Game Theory
The idea of business as a game, in the sense that a move by one player sparks off moves by others, runs through much strategic thinking. It is borrowed from a branch of economics (game theory) in which no economic agent (individual or corporate) is an island, living and acting independently of others. In sectors where firms compete fiercely for market share and customer loyalty, this stylised progression of moves closely parallels actual behaviour. Few firms nowadays think about strategy without adding a bit of game theory.
For von Neumann and Morgenstern, the two economists who developed the idea, strategy was “a complete plan: a plan which specifies what choices will make in every possible situation”. Seeing business life as a never-ending series of games, each of which has a winner and a loser, can be a handicap. In business negotiations, for example, with external suppliers or customers, or with trade unions or colleagues, it can hinder a satisfactory conclusion if the participants see it only in terms of a victory or a loss.
That way someone has to walk away feeling bad about the outcome. In some non-western cultures the aim is different. The negotiation process is steered towards a win-win outcome, one with which both parties can be reasonably content. Business is sometimes said most closely to resemble the game of chess. Several successful businessmen have been skilled chess players. But chess is a game for only two players, and business is rarely a duopoly. The language of business is scattered with references to games.
Regulators try to ensure that companies operate on a “level playing field”, and competition is, according to at least one dictionary, “a series of games”. Business games that have enjoyed (sometimes brief) popularity include the following. The end game This is a strategy that a company evolves for a product that seems to be on its last legs. Should the company bleed the product for all it is worth before it diesfi Or should it introduce an aggressive pricing policy aimed at forcing its competitors out of business and allowing it to continue in a much reduced niche marketfi In her bookManagingMaturing Businesses, Kathryn Harrigan, a Harvard professor, argues that end games can be highly profitable.
She writes: “The last surviving player makes money serving the last bit of demand, when the competitors drop away.” The croquet game In The Change Masters, Rosabeth Moss Kanter wrote: I think the game that best describes most businesses today is the croquet game in Alice in Wonderland. In that game nothing remains stable for very long. Everything is changing around the players. Alice goes to hit a ball, but her mallet is a fiamingo. Just as she’s about to hit the ball, the fiamingo lifts its head and looks in another direction.
That’s just like technology and the tools that we use. The win-win game This is a game where both parties end up as winners, for example, a merger between two companies where synergy genuinely allows them to become more than the sum of their parts. The zero-sum game This is shorthand for the idea that every game, be it in business or on the sports field, has a winner and a loser. The winner’s win plus the loser’s loss equal zero. In such a game there is no incentive to co-operate with opponents because every inch given to them is an inch lost. The idea of the zero-sum game is modified by the introduction of the possibility of change in the nature of the game while it is being played. Hence, for instance, companies that are fighting for market share are playing a zero- sum game if they see that market as fixed. But if the market is continually expanding (or if the companies redefine it so that it is), then the players are playing a game in which they can have a smaller share of a bigger cake and still see their businesses grow.