When was the last time you were sitting in a conference room with the obligatory mints and bottled water, when it happened? That flash of brilliance where you were inspired to innovate and you generated new ideas that catapulted the performance of your business over the next six months.

How often does that happen?

Not a lot, really, does it?

Then why do it?

Inspiration, innovation and successful business ideas come out of the blue. Most times when you least expect it. They fly in from the edge of consciousness and delightfully startle us. They are random, sometimes the result of wrong turns, errors, mishaps and misdirection. They don't naturally and regularly occur when we're forcibly confined in the staleness of another conference room that emits a musty odour of damp carpet.

If you're looking for inspiration, innovation and successful business ideas you need to be having fun. Drop the qualitative thinking. Don't invite the devil's advocate. And, ignore conventional wisdom and practicality.

Inspiration, innovation, blue ocean ideas do not evolve from conservative thinking and approaches. They come from having fun and being excited. Let's do it! You know it works.
 

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Ric Willmot
Improving Organisational Performance
Providing Strategy Consulting & Mentoring

 

A sanguine Ric Willmot was interviewed by journalists at the CPA Australia Congress - Canberra in 2009 after his two days of MasterClass presentations. Back in 2009 Ric was very upbeat about the future of Australian business when most pundits were remaining pessimistic. How interesting it is to look back and consider of whom you would rather take note: Ric Willmot or the naysayers.

Sport is often correlated with business by many pundits without really considering the big picture or the fact that business does not have a set of rules by which all competitors must adhere; the playing arena is not marked with sidelines and out of bounds areas clearly identified; there is no impartial, independent referee or umpire to ensure the rules are upheld, no time-offs or full-time siren or finish line to cross. It really is naïve to compare sports with business and think that’s where it starts and ends.

However, sporting strategy theory can assist business owners, CEOs and managers make better strategic decisions when confronted with the uncertainty of competition. Competitive conduct will not always be 'fair play' and if you don’t change your game plan to seek out the advantage, your competition will. In rugby, I would always comment to the players I coached; “No opportunity is ever lost, if you fumble the ball, the opposition will always pick it up.”

Chess can teach us a lot about strategy. I coached rugby professionally in Ireland in the 90s and my assistant coach in Dublin was a brilliant chess player. His thought processes added immense value to our game-plan strategy meetings. Chess players understand that superior strategic decisions necessitate that you consider, and focus careful forethought on, the likely moves and counter-moves of your opponent. Chess players studiously examine their opponent’s methodology to the game and ascertain the expected sequence of moves that will follow any particular move they themselves make. By looking forward and reasoning backward, they drive the game toward a checkmate!

This talent to look forward and reason backward is extremely effective for strategic-decision makers. The success of new marketing or pricing strategies relies on whether competitors replicate them. In oligopoly markets, it is hard to identify a strategic decision that isn’t influenced by the retaliatory counter-moves it sets off. The finest business strategists must be accomplished at forecasting forthcoming rounds of competitive conduct.

Easier said than done, I realise. Ambiguity often surrounds competitive conduct, and many leaders either, expect the companies they compete against to employ the manner of competitive behaviour they see as typical, or make some other educated guess. But such assumptions can be treacherous. Businesses unintentionally set off value-destroying price wars, get buried when incumbents retaliate in markets those businesses have attempted to enter, and cannibalise their own core markets because they have either ignored or made incorrect assumptions about the reactions of competitors.

The good news is that game theory offers a well thought-out process that can aid you to make better strategic decisions when confronted with the uncertainty of competitive conduct. Game theory isn’t new; economists, mathematicians, and political scientists have been developing it for more than 60 years. What is new is an increased emphasis on game theory as a practical tool that real-world business owners and alike can use for making strategic decisions.

A good game theorist gets inside the heads of competitors to understand their economic incentives and likely behaviour. To do this, you should focus on five key elements of competitive intelligence.

1. Identify the strategic issue: 
What decision are you trying to formulate: pricing, capacity, market entry? How is it interrelated to other strategic decisions being made in the market? If your decision is on capacity investment, for example, it is vital that you know whether others in the market are also considering entering or leaving it.

2. Uncover the significant players: 
Which competitors’ actions will have the maximum impact on the success of your strategy? It is a mistake to assume that all your strategic games are played against competitors and that there is always a winner and a loser. Many strategic decisions revolve around the dealings of other players in the market—suppliers, distributors, providers of complementary goods—and 'win-win' outcomes are achievable.

3. Ascertain each player’s strategic objectives: 
In real business games players often base decisions, at least in the short term, on criteria such as market share or growth. It is vital to get such criteria correct. If you make the decision to enter a new market in the belief that the incumbent players are 'profit maximisers' when they are really driven primarily by short-run 'market share' objectives, you might suffer unexpected losses when the incumbents slash prices to maintain share.

4. Uncover the probable actions for each player: 
For each player in the game, including your organisation, develop a list of potential actions on the strategic issue. Generate this list from the perspective of the other organisations, not just your own. What options might they be considering? How will they evaluate these options? Don’t assume that you and your competitors have the same set of strategic options. Competitive role-playing exercises involving external experts, peers and your own employees can help generate these lists.

5. Resolve the possible structure of the game
: Will decisions be made simultaneously, in isolation, or sequentially, over time? If sequentially, who is likely to lead and to follow? Will this be a one-shot decision, or will it be repeated? Most business games are repeated, sequential games; pricing decisions, for example, are made over and over in sequence in most markets.

Learning from the game


You need not identify unique, robust equilibrium solutions for this approach to be a valuable strategic-decision-making tool. Since the process itself compels you to think unambiguously about the incentives and likely moves of other players, it can generate a breakthrough in strategic insight even when the game can’t be mapped-out explicitly. Qualitative role-playing exercises and thorough discussions may engender enough insight to show the way to a variation of direction on new-entry, capacity addition, pricing, and other fundamental strategic decisions.

Importantly, while endeavouring to map-out the current industry, you invariably develop insights about how to change strategies to drive more favourable outcomes. Unlike sports such as rugby, business games don’t have fixed rules, players, and referees. Although game theory can help you play your current game better, its greatest value often comes from helping players define new strategies and 'rules.' In certain circumstances, game theory predicts that current market conditions make price wars highly likely because customers switch easily between competitors. This five step approach would help identify the need to change the strategy by implementing customer loyalty programs that create value for customers and companies and decrease incentives for destructive price competition.

Try out game theory when next you need to formulate a strategic decision about which competitive interactions are of importance. Look forward and reason backward to generate insights. If you don’t change your game to gain advantage, one of your competitors will, and there is not much value in being the best rugby player when everyone else is playing cricket.

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Ric Willmot
Improving Organisational Performance
Providing Strategy Consulting & Mentoring

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