In the fall of 2005 it was announced that the Nobel Prize in economics had been awarded to two academics for their work in using game theory to understand competition and conflict. This news stimulated McKinsey & Company to reissue an article published originally in a 1997 issue of World Economic Affairs by Hugh G. Courtney. It's entitled "Games managers should play," and it's available to subscribers only.
For many professional service firms, new to the realm of competitive intelligence, this article offers a straightforward outline of how marketing strategists can get inside the heads of their competitors to understand their economic incentives and likely behavior. It features a game theory process (McKinsey's?) that was applied successfully in more than 100 company situations from 1995 to 2000. The steps include:
- Define the strategic issue and how it relates to other strategic decisions being made in your market.
- Determine the relevant players and which will have the greatest impact on the success of your strategy. Do not assume that all of your strategic games are played against competitors (some may be suppliers, or providers of complementary goods and services) and that there is always a winner and a loser.
- Identify each player's strategic objectives. Don't assume that other players always have rational, profit-maximizing objectives.
- Identify the potential actions for each player. Like in a chess game, "look forward and reason backward."
- Determine the likely structure of the game. Courtney writes, "Will decisions be made simultaneously, in isolation, or sequentially, over time? If sequentially, who is likely to lead and to follow? Will this be a one-shot decision, or will it be repeated?"
Courtney provides an example, but of course not from the professional services arena. I skipped it.
Recent Comments