A reflection on cooperating in a competitive world
In the first Operations class in the Executive MBA of IESE, we played Beer Game, a simulation where each group adopted a position in a beer supply chain. So I remembered that I read about this game in The Fifth Discipline of Peter Senge, and it was astonishing to perceive how our class followed the same pattern that Senge says in the book that every group that plays the game follows.
During the game, each player tries to maximize their benefits and profits, and it causes a suboptimal result for the entire chain; in some cases, the players bankrupt their companies. It brings me some reflections.
First: It is important to remember that in the game, the players are not competing; they are all links from the same chain. But, the behaviors and decisions made were all thinking just for their oneself benefit and not taking into count the other links of the chain. The game exposed a not noble side of the human being. Why do the players behave selfishly? Is it human nature, or is it the way that the business world works?
Second: in The Wealth of Nations, Adam Smith says that when each player of the market act in trying to seek its own benefit, the market's invisible hand will maximize the outputs, a well-accepted theory in our business and economic world. However, we see that it was not the result in the beer game, with all players having bad results.?
After the game, the professor exemplified how an S&OP meeting works. Sales and operation teams must sit together according to how much to produce. Each side would tend to try to maximize its benefit. Probably the sales team will ask the operations team to produce more than they need because if they get a big sale opportunity (even if the chance of it happening is really small), they will need more products. However, it will cause many costs with stock. Conversely, the operations team will try to minimize stock costs and produce just the necessary. So why do S&OP meetings work?
These meetings work in companies because both teams know they will need to sit together again monthly and come to terms. If any part tries to maximize its output this month, in the next month, the other side will not believe in it and will not collaborate. The recurrence forces the players to be honest and act collaboratively.
That reminds me of the game theory, where in infinite games (games with endless rounds and interactions), cooperation is the best alternative for all players to maximize their outcomes. And probably, most situations in our life are like infinite games: our relationships with friends, with family, with coworkers, etc. However, as we observed in the beer game, it is tough for us to choose to cooperate. Our instincts are selfish.
Adam Grant, a Wharton Business School professor, in their book, Give and take, present us with three types of people:
According to Adam Grant, these styles have a significant impact on success. In ranking the probability of success, we have Givers in the first position, Matchers in the second, Takers in the third, and Givers in the fourth. Why are givers at the top and in the last place? For Grant, although some givers get exploited and burned out, the rest achieve extraordinary results across many industries. Grant’s research says that what differentiates the two types of givers is that the ones in the last position are the ones that always give, and even if someone exploits them, they just continue to help. On the other side, the givers at the top of the list are always available to help, expecting nothing from it. However, if they perceive the other side not collaborating with them when needed, they give a step back and stop to collaborate with this person. Throughout life, the giver will receive a lot more help in many different contexts and create a significant benefit for him that will allow him to probably succeed in life.
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It looks like the game theory about collaboration in infinite games and Grant’s research point in the same direction: We can create much more value for ourselves and others if we collaborate! And it looks like true for companies too. In the Operations class, we studied the case of Toyota and how it established a more-efficient supplier relationship and boosted profits with the Keiretsu system. The same is true for Mercadona, who built a strong relationship with their suppliers, with mutual benefits for both sides. In both cases, Toyota and Mercadona deliver the almost impossible: Better returns for shareholders, a lot more quality to clients with low prices, high employee salaries, and an engaged workforce. In both cases, they disrupt their markets, opening up a significant advantage over competitors, Toyota in the automotive industry and Mercadona in the retailer segment in Spain.
In the two cases, it was possible just because they created a real increase in efficiency in a win-win scenario with suppliers, and not just increase efficiency for them destroying value in the whole channel, for example, when a big player puts a lot of pressure on the suppliers for cost-reduction and ending broke the supplier.
So the question that remains in my mind is: Why do we or our companies not collaborate more? Or how can we change the systems we are in to create a more collaborative world with better outputs for everyone?
A possible way is to create rules, incentives, and a system that punishes those who misbehave. However, it is just possible when we have authority under other stakeholders - this is why many firms try to verticalize production.?
A punishment system is fundamental. In the book The Immoral Soul, Nilton Bonder writes: "Here is one of the biggest questions of the human being - to choose between being a fool and being perverse. Nobody wants to be a fool, and nobody wants to be perverse. The animal that competes for subsistence does not want and cannot afford to be foolish. Not being perverse is giving up immediate gratification, which brings the costs of what we understand as a foolish option that does not benefit us. However, the less foolish you want to be, the closer you are to being perverse. Social rules allow us to be minimally naive. The better organized a society - offering less risk to competition, without making us fools - the better that society will be."
However, it will not always be possible to control the other stakeholder and create rules and a good punishment system. In Mercadona and Toyota’s cases, it was possible to find some clues about how we can build these collaboration relationships without being foolish or perverse in these scenarios.?
Mercadona and Toyota were probably the most significant and influential players in their chains, and these big players made the first move, inviting others to participate in this process (perhaps because they were sufficiently powerful not to have significant negative consequences if the agreement did not work well). Moreover, they probably can contribute more to the other players than the inverse, making their proposal to the other players more appealing, so it is worth the risk. Also, it probably just worked because Mercadona and Toyota already had a relationship with the suppliers built over time, making it possible for the partners to trust in them and not think that they would cheat or take advantage. After all, building trusting relationships involves making yourself vulnerable, and when we are being vulnerable, in some way, we give power to someone who can help us but also make it possible for them to hurt us.
I believe as Adam Grant says, that trying to build trustful relationships, seek to collaborate, and try to help others is the best alternative. But it not means make yourself a fool. It is about always seeking trust and cooperation but being aware of how each relationship evolves and each stakeholder behaves.
Trying to collaborate in a competitive world will be challenging and will hurt sometimes. Still, in the long run, it is the right thing to do and probably is the unique alternative we have as a human race not to destroy ourselves in the long run, as the players made in the beer game and ended up bankrupting their companies.