In Part 1 of this two-part blog, I examined the parallels between how advances in the hard sciences unfold, based on Thomas Kuhn’s The Structure of Scientific Revolutions, and how advances in the so-called management sciences take place and exhibit similar pathologies of acceptance and rejection. In Part 2, I would like to take a hard look at some forward-thinking areas of management theory (not due to their validity but owing to their advocates), as well as a way that game theory may be used to detect and thwart such chicanery.
Case in point: risk management
Take my favorite pseudo-scientific pursuit: risk management. There is a core truth about risk management that is vehemently opposed by its advocates, but it is undeniably true: unless a given project risk analysis materially alters the response of the project team to an unanticipated event, all risk management analysis is a waste of time and energy. It’s essentially institutional worry, tripped out in statistical jargon.
Some intrepid project management writers have gone so far as to assert that there is no major project that can point to its risk management efforts as having any material impact on the project being completed on-time or under-budget. In fact, Nassim Taleb (from The Black Swan) posits that the use of Gaussian Curves in the development of business strategies is one of the greatest intellectual frauds of the 20th century.
Yet, risk management training is big. A Google® search on the term “risk management training” returned some 163,000,000 hits on May 25, 2013. PMI®’s Guide to the Project Management Body of Knowledge has risk management as one of its nine main sections, so it is reasonable to assume that a number of the people reading this blog have been involved in teaching the subject.
I certainly understand the appeal; to know how the future will unfold in an economic setting is obviously valuable in the extreme. But the simple fact of the matter is that the future cannot be quantified, and no attempt to do so should ever be considered intellectually valid. All of those analyses producing the 80 percent confidence interval in the cost baseline, or allowing a precise number of days to use when placing your schedule contingency milestone on your critical path network, are all irrelevant.
This very irrelevancy may be the reason that risk management advocates tend to be aggressive in their communications with those with whom they disagree—at least in my experience. Like our theoretical Ptolemy-teaching cosmology trainers post-Copernicus, all 163,000,000 people who can provide risk management training have a vested interest in making sure ideas from naysayers never become commonly held. It’s actually to their benefit that managers outside the insurance industry continue wasting their money on risk management and analysis techniques—and those who can teach them.
Enter game theory
All of which brings us to game theory. Game theory consists of a series of games, or situations involving participants in structured interactions, in which various strategies or tactics can be evaluated for their efficacy. One such game that can offer insights into the selection of advance-or-defeat-valid-management-techniques situations is the Hawk-Dove game. Imagine two generic birds, who can elect to either passively forage for food by themselves (the “dove” strategy), or aggressively try to either take the other bird’s food away or prevent it from foraging on its own (the “hawk” strategy). Interestingly, the bird population’s payoff is maximized when all of them engage in dove strategy.
Now consider a 100-bird population, each of which can elect to behave as a hawk or a dove. Again, the overall population’s payoff is maximized when the all select the dove strategy. However, if even one bird selects the hawk strategy, then the overall population will have to change its selection of strategies, or else face starvation, even if there is enough food to feed them all if they had all selected the dove strategy.
This change in strategies will continue until a point of predictable stability, known as a Nash Equilibrium, is established. In the 100-bird population Hawk-Dove game, this point is around 75 percent (dove) to 25 percent (hawk).
Similarly, in a given population of training organizations (let’s just pick a population 163,000,000, shall we?), the field of management science is best served when they all conduct intellectually honest research and scholarship and develop their curriculum based on the best possible understanding of the dynamics of the macroeconomic environment. However, allow just one of these organizations to realize that it’s a concept contagion, and not its validity, that leads to its widespread acceptance, and this organization has suddenly swerved into advocacy.
This organization could capitalize on the not-necessarily valid management strategy, and seek to downplay or eliminate those strategies that represented the superior technical approach. Depending on the strength of the analogy to the Hawk-Dove game, the other organizations would tend towards a Nash Equilibrium of continuing to conduct legitimate research and scholarship 75 percent of the time, and engaging in advocacy or the condemnation of those with whom they disagree 25 percent of the time, or else risk economic reversals.
As the given invalid management science theory’s perception of efficacy erodes, its advocates will have to become more vociferous in their attempts to tamp down its critics. In other words, they will have to engage in advocacy more often, pushing the new Nash equilibrium further and further away from legitimate research and scholarship, and closer to pure advocacy.
This, ladies and gentlemen, does not bode well for the furtherance of management “science”—nor the instruction thereof.
Moving forward
Is there a solution? Not to the larger problem, I believe. Both Taleb and Kuhn were right: the widespread acceptance of an idea is almost never about its validity, and almost always about its contagion. The advancement of science—even management science—unfolds in a predictable pattern that will invariably allow for a period of time for the advocates of certain invalid business strategies to profit from the slowing or prevention of newer, more valid strategies to overturn the commonly-held versions.
However, there is a solution at the microeconomic level: a portfolio management structure by which any claim of the efficacy of a given business strategy or management science theory can be evaluated with respect to its effect on asset, project, or strategic management performance. I offer such a structure in my previously mentioned book, and believe it can be used to root out much charlatanisms in the management science realm.
And, above all, remember that, if a management science theory needs armies of advocates, there’s probably a reason why.