Games we should play

Co-Opetition
November 22, 1996

I approached the task of reading this book with the same enthusiasm that a gourmet would show in reviewing a fast food guide to nutrition. However, the pedigree of the authors put me on guard against passing pre-emptive judgement. Barry J. Nalebuff is the Milton Steinbach professor at the Yale School of Management. Adam M. Brandenburger is a professor at the Harvard Business School. And, in fact, I became so engrossed with the authors' abundant wealth of anecdotes that as I reached the end, I felt ready for the sequel.

The authors faced a dilemma:should one write a highly technical report for academics, or a book of broad appeal to change the mind-set of those most in need and in a position to benefit from a change in business strategy and tactics. They chose the latter path, and with good reason. Co-opetition should be read not only by senior executives of top multinationals, but also by managers of small and medium-sized enterprises.

It should also be compulsory and easy reading for business school students and all those involved with regulating the valuable "game'' of business. In particular, those responsible for higher education, health and public housing should approach the reading of this book with interest and with an open mind. Of all the games in town, theirs are probably the ones with the highest number of interconnections with all other games.

If you are not conversant with game theory, you might justifiably ask yourself what it is all about. "Game theory is a branch of applied mathematics. It could be called the science of strategy. It analyses situations in which people's fortunes are interdependent. Game theory provides a systematic way to develop strategies when one person's fate depends on what other people do.'' This is how Nalebuff and Brandenburger introduce the subject.

Game theory is well known to and used by military strategists. In fact it is easier and therefore more immediate to apply it to a "game'' like war, where there are normally only two or at worst a handful of meaningful players involved at any one time.

It can easily be applied to the unfolding of family relationships where the number of players is also limited, but I cannot see even the most enthusiastic of applied mathematicians plotting the next relationship move using the tools of his/her trade - it lacks a certain romance.

In business, however, as in most other aspects of economic and social activity, romance is an expensive luxury and informed rationality is the commonly accepted standard of operation. Viewing such activities as games, although it demands that one should take account of psychology and perceptions to a high degree, is an act of informed and enlightened rationality.

Perversely, however, the benefit of using game theory is greatest when various games are highly interconnected, and therefore when the mathematical complexity is also very high. The authors attempt to cope with this perversity by setting out in grey-coloured charts throughout the book a list of recipes or advice on matters to be considered while playing the game.

Nalebuff and Brandenburger come up with an amusing example of game theory at work. I shall not steal their show by quoting it here. But to whet your appetite, reflect on the following real game, which is an adapted version of the "prisoner's dilemma'', where the uncertainty is in the behaviour of the fellow inmate, whereas in this example the uncertainty is in the mind of the voters.

The Tory and Labour parties have to decide their policies on Europe. They do not have sufficiently accurate intelligence of what the voters really think on the subject. If they both come out against the European Union, they may neutralise each other in terms of payoff, that is votes. The same applies if they both come out in favour of the EU. If one comes out in favour and the other against it, one will likely gain a decisive advantage and the other will lose. What should the parties do? They could read Co-opetition to find out.

Of all the working examples quoted and explained by the authors, the one I loved best has nothing to do with business: it refers instead to the animal kingdom.

It is about the tail of the peacock and Richard Dawkins's explanation of why it came to be so long and unwieldy. Apparently it is all a game of perceptions. Females tend to breed preferentially with such encumbered mates, because any male who can still survive despite such a handicap is deemed to be very strong. More to the point, as mothers, they fear that their male offspring will be rejected by the future generation of females if they will not be endowed with such long and colourful handicaps.

There are certain selective procedures in employment in certain disciplines, which I shall not name for fear of ostracism, where, unless you show an absolutely overwhelming level of conformity to the required cliches, you just cannot set foot through the door, no matter how good you are.

Of the business examples in the book the one I find most useful, although already rather well-known, is the Nintendo versus Sega, which is analysed in two different contexts within Co-opetition. The Intel and GM Mastercard cases are also enlightening and of good didactic value.

The concept of Value Net as "a diagram that serves as a visual representation of the game of business'' is very helpful and indeed I started playing around with it myself, applying it to environments I know best, but I soon found myself in need of larger and larger pieces of paper.

That outlines the dilemma for any business person: do you lead by instinct and fall prey to your own prejudices or do you lead by informed and rational decision? In the latter case you need to take very many factors into account. How do you differentiate between those which can be overlooked and those which must be considered, no matter what the complexity?

Nalebuff and Brandenburger set us on the right path by showing us where those factors are to be found. Do read Co-opetition. Even if you think of yourself as an expert, you will certainly learn a great deal, while having fun at the same time.

Rudi Bogni is former chief executive,Swiss Bank Corporation, London, on a mathematics sabbatical at Imperial College.

Co-Opetition

Author - Adam Brandenburger and Barry Nalebuff
ISBN - 0 00 255654 5
Publisher - HarperCollins
Price - £18.99
Pages - 290

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