OCTOBER 6, 2018

 

The Prisoners Dilemma, Design, and Disruption

Ross Mitchell

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Thinking of business as a game is common in corporate strategy discussions. Ironically, many companies seem to be playing the wrong game. In one common scenario, a small number of established firms battle over relatively inconsequential differences, while a more nimble startup successfully “disrupts” the market, ultimately leading to the established company’s marginalization or even liquidation. What is occurring here? The established firms are caught in a prisoner’s dilemma, the well-known game theory scenario, while the startup competes by creating an entirely new game to play.

 A prisoner’s dilemma occurs when the best course of action for each player, within the rules of a particular game, is one which is actually detrimental to all players on aggregate. Examples are not difficult to come by in the business world. Take the telecommunications industry, for example. Within their game rules, they have set up a system whereby competition largely occurs by throwing promotions at customers in order to acquire new customers. The result? Customers do not feel loyal to carriers and costs increase for companies due to churn and price-cutting. On the other hand, due to the rules that these companies have set for themselves, were they to adopt a more straightforward pricing system, they would likely see fewer new sign-ups for that company (though an industry wide adoption would likely improve outcomes for all). A classic prisoners dilemma.

A company facing such a situation has only two options really. The first, and most obvious, is to find win-win scenarios with competitors and successfully communicate and enforce those win-win scenarios. This, however, is very difficult to pull off without illegal collusion. The other route, which startups often engage in, is formulating a completely new game, with a new set of rules. “Disruption” is really just another way of saying that the rules of the game have changed.

If you find yourself in such a dilemma, investing in design and discovery research is critical to find ways to change the rules of the game. During the discovery process, one should be thoroughly analyzing the game you are playing. This means outlining the players (who is competing), the added values (what each player is bringing to the table to compete), the rules (outline above), the tactics (how players compete within the rules of the game), and the scope (what are the bounds of the game). After clearly understanding the boundaries of the game, the design process – including a lot of “what-if” thinking – can be used to transform the game itself.