Game Theory in Management

Building on last week’s blog, where I discussed the insightful framework posited by Carnegie Melon University’s Software Engineering Institute’s Capability Maturity Model®, I pointed out that the CMM®, while asserting the five levels that organizations go through when attempting to advance a given capability, didn’t do as good a job of showing how the organization advances from level to level. One book on this topic by Kim Caputo, CMM Implementation Guide; Implementing Software Process Improvement (Addison-Wesely Professional, 1998) discussed six steps that should take place in-between each CMM® level:

1.      You introduce the nature of the capability improvement to the macro organization,

2.      and then scope out the exact nature of the participant’s activities with respect to the capability advancement.

3.      Launch a pilot project, and (presumably) bring it in on-time, on-budget.

4.      Widespread group assimilation follows the pilot project,

5.      then institutionalization takes place,

6.      followed by an audit to see if you really have achieved the next level.

Now, Ms. Caputo readily admits that there is, in her words, a “chasm” in-between steps 3 and 4, with devastating results. If widespread group assimilation does not take place following the successful completion of the pilot project, the implementation team is forced to start over again, and re-introduce the capability being sought, re-scope out requirements for the actual participants, etcetera, etcetera. But here’s the catch – the implementation team only has two, maybe three bites at this apple before the organization just gets tired of hearing about the need for the particular capability enhancement, and tunes you out.

If I understand Ms. Caputo’s points correctly (and I believe I do), she councils enhanced communications among the implementation team members and those who decline to participate. By drawing out their unstated or poorly-stated reservations, she believes that the parts of the organization that are attempting to avoid contributing to the implementation effort can be persuaded to change their minds, and contribute. Frankly, I don’t agree – I’ve always felt the communications aficionados wildly overstated their techniques’ abilities to improve management.  It was during this time, when I was attempting to solve the problem of members of the macro organization electing not to engage to the extent needed for a successful implementation (a behavior Ms. Caputo calls “the silent veto”), that I had a key conversation with Bud Baker.

Bud Baker is a professor and the Chair of the Department of Management and International Business at Wright State University. However, before he got his high-falutin’ title, he was, like me, a columnist for PMNetwork magazine. Those were PMNetwork’s halcyon days, when the monthly columnist lineup included people like Professor Baker, Neil Whitten, John Sullivan, Paul Dinsmore, Deborah Bigelow, and me (needless to say – but I’ll say it anyway – PMNetwork’s columnist lineup is nowhere near this level of talent today, except maybe when Bud sends in some of his work). While wrestling with this crossing-the-gap issue, I spoke with Bud, who said the act of withholding the participation level needed to perform a given implementation was called “the slow roll” from his days of doing project management consulting for the United States Department of Defense. The organization targeted for the enhanced capability knew that there was a finite amount of energy behind the push for improvement and, if they could participate just enough to see the overall effort lose steam, they would be able to go on doing their jobs the way they had been, without appearing to be the reason the sought-after improvement effort failed. It was both insidious and perfectly predictable.

So, what is the solution to overcoming the dreaded Slow-Roll? The answer comes from a highly analogous situation from Game Theory, and is…

…coming next week (yeah, I know this is the second week in a row I finished with a who-shot-J.R.-style cliff-hanger, but it is a rather complex problem).

There is absolutely no truth to the rumor that I’m paying Cameron under the table to proscribe our monthly themes based on subjects that I’ve extensively researched while writing my books.

None whatsoever.

However, I am, once again, thrilled at the selection of Methods and Frameworks as May’s theme, because my first book, Things Your PMO Is Doing Wrong (PMI Publishing, 2008), was largely predicated on a project management adaptation of Watts Humphries’ seminal book in software management framework, Managing the Software Process (Addison-Wesley Professional, 1989). In it, Humphries introduced the concept of the Capability Maturity Model®, upon which Carnegie Melon University’s Software Engineering Institute® would base its further research on the subject. (Incidentally, in my opinion, PMI®’s attempt at adapting the CMM® to a project management environment, the vaunted Organizational Project Management Maturity Model®, or OPM3®, was just dopey. I was actually in attendance at a PMI® Congress where a member of the OPM3® committee was selling the inchoate mess to the masses. He actually said “We’re developing a structure that will allow people to go where they want to go.” And that was the intellectually insightful highlight of his remarks!)

The Capability Maturity Model®, or CMM®, posits that organizations seeking to advance a capability typically go through five “levels”:

·         Level 1 is represented by chaos. Everybody is doing their own thing, or nothing at all, so that, paradoxically, you can actually have areas of advanced expertise in a Level 1 organization.

·         Level 2 is very basic, but at least everybody is doing the same thing. Same forms, same process, etc.

·         Level 3 is known as “defined.” If the proverbial beer truck hits the heroes who got you to this point, then the capability advances your organization has enjoyed don’t unravel. The written procedures and training are in place to ensure that the macro organization’s capability doesn’t reverse itself.

·         Level 4, known as “managed,” is characterized by your organization being so darned good at the capability that you are in a position to export it to other organizations.

·         Level 5 – “optimizing” – nobody ever really gets to Level 5. Here, your organization is so good at the capability that you are routinely discovering long-standing problems in the industry.

Originally the CMM® was directed at the development of software projects, but other management science specialties and arenas took a look, and basically said “Hey! That’s exactly what happens when we’re trying to advance a capability in our areas!” And, before  you knew it, Carnegie Melon University’s Software Engineering Institute had patented, copyrighted, and just generally legally protected the daylights out of the idea (which is why I’m having to constantly insert the little ® symbol).

Now, the problem with the Capability Maturity Model®, brilliant as it is, is that it doesn’t actually tell you how to advance from Level® to Level® (think I’m being excessive? SEI actually made the word “level” a protected term in the model.). This is where I focused my research for the first book: assuming that the Capability Maturity Model® was applicable to project management, how does one actually advance from Level to Level? I discovered the answer quite by accident, hiding in the realm of Game Theory – specifically, the game entitled The Prisoner’s Dilemma, and its optimal strategy for resolution, Tit for Tat. The way it works is…

Oops! Out of room for this week. I’ll dive in deeper next week, but for the full analysis (and the surprising implications that stem from it), you should probably buy either of my books – or make comments on this blog page along the lines of “hurry up and get us the rest of the 411 on this stuff!”

When April began, I was thrilled that Cameron had given us the theme of Governance. There’s so much misinformation out there that, being the INTJ that I am, I was in the epistemological equivalent of a child in a candy store (or, perhaps more fittingly, a professional skeet shooter in an arcade duck-shoot game). But shooting down invalid or inchoate ideas on Governance is easy – what’s a bit tougher is articulating what proper Governance is, and why.

Not to be gobsmackingly obvious about things, but the true purpose of Governance is this:

Advanced Governance is realized when those in positions of authority make the best possible decisions on behalf of the macro organization.

Ahh, but that’s the rub, is it not? You touch the hot burner, and know instantly that that was a bad decision. You hire the wrong person to head up, say, your PMO, and you won’t know if that was the wrong decision for weeks, months… or ever. How in the world can the manager know if his business decisions are right or wrong before she makes them?

As I discuss in my recently-released, must-have book, Game Theory in Management, these decisions are actually model-able. But the model for these decisions’ evaluation must take into account the fact that there are three different types of management, with different tools and goals:

·         Asset Management deals with the organization’s resources. Its main information source is the general ledger.

·         Project Management addresses how the organization meets its customers’ needs. Its main information source is the Earned Value Management System.

·         Strategic Management deals with how the organization is performing when compared to its competitors. Its main information source is the data feed on market share.

What the manager thrust into the role of Governance must realize is that there are advocates from each of these three orientations on management who will insist that their take – and their take alone – is the most appropriate information feed for upper-level decision-makers, and will expend considerable energy to sell that narrative. Often these management “science” advocates are utterly unaware of where their pet theory exists in the overall scheme of management information streams, but the manager functioning in the role of Governance must know where they are coming from, and the limits to their advocacies.

The manager perfect in Governance will know how each and every decision impacting the macro organization will affect the organization’s standing with respect to its assets, customers, and competitors. However, the macro economy being the near chaotic environment that it is, this perfection can never be attained. So, how to advance?

By setting up the information streams that will allow the Governance decision-makers to know where they stand with respect to asset, project, and strategic management, and thereby know where their vulnerabilities are, and where their opportunities lie. The asset managers’ information feed already (and always) exists – all organizations need the general ledger, if, for no other purpose, than to pay taxes. But the idea that much, much more pertinent management information can be gleaned from the general ledger has been oversold, and to very bad ends. In addition to the general ledger, the Governance manager must have at his disposal an MIS that provides information on how the organization’s projects are performing, and the GL simply cannot provide this function. Nor can it provide the data feed on how the organization is doing in relation to its competitors. That information must be gleaned from sources that have nothing at all to do with the other feeds, but collected it must be. Once the information on how the organization is situated with respect to the three axes can be presented and evaluated can truly informed Governance decisions be made.

So, what does this model look like, and how do you set up the information streams that enable its functionality? Well, you can buy my book, or wait until Cameron asks us to re-visit the Governance theme.

In 1964, Ballantine Books published Eric Berne’s ground-breaking tome Games People Play, the Basic Handbook of Transactional Analysis. One of the more fascinating assertions Berne made was that we all have a narrative running inside our heads, a sort-of script that we are playing out. This narrative leads some to re-create parts of their life stories by manipulating people and engineering circumstances to re-live past victories or defeats: the victories for obvious reasons, and the defeats so that they can, this time, make the “correct” decision that overcomes their past pain. These narratives become part of us, so ingrained in our personas that we are barely aware that they even exist. Nevertheless, they have a powerful influence on the way we, well, govern ourselves.

Now, flash forward to the project team or PMO in need of “governance.” The managers or executives who provide this function almost certainly bring their individual narratives with them to this decision-structure-creating role. Now, before you dismiss all of this by saying “ah, c’mon Hatfield, we’re all quasi-prisoners of our own experiences – how is this a problem, really?”, I have one question: where did Groundhog Day (the celebration, not the movie) come from?

While farmers in Europe were known for making a habit of observing wild animals’ behaviors for clues on when they could expect the last freeze, the act of pulling a specific Marmota Monax from specific burrow and declaring that, based on the cloud cover that day, the weather can be accurately forecast is a uniquely American practice. I would speculate that, at some point in Western Pennsylvania’s past, somebody influential (or maybe many somebodies) observed a woodchuck coming out of his burrow on February 2^nd, and then (somewhat patiently, certainly) observed the next six weeks of weather, and made the (logical?) connection. It is this tendency to link otherwise unconnected events, that just happened to occur sequentially in time, that makes a logical wreck of our internal narratives.

As I point out in my recently-released, must-have book Game Theory in Management (I know it’s $50! It’s worth every penny – buy it already!) the natural tendency for us to take our internal narratives, which serve to explain to us how and why our histories unfolded the way they did, and then flip them forward to lead us to anticipate how our futures will unfold makes us extremely vulnerable to very bad management decisions. I once worked with a project manager who absolutely insisted on having what he called a “swim lane chart,” very early in the project. We PM-types would know his requested deliverable as a PERT Chart, arranged by performing organization. So convinced was he that this artifact was critical to project success, he demanded it as his top priority. When I tried to explain to him that, in order to create this chart, we would need to first create a Work Breakdown Structure, and then cross-connect it to an Organizational Breakdown Structure, and then key all of this information into a Critical Path-capable program, he tried to have me removed from the project. I guess common project management sense isn’t all that common. I’d also speculate that he was completely ignorant of the PM baseline groundwork that had to happen prior to his getting his precious “swim lane chart.” It just wasn’t in his narrative.

Now, incorporate Michael Maccoby’s Gamesman archetypes from his book The Gamesman[i]. In it, Maccoby asserted that there are four types of workers:

·         The Craftsman, who doesn’t really care too much for whom he works, but cares a great deal about the quality of his output.

·         The Company Man, who tends to assume the persona of the organization around him.

·         The Gamesman, who doesn’t perceive his benefits as food on his table or a roof over his head, but as markers in some grand game.

·         And the Jungle Fighter, who tends to get ahead by inflating their own contributions and minimizing their competitors (virtually everyone else), and minimizing their own failures while highlighting the shortcomings of their coworkers.

I would argue that, just as Maccoby was placing workers into these categories, he was also, essentially, placing their narratives in these bins, as well.  If this is the case, then, the implications are that, even if the people who are in charge of governance within your organization are (happily) not Jungle Fighters nor Company Men, then there is still a high likelihood that the narratives they bring with them are fraught with Groundhog Day-style misconnections, harkening back from their previous successes (or even failures – need to redeem that past, don't you know!). So, with all these vulnerabilities, is there a rational, clearly articulatable solution?

You bet there is! And it is…

…available in my book, or, eventually, in subsequent blogs.

I believe part of the crazed push to incorporate the opinions of anyone who even remotely qualifies as a “stakeholder” into a given project’s (or organization’s) decision-making process stems from a fear that one of these “stakeholders” has a perspective that, if ignored, may lead to disaster. And fear, being the powerful motivator that it is, has pushed executive management’s perspective into a rudderless, random course, determined not by the best informed and formulated strategic approach, but by whomever happens to be the most influential “stakeholder.” Since the most informed stakeholder is often held to be the asset managers (read: accountants), in those circumstances where their take on the business world is the wrong one (project management, strategic management) the project team/macro organization is setting itself up to make one bad decision after the other, all in the name of proper governance.

One of the key casualties of this enfuzziment of management science perspective is management science itself. Of course, for any theory to be considered truly scientific, it must manifest two properties:

·         It must be observable.

·         It must be repeatable in an experimental setting.

Which leads us to the first problem with management “science”: in the macro economy (or even in the micro, if we are to be completely honest) it’s virtually impossible to isolate the specific causal factors of economic gain or loss. Sure, there’s tons of anecdotal evidence, and much of this comes across as being axiomatic – which leads to the second problem, that the real sciences recognize this, and are led to the conclusion that management “science” is little more than common sense (except for double-entry bookkeeping, adding unearned credence to the accountants’ point of view among engineers and scientists). This kind of a pseudo-scientific environment simply begs for quackery.

The very word “quackery” takes us back to the days before the scientific method came to dominate medicine. Those itinerant snake-oil salesmen? How quaint! How silly of those 19^th-century people to fall for their claims! However, as the brilliant Michael Crichton points out in his Caltech Michelin Lecture from January 17, 2003, (“Aliens Cause Global Warming”) in the 1920s Americans were suffering from a disease called pellagra. The medical community was convinced pellagra was caused by a pathogen. The medical researcher who looked into the problem for the U.S. Government, Dr. Joseph Goldberger, thought that the cause was due to poor diet. Goldberger was right, but was relentlessly smeared and mocked by the medical establishment. People died as the medical community largely turned their backs on the very scientific method that had supposedly propelled them past their quackery phase.

Now consider how management science theories are advanced. Participants in successful enterprises are asked their opinions on the causal factors that led to the success. What could go wrong? Well,

·         Those offering their opinions might not know exactly which factors were key, and which were incidental.

·         They also are probably attributing more to their individual contribution(s) than their co-workers, and certainly more than their enemies.

·         If anyone in the organization has complete knowledge on the reasons for the success, they might not want anyone else emulating them.

The advancement of management science theories, then, becomes one of advocacy – the most influential or persuasive communicator sees their pet theories advanced, often elbowing aside better explanations of the causal factors of the success being analyzed. The exact same thing happens in reverse when project failure post-mortem analyses are conducted – hence the axiom “Success has many fathers, but failure is an orphan.”

If, then, a given management science theory is advanced more from contagion then its validity, whose ideas gain prominence in the field?

The business equivalent of the snake oil salesmen’s, of course.