Game Theory in Management

“Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive. It would be better to live under robber barons than under omnipotent moral busybodies. The robber baron's cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end for they do so with the approval of their own conscience.”                                                 -- C. S. Lewis[i]

As we wrap up the hazards involved in disruptive influences (ProjectManagement.com’s October theme), I want to return to the categories I like to use to bin such hazards. They originate in one or more of the following areas:

• Internal to the project,
• External to the project but internal to the organization, and
• External to the organization.

It’s this last category I want to address this week, since it’s both the one that the PM tends to have the least control over, but the one that contains a rather easy-to-avoid difficulty: ceding influence to those who do not have direct involvement in the project nor the organization.

I can’t help but roll my eyes whenever I hear about an organization that has elected to cease manufacturing operations in or purchasing items from countries where the workers are “forced” to work in “sweatshops,” or conditions that most workers in the industrialized world would find objectionable, if not deplorable. As Thomas Sowell has pointed out in his excellent book Basic Economics[ii], when a given manufacturer announces an intent to set up business in one of the poorer countries, it is not at all unusual for people hoping to get a job with the new plant to show up days prior to the actual hiring period. They willingly do so – no one is “forcing” them to do anything. The basic facts are that there are risks inherent in any project or manufacturing initiative, and the entrepreneurs who are doing so are making decisions intended to maximize their chances of running (or expanding) a successful project. Poorer countries are attractive to start-ups because the labor rate is usually lower than in more developed nations. The same nations are unattractive because of their governments’ ability to provide an effective constable force to protect the company’s assets can be uneven, not to mention the chances of an unstable government changing tax rates unexpectedly, or even nationalizing the new plant altogether.

All of these factors, and more, go into the decision of starting business operations in nations perceived as harboring or tolerating “sweat shops.” But the actual people who are desperate for work don’t care about third party tut-tutting about their conditions of employment. Often these positions are critical to them in order to get ahead personally or on behalf of their families. For a third party, who is not directly engaged in either the labor supply nor the hoped-for output, to interfere and act as a disruptive influence over this kind of business transaction strikes me as not only defeating the very purpose – advancing the living standards in poorer countries – they claim to advance, it’s a hazard to the Project Managers. How should this disruptive influence be countered?

First, it must be recognized, the earlier in the cycle, the better. The PM who is assigned to the scope of building the facility, or delivering the expected output, would be well-served to engage in some public relations efforts. The narrative that the disruptive do-gooders are attempting to hang around your neck is one of management exploitation of helpless labor, and they want to use that to push the conclusion that your project is somehow lacking in moral authority. This, in turn, springs from the dopey notion that legal, freely entered-in-to business transactions are either morally correct, or immoral. Actually, such transactions are morally neutral, including those characterized as “price gouging.” As long as neither party is being coerced into entering into a legal transaction – a basic ground rule for valid contracts – then parties not involved in the transaction truly have no grounds for objecting. But that doesn’t stop them from trying, and they are likely not going to experience some kind of epiphany that would enlighten them to their folly.

Keep in mind that this particular type of potential disruptors will almost never have any direct link into the project, neither from its scope completion side, nor from its resource utilization aspect. Much of the disruptive power they wield has been ceded them under the rubric of “engaging stakeholders.” Third party do-gooders suffer nothing for championing a wrong-headed approach. This, by itself, should render anything these stakeholders assert as suspect at best, completely irrelevant at worst.

A practical preventive measure would be to not grant third-party, nothing-to-lose-if-I'm-wrong entities any decision-making authority (or even influence) over the strategic direction for the project.

Also, the savvy PM will be wary of admonishments to “engage all stakeholders.” In my view, the only stakeholders who should be engaged are those who have direct involvement in either the project’s scope, or the resources pursuing said scope. Everyone else is suspect.

So, that’s the litmus test: do the stakeholders have a direct link to the project, AND are in a position to endure losses if the positions they advocate are wrong? Everybody else should read more Sowell and Lewis.

[i] Retrieved from https://www.goodreads.com/quotes/19967-of-all-tyrannies-a-tyranny-sincerely-exercised-for-the-good on October 27, 2018, 19:02 MDT

[ii] Sowell, Thomas, Basic Economics, A Common Sense Guide to the Economy, Fifth Edition, Basic Books, 2015.

To continue to paraphrase the Wizard of Oz near-quote above, Dorothy’s answer in the PM universe would be “I’m not a disruptive influence at all! Disruptive influences are old and ugly!” (more munchkin giggling). Of course, Glenda goes on to educate Dorothy on the subject of moral duality in the near-locales of the Emerald City, which is something she will need to understand for the rest of the movie. I would like to do something analogous with GTIM Nation, just not with Glenda’s maddeningly sugary voice and inflection.

Naturally your typical PM will seek to avoid disruptions in their projects – unfortunately, disruptions are part and parcel of the profession, and it’s the PM’s job to deal effectively with them. But, much like witches in Oz, not all disruptions should be assumed to be wicked. I’m willing to bet that more than a few of my readers have been involved with projects where the technical approach to the scope was sub-optimal (or maybe even wretched in the extreme), but management was convinced it was the only way to perform the work. They launched the project with enthusiasm and energy, but even early on there were signs that things might not go as planned. Some conflicts within the team emerged, but were viewed as being a natural part of the Forming – Storming – Norming – Performing cycle. A few activities then started falling behind, but they were within the variance threshold, so no executive action was invoked. Quick question (#1): are these trends representative of a good disruptive influence, or a bad one? Don’t answer right now, but we’ll return here in a moment.

Then, something more dramatic happened: a senior technical project team member abruptly left after an altercation with the PM. The rest of the team hated to see her leave, but the separation was described in an e-mail blast as her “pursuing other opportunities.” I’ll pose the question again (#2): was this incident a good disruptive influence, or a bad one? Again, don’t answer yet.

After a few months a rookie Project Controller, naïve in the nature of office politics, calculates the Variance At Completion at more than 25% over budget, and announces the same at the project review where a senior manager is in attendance. This senior manager asks to see the Variance Analysis Report, which happens to be chocked-full of fluff terms and meaningless jargon; nor does it offer a succinct get-well plan. Again, the question (#3): is this a good or bad disruptive influence?

The exec, who has been around more than a few similar projects, calls for an immediate review of the cost/schedule performance data, even as the PM insists that the variances can be made to go away with a Baseline Change Proposal – or two, or maybe even, at the outside, three. In the historical data he sees that the poorly performing tasks have been showing difficulty for some time, but only recently broke the Variance Analysis Threshold, leading to the anodyne VAR. And, most telling of all, the recently-departed senior technician had been the Control Account Manager (CAM) for the activity. Is this (#4) a good disruption?

Now a risk event strikes the project, one that was thoroughly described in the risk analysis, and has had an impact consistent with that analysis. The Configuration Manager files a contingency BCR, and it is being reviewed by the Baseline Change Control Board. However, the customer’s representative on the board isn’t sure that this incident is risk-based, but might be caused by poor performance, and is slow-walking the BCR. Same question (#5).

Finally, the troubled task impacts the critical path, and the entire project’s forecast completion date is pushed back. The calculated Estimate at Completion (EAC) remains stubbornly at the 25% overrun mark, and it can’t be BCRed away as the project passes the 50% complete mark, as complete spent tops 62%. At this point the project is clearly in trouble. Here are my two questions: (1) which disruptors were to blame? And, (2) which ones were “bad,” and which were “good”?

The project was undertaken with a poor technical approach, which meant that it was probably doomed from the start. The following “disruptors” had, as their material (if not proximate) cause, this wrong-headed approach: disruptions 1 – 4 should be considered good, since they were pointing at the bad initial technical approach. The savvy PM would not have attempted to minimize or hide the causes underlying these disruptions; instead, he would have heeded the information they conveyed, re-evaluated whether or not the selected project strategy was the right one and, if it wasn’t, immediately entertained and/or employed alternatives. Disruptor #5 was the only bad one, coming, as it did, at the time that the project team was least able to isolate its negative impact as a causal factor of the overall project’s woes. Nor did Disruptor #5 provide any information or insight as to what the best approach alternative might be, since most catalogued risk events are generic enough (bad weather, increased vendor costs, etc.) to happen to any project, regardless of the efficacy of the selected technical approach, though one could easily argue that the demonstrably wrong approach significantly increases the odds of a project-ruining event.

After the Wicked Witch of the East experiences the disruptive influence of having Dorothy’s house fall on her, Glenda, being a “good witch,” advises Dorothy to “follow the yellow brick road.” This little piece of advice is repeated an additional fifteen times (by my count) prior to Dorothy arriving at a crossroads and meeting the Scarecrow. Here’s my challenge: decide now how many good disruptive influences will happen on your project before you accept the information they convey, and evaluate alternatives to your approach.

It just might save you an encounter with flying monkeys.

Can Game Theory deliver any insights on the subject of Disruptive Influences (ProjectManagement.com’s theme for October)? Last week I blogged about the difficulties involved when a formulaic, or canned strategy, is employed in a project situation where a novel approach is appropriate. If we flesh out the payoff grid (and Game Theory In Management Nation knows how I love payoff grids), it would look something like this:

In those instances where a canned strategy is both called for and is employed (scenario #1), which, if we employ the Pareto Principal, is probably 80% of the time, then things will probably work out, save for the garden variety project bizarre happenstance(s). Similarly, if a new or novel strategy is called for and employed (scenario #4), usually because of new technology or unusual circumstances signaling a novel approach is needed, then there’s a workable match between the work and the management approach. I discussed scenario #2 last week, which leaves the Game Theory in Management Nation with scenario #3. What happens when the traditional PM organization tackles a project that really isn’t analogous to any of the rest of its portfolio? Is it not human nature to invoke the familiar, and use the same strategies that brought success historically?

Indeed it is, and therein lies our problem. To be blunt, in those instances where a novel technical approach is called for and attempted, but not expected nor accepted by the sponsoring macro organization, several business model pathologies can be expected to manifest, including:

• Disdain. The PM attempting the novel technical approach will earn the disdain of the organization’s resident “experts,” who have the entire history of successful similar projects behind them. The upstart PM’s experience, capability, or even intelligence will be impugned at length – it’s just part of being an innovator.
• Competition. The keepers of the organization’s canned strategies will make some attempt at wresting control of the work from the PM attempting the innovative approach. You can bet on it. Of course, the favorite (and, in almost all cases, most powerful) weapon at the keepers’ disposal will be their record of successful similar projects. This is to be expected, since, by definition, these keepers of the canned strategies have absolutely no idea when a new project’s circumstances are outside the parameters of “similar” or analogous projects in their histories. It’s somewhat like our friends, the accountants, believing that every information stream that deals with budgets or costs simply must be derived from the general ledger. I can only imagine the difficulties encountered by the first PM-type who dared to state that a Cost Variance is not the difference between the budget and the actual costs; rather, it’s the difference between the Earned Value and actual costs. He or she must have been laughed out of the manager’s lounge – but they were right, of course.
• Claiming credit. If, in the rare occurrence that the PM with the novel approach actually overcomes the tsunami-sized bow wave of organizational resistance, and succeeds in bringing in the project on-time, on-budget, the traditionalists will insist that the true credit should reside within their organization, and not with the innovative PM.

So, how does the novel approach-embracing PM counter these tactics? While there’s no sure-fire counter to the above list, it’s been my experience and research that the following may be effective counter-measures:

• Clearly articulate the nature of your novel management approach(es), including how you arrived at them and why you believe they represent a superior technical solution. Make it clear where your approach differs from the staider ones advocated by the other members of the organization.
• Point out instances of the times the older methods you seek to displace have failed, even if the failure is only partial. You’re trying to justify a definitive deviance from what others believe is tried-and-true, and avoiding a clear-eyed review of those approaches’ shortcomings isn’t helpful, neither to you nor your organization.
• By far your most powerful influencer is this: document interim goals or measures of success, and deliver on those metrics. Nothing succeeds like success. If you can demonstrate, in no uncertain terms, that your approach is superior, then your opposition will be in a far weaker (or even impossible) position to continue their antics.

From a management science purist’s point of view, the advancement of novel business models on just their merits shouldn’t have to involve all of this strategizing and counter-measures. But, human nature being what it is, the tactics and counter-measures discussed above can be expected to be employed by the opposition and the winning PM.

And, to any real Game Theorist, winning is what it’s all about.

If I were to ask you which craft you would prefer in a dogfight, a Grumman F-14D Tomcat, or a hot air balloon, which would you take?

Of course, the obvious selection would be the Tomcat, the U.S. Navy’s go-to all-weather air superiority fighter from 1974 to 2006. It had a top speed of Mach 2.34, and could carry a deadly array of bombs, missiles, and aerial cannon rounds. Hot air balloons, conversely, are not known for carrying any ordnance whatsoever, and have a top speed of 245 miles per hour (and that was for a balloon named the Pacific Flyer, specifically configured to travel in oceanic jet streams). The balloons at the Albuquerque International Balloon Fiesta (held each October) will not even launch if the winds are above 15 mph. The choice is a no-brainer, right?

Well, just a moment. There are a couple of disruptive influences that might be taken into consideration.

The Tomcat weighs 61,000 pounds fully loaded.[i] In order for it to get airborne off of a carrier, it has to be catapulted to 140 knots, which requires an enormous amount of energy. Even if it’s on a runway, it’s going to need at least a mile to take off, and that’s with afterburners. A hot air balloon only requires the space needed to unfold the balloon’s envelope, fan ambient air into it, and begin to heat it with its propane burners. All of this can be done in the space used for a small business’ parking lot. So, if the start conditions include that each vehicle is in an uneven field (where hot air balloons typically take off and land), then the odds have been altered, no? The Tomcat could not even get airborne, much less dogfight, though, I suppose, it could use its aerial cannon, should the hot air balloon be positioned directly in front of it. Its missiles would be useless, since they are actually dropped off of the Tomcat’s hard points, rather than shoot directly ahead, as from a gun.

And how would our airborne hot air balloon disable a Tomcat, exactly? Well, I suppose they could carry an anvil aloft, and simply drop it on the grounded interceptor, Coyote and Roadrunner – style. In most instances it would probably not inflict enough damage to make the Grumman no longer airworthy, but our balloonists could get lucky. After all, hot air balloons delivered the coup de gras against the belligerent alien invaders in the television series V.

Meanwhile, Back In The Project Management World…

When we’re talking about disruptive influences (ProjectManagement.com’s theme for October), we have to take into account the question (as I posited last week), disruptive to whom? Most organizations carry with them, through the communication mechanisms of corporate culture, the canned strategies that they expect their in-the-combat-zone PMs to execute, given the presented circumstances. These canned strategies are perceived to be rather robust in most, if not all, analogous Project Management scenarios, having been tried and found successful in previous projects. But what if the project at hand isn’t really all that analogous to the one where the canned strategy worked? What happens when the new project is sufficiently different that the canned strategy is almost guaranteed to fail?

In these instances it’s the experience of the executives that, ironically, becomes the disruptive influence. By insisting that the organizations’ PMs make their decisions in a highly formulaic manner, and punishing dramatic departures from this norm, they not only set the proverbial table for eventual project failure, they hamstring the very PMs who are in a position to not only save the project at-hand, but to introduce a new, novel approach to resolving this project’s destabilizing issues. These are the very innovations that allow the macro organization to adapt and grow, and the reflexive crushing of them for being non-compliant with the organization’s norms is an automatic, if not immediate, death knell.

But let’s assume that you just know the “right” technical approach to your organization’s projects’ difficulties, and have mandated it to your team. I have one quick question: do you have enough runway space to take off in your F-14? ‘Cuz, if you don’t, you might want to be wary of dogfighting hot air balloons.

[i] Wikipedia contributors. (2018, September 19). Grumman F-14 Tomcat. In Wikipedia, The Free Encyclopedia. Retrieved 02:28, October 7, 2018, from https://en.wikipedia.org/w/index.php?title=Grumman_F-14_Tomcat&oldid=860238298

You can always tell when management writers are attempting to address a topic in a new or largely speculative arena, or for which there isn’t very much hard evidence. Their language swerves towards the inchoate, incorporating terms that sound sophisticated but are better described as “fuzzy.” Such terms include:

• Leverage
• Landscape
• Dislocation
• Delivery
• Dynamic
• Value
• Expand
• Heavyweight
• Synergy
• Confluence
• Innovation
• Confidence Interval

Okay, okay, I threw in that last one just to jab our friends, the risk managers, but the others are almost always dead giveaways that the person writing the piece is conducting a largely exploratory effort. Management writers conducting exploratory efforts is okay, don’t misunderstand. It’s just, well, frustrating. Consider this example I swerved across from the world wide web[i]:

Whether it’s how we spend, take care of ourselves, learn or interact with each other, digital disruption has changed the script. While this causes dislocation, it also creates opportunity.[ii]

I must have read that paragraph over a dozen times, and I’m still not sure I know exactly what it means. Strictly speaking, digits “disrupt” nothing. Who’s writing this “script”? What (or whom) has been “dislocated”? Perhaps I’m being uncharitable, and simply need to leverage my dynamic understanding of the innovative confluence here.

“Okay, wise guy” I can hear Game Theory In Management Nation saying, “If it’s really not all that complicated, and simply awaits a writer who knows how to convey more precise meaning, why don’t you do it?” Okay, I will.

Recall my oft-cited overarching management structure, the one that asserts that there are three different types of management:

• Asset Management seeks to maximize shareholder wealth, and its main information source is the general ledger.
• Project Management seeks to attain the customers’ expectations of scope, on-time and on-budget. Its principle information streams are cost and schedule performance reports, based on Earned Value and Critical Path Methodologies.
• Strategic Management is all about market share, and how the organization is doing with respect to its competitors.

Any discussion about Disruptive Influences, or technologies, is more effective if it centers on Strategic Management. Why? Well, the Asset Managers have been sucking all of the accepted management practices oxygen out of the board rooms for some time, so, at this point, any easy way of reducing costs without (or sometimes, even though it means) disrupting project quality or delivery has been explored ad nauseum. Similarly, the number of papers, presentations, and paper presentations along the lines of how everybody really needs to be doing Earned Value and Critical Path would, if printed out in twelve-point font and delivered, sink a Nimitz-class aircraft carrier.

But Strategic Management? That’s a different animal. As I discuss at length in my second book, advances in technology are game-changers in any industry. Recall another one of my axioms: quality, affordability, availability – pick any two. This rule governs many a strategic approach business model. Should an advance in technology provide a way of, say, making a given product or service more affordable at existing market conditions of quality and availability, the impact is always significant – one might even say disruptive.

The organizations that are adept at monetizing advances in technology will always be more successful than those seeking to wring the last efficient penny out of older ways of doing business. This, of course, is highly “disruptive” to those organizations clinging to the more conventional ways of doing things, but to the rest of us it’s anything but. Indeed, it’s less troublesome or unsettling (two of the thesaurus’ synonyms) than it is soothing (antonym) when a non-competing vendor monetizes a technology in such a way as to deliver a superior product for a better price.

Which returns us to our word-salad imbued management science analysis. Whenever you see or hear something about “disruptive influences,” ask yourself this: who, exactly, would find this influence disruptive? For me, it’s all those digital disruptions changing the script.

[i] QUT Dynamic Capabilities of Innovation and Change website (which has two of our “reveal” words in the very title of the web page, no less):

[ii] Retrieved from https://research.qut.edu.au/dynamic-capabilities-of-innovation-and-change/2017/08/29/disruptive-influences-what-to-do-with-them-2017/ on September 29, 2018, 20:18 MDT.