Game Theory in Management

Back in the 1970s a major American car manufacturer had an advertising campaign for one of their cars that included the assertion that their car, when compared to others in its category, had “more road-hugging weight!” I and my car enthusiast friends would often mock this assertion – anyone with a sense of the need to optimize a car’s power-to-weight ratio would instantly recognize that “selling point” as pretty lame – but, after all these years, I’m not sure we were mocking the right people.

Consider the mindset of the people who wrote the actual ad copy. They must have known more than the average car buyer about which car specifications would be considered attractive, and yet they included the more-weight data point as if it wasn’t a detriment. The more I (over-) think about it, the stranger it gets. I have to wonder if they considered going with “better ride,” which often accompanies heavier car chassis, or even “safer in a collision,” which is also associated with heft. Don’t get me wrong – I don’t know who put those ads together, or approved them for airing. My speculation, though, is that they knew going in that the “more road-hugging weight” assertion would not be attractive to consumers with an advanced knowledge about cars, and were, therefore, attempting to attract those people who would hear such a statement and consider it a preferable feature. They may have also been under the belief that those people who considered “more road-hugging weight” to be a positive thing outnumbered those who would instantly recognize it as a negative, at least among the population of those who made the ultimate decision in car purchases. The whole thing essentially begs for a clear-headed person, familiar with the actual goal of an automobile (to reliably, efficiently, and effectively transport people and cargo from Point A to Point B) to step up and say something.

Meanwhile, Back In The Project Management World…

Ah, yes, that perennial need for a clear-headed person to step up at critical times. This need is obviously not confined to advertising campaigns for 1970s-era cars. It is, in fact, ubiquitous, but this is a blog dedicated to Project Management, so I’ll confine my discussion to that arena by starting with the question, What is the point of a Project/Program Management Office (PMO)? Since I’ve posed this question to GTIM Nation previously, you only get go-to-the-head-of-the-class recognition if you are both a newbie AND answered “to provide PM-centric information to decision makers that is accurate, timely, and relevant.” In those cases where the PMO also serves as the organizational node for PMs, it also has to have a lot of meetings.

I’m not going to debate it – that’s the right answer, the warp and woof, the raison d’être

of the PMO. Of course, I’m fully aware that there are those who would disagree with this assertion, typically by maintaining that the PMO is also responsible for:

• Changing culture,
• Providing a thorough risk management (no initial caps) capability,
• Enhancing communications with “stakeholders,”
• Performing Six Sigma analyses.
• Maximizing the procurement process,
• Optimizing the recruiting approach,
• Training,

…or, perhaps most odious of all,

• Maximize shareholder wealth.

I take sharp exception to each of these claims, on the basis that these hangers-on to legitimate PM science fail to directly contribute to PM’s ultimate goal, to select those strategies and technical approaches that maximize the odds of bringing in the project on-time, on-budget. For those of you who are curious whether or not there’s a litmus test for what I consider a legit PMO purpose or not, it would be this: is it quantifiable?

The accuracy and timeliness of PM information can be gauged. Not so whether or not an organization’s culture is advancing with respect to its embrace of PM precepts. The risk managers (no initial caps) consistently flunk the relevancy test, as do the Six Sigma aficionados. Procurement and recruiting – which, incidentally, fall under the Asset Management umbrella – should work efficiently and effectively, but those standards of efficiency and effectiveness are entirely subjective.

Now consider how much effort is put into selling the PM community writ large that each of these specialties should have a place at the table when it comes to establishing an overarching codex of PM practices and principals. All they would need to do is to conduct a valid study that showed, in whatever quasi-controlled experimental setting, that the PMO that spent time and energy pursuing, say, an advanced Communications Management capability was consistently bringing in its portfolio on-time, on budget, due to the adoption of CM techniques. I’ve never seen such a study even attempted.

It's almost as if all they have left to back their claims of their specialty’s PM relevancy is to assert the management science equivalent of “more road-hugging weight.”

No discussion of career advancement within Project Management (ProjectManagement.com’s theme for March) would be complete without an at least cursory compare-and-contrast exercise with the nominal career trajectory of our friends, the accountants. What pops to the surface of this cursory examination is the obvious fact that these two nominal career paths are very different, even though in each case we’re talking about bringing to the macro-organization a certain level of business expertise in matters ranging from the picayune (should we rent or buy the copier? Which estimating method should be used in deriving the Cost Baseline?) all the way to the future-defining (which indirect projects should be funded this year? Which projects in the portfolio represent the macro-organization’s core capabilities?).

I think the central reason that the Asset Managers’ nominal career trajectory is so different from the typical PM practitioner’s has to do with the fact that the general ledger is the system of record when it comes to determining how much tax revenue is due to the government. That’s the reason that all licensed businesses are required to have a general ledger before they can conduct any actual business. Compare this to the fact that, for the most part, even large project-oriented businesses are completely free to either embrace the tenets of PM as articulated by PMI® (or any of the other organizations promoting its practices), or to eschew them altogether. Granted, those organizations that do resist the precepts of PM are far more likely to fail, earlier rather than later, but the fact remains that they are still entirely able to ignore the PMBOK Guide® if they so desire. No such leeway is granted for the creation and maintenance of the general ledger. Conducting business without one can (and almost certainly will) lead to the arrest and imprisonment of the managers responsible. Can GTIM Nation imagine how the business world would be different, if PM was the law of the land, and it was the Asset Managers who had to convince the management universe of the efficacy of their information systems? Conventional wisdom would bestow axiomatic status to the assertion “The point of all management is to deliver the customers’ expectations on-time, on-budget,” and to hint that the point of all management is to “maximize shareholder wealth” would get one laughed out of the faculty lounges in business schools across the land (hey, a guy can dream, can’t he?).

The point here is, as long as there are governments keen on collecting tax revenue from businesses (essentially, forever), there’s going to be a baseline-level of demand for those who have a talent for creating and maintaining those types of information systems, i.e., accountants. We PM-types are left on our own, to seek out and support those organizations on the lookout for a competitive advantage when it comes to delivering scope on-time, on-budget. “But Michael!” I can hear GTIM Nation say, “That’s also a forever business environment! There will always be companies seeking such an advantage!” True, but, as pointed out earlier, those organizations that eschew PM won’t go to jail for it. And falling behind on Project cost and schedule performance can take time to become obvious to the clientele writ large.

Here, again, is an example of why the Asset Manager’s career path is different from the typical PM practitioner. If, at month-end close, the books don’t balance, the accountant/CFO has clearly erred. Conversely, if, at the project review meeting, a PM is showing an out-of-threshold negative cast and schedule variance, he has an opportunity via the Variance Analysis Report to accurately explain why … or to obfuscate, deflect, and deny the bad news in front of everyone’s eyes. Essentially, the accountants’ mistakes are clear, direct, and reliably quantifiable. The PM’s mistakes can be obscure, circuitous, and imprecisely quantifiable (hence the need for Variance Analysis Thresholds).

With that kind of space between timely, accurate, and certain evaluation parameters and eventual PM reward (or comeuppance) being established, non-merit-based operators have all they need to move upward in the macro-organization’s PMO at the expense of the most talented. Only the long view, at the portfolio level, will reveal which PMs consistently bring in their scope on-time, on-budget, and even that is contingent on a broad-based Earned Value Management System (EVMS) that keeps track of all of the projects’ actual performance.

But EVMSs aren’t required. General Ledgers are. I think that’s the main reason why the career advancement of PMs is usually more uneven than that of the Asset Managers’/accountants’. All this having been conceded, I must admit that I kind of prefer the uneven trajectory. It keeps things from getting boring.

GTIM Nation knows of my low regard for risk management (no initial caps) analysis as a source for reliable management information. The one area, though, where it might be of some use is in the creation of a Contingency Budget for projects that have been negotiated as a Cost Plus-type contract. This type of contract is normally used for projects that involve a significant degree of risk, typically due to being performed at a venue where personal and materiel security can’t be guaranteed, or else due to the incorporation of new technology, truly novel scope, or some combination of these. Due to this inherent level of uncertainty, many project sponsors will allow for the development of a Contingency Budget, for work that is definitely in-scope, but isn’t in any of the baselines.

Ah, but there’s the rub: what, exactly, is in-scope, uncosted? This question is the very essence, the raison d’être of the whole Baseline Change Control process. For if there was an easy litmus test for which requests for additional budget were legitimate, and which were based on poor performance (and should therefore be rejected), then it wouldn’t take a multi-member Baseline Change Control Board to micro-evaluate each and every Baseline Change Proposal (BCP), deliberate it, and hand down a determination days (or even weeks) later. Such a litmus test could have conceivably prevented the entire Agile/Scrum Project Management theory codex from coming into existence, since its main purpose was to streamline configuration management in such a way as to keep BCCBs from delaying needed changes to software projects’ baselines that had to happen in the very near-term in order to prevent IT project failure.

Alas, such a litmus test does not exist, requiring the now-elaborate processes embedded in the Baseline Change Control Board charter to ensure the funding of true contingency events, the exclusion of false ones, and an equitable treatment of the in-between events. These processes are highly resistant to formulaic remedies and, due to this chaotic aspect, begin to assume the characteristics of some grand game. For example, a common assertion from the risk management (no initial caps) crowd is that, if an uncosted event occurs, and it was described in detail in that Project’s risk register, then the approval of the Contingency BCP should be somewhat automatic. However, if a true contingency event has happened, but it was not documented as a possibility, then the risk managers’ strategy with respect to the role of the risk register has to change, from being an adequate tool that captures potential risk events, to a document that only addresses some of the things that might happen, and we just missed this one, don’t you know. It’s the risk managers’ version of the heads-I-win, tails-you-lose trick, rephrased as “If it happens, and it’s in the risk register, it’s automatically a legit contingency event; but, if it’s not, it still might be a contingency event, we just need more time to tell you why.”

Then we have the very real possibility that either the customer or the PM may act in a way that would allow only one of them to win this game, as depicted in the following Payoff Grid:

Scenarios (B) and (C) depict the BCCB functioning as it should. Savvy customer oversight management will be on the lookout for Scenario (D), in order to prevent a “get well” BCP from getting through the process, and covering the costs of poor performance, a bad initial estimate, PM-initiated scope creep, or any of the other drivers of project overruns and delays. Conversely, PMs will work to prevent Scenario (A) from unfolding, which would lead to the contractor having to absorb the costs from an event that had nothing to do with the Project Team’s performance, or even the agreed-to Scope Baseline. It’s noteworthy that Scenario (A)’s outcome is exactly the same as those instances where the Customer induces scope creep, in that (1) the Project Team performs work that was not costed, but somehow slithered was informally introduced into the Scope Baseline. Within the game vernacular, this could be seen as either master-level play, or cheating, but what’s clear is that we’ve moved well beyond the nominal method of disposing business conflicts and into a winner/loser configuration, meaning we are, essentially, playing a game.

And Game Theory is what this blog is all about.

I’m sure most (if not all) of GTIM Nation is familiar with the axiom “politics is downstream from culture,” but what is upstream from culture? In using the upstream and downstream analogies, I mean that changes in the “downstream” entity follow ones in the “upstream” categorization, sometimes with a clear cause-and-effect manner, other times more subtly. So, if the politics version of this axiom is apt, what would be the equivalent connection for, not the hopelessly complex culture in general, but for the more specific corporate culture, or the Project Team’s?

If you perform an internet search on the truncated version “Culture is downstream from …”, a common answer is “leadership,” but this is problematic in that it leads to a form of tautology. Since most nations elect their leaders in some form of a political process, the whole upstream/downstream business becomes cyclical, as in Politics is downstream from Culture, which is downstream from Leadership, which is elected politically. Within the confines of the specific organization, leadership determining corporate culture does have the ring of reasonableness about it. Sure, there are going to be at least some cultural values shared by the macro-organization, but individual management leaders are going to have a far more direct impact on the Project Team’s philosophy than executives who may have little or no direct interaction with any of them.

GTIM Nation knows of my respect for the work of Michael Maccoby, specifically his book The Gamesman (Simon and Schuster, 1978) where he asserts four archetypes of workers, The Craftsman, The Company Man, The Jungle Fighter, and The Gamesman. Now consider a scenario where the macro-organization has a certain set of values and managerial philosophies that make up its “culture,” such as it is. Some of these values and philosophies are formal, and documented in policies, procedures, and in other venues. Others are unspoken and undocumented, either because they’re considered to be obvious, or else because they make up a behavioral expectation that’s part of the business model, but would reflect badly on the macro-organization if they were to be articulated openly. But make no mistake: transgressing the unspoken rules of the corporate culture can easily be as career-threatening as breaking the stated rules, should the outcome be other than unmistakable success. Funny thing about success – it has a way of reducing the stigma of having broken cultural norms, if not clearly-articulated rules.

But back to The Gamesman. Bouncing off of the notion that Culture is downstream from (Project) Leadership, your Project Team’s derivative culture will almost certainly be influenced by the Maccoby archetype of the PM, so:

• The Company Man will adhere to both the spirit and the letter of the stated values of the macro-organization, and will only follow the unspoken versions to the extent that they are consistent with the documented ones. The frustrating thing about having a Company Man as PM is that they will almost always follow policy even in those instances where common sense points to a different course of action.
• The Jungle Fighter will also follow published guidance, but for a different reason. This type of PM is in a difficult position in that they typically have minimal technical expertise on the scope being pursued, having arrived at the PM position via some avenue other than pure merit. Following official organizational guidance serves as a defense against the day when their lack of expertise catches up to them, in that they can claim to have “followed the book” in setting the technical agenda, even in the face of individual failure.
• The Craftsman is likely to begin testing the limits of the unspoken corporate norms, and even some of the documented ones. This type of PM puts a premium on quality of output, and not so much on the very corporate culture that seeks to shape decisions. As long as they attain the desired favorable outcome, they should be positionally safe.
• Then we have The Gamesman, who lives almost definitionally in the zone where success serves as a metaphorical get-out-of-Corporate Policy – jail—free card. This type of PM knows the rules – they are, in fact, masters of them – but they also know that taking measured risks is part and parcel of attaining that success AND often antithetical to the type of behavior that those policies seek to control.

It follows, then, that if my assessment of what happens at the intersection of Maccoby archetypes and Project Team sub-culture influence is reasonable, that “culture” follows success; and, if that success is attained by bending (or even breaking) the spoken and unspoken codex that represented the existing culture, then that codex will change towards one that is more conducive to future Project victories (or the organization will fail, depending on how rigid the existing codex may be). Two implications from this conclusion stand out: (1), “organizational culture” cannot be directly changed, but can be influenced by those managerial leadership approaches that result in success, and (2) Company Men and Jungle Fighters are particularly poorly placed to effect such changes.

Oh, well.  

“And here comes in the question whether it is better to be loved rather than feared, or feared rather than loved. It might perhaps be answered that we should wish to be both; but since love and fear can hardly exist together, if we must choose between them, it is far safer to be feared than loved.”

                        -- Niccolo Machiavelli, The Prince[i]

I once worked for a medium-sized U.S. Government contractor. This particular company had a bad case of what I like to call the Lifeguard Syndrome, or the notion that, if they could just hire the right Chief Executive Officer, or some other high-level exec, that this person would rescue the organization from drowning in its problems. One of the Presidents helicoptered in was rumored to have said, soon after his arrival, that “Every employee should arrive to work each day a little bit afraid.”

At the time I didn’t know what to make of that quote, assuming that he had actually said it. On the one hand, I could kind of see the underlying thought pattern, that the rank-and-file employee would typically not do their absolute best if they were complacent about their long-term futures with the company. On the other hand, I had first-hand experience with a much larger government contractor, where fear of being laid off was both pervasive and intense, leading to a highly toxic work environment, and I absolutely did not want to relive that nightmare. That having been said, there was really no comparison between the smaller company’s overall performance and the larger one: the larger, more fearful (albeit toxic) organization dramatically outperformed the more chill one.

On a more extreme scale, I’ve observed one common element among truly notable champions across multiple sports: they’ve displayed a strong aversion to, or even fear of, losing. In NFL Films’ production America’s Game, the 1992 Dallas Cowboys, Michael Irvin had the following to say about Head Coach Jimmy Johnson:

See, that’s the thing … you can’t lose here. Jimmy made it so uncomfortable losing.[ii]

Many other champion head coaches, like Bobby Knight or Vince Lombardi, were known to become rather, shall we say, harsh towards their players after losses.

I’ve been on high-performing teams. I’ve also experienced my fair share of teams headed by complete incompetents, and it showed. The thing about the poorly-managed teams was that, though the manager had set a sub-optimal (or even unworkable) technical agenda, they would attribute the team’s downward performance spiral and eventual failure to the team’s lack of ability or commitment, and felt at liberty to invoke more harsh treatment of them on that basis. Rather than inspire better performance, these team members would typically (and predictably) resent such handling. The more talented members would seek employment elsewhere, up to and including competitors’ organizations, while the less confident would stay on, enduring the worsening treatment from management, pursuing the wrong technical agenda, and hoping for the best. Were they fearful? You bet. Did it lead to championship-level, or even improved performance? Of course not.

And let’s not forget that, on the other end of the spectrum, PMs who fail to adequately address consistently poor performers are likely to be judged rather harshly by the other members of the Project Team. At some point and at some level, the others will recognize that the presence of poor performers reduces the chances of bringing the Project in on-time, on-budget, and they will most likely have an (entirely reasonable) expectation that the PM will rid the Team of the non-contributors.

For better context, I want to revisit Hatfield’s Incontrovertible Rules of Management #24, which reads:

24. The three essential qualities of managerial leadership are:
    1. The ability to identify the optimal (or at least workable) technical approach to the problem(s). The Team will quickly know if they are barking up the wrong tree, and will become disillusioned.
    2. To genuinely care about the people on your Team. If you don’t care about them, why should they care about you, or your technical agenda?
    3. To be willing to pursue your technical approach, alone if necessary.

My previous story covered why (a) is essential, but what about (b), and how does a PM dealing with failure harshly fit into that? Here’s where I want to call upon an enhanced level of nuance. Harsh treatment from valid leadership isn’t about inducing fear of the leader, personally. It’s about inducing fear of failure, no matter who is in charge. One litmus test would be to ask the question, does the individual continue to loathe the thought of losing even in the absence of the harsh manager/leader? I invite GTIM Nation to recall a teacher that managed to inspire their best performance. I have absolutely no trouble admitting that I was at least a little bit afraid of these types of instructors, but there’s something else: they left me with a stronger aversion to failure, not for its own sake, but because I came to expect more and more out of myself.

So, as to the answer to my original question, about whether or not it’s a good thing for employees to show up to work a little bit afraid, I’ll leave an overall response to individual GTIM Nation members. For my own part, I think that, if I ever lose my aversion to failure, if I’m not at least a little bit afraid of falling short, I’m probably in the wrong job. It’s a fear of failure – any other variety may very well lead to a highly toxic work environment, and I wouldn’t wish that on anybody.

[i] Retrieved from https://www.enotes.com/topics/prince/questions/could-you-explain-what-qoute-means-when-ch-17-269368 on February 25, 2024, 17:38 MST.

[ii] From America’s Game, the 1992 Dallas Cowboys, as shown on https://www.youtube.com/watch?v=C6z-Zb6WcHw, viewed on February 24, 2024, 19:39 MST.