What does game theory have to do with HR?
South African companies are going through a very difficult period that could arguably be likened to a ‘perfect storm’ as many industries are struggling to create sustainable growth because of, for example, increasing and aggressive labour unrest as well as fractures between unions and labour. For HR professionals to impact these issues and become key players in delivering on primary business objectives, a new type of thinking will need to be born. This needs to be one that combines science and humanities. Game theory is an approach that, if used correctly, will achieve this and significantly increase the likelihood of success.
Strategic thinking using game theory in a business or leadership sense starts with an ability to understand the basic principles behind human nature and behaviour, and then knowing how to use this knowledge to influence positive win-win outcomes.
| What is game theory? |
| “Game theory is an approach that allows organisations to understand why problems originate, how these may play out (scenario planning), exactly which 20% we should be focusing on to get the 80% benefit, what decisions and solutions we should adopt and how confident we can be that the reactions from our key stakeholders - e.g. employees, labour and management - will be positive as a result of our strategic or tactical actions/decisions.” |
You need to combine science, humanities and intuition
Last year, I read Steve Job’s (formal Apple CEO) biography written by Walter Isaacson, which I am sure many of you have read as well. Isaacson articulated what Jobs had told him regarding the key secret of his success, which was “I always thought of myself as a humanities person as a kid, but I liked electronics,” he said. “Then I read something that one of my heroes, Edwin Land of Polaroid, said about the importance of people who could stand at the intersection of humanities and sciences, and I decided that’s what I wanted to do.”
Later on, Isaacson added to this sentiment, describing Jobs’ brilliance at understanding and exploiting the interaction between science, humanities and intuition.
Why game theory is useful in HR
Game theory is incredibly effective in analysing problems, defining the ‘right’ solutions for different contexts (both strategically and tactically), expediting effective decision-making and, importantly, getting things done and good ideas implemented.
Game theory is an approach that allows organisations to understand:
- Why problems come about,
- How these could play out (scenario planning),
- Exactly which 20% we should be focusing on to get the 80% benefit,
- What decisions and solutions we should adopt, and
- How confident we can be that the reactions from our key stakeholders (employees, labour, shareholders, management, communities and government) will be positive because of our strategic or tactical actions/decisions.
5 Examples of current applications of game theory in HR
1. Developing operationally driven HR and organisational development strategies in a way that success can be measured
2. Ensuring that interventions/solutions are successful
3. Accelerating negotiations
4. Improving labour-management relationships
5. Increasing the effectiveness of leadership, cross-functional team collaboration and internal team cohesion
What underlies game theory principles?
Science and art, by their very nature, differ in that science can be learned systematically and logically, whereas expertise in art has to be acquired by, for example, experience and practice.
It is important to understand that because the dynamics of human behaviour are relatively well understood, it is possible - with enough information - to predict or anticipate individual responses to interactions or decisions. Some decisions or interactions are clear cut and solutions are relatively easy to identify and implement, but increasingly managers are faced with challenges that are potentially open-ended and not responsive to generic interventions. However, mangers are very responsive to interventions that target and positively impact their specific problems. Game theory enables us to identify these in a scientific way.
Game theory principles are also based on the realities of human behaviour, which people won’t express externally, but these do drive decisions and strategies, for example:
- People aren’t always selfless in their actions and decisions and so will not always do things that are in the best interests of their employees or the organisation. It is human nature for people to act in ways that protect their best interests and drive their own agendas.
- Over time, any individual typically demonstrates consistent behaviour patterns in response to problems or making decisions. Finding patterns in behaviour, understanding internal political dynamics, and knowing the motivations of an individual/key decision maker will enable you to use foresight in developing responses to scenarios, which scientifically increases the potential for effective collaboration and buy-in to ideas and solutions.
