Zero-Sum Thinking

In a conversation with Jack Welch earlier this week, he raved about Rich Kaarlgard’s recent column in Forbes on “World’s Worst Disease”.  No, Rich is not talking about cancer, AIDS or avian flu – he is talking about “zero-sum thinking” – the belief that if one person gains, other people must inevitably lose.

Rich focuses on a significant rift in our society.  In fact, this is perhaps the most fundamental rift in any society. It ultimately determines whether the society is progressive and dynamic or stagnant and conflict-prone.

Unfortunately, both of our political parties appear to be captives to zero sum thinking. Rich asks:

Why do so many opinion makers promote the zero-sum view? I think that politicians, even the best and brightest, become zero-sum thinkers because they occupy a zero-sum world. Only one person can be President of this country; only 50 can be governors; only 100 can be senators. . . . Politicians live in a world in which one person’s gain is another’s loss.

Rich goes on to target economists and journalists as being particularly prone to this disease. Now, I agree with all of this, but I wonder why Rich leaves out business leaders in his discussion of this disease. My concern is that many senior executives of our largest companies have fallen prey to this disease.

As JSB and I wrote in the opening pages of The Only Sustainable Edge:

We believe that a new opportunity and a new imperative – the acceleration of capability building – will shift our institutional and collective mind-sets from a worldview that focuses on static, zero-sum relationships to one that emphasizes dynamic non-zero-sum relationships.  As we adopt these different perspectives, we will find that most of our institutions today are fundamentally lacking.

Static, zero-sum worldviews generally arise when people focus on the allocation of existing resources.  Existing resources have a fixed quantity, and with relatively modest exceptions, if one party acquires a resource, other parties are deprived of that resource.  This worldview is a natural orientation for large, well-established players – they become more concerned with defending existing resources because they have a lot to lose on this front, compared with the opportunity to create more resources.

I spend a lot of time with senior executives and I am struck by the inroads made by this disease in corporate boardrooms.  Here are just a few of the areas where zero-sum thinking rears its ugly head in our business arena:

• Squeezing suppliers. In our quest for cost-cutting, we have focused on squeezing the prices of our suppliers as much as possible.  The result has been deteriorating trust and relationships with key business partners. Too many executives under-estimate the opportunity of working together to make both parties stronger and deliver even more value to the marketplace.

• Growing focus on intellectual property protection.  There are certainly valid concerns here, but too often executives seek to protect their existing stocks of knowledge at the expense of the opportunity to participate in broader relationships that could significantly refresh these stocks.

• The militarization of marketing.  Military metaphors abound in our marketing efforts – campaigns, blitzes, targeting – yet war is perhaps one of the most extreme examples of zero-sum games.  What new value could we create if we focused instead on how we could be more helpful to customers so that they will make the effort to seek us out, rather than having us search for them?

• The marginalization of innovation.  With some obvious exceptions, large enterprises have generally become consumed with the quest for cost-cutting – again,  for understandable reasons.  In the process, though, the opportunity to create new forms of value through innovation has been shunted aside.  Innovation has been compartmentalized into R&D departments that have been squeezed for cost-savings along with everyone else.  Rather than assigning innovation to the ghetto of R&D, why not liberate innovation and view it as an activity that everyone in the enterprise should be pursuing every day? Of course, that means breaking the mindset that innovation is about product development. After all, innovation is ultimately about finding ways to deliver new value to the marketplace from existing resources, whether this value is in the form of products, new work practices, improved business processes, new management techniques or new business models. Innovation is the antidote to zero-sum thinking.

Rich also doesn’t talk about this disease in a global context.  Certainly every society has it to some degree.  But I think the story of the rapid growth of China and India in the past decade hinges on the ability of significant segments of the population to find an antidote to this disease and to embrace a positive-sum view of the world.

I fear that the disease is more pervasive than Rich acknowledges.  We need to identify the symptoms in all areas of our life and work hard to find appropriate antidotes.  Our continued growth and prosperity depend upon it.

Comments

[Michael Fasosin]

Graham, reason why you shouldn't squeeze your IT suppliers is because they're more likely to tell you the truth and perhaps have shared ownership of your strategic objective/goal if you focus more on where you're going as a business as opposed to the initial cost of the development programme/outsourcing.

Secondly, you the customers fixation on Gartner Magic Quadrants means IT vendors make short term acquisitions to fill the blanks in their Powerpoint slides. I can think of Enterprise Content Management and Enterprise Service Buses as things vendors are now claiming to sell. Do you really know what these do? If the implication of the Magic Quadrant is a Vendor has got a bunch of APIs that don't talk to each other. You'll pay more for integration and support over five years than the cheap deal you got initially, Quality Choices breed Quality Relationships. The quality of thought at the top of most organisations is shocking!

[Michael Fasosin]

I'm a software architect and I can't help but agree with you John. The most fatal mistake a lot of companies are making is outsourcing practically all of their IT. As an external consultant, I've gone to several accounts where internal staff are afraid to pickup the phone to call someone in IT because of the significant cost of the call. In a large bank I will not name, the corporate LDAP and network was such a mess. We were implementing a new portal and the customer suggested we set up a new LDAP to get round the mess! simply becuase they thought and were led to believe by the outsourced IT it would be expensive to fix the corporate directory. I refused to agree to this and forced a meeting with the outsource supplier. It turns out they'd been scamming this bank and led them to believe it was going to cost a fortune and time to fix the problem. I provided a walkround which fixed it in a few days at hardly any cost. Goes back to squeezing cost meaning the outsourced IT is forced to scam. Ok this is one example, I know of several worse examples that I can't even share on a blog.

I strongly believe in 5 years time, companies will ask themselves why they outsourced. Lack of innovation and organic growth will kill a lot of companies before they even realise it. Your people, not the brand are your most important assets. Nuture them and watch that brand value rocket!! John, I referred to one of your old post in my most recent blog entry the one about employess spending time on exception to process rather than the process. It really hits the mark when thinking about the wasted money on ERPs and Portals. It's here http://www.poseidongroove.com Thanks Michael

[David Foster]

It seems likely to me that much zero-sum thinking is the result of the increased dominance of lawyers in our society.

[forestpark]

This is going to be one of the battles that the beginning of this millenium will be remembered for. Not because we are walking with a clear head into a battle between good and evil, but because we are entering uncharted territory.

As in "The Guns of August," both sides of this battle believe they understand the otherside well enough to wage a successful war.

This is not true for either side. Both sides are still polarized from previous battles.

This battle calls for a better understanding of what the weapons and weaknesses of this new battle. On one hand, you have massive generation gaps who have a hard time relating to each other (this is nothing new), and we now mix in the economy of the "attention span."

Maybe the doomsayers have a correct idea when they admit scarcity in this attention span context, but they are still "stuck in the box."

The optimists realize that there is a limit to what individuals can pay attention to, but fail to grasp the mental environment of large fractions of society.

I believe wholeheartedly in evolution (and God at the same time). How's that for abandoning previous "limitations?" And I am one of a fast growing percentage of the new "letter" generations (x,y, etc).

Consider the mental states of those in this battle and you will learn which weapons to use. You are dealing with people are aware down to their soul that something is wrong with the world... they don't know what, but when someone comes around and explains the fear they're feeling via skepticism, you've just found "fertile ground."

These methods are not new, but these "jedi manipulations" are now in the hands of VERY sincere mental warriors.

Perhaps we are entering a new "feudal" state that revolves around concepts, opinions, and memes.

Perhaps this battle has reached its "critical mass."

I don't know. All I know is that any weatherman who tells you the weather more than a few days ahead is either full of it, or using an almanac. Neither of these are responsible actions in todays friction.

Then again, I might be completely wrong :)

brad
bradcruikshank@ gmail . com (remove spaces)

[john]

In any trade both parties are better off, otherwise the trade will not be made.

From this we know that the more trade, the better off we all are. And the more restrictions on trade (taxes, tolls, price-fixing, quotas, regulations) the worse off we are.

[steevo]

alan,
the problem w/ your Foo & Hoo example is that it doesn't scale. It works fine for a 2-player game, but what about Boo, Moo, and Kachoo? When Foo and Hoo make their deal, you must subtract those resources from the total available for Boo, Moo, and Kachoo to avoid beriberi and scurvy.

[alan]

zero sum is wrong.

Let's say we have a farmer, Foo, with 1000 acres of farmland. Let's say we have a herder, Hoo, with 1000 head of cattle.

Let's say Foo gives Hoo some 50 acres' worth of vegetables and fruit in exchange for 50 head's worth of milk and meat. So it's zero-sum, right? It's still 1000 acres of farmland produce and 1000 head of cattle produce. That's zero-sum, right?

WRONG.

Let's see if Farmer Foo DOESN'T trade with Herder Hoo. What happens? Well, Herder Hoo dies of beriberi or scurvy or what not. Farmer Foo then dies of protein malnutrition. The trade isn't zero-sum: it's positive sum. If they don't trade, they both lose. If they trade, they win.

So yes, it's NOT a zero-sum world.

[General Public]

Zero sum is a reality.

If buyer and seller benefit equally in a transaction, then the richest people will be the people who work more number of hours. Look around, do you see rich people working more hours? if not Zero sum is a reality.

Aggregation of wealth is only possible by deception. Selling something for more price than it is really worth. Profit = Selling price - Buying price.

Today deception is very easy with Jewish Floating Currency System.

Next 15 years will see Evolution of fixed value currency system with redemption obligation. Issuers of currency will have obligation to redeem currency with products/services. This is restrict the today's rich class to manipulate prices in their advantage.

[AC]

War isn't a zero-sum game. War is a negative-sum game: even if you win, you lose. (It can still be optimal if your alternative is to lose more.)

[steevo]

the BIG problem w/ Rich Kaarlgard’s recent column is that it also describes a sickness, namely the problem of induction.
pls see : http://www.everything2.com/index.pl?node_id=1008919

give me a refutation in real world terms that proves we don't live in zero-sum. It's just an argument about how long before any resource peaks (are we 50 years away or 5000 years away).

[Malcky]

It may not be politically correct to say this but the harsh reality is that we live in a zero sum world. Despite what all the economists tell you there is not an infinate amount of natural resources, clean air, clean water, arable land, minerals, oil, and food in the world so we all have to fight over whats there.

In a very real sense the economy itself is a zero sum game. Even the magic word "productivity" involves humans (who need to eat, defacate, shelter themselves, and move themselves about) and machinery (which needs minerals and energy) so you get no free lunch.

Like it or not it's a zero sum world. People who think that tend to win. If you don't believe me ask Bill Gates one of the greatest zero sum thinkers in history.

[GrahamHill]

John

Just as disastrous for business & society is "linear thinking"; the perception that if you do A, then B happens immediately afterwards, followed by C, and so on. The problem that you describe with squeezing suppliers is a good example of this.

The antidote to linear thinking is obviously "systemic thinking"; in recognition that we live in a complex adaptive world where A influences B, but also influences P, which in turn influences C. However that requires managers and politicians to understand a bit more about how the world works, and to reflect on a range of actions and their consequences before taking action. Sadly, the need to be seen to be taking action NOW, seems to make this difficult for many of them to do.

Graham Hill
Independent management Consultant

[Vinnie Mirchandani]

Ok, John - you say do not squeeze suppliers and I generally agree. One of my favorite books was the Connected Corporation by Jordan Lewis where he showed how to bring out the best of suppliers.

But how you can not squeeze tech vendors when many of them are making 70 to 90% margins when the average buying corporation is in the 20s and 30s. Also many tech vendors are guilty of the other sins you list above. They only spend 10 to 15% of reves on R&D, spend a bucket load on sales and marketing (and use military and football terms - campaigns, blitzes - liberally) and are big on IP protection, while spouting every version of "open" in their marketing campaigns.

Instead of zero sum may be we should think about a scale of 1 to 10 in relationships - in some you move towards them, in others they mvoe towards you..

[Rich]

What's your opinion on Google's outlook?

http://boycottgoogle.blogspot.com/2006/01/google-stars-in-risky-business.html
Google Stars in Risky Business... -
Here is an interesting analysis about Google's big drop Friday.

[siimon]

Excellent post!

I think that zero sum thinking is the way we play short term games. By taking a longer view or more correctly by decomposing ones actions into short, medium amd long term moves one can begin to see that life is not a zero sum game. Management must become more adept at managing across multiple time horizons over the course of their day. In my work experience most executives only see one time horizon and it is now. Every thought about the future is conceptual.

I also think the

[Philip Boxer]

This is a good point - and it is interesting to see it as a symptom of ossification that itself is the harbinger of paradigm shift: the failure to continue to develop and adapt can be understood as the current paradigm having arrived at the limits of its structural plasticity. What's to do? That faces each one of us with an ethical challenge.