Article Notes: Games Managers Should Play

Article: Games Managers Should Play

Author: Hugh G. Courtney

Brief McKinsey article espousing the benefits of Game Theory for strategic planning.  

The five key elements of competitive intelligence:

  1. Define the strategic issue – What decision (set of decisions) are you attempting to make?  
  2. Determine the relevant players – Who are the relevant actors who will be interested in. affected by, or affecting your decisions?
  3. Identify each players stragic objective – Are they likely to pursue rational-profit maximizing objectives, or are they tied to short term measures which will force them to behave in unexpected ways?
  4. Identify the potential actions for each player – What are the options of each of the players?  Each player is likely to have a different set of choices available to them due to their differing situations.
  5. Determine the likely structure of the game – How will the game play out?  Will a first mover likely gain share, or will followers gain from their learnings?  Is this a one-time decision(possibly entry or exit) or a repetitive game (possibly pricing)?  

Key learnings:

  • Aforementioned framework for utilizing game theory in strategic planning
  • Boiling down a scenario to its basic elements affords the opportunity to utilize game theory without creating an overly complicated simulation
  • Game Theory exercises can often create awareness of incentives and likely moves of other players even when used with incomplete information
  • Modeling can help managers to realize the need to change the game enhancing the opportunity to create value and decrease incentives for destructive competition
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