Is Lindstrummer’s office in a transportable?”

Oscar looked at me incredulously.

“I think you already know the answer to that question.”

“Hence my amusement.”

As we left the main administration building and towards the PMO, I could see the primary manufacturing facilities to my left.

“Upper management wanted the PMO located near the manufacturing plant.” Oscar commented.

“Of course.”

We walked up a short steel staircase, and into the transportable. It was arranged with a large bull-pen of cubicles in the middle, surrounded by enclosed offices with large glass panels. Jane’s office was in the corner, and she greeted us as Oscar knocked briefly and escorted me in.

“Mr. Raspberry! It’s good to see you, but I have to point out that we’re running out of time! Daystrom is going to make the call on the utilization of the new invention any day now, and I have no counter to Lindstrummer’s assertions that the decision has to be made on the basis of projected return on investment. What are you going to do about it?” Jane was NOT happy.

“I think I have a handle on it, but it will require, perhaps, some modifications to the way you view the problem, Jane. Are you feeling flexible?”

Jane sat back down, still clearly tense.

“I’m wound pretty tight, but I’ll try to give you some room.”

“Great! Oscar, sit down at the desk, open your laptop, and connect it to Jane’s projector. Then, fire up the spreadsheet that has the data I asked you to collect.”

As Oscar did so, Jane pulled down the blinds over her office’s glass panels, so that we were the only ones who could see the data.

“Let’s start with Jane’s data. Add all of the Earned Value amounts of the projects in the portfolio, and divide it by the sum of their cumulative actuals. I want the aggregate Cost Performance Index.”

Oscar typed and mouse-clicked at an impressive rate.

“Done. The cumulative CPI as of the end of the most recent reporting period is 0.97.”

“Okay, next let’s do Randy’s data, market share. Acme is currently at approximately 33%, and he thinks 38% is a reachable target. Put those two data points into your spreadsheet. Finally, Acme’s return on investment is 4.8%, but place the target at the most recent prime rate, 4.3%.”

“Done and done. What’s next?”

“Create an XYZ graph. Name the X axis ‘Return on Investment,’ the Y axis ‘Market Share,’ and the Z axis ‘Project Performance.’ Set the minimum of the X axis at 4.00, and a maximum of 5.00. Set the minimum of the Y axis at 30%, and its maximum at 40%. Finally, set the Z axis minimum at 0.9, maximum at 1.10.”

Oscar continued to type and click for a few minutes. Finally, he looked up at me.

“I think I’ve got it.”

“Throw it onto the screen.”

As the XYZ graph appeared on the screen, I couldn’t help but mutter “Oh no. The Trap.”

Jane heard me.

“Trap? What trap? What is this showing us?”

“This, my dear Jane, is the Corner Cube model of Acme Corporation, and it’s conveying bad news. Of the three types of management, only Asset Management is doing well, in that it’s beating its nominal target. Do you see the placement of the marker in the graph? In the Corner Cube model, there are eight possible overall scores, and Acme’s score places it in the sub-cube named ‘The Trap.’”

“Why is it called that?”

“Because if an organization is doing well with respect to its Asset Management, but falling behind in its Project and Strategic areas, then not only is the Asset Management indicator about to take a dramatic turn for the worse, it’s often hard to convince upper management of the need to address the other two arenas. This is the score of an organization about to enter its death-spiral, unless something turns around, and soon.”

“So all we need to do is to do better in Project Management?” Jane asked, anxiously.

“Well, yes, but in the near-to-mid term, that means that the Asset Managers need to be on-board with spending more freely in pursuit of not only the Project Management goals, but the Strategic ones as well, before pushing for better asset performance. Most CFOs will be reflexively against this type of management flex.”

“No way that’s happening with Lindstrummer” Oscar muttered.

“He’s right” Jane confirmed. “What do we do?”

Next week: What we’re going to do.

As Randy’s Marketing Management Team cleared out of the conference room, Oscar and I sat back down to review the data list I had just handed him.

“Talk me through this, Mr. Raspberry. I’m not sure I understand everything on this list.”

“I’m happy to, but first, Oscar, did you capture the estimate of the percent completes for all of the projects in Jane’s portfolio?”

“Yes, they are in a spreadsheet on my computer.”

“Do you also have access to each of their Budget at Completion and cumulative actual costs?”

“Sure do! Problem is, I can’t transfer that data to you. It’s considered company sensitive, even beyond the terms of your non-disclosure agreement.”

“That’s alright, Oscar, I understand.” I consoled. “I don’t need to know the details. This is how I want you to process that data. Keep your data in your spreadsheet. Create a new tab in the same file, and use these as your column heads:

1. Project ID
2. Budget at Completion (BAC)
3. Percent Complete
4. Cumulative Actuals

The next set of columns will contain calculated information, specifically:

5. Cost Performance Index
6. Estimate at Completion
7. Variance at Completion

This is how you calculate those last three columns’ values. For Column E, Cost Performance Index, multiply the values in Column C and B, and divide the product by Column D.”

“Okay, I get that, but you don’t have nearly enough data to do either an Estimate at Completion, nor the Variance.” Oscar objected.

“Trust me. For Column F, the EAC, simply divide Column D by Column C.”

“I’ve never even heard of that!”

“Oh, but you almost certainly have.” I corrected. “Recall the basic formula for calculating the EAC, by dividing the total budget (BAC) by the Cost Performance Index? That formula can be algebraically solved to dividing the cumulative actual costs by the Project’s percent complete.”

“But that’s not the way Jane has us do EACs.” Oscar continued. “She insists that we re-estimate the remaining costs on a Project, and add that number to the cumulative actuals.”

“Yeah, well, that doesn’t work.” I replied. “And its failure rate will become clear once we’ve compiled this information. Just for fun, add those EACs for the projects for which they are available, and put them in Column H. And, of course, Column G will simply be Column B minus Column F. Can you pull this together for me, and soon?”

“I think so. But what about the information on Randy’s Marketing Management organization? You heard him tell Lindstrummer that they don’t even have the software to manage their data – how will we take their interests into account, if we can’t quantify their stuff?”

“We can’t be precise, but we can get close enough for the purposes of this analysis. Ask Quinn for two pieces of data from her spreadsheet: we’ll need to know the average win rate of the proposals they sent out over the last full quarter, and the total proposal backlog amount for this fiscal quarter.”

“I think I can do that, but how does that help with supporting the narrative that the resources surrounding the new tech development should go in the Project Management direction?”

“We’re putting together a Corner Cube model, and those parameters go into the Strategic Management axis.”

“A what model?” Oscar asked, incredulously.

“A Corner Cube model. You can look it up in the March 1995 issue of the Project Management Journal when you have time, but for now we will use a 35% market share as ACME’s strategic target.”

Oscar was furiously writing notes as we went along.

“Got it. What’s next?”

“We will use 4.8% overall Return on Investment for our Asset Management target.”

“That’s oddly specific. How did you derive that?”

“Lindstrummer boasted that ACME had beaten Monolithic on that particular metric, and I’ve seen Monolithic’s latest prospectus, showing a 4.7% ROI.”
“That’s right! Is that why you went there, when Lindstrummer crashed Randy’s meeting?”

“Maybe.”

“This is great stuff!” Oscar exclaimed, as he continued to write notes in his notebook. “But, while we’re discussing these performance targets, what about Jane, and the PM target?”

“Good question. Tell me, Oscar, how long ago did Jane take over the Project Management Office? And, was she promoted from within, or did she come from outside ACME?”

“About six months ago, and she was promoted from within. Before we even had a formal PMO, in fact. And actually, now that you’ve asked, Lindstrummer was key in her hiring decision.”

“That explains a lot. Okay, let’s set the Project Management target at a portfolio aggregate Cost Performance Index of 1.03.”

“One oh three? That’s kind of low.”

“If it had been 1.00 or higher, without the existence of a PMO, it’s unlikely that it would have been established in the first place, especially with Lindstrummer’s approval. He could have argued against it, pointing to the fact that the portfolio was performing adequately without a PMO.”

“Yeah, that all adds up.”

“But placing that parameter too high, for the purposes of this analysis, would be unfair to Jane. One does not turn around an underperforming multi-million dollar project portfolio in six months.”

“This is so cool!” Oscar exclaimed. “I knew you were the right person for this job!”

“Well, you might not be so excited when I make this next request: I’m going to need to see Daystrom.”

Oscar’s countenance fell.

“That’s next to impossible” he relayed. “His administrative assistant, Colleen, keeps a sharp eye on who is allowed to meet with him, and she’s pretty close to Lindstrummer.”

“I see. I refer to those kinds of admins as ‘moat dragons.’”

“Yeah, well, this one is one of the most moat dragon-iest of them all.”

“Can you wrangle an invitation to some other kind of high-level meeting?”

Oscar suddenly lit up.

“Yes! I’m pretty sure I can get you into the Operations Review meeting, held every other Tuesday. The next one is next week.”

“This is key, Oscar” I began. “Is this meeting both before Daystrom is expected to make the call on the best use of the new technology, but after you can perform this data pull?”

“Yes, and yes.”

“Then we’re good to go.”

Next week: Peering Into the Corner Cube

As Randy’s Proposal Management Team was scooping up their papers and heading towards the conference room exits, the door suddenly swung open, and a man walked in. He was around 5’ 10” tall, with dirty dishwater blond hair, cut short, wearing a button-down white shirt and suit jacket. His tie bar had a small token of a prominent accountant’s professional society embedded in it. Out of the corner of my eye I could see that the young and pretty Quinn was startled – she was clearly not expecting to see…

“Mr. Lindstrummer!” Oscar greeted. “How are things?”

“Hey, Joel.” Randy interjected. “What brings you down here?”

“I heard that the, umm, famed PM detective, Stanly Raspberry was here. Is that you?” he asked as he approached.

The way that everyone else in the room kind of stepped back, as if in observation mode, was almost as if they were expecting the kind of reaction you get when throwing metallic sodium into rain puddles. This effect, along with Quinn’s reaction, immediately informed me of two things: one, Quinn was an empath, and two, Lindstrummer didn’t attain his lofty position via merit. Some of the people in the room were afraid of him.

“Guilty” I demurred.

“I’m Joel Lindstrummer, the CFO of Acme Corporation” he began. “Thank you for coming round and evaluating our project management situation” he continued, somewhat disingenuously, “but I don’t know how much improvement you can bring. Jane and her Team are doing a bang-up job! Isn’t that right, Oscar?”

“We do our best, sir” Oscar replied, with a nervous laugh.

“They’re not the only ones doing a good job” I began. “I read the prospectus on Acme’s latest commercial paper offering – your Team is showing a fairly high rate of return on the company’s assets, yes?”

Lindstrummer smiled approvingly.

“Oh, yes. Not only are we ahead of the prime interest rate, we’re ahead of Monolithic!”

“And you’re sitting atop a new technological development.” I added.

Lindstrummer’s eyes narrowed.

“How do you know about that?” he demanded.

“Don’t worry” I consoled. “My signed non-disclosure agreement is in my contract package.”

“Still” he grumbled, as he looked around the room. Oscar looked like he would have rather been anywhere in the world other than that conference room.

“Does my knowing about the technical advance upset you?”

Lindstrummer’s countenance changed in an instant.

“No, not really” he smiled. He knew I was there to challenge his push that any use of the new development had to be evaluated solely based on its impossible-to-calculate return on investment. And he knew I knew.

“So, what exactly does Jane have you doing? And why does that involve Randy’s Proposal Management Team?” Lindstrummer purred inquisitively.

“The usual” I sighed. “Advance the capabilities of the Project Managers, enhance their management information systems – that sort of thing.”

“Soooo, training?”

“Maybe. I haven’t formulated my final technical solution or approach.” I replied.

Lindstrummer stared at me for about ten seconds, without uttering a word.

“Joel” Randy said, breaking the tension in the room, “have you had a look at my purchase request for the update to the proposal tracking database that I sent in last week?”

“No” Lindstrummer began, almost absentmindedly, but then, all at once, appeared to re-engage in the moment. “Oh, I mean, yeah, yeah, yeah. We’re still evaluating it. I’ll let you know soon, Randy.”

I was stunned.

“Wait, your Team isn’t running a proposal management system, Randy? How are you doing it?”

“Spreadsheets. Fortunately, Quinn is very good at pivot tables.”

“She would have to be” I replied, doing a poor job of hiding my disappointment at the level of management information system maturity that Randy’s Team was having to deal with while awaiting Lindstrummer’s permission for the clearly needed upgrade.

“It’s all good, Randy” Lindstrummer began. Somehow, words of consolation coming from this guy’s mouth had an artificial vibe to them. “If this software leads to less overtime for your Team, the ROI will be worth it.”

“Just out of curiosity, Mr. Lindstrummer, what if the ROI is calculated below your expectations?” I asked.

“Like every other major purchase consideration in the business world…” Lindstrummer began, condescendingly, “…it will fall in the prioritization list, perhaps even below this fiscal year’s expenditure limit.”

“Fascinating. I’d be very interested in learning how Randy’s Team having an enhanced capacity to manage their proposal backlog was quantified in order to participate in that evaluation.”

“It wasn’t, Mr. Raspberry.” Randy interjected. “The Return on Investment calculation for my software request was predicated solely on savings in payroll.”

“I see.”

Lindstrummer looked annoyed, as if he had a sense that I had already gleaned too much from our interaction, but couldn’t quite put his finger on the exact knowledge I had extracted.

“You’ll have to excuse me, I’m off to another meeting.” Lindstrummer offered as he left the conference room. As soon as he was out of earshot, the entire room seemed to heave a sigh of relief.

“I bet he’s just a blast at birthday parties.”

“If you were smart…” Suzanne said, “…you wouldn’t want to be on his bad side.”

“I’m not sure he’s as smart as everyone seems to think.”

“Why would you say that?” Randy challenged.

“His tie bar has the logo of a prominent professional society. Truly brilliant people virtually never feel the need to inform others of their accomplishments.”

Looks of sudden realization flashed across the faces in the room.

“Smart or not, Daystrom listens to him, and will be making a call on the utilization of the new tech fairly soon, Mr. Raspberry.” Oscar reminded me. “What are you going to do about it?”

“Not me, but you, Oscar. Can you stick around for a few minutes?”

As the conference room emptied, I handed Oscar the paper I had been writing on during the morning meeting.

“This is what I need…”

Next Week: The data pull to solve the case!

As the meeting with Jane West and her PMO Core Team was breaking up (Chapter II), I asked Oscar if he had arranged for me to meet with the Proposal Management Team as I had requested when we first met (Chapter I).

“Yeah, they’ll be here in this conference room at the top of the hour. It’s kind of funny…” Oscar continued. “When you first asked to meet with them, I was rather dubious about why you wanted that. But, when I called Randy Jacobs, the head of the Proposal Management Team, he was excited. I guess they really want to meet you.”

“Not me, specifically. They want to know more about the products and projects.”

“How do you know…”

Just then Randy Jacobs walked in the room, accompanied by Suzanne, Toby, and Quinn, the members of his core team.

“Stanly Raspberry! So good to meet you!” the gregarious Randy began. He introduced the other members of his team, and everybody sat down. “How can we help?”

“I was looking at some of ACME’s shareholder disclosure documents, and comparing them to Monolithic’s. It looks like ACME has around a third of the market share in this industry, and Monolithic has half. Is that right?”

Randy’s gregarious grin fell in an instant, and he immediately became defensive.

“My team is doing the best they can!” he stormed. “Working long hours, without overtime pay, of course…”

“Relax, Randy. I’m sure they are. But I’m not here about them, or you. As I’m sure Oscar has told you, I’m here about the Project and Product Management. Tell me, how has product and project performance affected your team?”

Randy’s shoulders slumped, as he simultaneously relaxed but felt a twinge of despair.

“Monolithic’s beating us, Mr. Raspberry, and it’s not because of my team. They’ve got us on price, pure and simple. Our quality is roughly equal, and they’re sometimes late with their deliveries…”

Oscar and I exchanged glances. It is exactly as he said it was at our first meeting.

“…  but unless the, umm, invention can up our quality at the same price point, or even lower it, we’re locked in a losing battle, long-term.”

“So you’re okay with the use of the invention going straight into product/project management?”

“Okay with it? I’ve been demanding it, ever since we got the patent!”

“What’s stopping you?”

“Lindstrummer!” the entire room said in unison.

“Every time we propose a machine upgrade to take advantage of the new development” Suzanne began, “Lindstrummer slams the brakes on its procurement until we can show a Return on Investment to ‘justify’ the expenditure.”

“But, since it’s impossible to know how beating Monolithic on price or quality will impact the ‘bottom line’” Quinn added, “we can’t prove a positive ROI against the cost and downtime of the upgrade.”

“Market share advantages are typically non-quantifiable in the balance sheet.” I commented.

“EXACTLY!” the room affirmed, again, in unison.

“Of your proposal backlog, how many of your customers are government, or will predictably go with the lowest bidder?” I asked.

“I can’t tell you that exactly…” Randy began.

“Rough numbers will do.”

“About half.”

“How much does that represent in potential contract backlog?”

“I can’t tell you that, either.”

“More than the cost of equipment upgrade and downtime?”

“Absolutely. Is that how you want to pursue this?” Randy asked.

“No, but it’s good to know in case that becomes the basis for the decision. You confirmed earlier that ACME’s market share is around 33%. What would you like it to be?”

“Realistically? If we can get re-tooled reasonably soon, we should be able to add a good five points in the mid-term, and ten in the long-term.”

“Sounds reasonable” I replied. “I have a recommendation for you and your team, if you care to hear it.”

“By all means.”

“Sort the proposals in your proposal backlog based on which ones are likely to go to the lowest bidder, and which ones are more focused on availability, or quality. Your CEO, Mr. Daystrom, is expected to make a decision on a path forward here within the next couple of weeks. If the decision goes against you and Jane, and Lindstrummer continues to set the ROI as the overarching standard for the decisions going forward, put minimal effort into the lowest-bidder proposals, and focus on the others in the backlog, including your advertising efforts.”

“And if Daystrom decides otherwise?” Quinn asked.

“Then the whole backlog is back in play. Something else that may end up being of great use…” I continued.

“Name it” Randy replied, clearly becoming more comfortable that I could help him and his team.

“You don’t have to tell me, but if you could have as a back-pocket bit of information, it might be useful to know the win rate of the proposals for lowest-bidder work, and the win rate for all of the other ones.”

Randy smiled broadly. “I think I know where you’re going with this. Toby, can you pull that together?”

“It will be on your desk by the end of today.”

The young and pretty Quinn fixed me with an intense gaze.

“Mr. Raspberry, if this organization backs Jane’s PMO with respect to the decision to update the business model away from justification through Return on Investment, and towards project performance, we could personally be in trouble.”

“She’s right, Randy. What do you think?”

Randy didn’t hesitate.

“Let’s do this. If we don’t, we’re goners eventually anyway. This way we have a real shot at getting ACME’s business model straight.”

Next week: I meet with the CFO