Game Theory in Management

I thought I’d kick off this month’s theme – consulting – with a seemingly obvious question: what does the central setting of the 1960s television series Star Trek, the Starship Enterprise, look like? Of course I know that the fictional Constellation class starships are probably the most recognizable examples of spaceship architecture in the universe (get it?), and I would bet real money that more people could recognize the Enterprise on sight than the historic Apollo 11 command module (Columbia). So, what’s the big deal, right? Doesn’t everyone know what the Starship Enterprise looks like?

Well, yes and no. This became an issue to me one year ago, when my family bought me a large, lighted model kit of the Enterprise, and I set about doing the research to get it exactly right. The first place to look, of course, was the eleven-foot model that DesiLu studios used in the filming, which is now (like the Columbia, actually) on display at the Smithsonian’s National Air and Space Museum. What a lot of people don’t realize is that the eleven-foot model is actually unfinished on the lower left side – no lights, no decals, no weathering. They just never shot her from that angle (there’s actually an electrical cable duct-taped to the outer edge of the port engine’s support). So, I asked my family if I should imitate that aspect of the model.

“Of course not.”

“Why not?”

“Because that wouldn’t be on the real thing.”

“The ‘real thing’ doesn’t exist.”

“You know what we mean.”

But once I decided that the eleven-foot shooting model wasn’t the “real thing,” then that threw open the doors as to what did look like the real thing.

Some years back an effort was undertaken to re-do the special effects, backgrounds, and music of Star Trek (the Original Series), which included a new version of the Enterprise, this one digitally rendered (how ironic is that? A digital version of a thing is closer to reality than the tangible version!). In the episode Court Martial, references are made to “pods” on the Enterprise which, when the ship was in danger, could be jettisoned, but only after its occupant had been given an opportunity to evacuate said pod. The eleven-foot model had no such pods, but the digital version did – they were little, lit, blinking half domes, positioned on either side of the aft part of the lower hull.  Add to that the impulse engines – located at the aft part of the saucer section – appeared to be lit from the set of the interior of the engineering section, the digital Enterprise would show them as being lit on exterior shots. But the eleven-foot model never showed them as such.

If you think I’m overstating the “real” appearance debate by pointing out the finished/unfinished lower hull, pods/no pods, and lit impulse engines/unlit ones, I assure you this is only the beginning. Trekdom was positively in conniptions over the extent of the weathering on the latest refurbishment of the eleven-foot model. Think about that – how does anyone intelligently debate the manifestations of corrosion of materials that have not yet been invented when they are exposed to environments that have not yet been encountered?

Soooo … what does all of this have to do with consulting? Consider what represents the demand for a consultant’s services: the organization is facing a problem that it perceives will need additional resources to overcome. Think about the subject and object of the previous sentence as being on opposite sides of an equation: organization versus problem. It’s a rare problem that is resolved identically by every organization that encounters it. So, where does that leave the consultant? Does it not imply that, prior to any actual contribution to problem resolution, this newcomer to the organization has to have a grasp of the inner workings of the client, including which management pathologies have been integrated into the business approach, as well as the strengths and shortcomings of each and every major-level decision-maker? Is it not at least a possibility that, even if this particular consultant has seen the hiring organization as often as Star Trek reruns (possibly in the hundreds), some fairly relevant aspect of it – like not being finished on the lower left side – has escaped notice, because it was never viewed from that angle? And, finally, does this relationship not also imply that the consultant knows how the “real” organization is supposed to function?

All of these questions should at least give pause to those who hire consultants with the expectation that their investigations and reports are beyond reproach. And, yes, I did include the lit impulse engines and blinking pods, because that is how the real thing appears.

I have often stated in previous postings how the worst 20% of managers, in command of 80%of the information they need to obviate any given decision, will consistently outperform the top 80% of managers who have access to only 20% of the relevant information needed. So, what happens when those bottom 20% managers are in command of that coveted 80% of the information? Well, usually, success … but not indefinitely. What derails them? In my experience, the most common element is … hubris.

These bottom 20% of managers likely don’t know the real reasons they came to their success, and will often attribute it to their own (non-existent) talent. Much like lottery winners who delude themselves into believing that their new wealth was somehow merited, low-talent managers will indulge their conceits at the expense of their associates, almost always with wrecking-ball-like results.

Take the hiring process. Once an organization has experienced success, the temptation on the part of poor management is to mis-identify how they became successful in the first place, and further mis-identify the causal factors as having something to do with them, personally. They then tend to hire those like themselves, objective measures of merit be damned. Once the realization that advancement within the macro organization is being based on something other than actual accomplishment, several other pathologies are introduced into the business model, including:

·         Morale plummets,

·         The best decision-makers are displaced from positions where their decisions matter, to be replaced with the poorer decision-makers,

·         Everyone in the organization instantly recognizes that all of that fluff in the organization’s mission statements and strategic plan, about how the execs care about their customers and their people are their greatest asset, blah blah blah, is exactly that: fluff.

·         A cynicism sets in, where the rank-and-file treat any communication from the executives with skepticism at best, derision at worst.

As these organizational behavior and performance pathologies become more commonplace, the threat is that the organization will enter into a self-defeating cycle – a tailspin, if you will, that makes the adoption of the tactics needed to maintain the organization as an ongoing concern more and more difficult to uncover, much less implement.

I’m sure most (if not all) of my readers have experienced involvement in a failing enterprise at some point in their careers, and it’s a thing to behold. The pettiest, most irksome of managerial personality traits, once attached to the business model, become amplified into company-busting anvils raining down on the office roofs of the executive suite. But let the aware reader beware: the existence (if not prevalence) of poor managers is pretty clear evidence that there’s something going on behind the scenes that protects these guys from receiving the comeuppance any other employee would receive for demonstrating a pattern of poor performance. And that “something” almost always has to do with the existence of agendas that are being pursued that are not articulated in the company’s official mission statement – in other words, politics.

And just to be clear – I have never encountered the management blogger, author, or columnist that can provide intelligent insights that are broadly applicable on the subject of office politics. Why? Because political, sub-rosa agendas are secret for a reason. By definition, they run counter to any of the precepts of management science theory.

And they also keep the lowest 20% at the top of their games.

One of my favorite pundits used the word “anodyne” the other day and, not being quite familiar with it, looked it up. Merriam-Webster defines it as “something that soothes, calms, or comforts.” Then I began my review of articles and seminar session summaries in the project management arena (gotta stay current, right?), and  you’ll never guess which word kept popping to mind. And, no, it wasn’t “anodyne.” It was “jejune,” which is defined as “without interest or significance; dull; insipid.” And these two words have spurred me on to this week’s rant.

Thomas Kuhn published The Structure of Scientific Revolutions in 1962, to considerable success. In it, he posits that people have a tendency to view scientific advances as occurring steadily; however, such advances virtually never do so. They advance by fits, starts, and leaps, usually along the lines of the following steps:

·         The widely-held theory sees new data challenging its validity.

·         In response, scientists invent cycles and epicycles, added on to the existing theory, in order to explain the new data.

·         Eventually, the new data drives the need for so many added cycles and epicycles that parts of the prevailing theory begin to unravel.

·         Someone comes up with a new theory that explains the new data, and most of the existing knowledge, in a structured manner. This person is ridiculed or ignored.

·         As the new theory is explored and expanded, it not only explains new observations in a way that the previous orthodoxy could not, it actually does a better job of explaining the data that had previously supported the conventional.

·         Finally, a preponderance of scientists embrace the new theory, until…

·         …new data is documented that seemingly can’t be explained by the now-commonly-held theory.

Of course, Kuhn was addressing the so-called hard sciences, but I believe that his insights can have a profound impact in the arena of management science.

Now, think back: other than at ProjectManagement.com, when was the last time you read an article that directly challenged some aspect – any aspect – of commonly-held PM principles? One seminar advertisement I received recently boasted of a session on the implementation of earned value at a large, government-run agency. This agency had long been an embracer and promoter of earned value management systems. I’m sure it’s a lovely presentation, but how much cutting edge management science does anyone expect to be introduced when discussing projects at an agency that was already disposed towards using such systems?

After reading about several other, similar sessions, I was reminded of the news stories about the U.S. Department of the Interior declaring silver and largescale silver Asian Carp to be injurious and invasive species along the Mississippi River and Great Lakes. I mean, just look at them – they appear to be extremely benign to me. It’s not as if they have the appearance of, say, Piranha. I happen to have a pet carp, myself (also known as a “goldfish”). But environmentalists believe them to be hazardous to the waterways, and not just because they leap in the air and collide with jetski operators. They displace other, more beneficial species – kind of like how the jejune topics replace edgier ones on the seminar docket, time and time again.

Now for the “anodyne” part. These articles, these sessions – are they not, essentially, efforts to make those who embrace the commonly-held ideas about project management feel better, more confident about themselves? It’s almost as if any deviation from the conventional is automatically tamped down, to never see the refereed journal/seminar presentation light-of-day.

So, what’s in the mainstream of PM thought? That stream is chocked full of anodyne carp, displacing other species in the Great Lake of management science theory, alarming those in the know, and drawing big yawns from those who believe that PM, as an established science, has little more advancement in front of it.

And that, dear readers, is a very dangerous environment indeed.

As my regular readers know, I have long maintained that the 20% worst managers who are in command of 80% of the information they need to obviate any given decision will consistently out-perform the 80^th percentile best managers who have only 20% of the information so needed. Combine this with the age-old axiom that information is the life-blood of the organization, and what do you have? An inescapable conclusion: there are going to be people in the organization who will attempt to manipulate – if not out-and-out control – the flow of needed information in order to advance their own personal agendas.

It’s unavoidable.

But it’s not as if the information stream dammers and sluicers have a completely easy time of it. To the extent that chief executives are unclear on which bits of information are relevant, trying to anticipate what data collection activities and processes need to be controlled can be next to impossible. Much like Stan Lee, who seemingly can only go a couple of years before re-telling the story of the origin of Spider-Man, I really like to tell this illustrative story. I once worked for a small engineering company that had no idea how to project future revenues. None whatsoever. But there was no shortage of those who presented as if they knew. During a multi-branch conference call, one out-of-town (and out-of-touch) manager posited that their revenue projections should be based on the number of engineers on staff, multiplied by their billing rates!

“That’s not how you project revenues.” I stated flatly, drawing looks from the execs around the boardroom where I sat, both irked and astonished.

“One crude but effective way would be to assess the win rate of each office, multiply that figure by their existing proposal backlog, and time-phase that figure by the periods of performance.” I continued.

The company’s CEO scoffed, “I don’t want to prescribe any specific formula…”

“Then take the contract win rate by type of work rather than geographic placement, sort the proposal backlog by that figure, multiply the two, time-phase that figure, and you have your answer.”

“Again” the CEO re-scoffed, “I don’t want to prescribe any specific formula, but everyone’s projections are due by the end of the week!”

After the meeting I approached the CEO for a side-bar.

“Don, if I could produce the kind of information you’re looking for on this revenue projection business, and demonstrate that my approach is superior to the ones being undertaken by the various offices, would you at least look at those reports?”

“Knock yourself out.”

I was in an enviable position. As Project Controls Manager, I had no narrative to support or defeat, no allies to buttress nor enemies to put down. All I had to do was collect some readily available data, use the proper process, and push out the (extremely valuable, of course) information stream.

Long story short (too late!), the CEO as well as the owner of the company came to eagerly anticipate the revenue projection reports that emanated from the (rather basic) analysis of the contract win rates and proposal backlog, sorted by various criterion.

However, I made a lot of enemies in the process. All at once, here was an extremely valuable information stream, going straight to the CEO, that couldn’t be diverted, dammed, or manipulated by those in the organization who had narratives to defend, narratives to advance. The long knives came out, and I was working elsewhere within months. So, too, were all of the other people in the company, its having been bought out and closed down within a couple of years.

But it did teach me a couple of valuable lessons which I’m happy to pass along to my priceless readers:

·         Being right makes you more valuable to the organization, but it also makes you a target, and

·         Those who view themselves as the dispenser of valuable management information to the executives will do what’s needed to avoid being usurped.

So, continue what you’re doing, and do your best to provide those needed (relevant!) management information streams.

Just watch your back.

“You must unlearn what you have learned.”

In my previous blog(s) I have addressed how much of what passes for insightful management science, as taught at the college level, is really rather silly stuff. From the assertion that the purpose of all management is “to maximize shareholder wealth,” all the way down to risk management types being able to quantify the future, a whole lot of drivel masquerading as sophisticated analysis has been introduced to the business decision-making process, at all levels of the organization. What is there to do about it?

Well, Yoda has a point in the previous quote. And it may very well be that a small band of truly enlightened Jedi (strikethrough) managers do succeed in turning the great ship of management science towards a set of structured ideas that far more accurately reflect what’s happening in the real microeconomic universe.

But I kind of doubt it.

I think far more likely scenario unfolds where professionals who are blissfully free from having been indoctrinated in the standard MBA fare will find themselves in positions to make managerial decisions, and will make better ones than their counterparts enmired in the drivel.

“Judge me by my size, do you?”

And where, exactly, will these non-indoctrinated managers learn the more advanced tricks of their trade? Actually, that’s kind of an easy question, being, as we are, in the midst of an information technology revolution. The most obvious places would be web sites such as ProjectManagement.com. There are also myriad books, many of them best-sellers, that directly challenge many of the precepts of standard management science. For example, I’m convinced nobody can read Nassim Taleb’s The Black Swan, the Impact of the Highly Improbable, and then sit through a paper presentation given by a risk management-type without erupting into a fit of the giggles. Michael Crichton, in his CalTech/Michelin Lecture series speech “Aliens Cause Global Warming,” points out the irrefutable fact that consensus is not science, and science has nothing to do with consensus, period. All “science” needs is a single researcher who happens to be right, and can reproduce her results in the laboratory. Management science is somewhat removed from the hard sciences, in that it’s impossible for us to isolate the parameters of the experiments we need to test our theories; however, Crichton’s basic assertions are perfectly transferable. It doesn’t really matter if most business school professors insist that the point of all management is to maximize shareholder wealth – those in the real world who know better will outperform their “better educated” associates, and in obvious ways.

“For once you start down the dark path, forever will it dominate your destiny.”

Pick up a typical university-level textbook on quantitative analysis in business, and thumb through it. Pretty daunting stuff, no? Even after having survived accounting, finance, statistics, and micro and macroeconomics, I remember being pretty freaked out when I bought my text on the subject. But after immense amounts of effort and time, ingest the material I did. Imagine, then, my consternation when additional scholarship led me to question its precepts, and then to come to the conclusion that most of it was profoundly misguided. I didn’t want to give up on that knowledge! It made me more capable than those who hadn’t been as “educated!”  The accountants have a saying that you should never invoke the sunk cost argument while contributing to a business discussion on whether or not to continue with a given project. While that may be easy to observe in an organizational setting, personally it’s very, very hard. Once someone has devoted significant time and effort to any given structured set of ideas – religion, politics, how to manage – getting them to realize that they may be in error is next to impossible, much less convincing them to reverse course. But I’m reminded of an old Turkish saying – “It’s never too late to turn back from the wrong path.”

While Yoda’s sage wisdom was certainly true in most cases, the whole bit about “forever dominating your destiny” wasn’t so with Darth Vader/Aniken Skywalker, was it? I suppose 800-year-old fictional aliens are only so sanguine when it comes to portfolio management…