Game Theory in Management

Back when I was working for Advanced Sciences, Inc., the company sent its upper management to a retreat in North Carolina to take a week-long class in Project Management. Since the attendees came from four different offices scattered around the United States, there were some mild dialect differences that led to a couple of entertaining interactions. But there was one phrase that seemed to be employed a lot, without a consensus on its meaning. That phrase: “slam dunk.”

To around half the attendees – those who, no doubt, either played basketball or at least kept up with a favorite team – the meaning was clear: a can’t-miss shot, something rather automatic. The other half seemed to think the term meant something analogous to getting slammed, or, put another way, to encounter excessive resistance, often from an internal source, for executing a certain approach to resolving a problem. Now, I was aware that the phrase meant very different things to different people, but I believe very few of the other attendees were so aware. Some of the outcomes were hilarious.

Manager with definition A: “So, if we can get our schedule baselines in good shape, then any government audit of them would be a slam dunk.”

Manager with definition B: “So, we don’t want that!”

Manager with definition A: “Don’t want what?”

Manager with definition B: “A government audit.”

Manager with definition A: “But I just got done saying it was something of a sure thing.”

Manager with definition B: “Like death or taxes.”

Manager with definition A: “What’s like death or taxes?”

Manager with definition B: “The government audit.”

Manager with definition A: “Of our baseline?”

Manager with definition B: “Yeah, I was agreeing with you.”

Manager with definition A: “Oh. Okay.”

Something similar happened when I was sent on a train-the-trainer class of a certain scheduling software platform that was attempting an expansion into portfolio management, which just happens to be this month’s Gantthead theme.  This expansion involved including in the scheduling software’s capabilities things like timesheet routing and approval, travel expense routing and approval, miscellaneous expense routing and approval – in other words, things that traditionally fell within the realm of the General Ledger, and Asset Management. At the end of the course, I and my colleagues were revealed to the president of this software company (his name may be recognizable to some of my readers, which would lead to an easy ID of the software I’m talking about, so I can’t be specific here. Sorry.) to be, not subcontract training company employees, but one of this software company’s larger customers. An audience with the president and his top veeps was hastily arranged, and our opinions of the new capabilities invited.

“You are established as a platform for project management information” I began. “If you wanted to expand your capability, you should have sought to perform more diverse PM functions, like Earned Value reporting formats, or creating the Basis of Estimate. Instead, you have expanded into areas usually covered by an organization’s General Ledger. So, if some company were to use your new portfolio management capabilities, would these supplant their existing systems? Or augment them? Was there any thought about how this new portfolio management system would interact with the General Ledger?”

I could almost see the light bulbs going off in the heads of the veeps, who were seated to either side and slightly behind the president. At least I was resonating with somebody.

“We’re confident that these new features will enhance our software’s ability to provide portfolio management capabilities…” the president began, as what he was saying began to strongly resemble the muffled trumpet used as a stand-in for whenever an adult communicates with Charlie Brown or one of his friends in the Peanuts specials. It seemed to me that an awful lot of effort went into this software’s upgrade without everyone involved being clear on the exact definition of “portfolio management.” It was almost as if this organization’s leaders were targeting information streams involved in executive management decision support, and coding them in to the existing system as adjuncts without really evaluating the valid components of portfolio management.

In my subsequent posts this month, I will explore the proper role of both the portfolio management function, and its appropriate supporting information streams, as well as those systems that pretend to provide the portfolio management function, but fall laughably short, and why. Yeah, yeah, I know – there are a lot of definitions of “portfolio management” out there, and many of them sound quite reasonable. They are, however, either wrong, or, at best, incomplete. I actually have the complete answer, and it’s shown in my recently-released must-have book, Game Theory in Management (http://www.ashgate.com/default.aspx?page=641&calctitle=1&pageSubject=2064&title_id=11616&edition_id=11979). Given the number of organizations hawking portfolio management capabilities, and the frequency with which they get it wrong, it should prove to be an interesting October.

As my last contribution to the Cutting Edge meme for Gantthead in September, I want to examine how one particular really dopey idea has made inroads into the Management Sciences, became popular, and then kind of stuck around, despite being, well, dopey.

My target is the business fable genre in literature. Wikipedia lists the following as New York Times bestsellers in this arena:

• Who Moved My Cheese by Spencer Johnson
• The One Minute Manager by Ken Blanchard
• The Five Dysfunctions of a Team by Patrick Lencioni
• The Treaveler's Gift by Andy Andrews
• Surviving Your Serengeti by Stefan Swanepoel

The point of the business fable is to assert some management science theory through fictional characters in environs both real and fictional, and – wouldn’t you just know it? – the management science theory being “tested” ends up working wonders. I believe this writing approach to be disingenuous, and in Cecil B. DeMille proportions.

Probably the most famous version of this in the Project Management realm is Eliyahu Goldratt’s Critical Chain (North River Press, 1977). In this novel the management “science” theory being propagated is essentially that resources can be transferred from non-critical path activities onto the critical path, thereby shortening the overall schedule network’s total duration. There are several problems with this idea, besides the most obvious one of what happens if the workers already assigned to the activities on the critical path are employing any specialized talents at all. A temporary excess of concrete pourers won’t, in all probability, be able to help any other team on the job site. The next biggest problem with Critical Chain is that it’s hardly original. Adding resources to a schedule network, particularly the activities on the critical path, is a trick that’s been around since the beginning of CPM scheduling. It’s called “crashing the schedule,” and every professional scheduler in the world knows it. But not the characters in Critical Chain! No, the protagonist just kind of swerves into it, and tries it out. Success and happiness follow in abundance, which it is what tends to happen in a fictional universe where a management idea is being sold.

I was actually asked by a very famous project management organization, that had its own publishing arm, to review a manuscript they were considering publishing. What I received was the management science version of Santa Clause Conquers the Martians (1964 film that is regularly included in lists of the worst movies ever produced). The manuscript followed the business fable template, but with well-known characters: Santa Clause and his elves! I swear I am not making this up. As Christmas Eve loomed, the elves were faced with production problems, supply problems, organizational behavior and performance problems … the list went on and on. Santa himself, in the role of toy production CEO, was trying his jolly best to resolve these issues, but was having little success until he began receiving anonymous notes bearing extremely cryptic bits of advice. Now, I know how dear manuscripts are to their authors, and I didn’t want to be so churlish as to let on that I thought the work was laughably bad. So, my evaluation was couched in terms like “I’m not completely confident characters that are so well-known in modern popular culture provide the most advantageous vehicle for furthering management theories of this kind.” What I wanted to say was, “Are you freakin’ kidding me? Bwa ha ha ha ha ha…”

In ancient Greece, the cradle of modern drama, there was a literary device known as Deux Ex Machina, literally, god from a machine. This device worked like this: the central conflict of the play would be introduced, and would drive the rising action towards the play’s climax. Then, when all seemed lost, one of the Greek gods would appear, “flown” in suspended from a crane. This god would use his powers to set all of the conflicts and participants aright, and the play would end. Even in ancient times, this was viewed as an extremely cheesy device, and ipso facto evidence of poor writing.

The business fable device is simply Deux Ex Machina, dressed up for a management profession crowd. The characters are introduced, the central conflict is recognized, the rising action begins. Then, when all seems lost, the management science theory is plugged in, and, voila!, everything is set aright. To get a sense of the utter absurdity of this device in the furthering of management theories, think of the reaction to a theory of surgical practice that was advanced, not through clinical trials, but through a New York Times best-seller – in fiction!  The very act of choosing that venue would render the author a laughingstock, if they were serious about advancing that particular surgical technique. But not so in “cutting edge” management. Small wonder the practitioners of the hard sciences tend to roll their eyes at the very mention of “management science.”

Back on the stage, actors react as if they have been stabbed when the prop in use is a rubber knife. But, off the stage – that is, in a non-fictional setting – rubber knives are literally (get it?) useless, “cutting edge” and all. Remember that the next time you see a business fable title on the New York Times best-seller list.

In my previous blog I examined how Game Theory failed to correctly identify the most likely strategy adopted by participants in The Ultimatum Game. I received a couple of comments on that piece, which actually serve as a segue into where I wanted to go this week. Any discussion of what the cutting edge of management science is, how it was developed, where it can be found, or when the next leap ahead might be expected or, if it’s already out there, recognized, largely depends on one crucial element: the who (not the rock band).

Who is it that developed the new, cutting edge idea? As I discussed in my September 3 blog, Thomas Kuhn points out in The Structure of Scientific Revolutions (University of Chicago Press, 1962) that when new theories are published and advanced that overturn an existing structure, those doing the publishing and advancing are almost always widely criticized, sometimes brutally so. No matter how effectively the new theory appears to explain the data points that appear to be only marginally explainable via the existing structure, those expounding the cutting edge hypotheses and theories can expect to be either widely ignored or wildly attacked, at least in the idea’s early stages of introduction. This phenomena is somewhat more pronounced in the so-called management sciences, since very little of the situation-stimulus-reaction-result chain that occurs in the macro\economic environment can be recreated in an experimental setting, where all of the factors and parameters are accounted for.

Take Tom Peters. In his works, he draws heavily from organizations that have realized some measure of success. His visits and interactions with the people from those organizations, when combined with his assessment of what’s different and what’s good about this particular organization, provide the majority of the narrative he provides in his books. However, as Nassim Taleb asserts in The Black Swan, it is an idea’s contagion, and not its validity, that drives its acceptance. We tend to take Professor Peters at his word, and try to search for some insight, some kernel of transplantable truth that we can take away from the stories of the sausage factory or gas station, or wherever else, and insert it into our organizations. We have no way of knowing what cognitive biases are in play when he assembles his narrative, nor do we even know if the examples he uses have realized long-term success as a direct result of the things he has identified as unique and good. Alas, such transplants are difficult and rare. It’s my opinion that Dr. Peters’ ideas are simply too broad and inchoate to lend themselves to specific implementations, lacking, as they do, an overarching structure that can be used to evaluate their fitness and meet.

Back home, within our organizations, it’s rather common for cutting edge ideas to be met with dismissal or derision. Problem is, bad ideas are also often met with dismissal or derision. On occasion, when a given employee has collected a critical mass of ideas that have been rejected by the owning organization, she will set out on her own and create a business based on the rejected model, to see if it really does work the way it was envisioned. This represents one of the truest laboratories for cutting-edge management science ideas, with the results written in terms of success or failure, for all to see.

For managers employed in areas where significant barriers to entry exist, this is usually not an option. These are pinned down in an environment of competing narratives, where attempts are made to attribute successes to various individuals’ contributions, and failures are laid at internal competitors’ feet (or hung around their necks – figuratively, of course). Politics – as I define as those actions taken that further an individual’s (or sub-group’s [clique’s]) agenda, but do not add (or even detract) from the macro-organization’s agenda – serve as a sort of watchdog that attacks those carrying the cutting-edge idea forward. Overcoming this bow-wave of resistance is the focus of the Implementation/Integration crowd’s body of work, and it is no small task.

Essentially, if you want to know what the cutting edge of management science is, then seek to find two essential ingredients:

1.      Who is trying to change the industry, or the organization?

2.      Assuming they are being frustrated in their attempts to implement change, why are they being frustrated? Is it because the change they seek is not beneficial or practical, or is it something else?

New and paradigm-shifting ideas are all around us, and not just in the management blogs and new, must-have books on the subject (like Game Theory in Management  http://www.gowerpublishing.com/isbn/9781409442417). We all work in mini-management science laboratories, with cutting edge ideas often just under our noses. The challenge to those seeking these cutting-edge ideas is to put aside our cognitive biases and political considerations, and recognize them.

From the time John Von Nuemann and Oskar Morgenstern wrote Theory of Games and Economics (Princeton University Press, 1944 – a date, incidentally, that indicates that Von Nuemann was working on this book while he was also working on the Manhattan Project), there has been this notion in the management science world that Game Theory, either on its own or in combination with statistics (or some other, complimentary area of scholarship), could help generate some sort of grand unifying theory that would enable those who developed such a theory to precisely calculate economic behavior. Put another way, there’s been this hope that some super-sophisticated formula, that took into account a sufficient number of parameters (by necessity, would have to be myriad), might lead to an ability to predict a macro-economic future with a usable degree of accuracy. As I’ve mentioned often time before, any reasonably competent stock broker or commodities trader, if handed a copy of next week’s Wall Street Journal, could begin picking out the color of his new Jaguar right away, so it’s easy to see why such a formula could be hoped for. It’s the management science equivalent of knowing the upcoming PowerBall numbers – placing Game Theory squarely at the very tip of management’s cutting edge.

As I discuss (at length) in my recently-released, must-have book, Game Theory in Management (https://www.ashgate.com/default.aspx?page=641&calctitle=1&pageSubject=1966&title_id=11616&edition_id=11979) , this quest to be able to calculate the future was even at the heart of Isaac Asimov’s famous Foundation trilogy. In Foundation, we are introduced to one Harry Seldon, who has actually developed a Code of Nature, which can calculate the future with a reasonable degree of accuracy. The most common analogy employed is that of gas (I swear I am not making this up): it would be admittedly impossible to predict the behavior of one molecule of a gas. But, given billions and billions of such molecules, their macro-behavior becomes predictable through scientific calculations and observations. Similarly, the Foundation trilogy occurs far into the future, when humans have populated much of the Milky Way and their population numbers in multiple billions. What’s notable about the fictional Seldon Plan is that it is nearly undone by the uncalculated appearance of a character known as The Mule, who can telepathically change people’s minds. Since The Mule is a mutant, his appearance could not have been anticipated through the calculated structure of the Seldon Plan.

The problem with developing a business version of the Seldon Plan, of course, is that it’s wildly impossible. I mean, the notion makes for great science fiction, but the genre of science fiction is usually chosen because the author needs to present a version of reality that’s completely impossible in the present, or even in the past. And that’s certainly the case here.

Consider that extremely simple game, the Ultimatum Game. In it, two participants – Player A and Player B – are offered $100 (USD), and they only need to do one thing to get it: Player B must agree to Player A’s initial plan for distributing the money between them. If Player B does not approve, neither player receives anything. Game Theory analysts calculated that Player A maximizes his payoff if he offers Player B just $1, and tries to arrange to keep $99 for himself, under the theory that, since Player B’s alternatives are to accept one unearned dollar, or nothing at all, they will always accept the former.

But a funny thing happened on Player A’s trip to deposit his $99. The scheme calculated to maximize Player A’s payoff was almost never accepted in actual experimental iterations of the Ultimatum Game. In fact, Player Bs didn’t come close to accepting the proffered split from Player A until the arrangement approached 60 – 40. Game Theory analysts offered explanations on why they were so dramatically wrong, often centered on unforeseen “cultural influences.” As far as I’m concerned, invoking “cultural influences” was a way of trying to get around the fact that, even when the parameters are as stark and hard as those in the Ultimatum Game, it’s simply impossible to exclude factors outside of those anticipated from having a profound influence on the selected strategies of the game’s participants.

Ultimately, (pun intended) Game Theory is next to useless when invoked to help predict the future strategies most likely to be invoked by participants in either artificially constructed zero-sum games, or in the behaviors of players in the macro-economic “game.” However, Game Theory is extremely valuable in the furthering of management science, since it plays the central role in…

Oops! I’m butting up against my word limit. To find out how Game Theory is of extremely valuable use in evaluating management strategems and tactics you will either have to purchase my previously-referenced book (I told you it’s must-have!), or else wait for me to disclose more in this blog in future postings. What do you suppose are the odds that I will select a strategy to tell you what you crave to know in the next couple of weeks?

Any discussion of the cutting edge of management science must, by definition, turn on its modernity. The threat here, though, is that novelty will be perceived as an appropriate stand-in for validity. Much of the management-themed content I peruse takes the opposite approach, that of attempting to portray as new or fresh ideas that are anything but. No matter how brain-gellingly dull these management trade magazines are, they seem to never tire of printing as astonishing or useful insight ideas that have been around for some time. One particularly insipid device used is the tack of re-introducing old techniques under new phraseology, much as “Life Cycle Estimating” was trotted back onto the business discussion pages in the 1990’s. How many articles have we been subjected to that had, at their core, some blindingly obvious re-hash of an idea that hasn’t been considered “cutting edge” since In Search of Excellence was big?

With the possible exception of Agile/Scrum, there has been a dearth of new ideas in project management. I even came across a book review of a tome that had in its title a reference to new ideas in project management. The review complained of the lack of new ideas! Harkening back to Gantthead’s August theme, Harvard Business Review actually ran a piece recently on how “green” procurement is highly virtuous. The author didn’t even bother to fake a claim of cutting-edge insight – he was happy tapping into a trendy subject, and tenuously cross-connecting a management science angle.

As long as I’m complaining about the venues that are nominally responsible for introducing cutting-edge managerial ideas into the marketplace, I may as well continue picking on Harvard Business Review. If you go to their website (although, as Gantthead readers, I can’t imagine why you would want to), they refer to themselves as publishing “(b)reakthrough ideas for business leaders and professionals….” From their guidance for article submissions, we see

Proposals for articles demonstrating fresh thinking that advances previous knowledgewhose (sic) practical application has been thought through in clear, jargon-free languageare (sic) those most likely to meet our readers' needs. When evaluating an idea, our editors often look for two things (sic) firstwhat (sic) they call the aha!How (sic) compelling is the insight?and (sic) the so what?How (sic) much does this idea benefit managers in practice?

Sorry about all the sics, but I didn’t want my editors thinking that I would publish something so obviously un-reviewed by proofreaders. Perhaps it was a “breakthrough” idea to forgo merit as a basis for hiring and retaining the website’s editorial staff, and focus instead on being “green,” or “diverse.”

So, they want “fresh thinking,” do they? Then how to explain this gem, just a few sentences later?

5. On what previous work (either of your own or of others) does this idea build?

6. What is the source of your authority? What academic, professional, or personal experience will you draw on?

In other words, they can either reject your article proposal either because it’s innovative, or because it’s not.

At another location of HBR’s website, they have at the top of their “recommended” article list – I swear I am not making this up – the title “Sex and the Working Mom.” The gist of this piece appears to be that managers must be aware of and make accommodations for the demands of their female employees’ libido, a concept I thought had lost favor immediately after the Clinton administration. Another recommended title: “Politicians Who Deny Climate Change Cannot Be Pro-Business.” In it, one Andrew Winston supports his “argument” exclusively through the syllogism of Begging the Question, where one asserts as truth evidence that has not been verified as fact, nor agreed to by the participants. (As an aside to any of my readers who may have skipped Classical Logic at the university level – any conclusion reached via a syllogism is automatically considered invalid.) Mr. Winston’s ultimate point appears to be that, if the bureaucratic goons who are shutting down little Suzie’s lemonade stand show up in a Nissan Leaf, it’s somehow good for “business.”

Which returns me to last week’s blog, and Thomas Kuhn. In The Structure of Scientific Revolutions, Kuhn points out that, when a true advance in science occurs, it is virtually never quickly adapted by the majority of the practitioners in whatever field is being advanced. In short, any genuinely “cutting edge” idea in management science is almost guaranteed to never make it past HBR’s staff. It’s far more likely to show up in, oh, I don’t know, my recently-released must-have book, Game Theory in Management (http://www.ashgate.com/default.aspx?page=641&calctitle=1&pageSubject=1966&pagecount=0&title_id=11616&edition_id=11979), or on Gantthead’s blog pages.