The Hindu Business Line : Attracting a mate is like selling a used car

LIFE is a game, play it. So advises a sign that also says a score of other things to pep up interest in life at dull moments. At its essence, business is also a game, says the back cover of James Miller's book Game Theory at Work. The only difference is that business is a profoundly serious game that must always be played to win. The book, which is on `how to use game theory to outthink and outmanoeuvre your competition', steers clear of the `opaque mathematics and pedagogy'. Read on:

Companies invest in brand names to prove their trustworthiness. A company that spends millions of dollars promoting its brand name obviously cares about its long-term reputation and won't decimate its brand name's worth through the short-term exploiting of customers. An expensive brand name is a hostage to honesty — a hostage that dies if customer trust is lost.

When firms compete directly on price, it is easy for customers to compare. When everyone use complicated pricing schemes, however, the benefits to undercutting your rival diminish since customers will be challenged to find the low-cost provider. Airlines achieve complicated pricing through frequent-flyer programmes. It becomes difficult for customers to determine which airline offers the lowest price.

Shoe stores and large-footed female customers play a coordination game that can be studied using the Nash equilibrium. Shoe stores want to keep their inventories down so they stock only shoe sizes which customers request. Women with large feet apparently get embarrassed when told that a store doesn't have anything in their size, so they avoid stores that don't stock large shoes.

Dishonest bookkeeping can actually be a dominant strategy for accountants. If everyone else does it, and you don't, then you will get little business, while if you do it, then riches await. Of course, if everyone is dishonest, then no one gains a competitive edge, but prisoners' dilemma could still force all accountants to adopt dishonest practices. The collapse of Arthur Andersen will do much to solve this accountants' dilemma... by imposing the Mafia's solution to the prisoners' dilemma whereby the misbehaving player is terminated.

Success in the dating market comes not from mastering fashion or foreplay, but from managing information. Attracting a mate is like selling a used car: In both cases you want to play hard to get. Buying a used car is somewhat of a mystery. You can't be completely sure of the car's quality when you purchase it. Since in some situations it's highly inappropriate to check under the hood before taking a drive, buyers must often rely upon signals to assess the car's quality.

A book that makes the big theory a great game.

What's 4 plus 2?

BORN out of a massive study called the Evergreen Project — in which consultants and B-school profs analysed a decade's data on 160 companies and more than 200 management practices — is the `4+2' formula for sustained business success. What (Really) Works by William Joyce, Nitin Nohria and Bruce Roberson divides management practices into two groups, primary and secondary. There are four in the first, and they are — strategy, execution, culture and organisation, and all of these must be followed, like a compulsory question in the paper. Secondary practices involve talent of employees, leadership and governance, innovation, and mergers and partnerships; any two of these must be followed. More:

All companies, successful or not, have days when the stock market hates them; equally, winners are no more likely than losers to have days when their stock moves up sharply. Winners simply have more days when their stock inches upward. As in football, winning is the difference between averaging three yards per carry and four yards per carry. And to do that, you must consistently outdo your competition on all the fundamentals — blocking and tackling, giving the passer extra protection, holding down turnovers, converting on third down.

If Company A manufactures top-of-the-line widgets, it should beware acquiring an organisation that produces widgets for the discount market. The whole gestalt of the two companies could be incompatible, and it could require monumental, and perhaps futile, efforts to reconcile them. By the same token, if Company B has a performance-oriented corporate culture long on frontline empowerment and team loyalty, it should think twice about buying a company with a traditional command-and-control organisation. The attitudes of the two workplaces and managements might be so divergent that they would mix about as well as oil and water.

Winners typically monitor not just their immediate customers and competitors but customers and competitors in adjacent businesses. They recognise that competition creeps in on the edges, picking off your customers by, say, addressing needs you hadn't thought worth the trouble to address. Having gained a small foothold, these new competitors then start attacking your mainstream product line.

The study found that winners were dedicated to trimming away every possible vestige of unnecessary bureaucracy. It was a full-time job. In every business there is a natural drift towards complexity. The urge to add permanent new rules and procedures to existing processes reflects a desire to quick-freeze current results.

Companies in the Evergreen study that stood out on talent management demonstrated a special skill in satisfying four mandates: they filled mid-level and high-level jobs with strong inside talent whenever possible; they created and maintained top-of-the-line training and educational programmes; they designed jobs that intrigued and challenged their best performers; and their managements were intimately involved in developing and finding new talent.

Full of real-life examples to draw lessons from.

CatalystBooks@hotmail.com

Courtesy: Landmark