During the last few decades we have lost touch with what exactly is the kind of game that we are playing, when we go to work. It is time to understand what the rules are we should be playing by and to forget the ones we have been using…
While we now live in a world that is on a path of continually accelerating transformation, most executives continue to act as if we were still living in the 20th Century. Unfortunately, this attitude is putting many companies on a road that will eventually drive them out of business.
Every day, in just about every company I visit, I see the same tried-and-tested business practices at play. While everybody seems to have concluded that they must innovate, very few have started to question that it isn’t possible to get different results without changing how you work. After all, it’s not as if the organization had a previous standing order: “Don’t innovate!”
The question, thus, can’t be limited to what we need to do to innovate. It should also include: “How do we go about it? How do we change the way we work, in order to foster innovation?”
To start addressing the second question, let’s look at the basic premise from Game Theory: There are two basic kinds of games and those are Finite Games and Infinite Games.
In Finite Games, the objective is to win. On the other hand, in Infinite Games, the aim is to stay in the game and continue playing for as long as possible. An Infinite Game, as the name suggests, never ends. When players can no longer remain in the game, they lose, but the game goes on.
If a company is acquired, does the business world come to an end? Nope. What if a company goes bankrupt? Of course not! What happened in the former case was that the company ran out of the will to continue playing while in the latter case it ran out of resources to stay in the game. The infinite game of business, however, goes on just fine.
While most executives treat a business as if it were a finite game, it really isn’t. Your objective should not be “to be the best at this” or “number one in that.” Your goal should always be to ensure the company’s capability to continue playing in the infinite game of business.
When you look at a company as a player in this infinite game, it becomes much easier to figure out what actions contribute to the company’s long-term survival and which ones focus only on short-term gains. While easier to discern, making the right call is far from being easy, especially with the continuous pressure being put on executives to ensure quarterly results look good to investors who hold company stocks for just a couple of days on average.
Gone are the days of the long-term investor that bought shares to gain with the company’s growth over time. Today’s stock markets, greatly automated, are oriented towards short-term gains using stocks as commodities, just as can be done with gold, or oil.
This environment heavily influences executives to prioritize actions that look good in the quarterly reports, frequently to the detriment of the future survival of the company — focusing on short-term targets that allow for a win, in typical finite game behavior. There is no inherent incompatibility as an infinite game may contain any number of finite games within it.
A player’s drive to win at a finite subset of the game, however, must not be detrimental to his ability to continue playing in the greater infinite game. The only way for you to lose in the infinite game is for you to run out of the will to play or run out of resources. To put it into business terms: to get bought out or to go bankrupt.
We live, however, in an environment that incentivizes executives to do just that. As investors continuously moved to short-term investments, those responsible for making the strategic decisions within companies adopted a “let’s assure the next bonus” mentality. Whenever the conditions set up for payment of said bonus will be met, regardless of any changes in circumstances which might have made doing so be the wrong strategic decision for the future of the company. Some of the more cynical executives will tell you outright that what matters is beating his goals and receiving the bonus to which he or she is entitled. Any detrimental effects that might result in a couple of years might be the problem of his successor. If not, he’ll deal with the problem when it manifests itself.
The main problem with this cynical attitude is that depending on the situation at the time when action needs to be taken; there might not be enough time left to do all the things that were skimped over or just plain ignored. If a company doesn’t learn to adapt quickly, this skillset will not be available when it is needed.
This situation places established companies at a significant disadvantage in relation to startups that are in a pre-IPO growth stage. In these companies, executives are generally incentivized to take action that increases the long-term valuation of the company, instead of immediate financial gains. This mindset allows those companies that have managed to acquire the necessary funding to make deep strategic investments which may allow them to outmaneuver their established competitors which have less freedom of movement if they are to meet analyst and investor expectations in their financial results.
As I recently wrote in an article titled “The Great Extinction” we may soon be looking at a large number of established businesses that will continue working as if it was just “business as usual” up until the moment when they are forced to drop out of The Game. Up until the moment they run out of the will or the resources to continue playing in the infinite game of business and are forced to either sell or go bankrupt.
Changing people’s mindsets is not an easy proposition. Changing the mindset of people that firmly believe that they are employing the best methods to get their jobs done is an even tougher sell for anybody. For that reason alone, it is essential that everyone, that understands the implications of the changes we are going through, speaks up and helps others realize the need for change. It is not easy to stand up and say, “Look, the way we’re going about all of this is all wrong!” However, consider just how difficult it will be when dozens, hundreds or even thousands must lose their jobs because nothing changed. Nothing changed, because you decided to play it safe.