How Does This All Play Out?

It is a seemingly simple question, but one that is not asked as often as it should be. It challenges managers to consider the responses of other stakeholders and think beyond immediate consequences. It checks their “bias for action,” and makes them take a pause to think farther than one move ahead.

If you outsource an item, for example, will the new supplier eventually morph into a competitor? What know-how might you lose? How will it affect employee morale? Are you putting your quality reputation at risk?  The question is an invitation to work through multiple scenarios of responses by your suppliers, your work force, and your customers, reaching into the future.

In the 2000 movie 13 Days about the Cuban missile crisis, former Secretary of State Dean Acheson recommends an air strike to destroy the Soviet missile bases under construction in Cuba, which results in the following exchange:

“Dean,” JFK asks, “How does this all play out?”

Your first step sir,” says Acheson, “will be to demand that the Soviet withdraw the missiles within 12 to 24 hours. They will refuse. When they do you will order the strikes, followed by the invasion. They will resist and be overrun. They will retaliate against another target somewhere else in the world, most likely Berlin. We will honor our treaty commitments and resist them there, defeating them per our plans.”

“Those plans,” JFK replies,”call for the use of nuclear weapons. So what is the next step?”

“Hopefully,” Acheson says, “cooler heads will prevail before we reach the next step.”

It’s movie dialog, but only a dramatic rephrasing of the way participant Ted Sorensen remembered the actual exchange, with the Soviets attacking Turkey rather than Berlin:

“And someone said, ‘Mr Secretary, if we bomb these Soviet missiles in Cuba, what will their reaction be?’ And he said, ‘I know the Soviets very well, they will feel compelled to bomb NATO missile bases in Turkey.’ And somebody else said, ‘And then what would we do?’ ‘Oh,’ he said, ‘under our NATO covenants, we would obligated to bomb Soviet missile bases inside the Soviet Union.’ ‘Oh, and then what will the Soviets do?’ ‘Well,’ he said, ‘by that time we hope cooler heads will prevail and people will talk.'”

What is striking about this exchange is that the elder statesman, who was himself supposed to be a “cooler head” advising the president, had made a recommendation that could have started World War III by applying tactical rules without thinking through the consequences.

In any game, anticipating the consequences multiple steps ahead quickly becomes inextricable because you have to consider multiple possible responses from other players to the multiple moves you may make. In fact, according to an interview chess champion Magnus Carlsen gave last year, this isn’t how  he makes his decisions, at least not consciously. In business, what goes by the name of strategy map doesn’t go beyond providing checklists of Political, Environmental, Social, Technical, Legal, and Ethical (PESTLE) issues to address.

In fact, considering a few possible scenarios often yields useful information. For one-on-one human interactions, it can be done by role-playing games, where each participant gains perspective from  thinking through the motivations that drive other players and the constraints under which they operate. For situations that involve both humans and physical objects that are turned on or off, set up, deployed, moved, or transformed, you can use simulation games. Currently, such games are mostly used for training, but they can also serve to anticipate the consequences of proposed changes in line layouts, logistics, or supplier-customer protocols.

In Manufacturing, I found the game perspective key to understanding several phenomena, such as the long operation lead times in ERP systems, These lead times are treated in the systems like physical parameters when, in fact, they are the result of negotiations between Production Control and the First-Line Managers in charge of the operations. The First-Line Managers, being measured on delivery performance, do everything they can to ensure that the lead time standards are set high enough to be always met, which means that they are upper bounds of the actual lead times.

The ERP systems then add up these extreme values to generate lead times for entire processes, which is logically wrong because extreme values along a chain are not additive: the extreme value of a sum is smaller than the sum of the extreme values of its terms. J. Michael Harrison first brought this particular flaw in planning logic to my attention. Averages are additive: the average lead time of a process is the sum the average lead times of its operations. 

One reason Lean Logistics reduces lead times is that it replaces negotiation with calculation. With one-piece flow, the lead times are essentially identical to the total processing times through a cell or a line. With Kanbans and milk runs, they are a function of the number of Kanbans in circulation, the quantities of materials attached to each Kanban, the consumption rate, and the milk run frequency.

Another Manufacturing dysfunction that can only be understood from a game perspective is the continued dominance of adversarial supplier-customer relations when everybody knows that collaborative relationships are better for both sides. Chapter 19 of Lean Logistics is dedicated to this topic. In a collaborative relationship, each party can use the information it has on the other to gain a short-term advantage, the customer by forcing concessions from the supplier, and the supplier by gouging the customer, and there are case studies of both happening, often as a result of management changes on one side or the other. Adversarial relationships, based on mutual distrust, are stable because neither party can unilaterally make them worse. This is why moving a supply chain from adversarial to collaborative relationships is such a challenge, and requires so much sustained management attention.

In a more general business context, gaming concepts are also useful to explain, for example, why competing businesses collocate, as in Antwerp’s diamond district, Tokyo’s Akihabara for electronic gadgets, Paris’s Faubourg Saint-Antoine for furniture, or Shanghai’s market for counterfeit goods under the Science & Technology Museum… The merchant cooperate to create a location with a reputation that attracts customers, then compete with each other for these customers. In the end, sharing a bigger pie gives all of them more customers than they would if isolated. Brandenburger and Nalebuff call this behavior coopetition.