Game Theory Strategy
At this point we have a map (the Value Net) and a mindset (Co-opetition) for thinking about the game of business. But we don’t have a systematic method for how to change the game. To develop a method we turn to game theory and its associated strategies.
Game theory began as a branch of applied mathematics. It could be called the science of strategy. It analyzes situations in which’s people’s fortunes are interdependent. Game theory provides a systematic way to develop strategies when one person’s fate depends on what other people do.
Author and poker player Greg Dinkin, in his book “The Poker MBA” notes that “…Using Game theory allows you to see a situation from another person’s perspective and leads to better decisions…”
Do you want to be a player ? It’s the obvious question to ask yourself when you consider entering a game. But the answer is rarely obvious. It is easy to misjudge what it would be really like to be in the game.
The reason is that anytime you enter a game, you change it. You don’t have any choice in the matter. It’s a new game because you joined the cast of players. People often miss this effect. They fail to think through how their coming into the game will change it. They think that what they see is what they’re going to get.
Not so. The game after you entered isn’t the same game you first saw. In physics, this effect is known as the Heisenberg principle – you can’t interact with a system without changing it.
An ASC manager is not satisfied with their current anesthesia service and would like a request for proposal (RFP). This is a significant account that a competitor has held for a long time. Here is your chance.
What to do? First you contact the manager and ask for some specifics that will help you develop the RFP. Next you assemble your team to work out a bid. You know its a long shot, and that prompt’s you to work just a little harder and be a little more aggressive on price.
In the back of your mind you suspect the customer is using you to get a better price from their current anesthesia group. But that’s the way the game is played, isn’t it ? If you don’t bid, there is no chance of getting the business. Moreover, you risk alienating the customer and losing any chance of future business.
So you make an aggressive bid. It seems that not making a bid has no upside and a real potential downside, while making a bid has no downside and a chance of an upside. The customer thanks you and promises to get back to you, but he doesn’t.
What might you have done differently? You could have bid lower, but there’s no guarantee that would have worked any better. That’s not a real solution. The problem was more basic. Your aggressive bid no doubt helped the customer get a lower price from someone else. Thats was the likely outcome all along. The customer ends up better off, and you have nothing to show for it.
There seems to be a natural impulse to offer competition for free. After all, that’s what business people are suppose to do isn’t it? You want a bid – I’ll give you a bid. The right question to ask is how important is it to the customer that you bid? If your bid is important, then you should get compensated for playing the game. If it’s not important, then you’re unlikely to get the business and even less likely to make money. So why bid at all ?
Competition is valuable, don’t give it away.
There are many ways of getting paid to play. In return for bidding, you can ask for better access to information about their business. That gives you a better chance of winning the account. It turns you from being an outsider to being an insider. It’s the first step towards forming a relationship with the customer.
Ask to deal with a different person. Make the bidding an opportunity to meet senior management. Ask to meet someone who will appreciate what you bring to the table and not just focus on getting the lowest price. Or in return for bidding on one piece of the business, get access to the customer’s other pieces.
You can ask for a last-look provision, you get the business so long as you match the best price in the market.
Finally, you might try turning the tables. Instead of quoting the custmoer a price, ask the customer to quote you a price at which they would give you their business, a standard car dealer trick.
Next time – the Hidden Costs of Bidding