Game Theory

Game Theory

 

Game theory is a study of strategic decision making. More formally, it is "the study of mathematical models of conflict and cooperation between intelligent rational decision-makers". Game theory is mainly used in economics, political science, and psychology, as well as logic and biology. The subject first addressed zero-sum games, such that one person's gains exactly equal net losses of the other participant(s). Today, however, game theory applies to a wide range of behavioral relations, and has developed into an umbrella term for the logical side of decision science, to include both human and non-humans, like computers.

The games studied in game theory are well-defined mathematical objects. A game consists of a set of players, a set of moves (or strategies) available to those players, and a specification of payoffs for each combination of strategies. Most cooperative games are presented in the characteristic function form, while the extensive and the normal forms are used to define non-cooperative games.

The normal (or strategic form) game is usually represented by a matrix which shows the players, strategies, and pay-offs. More generally it can be represented by any function that associates a payoff for each player with every possible combination of actions.

The extensive form can be used to formalize games with a time sequencing of moves. Games here are played on trees.  In this each vertex (or node) represents a point of choice for a player. The player is specified by a number listed by the vertex. The lines out of the vertex represent a possible action for that player. The payoffs are specified at the bottom of the tree. The extensive form can be viewed as a multi-player generalization of a decision tree.

Balanced Scorecard

Balanced Scorecard

Balanced scorecard (BSC) is an approach to performance measurement.  It is a strategy performance management tool.  A balanced scorecard is a set of performance measures constructed for four dimensions of performance. The four dimensions are:

• Financial: encourages the identification of a few relevant high-level financial measures. In particular, designers were encouraged to choose measures that helped inform the answer to the question "How do we look to shareholders?"
• Customer: encourages the identification of measures that answer the question "How do customers see us?"
• Internal business processes: encourages the identification of measures that answer the question "What must we excel at?"
• Learning and growth: encourages the identification of measures that answer the question "How can we continue to improve, create value and innovate?"

The balanced scorecard is ultimately about choosing measures and targets. The various design methods proposed are intended to help in the identification of these measures and targets, usually by a process of abstraction that narrows the search space for a measure.

Reasonableness test

Reasonableness test is a procedure to examine the logic of accounting information. It is where the expected value is determined by reference to data partly or wholly independent of the accounting information system, and for that reason, evidence obtained through the application of such a test may be more reliable than evidence gathered using other analytical procedures.

For example, the trend in promotion and entertainment expense for a company can be compared to that of prior years of the same company or to competitive companies, or to industry norms. If the promotion and entertainment expense is relatively high, it will require investigation because it does not appear reasonable.

Kaizen

Kaizen is a system of continuous improvement in quality, technology, processes, company, culture, productivity, safety and leadership.

Kaizen is Japanese term for "improvement" or "change for the better". It comes from the Japanese words 改 ("kai") which means "change" or "to correct" and 善 ("zen") which means "good". Kaizen was created in Japan following World War II.

It refers to philosophy or practices that focus upon continuous improvement of processes in manufacturing, engineering, supporting business processes, and management. It has been applied in healthcare, psychotherapy, life-coaching, government, banking, and many other industries. When used in the business sense and applied to the workplace, kaizen refers to activities that continually improve all functions, and involves all employees from the CEO to the assembly line workers. It also applies to processes, such as purchasing and logistics that cross organizational boundaries into the supply chain.

Everyone is encouraged to come up with small improvement suggestions on a regular basis. This is not a once a month or once a year activity. It is continuous. In Japanese companies, a total of 60 to 70 suggestions per employee per year are written down, shared and implemented. Suggestions are not limited to a specific area such as production or marketing. Kaizen is based on making changes anywhere that improvements can be made.

Kaizen involves setting standards and then continually improving those standards. To support the higher standards Kaizen also involves providing the training, materials and supervision that is needed for employees to achieve the higher standards and maintain their ability to meet those standards on an on-going basis.

The Balanced Scorecard

The balanced scorecard is a strategic planning and management system that is used extensively in business and industry, government, and non-profit organizations worldwide to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organization performance against strategic goals.

A balanced scorecard is a set of performance measures constructed for four dimensions of performance. The dimensions are financial, customer, internal processes, and learning and growth. Having financial measures is critical even if they are backward looking. Customer measures examine the company's success in meeting customer expectations. Internal process measures examine the company's success in improving critical business processes. And learning and growth measures examine the company's success in improving its ability to adapt, innovate, and grow. The customer, internal processes, and learning and growth measures are generally thought to be predictive of future success.

Facebook and Google size up takeover of Twitter

Google Inc and Facebook Inc, plus others, have held low level takeover talks with Twitter that give the Internet sensation a value as high as $10 billion, the Wall Street Journal reported.

In December, Twitter raised $200 million in financing in a deal that valued it at $3.7 billion. The company, which allows users to broadcast 140-character messages to groups of followers, had 175 million users as of September.

The Wall Street Journal reported on its website that executives at Twitter have held "low level" talks with executives at Facebook and Google in recent months about a possible takeover of Twitter.

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Review of Remuneration Policies and Practices in Irish Retail Banks and Building Societies

The Central Bank of Ireland today published the findings of a review of remuneration policies and practices in a number of Irish retail banks. The review assessed whether banks have changed how they remunerate employees, particularly those in senior executive positions, to reflect incoming regulatory standards and the lessons of the crisis. In particular, it examined if banks have ended remuneration practices which fostered inappropriate risk taking or inadequate risk management. The review was conducted in September and October 2010.

The main findings from the review include:

• There is little evidence that banks have self-consciously made a link between their risk appetite and their incentive structures. This exposes banks and, by extension the State, to the consequences of inappropriate risk taking;
• The governance and oversight of remuneration practices is poor. Non-executives need to step-up their scrutiny of remuneration arrangements, and in particular make sure that senior executives’ remuneration is aligned to a bank’s willingness and capacity to take risk;
• In the majority of banks, procedures to determine remuneration are not clear, well documented or internally transparent. There was little evidence of consideration of risk, or collaboration with risk management functions to ensure remuneration policies are aligned with long term strategic plans;
• The majority of banks were found to have given little or no consideration to preparing for the implementation of impending European requirements and guidance on remuneration, which will become effective in Ireland on 1 January 2011. The Central Bank of Ireland expected to find that banks were much more advanced in their arrangements for compliance with these important requirements;
• Some banks are tightening their approach to paying guaranteed bonuses. There is also some evidence of tightening of severance pay, with some banks imposing stricter conditions on golden parachutes. There is, though, further to go;
• All banks reviewed disclose certain information on remuneration externally, but there is little evidence of banks moving to the fuller disclosure required by incoming regulations and guidance from the EU.

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Happiness Index for Britain

The UK government is poised to start measuring people's psychological and environmental wellbeing, bidding to be among the first countries to officially monitor happiness.

Despite "nervousness" in Downing Street at the prospect of testing the national mood amid deep cuts and last week's riot in Westminster, the Office of National Statistics will shortly be asked to produce measures to implement David Cameron's long-stated ambition of gauging "general wellbeing".

Countries such as France and Canada are looking at similar initiatives as governments around the world come under pressure to put less store on conventional economic measures of prosperity such as gross domestic product.

British officials say there is still hesitation in some parts of Whitehall over going ahead with the programme during such difficult economic times, but Cameron is said to want to place the eventual results at the heart of future government policy-making.

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Del Monte Buyout

Del Monte, the US food production and distribution company known for its "man from Del Monte" ads, is set to be taken over by a group of private equity firms led by Kohlberg Kravis Roberts for $5.3bn (£3.3bn), in one of the year's largest private-equity buyouts.

The San Francisco-based business produces canned fruit and vegetables along with pet food including Milk-Bone dog biscuits and Meow Mix cat food. Earlier this year KKR bought Pets at Home, Britain's leading supplier of dog collars, bedding and premium food, for £955m.

KKR along with buyout funds Vestar Capital Partners and Centerview Partners have offered $19 a share in cash for Del Monte. The price represents a premium of 40% over the food company's average closing share price during the past three months prior to 18 November.

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Squire Sanders to Merge with UK’s Hammonds

Squire, Sanders & Dempsey will merge with UK-based Hammonds LLP. The deal was approved by the partnerships with both firms and will take effect on Jan. 1 of next year.

The new firm will employ some 1,275 lawyers in 37 offices and 17 countries — putting Squire Sanders among the top 25 law firms, based on number of lawyers.

Squire Sanders chair James J. Maiwurm will be global chief executive officer and chair. Hammonds managing partner Peter Crossley will be managing partner for Europe.

 Click here for more on the merger.

Strategic Management

Strategic management entails specifying the organization's mission, vision and objectives, developing policies and plans, often in terms of projects and programs, which are designed to achieve these objectives, and then allocating resources to implement the policies and plans, projects and programs. Recent studies and leading management theorists have advocated that strategy needs to start with stakeholders expectations and use a modified balanced scorecard which includes all stakeholders.

“Strategic management is an ongoing process that evaluates and controls the business and the industries in which the company is involved; assesses its competitors and sets goals and strategies to meet all existing and potential competitors; and then reassesses each strategy annually or quarterly [i.e. regularly] to determine how it has been implemented and whether it has succeeded or needs replacement by a new strategy to meet changed circumstances, new technology, new competitors, a new economic environment., or a new social, financial, or political environment.” (Lamb, 1984:ix).

According to Arieu (2007), "there is strategic consistency when the actions of an organization are consistent with the expectations of management, and these in turn are with the market and the context." Strategic management includes not only the management team but can also include the Board of Directors and other stakeholders of the organization. It depends on the organizational structure.

Strategic management as a discipline originated in the 1950s and 60s. Although there were numerous early contributors to the literature, the most influential pioneers were Alfred D. Chandler, Philip Selznick, Igor Ansoff, and Peter Drucker.

Alfred Chandler recognized the importance of coordinating the various aspects of management under one all-encompassing strategy. Prior to this time the various functions of management were separate with little overall coordination or strategy. Interactions between functions or between departments were typically handled by a boundary position, that is, there were one or two managers that relayed information back and forth between two departments. Chandler also stressed the importance of taking a long term perspective when looking to the future. In his 1962 groundbreaking work Strategy and Structure, Chandler showed that a long-term coordinated strategy was necessary to give a company structure, direction, and focus. He says it concisely, “structure follows strategy.”

In 1957, Philip Selznick introduced the idea of matching the organization's internal factors with external environmental circumstances. This core idea was developed into what we now call SWOT analysis by Learned, Andrews, and others at the Harvard Business School General Management Group. Strengths and weaknesses of the firm are assessed in light of the opportunities and threats from the business environment.

Igor Ansoff built on Chandler's work by adding a range of strategic concepts and inventing a whole new vocabulary. He developed a strategy grid that compared market penetration strategies, product development strategies, market development strategies and horizontal and vertical integration and diversification strategies. He felt that management could use these strategies to systematically prepare for future opportunities and challenges. In his 1965 classic Corporate Strategy, he developed the gap analysis still used today in which we must understand the gap between where we are currently and where we would like to be, then develop what he called “gap reducing actions”.

Peter Drucker was a prolific strategy theorist, author of dozens of management books, with a career spanning five decades. His contributions to strategic management were many but two are most important. Firstly, he stressed the importance of objectives. An organization without clear objectives is like a ship without a rudder. As early as 1954 he was developing a theory of management based on objectives. This evolved into his theory of management by objectives (MBO). According to Drucker, the procedure of setting objectives and monitoring your progress towards them should permeate the entire organization, top to bottom. His other seminal contribution was in predicting the importance of what today we would call intellectual capital. He predicted the rise of what he called the “knowledge worker” and explained the consequences of this for management. He said that knowledge work is non-hierarchical. Work would be carried out in teams with the person most knowledgeable in the task at hand being the temporary leader.

In 1985, Ellen-Earle Chaffee summarized what she thought were the main elements of strategic management theory:

• Strategic management involves adapting the organization to its business environment.
• Strategic management is fluid and complex. Change creates novel combinations of circumstances requiring unstructured non-repetitive responses.
• Strategic management affects the entire organization by providing direction.
• Strategic management involves both strategy formation (she called it content) and also strategy implementation (she called it process).
• Strategic management is partially planned and partially unplanned.
• Strategic management is done at several levels: overall corporate strategy, and individual business strategies.
• Strategic management involves both conceptual and analytical thought processes.

Change Management

Change management is a structured approach to transitioning individuals, teams, and organizations from a current state to a desired future state. It is an organizational process aimed at empowering employees to accept and embrace changes in their current business environment.

As a multidisciplinary practice, change management requires creative marketing to enable communication between change audiences, but also deep social understanding about leadership’s styles and group dynamics. As a visible track on transformation projects, change management aligns groups’ expectations, communicates, integrates teams and manages people training. It makes use of metrics, such as leader’s commitment, communication effectiveness, and the perceived need for change to design accurate strategies, in order to avoid change failures or solve troubled change projects. An effective change management plan needs to address all above mentioned dimensions of change. This can be achieved in following ways:

1. Putting in place an effective Communication strategy which would bridge any gap in the understanding of change benefits and its implementation strategy.
2. Devise an effective skill upgrading scheme for the organization. Overall these measures can counter resistance from the employees of companies and align them to overall strategic direction of the organization.
3. Personal counseling of staff members (if required) to alleviate any change related fears.

John P Kotter's 'eight steps to successful change'

American John P Kotter (b 1947) is a Harvard Business School professor and leading thinker and author on organizational change management. Kotter's highly regarded books 'Leading Change' (1995) and the follow-up 'The Heart Of Change' (2002) describe a helpful model for understanding and managing change. Each stage acknowledges a key principle identified by Kotter relating to people's response and approach to change, in which people see, feel and then change.

Kotter's eight step change model can be summarised as:

1. Increase urgency - inspire people to move, make objectives real and relevant.
2. Build the guiding team - get the right people in place with the right emotional commitment, and the right mix of skills and levels.
3. Get the vision right - get the team to establish a simple vision and strategy, focus on emotional and creative aspects necessary to drive service and efficiency.
4. Communicate for buy-in - Involve as many people as possible, communicate the essentials, simply, and to appeal and respond to people's needs. De-clutter communications - make technology work for you rather than against.
5. Empower action - Remove obstacles, enable constructive feedback and lots of support from leaders - reward and recognise progress and achievements.
6. Create short-term wins - Set aims that are easy to achieve - in bite-size chunks. Manageable numbers of initiatives. Finish current stages before starting new ones.
7. Don't let up - Foster and encourage determination and persistence - ongoing change - encourage ongoing progress reporting - highlight achieved and future milestones.
8. Make change stick - Reinforce the value of successful change via recruitment, promotion, and new change leaders. Weave change into culture.