Target Based Promotions? Say No!

So I thought I’d share with you some new stuff that I’m working on because it’s fun. I’m working on a new book and I’ve recently become completely smitten by Game Theory, specifically, finite and infinite games.

In game theory, there are two types of games Finite and Infinite games.

A finite game is defined as known players, fixed rules and an agreed upon objective, like baseball.

We all agreed to the rules. We all agree that whoever has more runs at the end of nine innings is the winner. And the game ends and we all go home.

Nobody ever says that we can just play three more innings. I know we can come back from this deficit. That doesn’t happen that way.

An infinite game is defined as known and unknown players. The rules are changeable, and the objective is to keep the game in play to perpetuate the game. When you pit a finite player versus a finite player, the system is stable, baseball is stable.

When you pit an infinite player versus an infinite player. The system is also stable, like the Cold War was stable because there cannot be a winner and there cannot be a loser.

So we just try and keep the game in play. And in infinite games, because there are no winners and losers. What happens is, players drop out of the game when they run out of the will or the resources to continue to play, right.

So, technically the United States didn’t win the Cold War, the Soviets dropped out because they ran out of the resources or the will to continue to play.

Problems arise. However, when you pit a finite player versus an infinite player, because one is playing to win and the other one is playing to keep playing, right.

So invariably, what happens is the finite player will always find themselves in quagmire. So this was the United States in Vietnam.

The United States was fighting to win and the North Vietnamese were fighting to survive a very different set of standards.

This was the Soviet Union in Afghanistan. The Soviets were fighting to beat the Mujahideen, and the Mujahideen would fight for as long as is necessary. And invariably what happens is, the finite player will find themselves in quagmire until they drop out of the game and leave the game because they run out of the will or the resources to stay in the game.

So this gets me thinking.

Let’s look at the business.

The game of business is an infinite game, right? It obeys all the rules. There are known and unknown players, you don’t know all the competitors necessarily in one industry to another. That rules are changeable.

We haven’t all agreed what the rules are. And there is no winning the game of business. Right?

The game just perpetuates. In fact, the game of business has existed longer than every single company on the planet today, and it will outlast every single commercial company on the planet.

Today, if you look at the Dow index of 30 Something odd companies that make up the down to something like 70 or 80% of those companies are 35 years or younger. Right?

So it gets me thinking if you listen to the language that companies use, they don’t know what game they’re in. They talk about being number one, talk about beating their competition, based on what agreed upon criteria based on what agreed upon timeframe.

Is that market share? Is it profits? Is it revenues, square footage number of employees over what one month, five months, six months, a year, five years, 10 years, the life of the company, I haven’t agreed to those rules.

And so companies can arbitrarily declare themselves number one in anything they want, if they set the standards in the timeframes and the only reason we do these things on an annualised basis, we tend to we tend to compare ourselves to other organizations annually, is only because we pay taxes annually.

If we paid taxes every 18 months, that would be sort of the standard. But again, we still haven’t agreed what the metrics are to be number one.

That means the companies that are playing the infinite game are playing against most of the others who are playing the finite game, means those finite companies find themselves in quagmire.

Almost every single bankruptcy not almost every single bankruptcy is a company that’s run out of the will or the resources to play, they drop out of the game. The game will persist.

Another company will fill their space. It’s not like it’s not like the business stops the industry ends.

And the companies that are playing the infinite game will frustrate those finite players, which I absolutely adore.

Now, I would say about 70 to 80% of the executives at Microsoft spent about 70 to 80% of their PowerPoints talking about how to beat Apple.

At the apple summit, 100% of the executives spent 100% of their presentations, talking about how to help teachers teach and how to help students learn.

One was obsessed with their journey, with their vision, with their cause. The other one was obsessed with their competition.

Guess who’s stuck in the quagmire. Guess who’s frustrated by their competition?

So at the end of my talk to Microsoft, they gave me a gift they gave me the new Zune when it was a thing.

And I have to tell you, this was one of the most remarkable beautiful pieces of technology I’ve ever used.

The UI was gorgeous. The design of the the actual hardware was beautiful. It was logical, and the way I could use it, it was intuitive.

It was absolutely fantastic. Now it doesn’t work with iTunes, which means I couldn’t use it. That’s a different problem altogether.

But this was a magical piece of technology. So at the end of my talk at Apple, I’m sharing a cab with one of the senior Apple executive sort of sort of an employee number 12 going to go and I decided to stir the pot.

So I turned him in to say you know, I spoke at Microsoft and they gave me the new Zune, and it is so much better than your iPod Touch.

And he turns to me and he says, I have no doubt conversation over because the infinite player understands.

Sometimes your product is better and sometimes it’s not. Sometimes you’re ahead and sometimes you’re behind.

The goal is not to beat your competitor. The goal is to outlast your competitor. What you find is that the infinite players don’t actually compete against their competition they compete against themselves.

The finite players, the ones who wake up every day trying to beat somebody else, the infinite players, the ones who say:

How can we be a better version of ourselves?

How can we advance our metrics?

How can we make our products more refined, more beautiful than they were last week? It’s totally fine to study our competition, Tactically.

It’s nothing wrong with knowing what our competitors are doing.

But the number of companies that study their competition strategically blows my mind. They look at what their competition is doing.

And they make sudden, sharp left and right turns to change the course of their company based on the movement of their competition. That’s the point.

That’s what rate weight wastes resources, the constant changing of your mind that constant going in this direction, that direction based on the wind of your competition, assuming that they know what they’re doing.

I find that fascinating. And the number of companies that play finite is the vast, vast majority.

So it begs the question, how does one play the infinite game?

How does one build an organization constructed for the infinite game?

So up here, you have the infinite game. This is where why exists. I talked about why the purpose cause or belief about the organization.

This is where our values lie. These are never changing. They are permanent. They will outlast all of us, and they should outlast they’ve been here from the birth of the company, and they should last the length of the company, right?

The infinite stuff, the wild stuff in the value stuff, is inherently intangible.

And it’s inherently difficult to measure. Right. Now, you have the finite game. And this is where our interests lie.

This is where what I would call your Watts lie, right?

This is where our products lie and things like that. It is inherently tangible and inherently very easy to measure.

Now, the goal is to run all decisions through our values through our purpose or cause first and then through our interests.

So what is a values based decision?

What does that even look like?

So here’s a values based decision when our military goes into battle, and we shoot the bad guy, we will take their injured buddy we will send our medics onto the battlefield to rescue the injured buddy of our enemy.

We will put them on our helicopters, fly them to our hospitals, put them in our hospital beds. Our doctors, we use our medicine to nurse them back to health.

That is not in our interest.

However, that’s kind of who we are. Right? It’s what defines us. In other words, we’re wasting our resources, because our values are more important than saving those resources doing something purely in our interests. It’s like torture, right?

The reason torture was done offshore. And the reason we tried to keep it a secret is because it kind of everybody kind of knew it violated our values.

Because if we were totally fine with it, Everybody would like just do it here. it’s totally fine. Why, somewhere else. Right?

And that’s the point. So great organizations are making values based decisions all the time, and then our interests come into play.

But the problem is when you’re playing a finite these things get ignored. And every time we make a decision, we decide what what we do in a vacuum. So your competitor comes out with a new product.

How do we react quickly come out with something similar?

What’s going on with the marketplace, you make some other reaction what’s going on in this particular country, and every single decision we make in a vacuum seems perfectly good.

We’re making rational decisions based on our interests. Right?

The problem is, was when we pull back and look at all of the decisions all the people we’ve hired, this is what happens when you only hire people based on their resumes.

For example, smart guy, get that person on board, right?

When you pull back, your culture is a mess and nobody knows what you stand for.

The whole idea of making values based decisions is we can look at almost all of a decision there every now and then one can go sideways.

But we look at all of the decisions the people you hire the things you do the things you believe in the things you stand for everything tangible, and we can say of you or your organization.

I know what you stand for. I believe what you believe. I would like to be a part of your organization I’d like to buy from your organization.

This is where loyalty lies, Right?

but the only way we can judge each other is here. It’s like human beings, right? we want our friends to act and speak and do the things based on who they are. we want our friends to be you know that word that’s always throwing about authentic, which means saying and doing the things we actually believe that’s what we mean.

And the reason is is because we want to know who they are. We don’t know what we want them to be predictable. Right?

I’ve become fascinated by this game theory stuff and I’m running it through all kinds of scenarios.

I’m looking at relationships.

I’m looking at business,

I’m looking at politics,

I’m looking at war, and nation states.

And how this plays out in the real world because the game is the game. We don’t get to change the rules there.

Of course, there are always finite games within the infinite. It’s the difference between a goal and a vision.

And a goal is 26.2 Miles count the metrics count the mile markers, and when you reach the goal you the game ends it’s over.

Vision is having a crystal clear sense of what the finish line looks like far from the distance but in but having no idea how far away it is.

So far away that for all right for practical purposes, we’ll never get there. Take the United States the Declaration of Independence.

Here’s a nation who declared why we needed our own country. And it didn’t start off by complaining or griping about the king in Great Britain. It started off with an ideal.

We believe that all men are created equal, that all of us are endowed with certain unalienable rights amongst which include life, liberty, and the pursuit of happiness.

We’ll never actually get there. But the goal is that we will die trying and within that infinite contest, there are many finite games that we hope to advance that infinite contest or even little infinite games and in that, like civil rights, we’ve never actually reached the point where we have perfect civil rights, but we will continuing to get better and better and better. That’s the point.

It’s constant refinement, it’s kaizen.

It’s no matter how good we do, we can always do better. Right?

But the goal is we have a Northstar. We have a thing to point us in a direction. It’s not random.

So in the United States, when we have civil rights, or women’s suffrage, or gay rights, or education for everyone or health care for everyone,

However, what form it takes, it’s our way of trying to get closer and closer and closer to the ideal upon which the nation was founded.

I wish all organisations they don’t have to be nation states. I wish all organizations did the same thing operated not just in their interests, but also have a sense of code or values and a sense of purpose and vision.

It matters because we want to stand for something we want to work for something we want all of our hard work the products we produce everything we want it to count towards something that’s something not simply be against something or make something in the short term.

I see this so often with senior executives, with people who are making more money than they’ve ever made.

They have more power and influence. than they’ve ever had. And yet later on in their careers, they don’t feel as successful as they did when they were Junior.

When we’re Junior the first promotion we get the first raise, we get the first bonus we get the first client we win whatever it is, it’s all very exciting, right? We’re living down here and everything’s very exciting.

But after you’ve had a bunch of bonuses and you want a bunch of clients and you’ve had a bunch of product releases and a bunch of promotions, it’s exciting for a little bit like go for a nice dinner with your family that’s about it, and then it wears off. Right.

And so what starts to happen is our work no longer feels like it has any sense of purpose. And so we default back to when we were young.

We thought well when I won the client win more clients will when I reached the million dollars, get more millions of dollars.

That gave me the feeling the first time it’ll get me the feeling again, it doesn’t. It’s like winning one marathon thinking it’s amazing. You keep running marathons for the rest of your life.

And at some point you’re like, why am I running all these marathons?

They have to contribute to something they have to contribute to something so I’m fascinated by the companies that play the fight the infinite game because they frustrate inherently they frustrate their competition.

For years Apple frustrated Microsoft, especially when it was run by Steve Ballmer.

He was the guy who run who ran the company based on interests alone versus competing against an organization that was doing something bigger, you know, Costco versus Walmart, Southwest Airlines versus everybody, right?

Organizations that seem to not care about what Wall Street thinks about the quarter of the year.

And when you listen to the language of people like Jim Senegal, who’s the founder of Costco, he says, I don’t care about Wall Street Wall Street’s worried about well how my company does in a month or in a year.

I care about what my company does for the next 50 years. that’s the company I’m building. you listen to the language, ones who are focused on teaching kids how to learn and teaching, helping teachers how to teach versus how to beat our competition.

It makes for a much more fulfilling life. And it makes for a much more realistic existence when your competition slightly ahead and you think that’s okay.

You know, can’t stay ahead forever based on some arbitrary perspective, arbitrary metrics anyway.

Anyway, so that’s what I’m working on. I think it’s fun. I think it’s interesting.

We’ve made some changes even in the way we do business based on this we become more infinitely organized, which means we are much more interested in trends than we are in absolutes, right, because absolutes exist down here, but ongoing exists up here.

So for example, let’s say you will get a bonus if you hit a certain target by a certain date, that target is arbitrary.

That date is arbitrary, right? Somebody made it up.

That’s That’s how most of our bonus structures are built on arbitrary numbers on arbitrary dates. And let’s say that that person is doing good work and building good systems, but they missed the target.

They missed the number, right?

But if you were to pull back and look at how they’ve been doing and you see this beautiful steady line, we can see that they’re doing good work, that they’re building good systems.

There’s huge stability there. They just miss the arbitrary number on the arbitrary date, give that person a bonus.

Because we want that person to continue building those systems and the odds are they’re probably at the number two or three months later, which is totally fine. Because then it’s gonna grow, grow and grow.

Versus the person who stabs people in the back plays politics. Their performance looks like this.

There’s no stability, it’s all over the place. They happen to meet the number on an arbitrary date. give that person a bonus.

Why they’re breaking the company along the way.

The point is, the finite player only looks at these discrete moments in time where the infinite player is much more preoccupied with the trend of things.

So in our in our business, we become absolutely preoccupied with the trend. there is some projects that we’ve wanted to implement that I wished took a year and they took years.

And I can it doesn’t matter how much I say I want it done at the end of the we missed it. But you know what we were building good systems along the way we just missed the prediction.

And the result is we have much better systems much better product, and we’re much more motivated by it.

Because nobody was penalized for missing arbitrary numbers and arbitrary data. I was sort of learning how to learning how to build and run a business for the infinite.

And somebody asked me recently, in an interview about my competition, like

How do I compete against the people in my space?

The answer is what compete against what like what am I competing for?

Like am I going to compare many views on TED or how many book sales or how much my personal income is or how much my corporate income is like, what’s the arbitrary standard because I can be ahead on some metrics and behind on others, I can drive myself crazy, or I can be really proud of myself. Worse. I’m choosing who my competitive set is.

But the competitive set is way larger than I can imagine. It’s like I love it when the network’s declare that they’re number one.

You do realize they’re only comparing themselves to the few other networks that they want to compare themselves. NBC, ABC, CBS and Fox compare themselves to each other, they ignore Netflix, Hulu, HBO, YouTube.

But that’s the point. If you’d make your own competitive set, You will be number one, everybody will have their day in the sun.

I get a kick out of that. I get a kick out of that. so especially for an organization like YouTube, the question is, who’s your competition.

The competition is yourself, wish everybody the best of luck. Let them make their own metrics. Let them declare themselves number one who cares, they’ll fall out of the game before you, that’s the goal. That’s the goal.

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Lonare

Lonare

Imagination is the key to unlock the world. I am trying to unlock mine.