Known from the 17th century (Blaise Pascal invoked it in his famous wager, which is contained in his Pensées, published in 1670), the idea of expected value is that, when faced with a number of actions, each of which could give rise to more than one possible outcome with different probabilities, the rational procedure is to identify all possible outcomes, determine their values (positive or negative) and the probabilities that will result from each course of action, and multiply the two to give an “expected value”, or the average expectation for an outcome; the action to be chosen should be the one that gives rise to the highest total expected value.
Decision theory (or the theory of choice) is closely related to the field of game theory and is an interdisciplinary topic, studied by economists, statisticians, psychologists, biologists, political and other social scientists, philosophers, and computer scientists.
The need for decision under uncertainty has never been stronger. Although the digital realm is evolving fast, the partnership strategical choice remains a human prerogative and a key driver of the digital ecosystem evolution. This paradigm raises the need to rethink the decision theory to keep pace with the rising uncertainty and the increasing complexity of the digital evolution for enterprises.
Being a Cognitive Enterprise in an environment of high uncertainty.
An Enterprise of the Future is a “Cognitive Enterprise”. Global positioning and communication system of a cognitive enterprise is a constellation of Strategic Alliances, relying heavily on AI (here – Artificial as well as Augmented Intelligence; Machine Intelligence). The World Economic Forum study finds that Europe is the region with the highest industrial robot density, with an average of 106 units per 10,000 employees. Germany excelled at 322 units per 10,000 employees. (South Korea – 710 robots per 10,000 workers).
Facing an unprecedented convergence of technological, social and regulatory forces, businesses seek collaborations, embracing hyperconvergent infrastructure and hybrid, cross-industry strategic decisions. No more one man can ‘control intelligence’. (Bill Gates: “Microsoft must win the IQ war, or we won’t have a future”). If there is one thing that we already know, it’s that disruptive innovations create uncertainty. Cyber threats, risks of geopolitical and geostrategic competition, bring the need for an increased transparency, resiliency and reversibility in partnership.
The strategic leader of an ‘Enterprise of the Future’ will act in the area of partnership choice under uncertainty’. Leaders lead. More than ever this will be a visionary leader, an executive with practical dynamic strategy skills, an analyst, STEM graduate with years of practical experience. Engineering talent, communicator and pragmatic transformational team leader. A truly strategic leader will base his decisions on the cutting-edge knowledge and analytics. A choice of the right strategy to initiate disruptive innovations and thrive in an environment of high uncertainty, therefore, will integrate this innovative notion of constellation and strong interconnectedness cohesion management.
From Classic Dominant Strategy to Dominant Strategy Equilibrium
When one strategy is best for a business player no matter what strategy the other player uses, that strategy is said to dominate all other strategies and is called a Classic Dominant Strategy (CDS). However, if several players have their own dominant strategy, then the equilibrium in such interplay is called a Dominant Strategy Equilibrium (DSE). It consists of defining a stable-state equilibrium in a multi-entity situation where no participant gains by a change in his strategy as long as the other participants remain unchanged. Thus, there is no conflict between group rationality and individual rationality.
“As truly successful business decision making relies on a balance between deliberate, instinctive and collective thinking, so does successful digital transformation rely on interconnectedness of the state-of-the-art technologies and the management of partnerships’ interdependence”.
Using Dominant Strategy Equilibrium to Ease Partnership
Nowadays, digital transformation lies in strategy and partnership quality more than technology. To find the right partner requests much more than a classic cost/performance approach. Each decision leader needs to pay attention to unmanaged risks lying in cooperation, distributed resilience factors and reversibility of delegation. This fast shift brings the question of the strategical stability in a cooperation ecosystem. Beyond supply chain, the value chain consistency, versatility and resilience are prized characteristics of a multi equilibrium partnership in this era of extreme change.
Against this backdrop of change the decision leader role remains as strong as ever. But that is because this role and paradigm is also changing. Economic growth requests to extend the value chain far beyond the enterprise boundaries. “To unleash transformational potential, emerging tech must be an answer and not the question.”
The Place of Education in Supporting Business Decision
Implementing a “Dominant Strategy Equilibrium” requires a high level of managerial skills, a deep understanding of organizational/technical interconnextedness and the mastery of the multidisciplinary approach. This depth of knowledge can be achieved through university education.
“Education has always been a profit-enabler for individuals and the corporation. Education, both conception and delivery, must evolve quickly and radically to keep pace with digital transition. Education is a part of the digital equation.”
Universities have a significant role in integrating this reality in pedagogy and education programmes. One of the main challenges is to complement the historical specialised streams with multi-discipline analyses, open approaches and uncertainty management. The urgent goal is to deliver to young students and mature decision makers, the hard and soft skills to manage complexity and uncertainty with appropriate approaches. The multidisciplinary approach education, such as Systems Thinking has the potential to significantly improve the decision making and strategy definition as it can tackle the complexity of making choices in a business system of systems.
The best universities strive to enrich their programs to add innovative orgnanizational and mutltidisciplinary fields. ´Capitol Technology University currently has 195 students enrolled at the doc level, but has recently unveiled eight brand new doctoral programs, bringing our total program offerings up to ten. Past research topics of some of Capitol’s doctoral students include: Organizational dynamics, the history of password usage in the cyber world, virtualization host utilization using virtual machines compared to a honeypot, and using analytics to improve disaster relief.´
What the Future Holds?
The innovation acceleration, and the new rules for system interconnectedness such as PSD2 in Europe, created the “X”tech status of new innovative partners (eg. Fintech, Biotech, Lawtech…). As of now, the digital development lies in a flexible synergy with external partners. To partner in a symbiotic mode with third parties, decision makers should strategize a new risk and development ownership model, based on interplay management, versatility and APIzation instead of integration.
Beyond cost, service performance and availability, decision makers should manage their value ecosystem and elaborate a strategy based on a “peer to peer consistency”. Mainly about data protection, transparency, traceability, incident handling and service reversibility. Thus, Cyber threat, Business evolution, Technology evolution, Obsolescense, Weaknesses, SuperBugs, Human error, Compliance, Third parties and Agreements, are just an overview of the basics to consider in every digital choice, comprehensive risk management and digital evolution today. The Systems Thinking approach allows to reduce complexity and to ease the management of multi-disciplinary ecosystems.
Alongside with the setup of a “Dominant Strategy Equilibrium”, Governance must evolve as well in this new decentralized ecosystem organisation. The famous “who pays commands” is now outdated and no more adapted to manage external and independent partners. Digital manager must ensure an optimal synergy and the requested interplay coherence with the “corresponsibility” of each actor to deliver the best service quality and security for the end user experience and satisfaction. “Digital success is not a straight line but an iterative system of co-creation.”
The 10 Golden Rules to Build a Dominant Strategy Equilibrium:
- Know thyself, pledge business first, technology second and create bridge of trust, communication and consistency between inner and external worlds.
- Embrace an end to end value chain beyond enterprise boundaries
- Select complementary, versatile, resilient and reversible partnerships,
- Define/select and share a pertinent code of conduct,
- Know your dominant areas of responsibility and the collective ones.
- Act as a cognitive enterprise in harmony with your business ecosystem.
- Secure relationship interplays, protect DATA and your reputation, as a whole system.
- Assess security AND user experience (UX) on regular basis.
- Enforce interface standards and APIs. Between your enterprise and partners, and between your new and legacy systems.
- Unleash your enterprise creativity by embracing diversity of ideas and human talents.
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