By: GILBERT, JR., DANIEL R.., Business & Society, Dec98, Vol. 37 Issue 4, p468, 9p
Adam M. Brandenburger and Barry J. Nalebuff, Co-opetition, New York: Currency Doubleday, 1996. 290 pages.
Co-opetition can be an important benchmark for those who shape the widening discourse about the "greening of business" (hereafter, Green Business). It is not that coauthors Adam Brandenburger and Barry Nalebuff pay much attention to the natural environment. None of the competitors who occupy the Co-opetition conceptual framework get their hands dirty or their faces windburned.(n1) Other than one, one-page case buried in the book's midsection (p. 127), there is nothing "green" about the playing field of competition that Brandenburger and Nalebuff portray. Ironically, this separation between competition and the natural world is precisely why Co-opetition should be useful in Green Business circles.
The Green Business discourse can make two distinct and lasting intellectual contributions to our thinking about the playing fields of competition. Each contribution draws on, and adds to, the concept of human connection.(n2) The significance of that potential contribution comes into clear view when we realize that competitors are strangers on the playing field of competition where Brandenburger and Nalebuff situate Co-opetition.
Co-opetition is a breezy, energetic, and case-filled application of game theory to business problems. Brandenburger and Nalebuff propose that game theory makes it logically possible to telescope cooperation and competition into a clever hybrid idea called co-opetition. The coauthors credit Ray Noorda at Novell with coining the term (see also Petzinger, 1997). Brandenburger and Nalebuff offer co-opetition as a challenge to the maxim that one cannot practice both cooperation and competition.
Brandenburger and Nalebuff argue that winning in modern business competitions is often attributable to the winners' simultaneous mastery of two skills. First, winning competitors take steps to enlarge the market "pie" from which they can feed themselves and from which their rivals, suppliers, and customers can feed, too.(n3) Second, winning competitors make sure that they are in a position to devour the lion's share of that "pie."
Brandenburger and Nalebuff call these skills "cooperation" and "competition" respectively. To catch the reader's attention, the coauthors translate this pairing of cooperation and competition into the practice of "peace and war."(n4) What makes this dual mastery possible, Brandenburger and Nalebuff argue, is a mastery of the fundamental principles of game theory. The mark of a game-theoretic "co-opetitor" the coauthors show often, is his ability to outsmart rivals, customers, suppliers, and anyone else who comes to feed in the market. This book leaves little doubt that the coopetitive competitor is one tough, intensely focused student of others' weaknesses.
The conceptual lineage of Co-opetition is clear and diverse in four important respects.
First, Co-opetition is a faithful addition to the growing genre of "game theory for business" books.(n5) Brandenburger and Nalebuff have produced a sequel to Thinking Strategically (Dixit and Nalebuff, 1991). Indeed, Coopetition is an anthem in praise of game theory. The coauthors admit that game theorists have sometimes been their own worst enemies when it comes to marketing the strengths of game theory. Brandenburger and Nalebuff meet this marketing challenge. Co-opetition contains none of the mathematics and payoffs matrices that can intimidate a newcomer to game theory. In the campaign to spread game theory, Brandenburger and Nalebuff are eager evangelists.
Second, Brandenburger and Nalebuff sustain the spirit of the "five competitive forces" that Michael Porter set forth nearly two decades ago in Competitive Strategy (1980). They do so with their "Value Net," in which customers, suppliers, and competitors can play a "complementor" roles.(n6) The coauthors coin complementor in the spirit (without acknowledgment) of the "good competitor" that Porter proposed a decade ago in Competitive Advantage. Porter (1985) urged that the firm "must compete aggressively but not indiscriminately" (p. 228). Brandenburger and Nalebuff concur in their own way.
Third, Brandenburger and Nalebuff acknowledge, in word and deed, the conception of strategic competitor that Oster (1990) popularizes in her Modem Competitive Analysis. Neither the strategist who applies Oster's framework nor the co-opetitive competitor has any desire to be a price taker in a perfectly competitive market. True to the lineage of strategic management, Co-opetition is not an anthem for free-market capitalism (see Gilbert, 1986). Instead, co-opetitive competitors jump intelligently (i.e., applying game theory) on lucrative market imperfections that, Oster and Porter both warn, will eventually attract hungry imitators.(n7) To discourage hungry imitators, Brandenburger and Nalebuff propose, co-opetitors must follow a detailed blueprint for changing the rules of the games that they play (pp. 159-97).
Fourth, Brandenburger and Nalebuff are unabashed "front-runners" who praise one winner after another in the annals of market competition. In doing so, they continue a long-standing tradition of Business Policy writing. Co-opetition joins the recently released Forbes Greatest Business Stories (Gross, 1996) and Sloan's (1963) timeless My Years With General Motors in the long line of literature in which the scorecard of business has two only columns: winners and those unmentionables who fail to win (see Gross, 1996; Sloan, 1963).
For these reasons, Co-opetition can be a source of comfort and entertainment for many readers. This book is not a radical business story. Brandenburger and Nalebuff know that. They do not break an "intellectual sweat" in justifying the application of game theory to business. The coauthors seem content with the fact that others have done that work for them.
This confidence about game theory provides an opening for those who join in the crusade for Green Business. Green Business must, by definition, replace the playing field of co-opetitive competition in our minds and in our sights. In two regards that I develop below, Green Business can be a fountainhead of alternative visions of the playing fields of competition.
A key concept in any discussion of human ecology is equilibrium. Human ecology pertains to the search for two simultaneous and complementary equilibriums. One equilibrium is human harmony with nature. The other equilibrium is humans' harmony with each other about their places in the natural environment. We commonly discuss the former equilibrium in terms of "the balance of nature." We commonly describe the latter kind of equilibrium in terms of norms and conventions about acceptable degrees of the balance of nature.(n8)
Humans' straggles to make sense of this pair of equilibriums are vivid in a sampler that includes Leopold's (1970) A Sand County Almanac, Norris's (1993) Dakota: A Spiritual Geography, Quinn's (1992) Ishmael, Callenbach's (1977) Ecotopia, Abbey's (1976) The Monkey Wrench Gang, Tepper's (1989) The Gate to Women's Country, and McPhee's (1971) Encounters With the Archdruid. Regarding this intellectual struggle, the very title of McPhee's (1989) The Control of Nature(n9) has a certain mocking tone to it. In each of his three case studies, McPhee introduces us to a human community whose members condone complicated and daring efforts to intervene in the balance of nature.
In Managing for a Small Planet, Stead and Stead (1992) argue that such a dual equilibrium must find its way into management thought and practice. If the Steads and their allies are successful, then one intellectual contribution of Green Business will be to "force" one premise into our consciousness and then into our ideas about business competition. By that "green" premise, the members of any human community share, at a given time, some agreement about the place that their community takes in the balance of nature.(n10)
In some communities, such an agreement can be endorsed tacitly and without much fanfare. Weekly participation in recycling programs is a case in point. In some communities, such agreement can be public and activist, such as "grassroots" initiatives to reject toxic waste dump sites. Certainly, in any human community, there is room for alternative agreements about better versions of a balance of nature.(n11)
The upshot is that Green Business can introduce into management thought the idea that human beings are inevitably connected on the subject of their places in the natural world. Furthermore, because business competition can bring human beings into lasting ties with one another, Green Business can be an opening for rethinking our conceptions of the playing fields of competition. Still, the Steads' are voices in the wilderness of business competition. The intellectual lineage of Co-opetition is mainstream. Co-opetition is a sobering reminder that a popular model of business competition is not friendly to the idea of human connection in the conduct of business competition, green or otherwise.
Equilibrium per se is unimportant in the Co-opetition framework.(n12) Co-opetitive businesspersons are concerned with wins and losses. Coopetitive businesspersons are not concerned with any lasting convergence of interests in the form of norms and conventions that we might define as a particular "us" (Gilbert, 1996a: 63-86). To co-opetitors, the playing field of competition is not something that human beings cohabit. Rather, the playing field of competition is simply a supply of opportunities to win by means of shrewd, game-theoretic decision making. Brandenburger and Nalebuff make it very clear (p. 5) that cooperation is merely one of a business competitor's options.
Brandenburger and Nalebuff cannot make an argument for equilibrium in business competition, because they are faithful game theorists.(n13) It is true that Co-opetition has room for three terms that imply that co-opetitors willfully take steps to build stable human communities: mutual gain, cooperation, and peace. But, appearances are deceiving here. The game theorist's versions of mutual gain, cooperation, and peace have nothing to do with the concept of human connection. It is ironic that these meanings are divorced from human connection, but it is not accidental.
In game theory, mutual gain occurs when two game players receive some positive payoff at the same time. But the prospect of "win-win" that Brandenburger and Nalebuff hail as a co-opetitive innovation has nothing to do with the mutual action by which human communities can endure. In game theory, mutual gain refers merely to a fortunate result of egoists' decisions. In game theory, cooperation is merely the absence of a zero-sum result. There is nothing joint about cooperation in game theory.(n14)
Accordingly, the importance of peace in Co-opetition is an exaggeration. Brandenburger and Nalebuff argue that peace, such as a long-term supply contract, is useful only if it is a way for a co-opetitor to win.(n15) At best, the peace that Brandenburger and Nalebuff describe is a trace during which the winner-to-be tolerates the presence of others until the winner-to-be decides that he is prepared to outsmart them. That peace looks nothing like what the framers of a peace treaty accomplish toward some improvement in human ties.
Here is a verdant opportunity for Green Business to make a second intellectual contribution. Green Business not only makes room for lasting human ties at the heart of business competition, something that the best efforts of game theorists Brandenburger and Nalebuff cannot ever produce. Green Business, by virtue of the emphasis on green things, can also open our eyes in new ways to the playing fields of competition. Green Business can change forever the way we talk about business competition, because Green Business is a way to marry sight and idea.
Green Business, by definition, takes place along the margins where human institutions meet ecosystems. Raphael (1986) uses the term edges to portray these margins. Accordingly, Green Business is an opportunity to unleash our visual imaginations about the playing fields of business competition. Once our visions are unleashed, our intellects can follow suit on the edges. This is a second potential intellectual contribution of Green Business. Photographers and painters and poets and lyricists have blazed trails for management educators who want to "see green" as they "talk green."
No longer must we visualize business competitors as human beings who are trapped in the sterile cubicles that Adams (1996) satirizes in "Dilbert" cubicles stripped of any scent, sound, and vista of the natural world. The competitors in Co-opetition never get out of the office.(n16) No longer must we visualize business competition as something conducted in the unnatural world of digital signals zipping over global telecommunications networks. And, no longer must we visualize "green" business competition as simply the absence of the dirty stains that business competition can leave on the land. We can see today, as we could a generation ago, the waste piles next to crumbling coalfield collieries, the marginal farming communities on the Great Plains, and the remnants of the great North American bison herds. Green Business can replace both "nongreen" conceptions of business competition--the sterile corporate landscape and the competition debris we have inherited--with new visions of the playing fields of competition.
Green Business is something that we can see on such playing fields of competition as the fenced grasslands of the Great Plains, the lock-and-dam system on the Mississippi River, the reforested slopes of clear-cut mountainsides, and the sentinel of telephone poles stretching across the American West.
Green Business is an intellectual opportunity to ask imaginative questions about these sights and then to create imaginative conceptions of the playing fields of competition. With the fenced grasslands in view, we can ask, as Hasselstrom (1987) prompts us, in Going Over East: Reflections of a Woman Rancher, "What traditions of competition can be passed along to our heirs?" Alongside a lock-and-dam system on the Mississippi River, we can ask, "What interventions in the river ecology will spill over for those who ply the river long after we are gone?" With a reforested clear-cut slope in view, we can ask, "Over what horizons in time are we responsible for restoring the natural world that we have consumed?" Watching the wires from telephone pole to telephone pole stretch to the long horizon, we can ask, "What avenues of communications are useful for sustaining human ties and what avenues clutter our land and our ties to one another?"
All these questions turn on the importance of a "we." All these questions are cues to launch our interpretations of business competition on the premise that lasting human ties are a good thing.(n17) All these questions, linked to the green that we can see in our world, presume the existence of some stable human understanding that is both familiar and open to debate by those who live by it. All these questions open our eyes to the playing fields of competition as places where human beings are tied to each other over time.
Co-opetition, as a celebration of what shrewd strangers can accomplish, stops us from seeing human connection over time.(n18) In the co-opetition way of thinking, it makes no sense that generations of football players representing Harvard and Yale Universities have shaped and celebrated a rivalry that they call "The Game" on plots of grass, dirt, and sky in Massachusetts and Connecticut (Goldstein, 1996). The Game is an equilibrium on the playing fields of competition.(n19) The Game is an answer that generations of competitors have sustained around the question, "How do we ensure that the very best of our rivalry is never forgotten?" A co-opetitor's interest in such an equilibrium lasts only as long as his current winning streak.
In sum, Co-opetition is a prime example of what happens when those who study competition do not spend very much time lingering near, and participating on, the playing fields of competition, particularly those that consist of grass, dirt, rock, water, and air. Green Business is an invitation to open our senses to the natural world and the marks that we competitors leave on the world and on each other. Co-opetition takes us in the opposite direction. Co-opetition will help you understand why "green" imaginations deserve a place in management education. It is a book worthy of inclusion in the reading list of every first-year doctoral student and every student encountering the principles of management for the first time.
(n1.) I focus throughout this critique on the framework that Brandenburger and Nalebuff propose, not on the particulars of a given case per se. The coauthors discuss the National Football League, where someone gets his hands dirty. However, that contact with the natural environment is not part of co-opetition as the authors develop the concept.
(n2.) This is human connection laced with the mutual empathy that distinguishes self-inrelation feminism. It is not the thinner, more disposable kind of connection that, as Petzinger (1997) shows, is creeping into modern business language. By contrast to the meaning that I employ throughout this critique, Petzinger does not use a feminist meaning of "connection" in his discussion.
(n3.) To encourage co-opetitors to think in terms of enlarging the "pie," Brandenburger and Nalebuff deliver this pep talk: "What matters is not whether others win--it's a fact of life that they sometimes will--but whether you win" (p. 37).
(n4.) See Brandenburger and Nalebuff (pp. 4-5). The coauthors make very clear that "it's not Tolstoy" or the historical evolution of a competition that interests them (p. 4). This becomes important below when the subject turns to competitive equilibrium.
(n5.) For a comprehensive and readable introduction to the history of game theory, see Poundstone (1992).
(n6.) Regarding the Value Net, see Brandenburger and Nalebuff (pp. 16-39). The Value Net also looks very much like a stakeholder map, but the coauthors do not claim a place in that line of ideas.
(n7.) Regarding the threat of competitive imitators, see Oster (1990: 81-103).
(n8.) For an introduction to a logical link between conventions and corporate strategy, see Gilbert (1996a: 87-106).
(n9.) The Atchafalaya case is particularly instructive.
(n10.) The point is that the members of a community are always "in" some convention, even though it might not be the best one that they can shape jointly. Put somewhat differently, I argue here from the premise that we can make sense of "green" business by working with propositions other than "Be green. Make a lot of money." The latter proposition is about a different kind of green.
(n11.) I point here to the possibility of alternative conventions. Although I agree with Schelling's (1978) claim that "there is nothing particularly attractive about an equilibrium" (p. 26), I argue that an equilibrium can become very attractive once the members of a community endow it with meaning as a convention that connects them.
(n12.) For a fuller discussion of the absence of equilibrium from game theory, and the consequences of that, see Gilbert (1996b).
(n13.) This is quite ironic. While hyping game theory, Brandenburger and Nalebuff cite the Nobel Prizes awarded in 1994 to Professors Nash, Harsanyi, and Selten for their work in game theory. What Brandenburger and Nalebuff then do not say is that these Nobel Prizes had something to do with the concept of Nash equilibrium. For an application in the spirit of Nash equilibrium, see Gilbert (1996a).
(n14.) This idiosyncratic meaning of cooperation is vivid in the Prisoner's Dilemma (see Gilbert, 1996b: 169-73).
(n15.) Brandenburger and Nalebuff (pp. 248-49) do make room for long-term contracts among the rules that a co-opetitor can change in his favor. Still, long-term relationships are merely a matter of convenience for the co-opetitor. Moreover, past competitions are irrelevant in the coauthors' discussions about any contractual arrangement.
(n16.) Once again, I refer to the co-opetition concept, not to any case that the coauthors use.
(n17.) Nothing in this statement precludes further ethical critique of a particular human tie. For instance, a conspiracy to sabotage someone else's professional projects comes to mind as one human tie well worth examining more closely.
(n18.) The "co" in co-opetition is a cover for the acts of stalking and starving others that any co-opetitor must take. The principles of game theory require those acts. A more appropriate prefix for "-opetition" could be the "st" that stands for stalking and starving. The resulting concept is "st-opetition," a deterrent to the kind of imagination that the Green Business can bring to discourse about the playing fields of competition.
(n19.) Every November, in the days leading up to the annual renewal of the football rivalry between Amherst College and Williams College, The New York Times sports columnists show us masterfully that human connection has a lasting place on the playing fields of competition. For another testimonial on this point, narrated in Nebraska, see Janovy (1988).
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By DANIEL R. GILBERT, JR., Bucknell University
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BOOK REVIEWS By: Armstrong, J. Scott. and Clark, Terry., Journal of Marketing, Apr97, Vol. 61 Issue 2, p92, 4p
by Adam M. Brandenburger and Barry J. Nalebuff (New York:
Doubleday, 1996, 290 pages, $25 hardback; a detailed description
of the content is provided on the Internet at
Why Can't a Game Be More Like a Business?
In this book, Brandenburger and Nalebuff use game theory to develop a set of guidelines that will "make it easier to explain the reasoning behind a proposed strategy." The games that they use as analogies do not involve sports with their zero-sum outcomes; instead, they consider a variety of games that allow for mutual benefit, as well as harm, for the players. They use the term co-opetition, which is consistent with their message that cooperation pays off in some situations, competition in others. They encourage readers to think about not only how to play the game, but also how to change the rules. Examination of these games leads them to make recommendations for managers, many of which are relevant to marketing managers. So, to the extent that a game is like a business, this book should be useful.
My aims in reviewing the book are to ask: (1) Is it new? (2) Is it useful? and (3) Is it supported? The book has flaws, particularly in the area of supporting evidence, but it is an important book.
What's New: Old Wine in New Bottles?
According to the Nobel prize-winning economist Kenneth Arrow, Brandenburger and Nalebuff (B&N hereinafter) have produced an exciting new approach to business strategy. Is it new? Although B&N do not discuss the history or development of their ideas, I recognized most of them. When they discuss strategies for negotiated pricing, I found some are covered in Nagle (1987), often under different names. For example, B&N refer to "discounted value" for a concept that Nagle refers to as the "pricing of bundled products." As a result, it is not clear what is new.
They present many things as if they were new insights. By creating new names and clever slogans for strategies (e.g., "E.T--the Wrong Call), B&N make it difficult to see where the ideas might have originated. It would have been useful to trace the development of ideas so that these ideas can be compared with what we currently know, and existing evidence can be examined.
They propose the term complementors to refer to organizations that sell products that enhance the value of another firm's products. Complementors can collaborate to enhance the value of their products to customers. Examples are companies that sell computer hardware collaborating with software companies and gas stations linking with fast-food companies. If you are like me, you are probably thinking, "Oh yeah, I knew that." And in presenting examples, B&N refer to alliances such those that General Motors made with Goodyear tires and Prest-O-Lite headlights in 1913. So though the term complementors is new, the concept is not. Although there has been a substantial increase in relationships among complementors in recent years, I agree with B&N that managers do not think enough about potential complementors, how they should cooperate, and how to negotiate with them. For example, B&N refer to Citibank's failure to think about complementors when it introduced its automatic teller machine in 1977; B&N claim that it was only in 1991 that Citibank finally "woke up" to this possibility.
The explicit consideration of complementors is new to me. For almost three decades, I have taught students about the stakeholder approach to identifying objectives. When I have asked them to list possible stakeholders, they suggest many groups, such as employees, customers, suppliers, distributors, local community, and stockholders (along with some inappropriate groups such as competitors and government). However, no one has ever mentioned complementors, nor have students used this concept when solving cases. By naming complementors as a stakeholder group and including it on their checklist, B&N provide something new.
The book helped me to think through negotiation situations that I have not encountered. When B&N present situations, the solutions were not obvious to me. For example, which partner should go first in a Texas shoot-out to end a partnership (in which one partner states a price for its share of the partnership and the other must either buy or sell at that price)? Furthermore, I am not sure that it would have occurred to me to pay suppliers to make bids to me in situations in which competition is weak or that, as a supplier, I should be paid to make a bid to supply services (Chapter 4). Judging from their examples, such as Holland Sweetener's attempt to supplant NutraSweet as a supplier to Coke and Pepsi, these ideas did not occur to Holland Sweetener's managers, much to the regret of their shareholders and employees. In that case, in mounting their challenge, Holland Sweetener put Coke and Pepsi in a stronger bargaining position with NutraSweet, but NutraSweet kept the contract.
Much of the advice is overly general. It seems that they are saying "think clearly" or "think about what can go wrong." They offer a useful framework that they call PARTS: Player (think about who is playing and who should be playing the game), Added values (what does each player bring to the game?), Rules (what are the rules, and can they be changed?), Tactics (what are some alternate tactics?), and Scope (can the game be expanded?). They devote a chapter to each of these topics.
They do get more operational with their "value net." But when they use it to analyze a university, they produce what I believe to be a traditional and misleading analysis (pp. 23-27): "Students as customers? ... It sounds provocative, even heretical. Yet many universities need to start thinking this way" (p. 268). This is hardly a new idea. By itself, it might even be a dangerous idea. Schools that have adopted this idea have encountered difficulties with respect to learning as a goal, because they assume that the faculty members produce learning in the students. Students can be considered as consumers, but they are also producers of their own learning. The faculty are producers of knowledge, and, though this can contribute to learning, it does not ensure that students learn. Different assumptions about who is the producer of learning lead to radically different conclusions about how to improve the system.
B&N's applications of game theory are generally convincing and insightful. Certainly they reveal aspects of some problems I had not considered. For example, they use game theory to explain programs for increasing brand loyalty, such as the American Airlines frequent flyer program. However, I wonder about the usefulness of some of their advice, such as, "Do not say thank you [to your customer] too quickly, or too slowly" (p. 140). Would I be able to apply these or other rules successfully?
B&N's use of game theory leads them to some conclusions that run counter to popular thinking among marketing managers. For example, they suggest an underlying principle that firms should treat their own customers better than they treat their rival's customers (p. 190). Many firms violate this when they provide incentives to win customers away from other firms. For example, new subscribers to a service are often given lower rates than those given to loyal subscribers. Therefore, I expect that much of the discussion in this book will be new to managers.
The basic argument is that by using game theory, managers can generate strategies, then select the best one. Although I am not aware of any evidence, I believe that game theory might help in the search for alternate strategies. (I also can imagine other ways to do this, such as by brainstorming using a diverse group of experts.) However, to select the best strategy, sometimes a manager would need to forecast the outcomes. I am skeptical that game theory is of value here because it is difficult to match real situations with games. Therefore, it will be difficult to forecast what will happen when taking a strategy that is successful in a game and using it in an actual situation.
B&N (p. 52) suggest, "To anticipate other players' reactions to your actions, you have to put yourself in their shoes and imagine how they'll play the game. You look forward into the game and then reason backwards to figure out which initial move will lead you to where you want to end up." Again, though this advice seems useful as a way of identifying possible strategies, I doubt thai it is useful for predicting what will happen when a manager adopts a new strategy in real life. The problem is that a manager must predict not only the initial reaction from another party, but also his or her response, and then the other's response, and so on. It is a daunting matter to think through all the possibilities, especially when the rules of the game are not always clear and it is possible to change the rules.
B&N recognize these problems, and they suggest (p. 63) that the manager "ask a colleague to role-play by stepping into that player's shoes." Instead, I suggest the use of role-playing simulations. This would first require an accurate written description of the actual situation (not of a game that a manager believes to be representative of the situation). Next, select people who can play the roles. Props can help to increase the realism of the role playing. An administrator would try to ensure that the players do not step outside their roles and ask that they improvise as needed. Role playing would then simulate the situation to determine what agreement the players reach. Role playing for a given strategy could be conducted numerous times using different subjects to determine the likelihood of various outcomes.
Therefore, whereas B&N suggest that managers think about the roles of the parties involved, I suggest that they simulate the situation. This has been tested. Armstrong and Hutcherson (1989) compare role-playing outcomes with those predicted by subjects who were asked simply to think about the problem. The study examined eight conflict situations in experiments with 226 role-playing sessions. Role playing was superior to "thinking" in seven of the situations, and there was one tie. Averaging across the eight situations, role playing correctly predicted outcomes for 63.6% of the cases. In contrast, thinking was correct for only 18.2% of the predictions. When I asked other subjects to think things through and I also gave them the role descriptions, they were no more accurate than those who did not have the role descriptions (Armstrong 1987). The important aspect of role playing, then, is that it goes beyond thinking by simulating the situation.
I would be happy to challenge game theorists to predict the outcomes of conflict or negotiation situations. My bet is that role playing will provide more accurate predictions than can be obtained from thinking by the best game theorists. Furthermore, role playing does not require that the managers have any knowledge of game theory. Perhaps role playing could have been used to prevent adoption of the detrimental portions of the Federal Election Campaign Act relevant to television advertising rates for political campaigns (p. 163) or the unfortunate pricing rules in the federal government's Medicare reimbursement rules (p. 164).
In summary, I expect that B&N's recommendations will lead to a broader and more creative consideration of strategies than might occur using current practice. But it will be difficult to predict the effects of various strategies by using game theory.
Is There Support: Does Saying So Make It So?
B&N state (p. 8), "We're skeptics, and we want you to be skeptical too. We don't want you to take what we say on trust." I am happy to oblige because I believe that managers should examine evidence before making major changes in their procedures.
Is it valid to generalize from games? To demonstrate that their recommendations are useful, they first would have to show that it is possible to match the real situation to the relevant game. The match should be close enough that useful predictions can be made. I have reviewed the literature on the effectiveness of game theory for predictions and have been unable to find any evidence to directly support the belief that game theory would aid predictive ability.
Even if the games can represent real-world situations, it would be necessary to show that the recommendations could be used properly by managers. B&N do not attempt this. Instead, they present cases of executives who made what turned out to be poor decisions. The implication is that better decisions would have been made had their recommendations been followed. But, for example, how do we know that analysts using B&N's advice would have helped IBM to make better decisions with respect to Microsoft and Intel (pp. 154-56)?
I suspect that the major contribution of game theory to business strategy is to suggest strategies that are otherwise not obvious. Here again, B&N do not discuss empirical research findings. They support their conclusions with anecdotes of business successes and failures, an approach that I have always regarded as fallacious because generalizations should not be made from a single example.
Although B&N ignore empirical research, on those occasions when I was aware of relevant research, their recommendations usually are consistent with the research findings. For example, B&N suggest (p. 8) that the goal of a firm should be "to do well for yourself." They suggest that it is unwise for a firm to adopt a goal to beat its competitors. This advice might seem old hat to economists, for whom profit maximizing is widely accepted, however, in practice, managers often adopt the goal "to beat their competitors" (Anterasian and Graham 1996). Much evidence supports B&N's advice (Armstrong and Collopy 1996). Here is an another example: B&N examine strategies used by Nintendo for selling computer games. This strategy also has been analyzed from a psychological perspective by Cialdini (1984), who reports on empirical studies about the use of scarcity to sell products. Although B&N make no reference to this literature, their advice is consistent.
There were only a few occasions when my knowledge of evidence failed to support their recommendations. Consider the following advice they provide (p. 151): "Compete aggressively for volume so that competitors can't follow you down the learning curve." Is this consistent with their goal to do the best for themselves? What about their advice on page 37: "What matters is not whether others win--it is a fact of life that they sometimes will--but whether you win." (I suspect they meant to say "profit" instead of "win.") Why not study price elasticity and then forecast the effects of alternative strategies in an effort to identify the most profitable strategy? This could lead a firm to determine whether it is useful to increase production. In other words, it is not clear that this advice contributes to good decision making, and it is easy to see how a firm could be misled into trying to beat its competitors, a goal that the authors suggest avoiding.
It is hoped that Co-opetition will stimulate researchers to test B&N's recommendations. I suspect that some recommendations will be useful and others will be misused. Right now, all we have is their word: "Thinking in terms of competition and cooperation--thinking co-opetition--has already benefited numerous businesses." This had the ring of an Infomercial. B&N credit the National Science Foundation and the Pew, Rhodes, and Sloan foundations with supporting their research. Perhaps these foundations would be willing to support researchers to test these ideas.
The issues can be tested. For example, which is superior: (1) thinking about the problem using games as analogies, (2) using formal decision-aiding procedures that are widely available and have been shown to be effective, or (3) unaided management thinking? For example, we could ask independent teams to write up two-page analyses and recommendations on the basis of advice from B&N's book. Other teams might be asked to do the same without using the book, but using formal procedures such as brainstorming to find at least five ways to improve return on investment, then using role playing to predict the outcomes, and finally making quantitative estimates of the profitability of different alternatives. Still other teams might analyze the problem as they normally do (perhaps by asking untested and misleading questions such as, "What is our mission?"). Does use of the book lead different groups to the same recommendation? Does it differ from the recommendations by those using formal procedures? Which recommendations are best? I would expect those using existing formal procedures to do better than those using game analogies, and those following current practice to do worse. In addition, I expect that conducting such "experiments" within companies would, in itself, lead to improvements in decision making.
So will the people who use the concepts in this book make better decisions than will those who are armed only with a traditional economics course or another book or "street smarts"? We have to trust the authors, even though they tell us not to.
I am generally skeptical when authors base their advice on their opinions. Opinion-based procedures, such as the BCG (Boston Consulting Group) matrix and the experience curve, are likely to produce less profitable decisions. Co-opetition is different. These opinions are based on a well-argued analogies games and business, and they lead to useful recommendations.
At least, their recommendations seemed useful to me, B&N would describe a situation and then use game theory to explain why things turned out as they did. Their discussion provided insight about the problem. At the time I was working on this review, my wife and I visited a photographic exhibit by Harry Callahan. Callahan took photographs in many cities that we have visited. We looked at photographs such as the one of a person in Chicago and concluded that "he certainly captured the spirit of Chicago." Then we decided not to read the caption first. In subsequent photographs, we could not figure out what city was being captured. Was my reading of Co-opetition similarly deceptive?
Co-opetition is aimed primarily at practitioners. It could provide supplementary reading in strategy courses as well as courses on pricing or negotiation. (Educators might want to use some of the 60 Powerpoint overheads provided on the coopetition web site.) The descriptions of how executives at major corporations occasionally make what seem, in retrospect, such poor decisions, might lead students to take the advice seriously. Their games would serve as useful exercises in classes to illustrate various decision-making procedures.
The writing is excellent if, like me, the reader appreciates the style of the Wall Street Journal. However, the overall organization is difficult to follow, the index could have been better (e.g., where is Axelrod?), and the footnotes are distracting.
The strength of this book is that it offers fresh and valuable perspectives on management. B&N summarize their advice in a checklist (pp. 262-63) that should help managers to generate strategies. More important, the book can help managers to develop strategies in which cooperation could be profitable and to identify situations in which competition could be unprofitable. The book is likely to make a major contribution to management thinking, and I have already recommended it to students and faculty. I expect that it will be read widely in the business community.
Although I like the message, I remain skeptical. It is difficult to match games to real situations. We do not know whether game theory, when compared with formal idea generation procedures, will improve the search for alternative solutions. We have little evidence that game theory can substantially improve the way managers think about problems. Finally, we lack evidence that game theory can improve predictions of the outcomes of alternative strategies. So handle with care. After all, games are not exactly like businesses.
1 Helpful suggestions were provided by Wilfred Almadoss, Fred Collopy, Pete Fader, and Brian Wansink. Corrections and improvements were also made using suggestions by Adam Brandenburger and Barry Nalebuff, which is not to imply that they agreed with everything in this review. John Carstens, Jennifer Armstrong, and Dara Yang provided editorial support.
2 They do mention Axelrod's (1984) empirical research on game theory, but it receives only two lines in a footnote.
3 Pete Fader, a marketing professor at The Wharton School and a self-proclaimed footnote expert states, "Don't you hate it when you go through the effort to check a footnote, only to find that it's just a useless quote from one of the author's colleagues?"
Anterasian, Cathy, J. L. Graham, and R. B. Money (1996), "Are U. S. Managers Superstitious About Market Share?" Sloan Management Review, 37 (4), 67-77.
Armstrong, J. Scott 1987, "Forecasting Methods for Conflict Situations," in Judgmental Forecasting, George Wright and P. Ayton, eds. Chicrester: John Wiley & Sons, 157-76.
----- and Fred Collopy (1996), "Competitor Orientation: Effects of Objectives and Information on Managerial Decisions and Profitability," Journal of Marketing Research, 33 (May), 188-99.
----- and P. Hutcherson (1989), "Predicting the Outcomes of Marketing Negotiations: Role-Playing Versus Unaided Opinions," International Journal of Research in Marketing, 6, 227-39.
Axelrod, Robert (1984), The Evolution of Cooperation. New York: Basic Books.
Cialdini, Robert B. (1984), Influence. New York: William Morrow.
Nagle, Thomas (1987), The Strategy and Tactics of Pricing. Englewood Cliffs, NJ: Prentice Hall.
By J. SCOTT ARMSTRONG, The Wharton School, University of Pennsylvania
TERRY CLARK, Editor, Emory University
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Total Quality Management. High Hopes: Systematically improving the quality of corporate operations toward a goal of perfection can improve competitiveness and improve customer satisfaction and loyalty. Busted Dreams: To hell with profits! We're going to make these damn things perfect.
Computer-Integrated Manufacturing. High Hopes: Implementing a combination of computer databases, process control systems, and robotics can reduce operating costs, improve quality, and make possible high-margin mass customization. Busted Dreams: No way to measure success except by the money you've invested. But at least you can be entertained as you go broke watching the robots destroy your products.
Management by Objective/Theory Z. High Hopes: Establishing overall goals that become more specific as they are implemented down through the organization allows greater employee independence while still keeping the company oriented toward its long-term targets. Busted Dreams: Make the objectives too vague and they are meaningless, too specific and they turn into a noose for employees four levels below you.
The Learning Organization. High Hopes: In the rapidly changing modern world, successful companies will be those that can adapt quickly because they are built on continuously upgraded employee skills and knowledge. Busted Dreams: It easily turns into a training and MIS sinkhole. No one has yet figured out quite how an organization "learns" the right things.
Reengineering. High Hopes: The new competitive environment not only demands that companies revise their products and services but that they also rethink their organization in light of advances in information-technology telecommunications. Busted Dreams: In the hands of a manager without imagination (that is, most of them), this becomes mindless downsizing, a meat-ax to cut away not only the fat but the flesh and bone of the enterprise.
Virtualization. High Hopes: New technologies make possible companies "without walls" that have a new, more integrated relationship with suppliers, distributors, retailers, customers, and even competitors. Busted Dreams: Set your employees free and they may never come back. How do you hold together a company scattered over the landscape when you can barely maintain it with everybody in one building? And what are you going to tell the poor bastards who still must go to the office?
Decentralization. High Hopes: Making corporate groups and divisions more independent, complete with their own infrastructures, makes them more adaptive and competitive. Busted Dreams: Paradise for every empire builder and renegade in the organization.
Flat Organizations. High Hopes: New information processing technology eliminates the need for the middle layers of corporate hierarchy that used to act as information filters and now enhances the ability of senior managers to handle a larger span of control. Busted Dreams: Some of those middle managers actually did things. Important things. And if senior executives couldn't manage 10 people, how are they going to manage 200?
Critical Path Analysis. High Hopes: By studying how a company brings a new idea to market, one can emphasize those components that contribute to this process while eliminating or cutting back those that don't. Busted Dreams: Life isn't that simple--even though you will be paying experts to force you to think so.
Sales Force Automation. High Hopes: Sales is the last part of the company not revolutionized by information technology. Giving the sales force access to large files of product, presentation, and competitive information enables them to be more productive. Busted Dreams: No matter how you disguise it, salespeople know a hidden control system when they see one. Wait until you see the annual cost of replacing all those laptops "accidentally" dropped off car roofs.
Chaordic Organizations. High Hopes: With the rapid shifts currently taking place in commerce and society, the best company organization is one that is essentially chaotic within a well-defined structure designed to use that energy. Hence: "chaos" and "order." Busted Dreams: Just what we need, companies that are even more unmanageable and out of control.
Post-Capitalism/Co-Opetition. High Hopes: The emerging global economy will require a new type of business strategy, one that de-emphasizes winner-takes-all competition for new cooperative ventures that reward everyone concerned. Busted Dreams: Yeah, sure. You go first.
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