Thursday, April 30, 2015

Are You Dancing Like a Pigeon?

You know the story:
  • eBay enters China, declaring its intention to dominate the market there the same way it dominated other markets. It fails within four years.
  • Following spectacular success at the strategy, Microsoft decides to pursue "windows everywhere" in the mobile space - only to be rendered irrelevant by the rise of native mobile platforms iOS and Android.
  • Faced with competition from Netflix, Blockbuster decides to double down on their brick-and-mortar stores, building them out.  Quickly they would go from a multi-billion dollar market leader to bankruptcy.
You're probably tired of such lists - failed once-great companies. But notice this: In these cases and so many more, the failure happened because leaders kept doing what had just worked well for them.

Bottom line: We like to keep doing what worked the last time around.

And in this way, we are similar to the dancing pigeons in Skinner's famous experiments. Years ago, Professor Skinner used his "Skinner box" to demonstrate a powerful point: Even the simplest of animals, a pigeon, will see a pattern in randomness. The box featured a mechanism that would randomly feed the pigeon. The bird, thinking that whatever it was doing prior to the feeding was "causing" the food, soon found itself doing a herky-jerky dance.

And so it is that you and I dance like a pigeon, too. We repeat what seemed to work last time, hoping to get the same result. When asked to defend our decisions, we say "this is what worked last time." And at the world's leading business schools, we sit in rapt attention listening to executives tell us what they did that "caused" them to be hugely successful.

"But," you object, "people have big brains and can reason. Of course the pigeon just dances to the tune of a random machine; it is stupid." Well, listen carefully next time you hear a successful leader speak. If they point to "experience," seriously ask yourself how large a sample they have to draw on. If it is a sample of one, as is often the case, then we may be looking at a dancing pigeon. Alternatively, listen for logic. If the leader gives you the logic behind his actions, then we're making progress. But very often executives simply let the "facts speak for themselves." Look what that did for the pigeon.

Doing whatever seemed to work that last time? You may be dancing like a pigeon.


The leading scholar on this problem is Jerker Denrell.

Wednesday, April 15, 2015

Metacompetition: Competing over the Game to be Played

I fell for the shoe-shine huckster on Bourbon Street. I was young, and my wife and I were all dressed up. I could not resist the challenge, called out loudly to me amidst a large audience: “I bet I can tell you where you got your shoes!” I hesitated and replied, “Okay, where?”  Game over. He shouted “On your feet!”, fell to his knees, spat on my shoes (with disrespect), and began to shine them furiously. How did I end up standing with my pretty young wife in the middle of a laughing, half-drunk mob – as a wiry man gave me an unwanted, overpriced shoe shine? He seemed to know I was asking myself that question. Now with some pity in his eyes, he looked up at me and said “Never play another man’s game.”


Since then I remind myself of his message often: make sure you play the right game. Common sense, I know. Big men throw shotput; tall women shoot hoops; smart folks solve equations; tight bodies go to the beach. Of course we each try to play the right game – and the same goes for companies. That is what “business strategy” is all about. But sometimes the game being played is unclear, and then we risk losing by playing the wrong game.

People and companies often lose by playing the wrong game. This happens, for instance, when people fail to get a job. Several rounds of interviews end up in disappointment, and then you find out they were looking for someone with a sales background, or experience in C++, or geographic flexibility, or fluent Mandarin, or whatever. At that point, you probably wondered why they did not make their criteria clear in the first place. The problem is that in real life competitions, unlike board games or sports, the criteria for winning are often decided while the game is being played. Inside the company, different people may favor hiring different kinds of people for a given job, and that debate is often taking place even as you are interviewing. Once the dust settles, you find out you lost based on a criterion on which you never would have even tried to compete. You lost the “metacompetition” – the competition over the game being played. When you lose a metacompetition, you lose without ever really competing – like the fool on Bourbon Street playing another man’s game.

Metacompetitions decide the fates of people and companies all the time:

If Facebook succeeds in a country, companies that produce Facebook apps suddenly “win” access to that market; metacompetitions between platforms determine the fates of applications.

If teaching comes to be valued more than research in a university, then professors skilled at teaching rise in prominence; metacompetitions between performance criteria determine professional status.

When CDMA-based technologies took off in the US, companies like QualComm that work on that standard prospered; metacompetitions between standards decide the fates of the firms that adopt (or reject) those standards.

When an oil spill raises concerns about the environment, consumers favor businesses with good environmental records; metacompetitions between beliefs determine the criteria we use to evaluate whether a firm is “good.”

If a particular organic foods certification becomes important to consumers, companies with that certification are favored; metacompetitions between certifications determines how the quality of firms is measured.

In all these examples, you could be the very best at what you do, but lose in the metacompetition over what criteria will matter. On the other hand, you may win due to a metacompetition that protects you from fierce rivals who play a different game.

Great leaders pay attention to metacompetition. They advocate the game they play well, promoting criteria on which they measure up. By contrast, many failed leaders work hard at being the best at what they do, only to throw up their hands in dismay when they are not even allowed to compete. These losers cannot understand why they lost, but they have neglected a fundamental responsibility of leadership. It is not enough to play your game well. In every market in every country, alternative “logics” vie for prominence. Before you can win in competition, you must first win the metacompetition over the game being played.


Research on metacompetition appears in my book on the Red Queen.