Make a Decision! Now More Than Ever, Alliance Decision Making Is Critical. Game Theory Can Help

Most of us have probably worked on teams and within hierarchies where decisions were hard to come by: slow to be made due to fearful, indecisive leaders, or requiring multiple hoops to jump through to get approvals. It can have a crippling effect on projects and partnerships, and everyone becomes frustrated when things don’t move forward in a timely manner.

Now, with so much uncertainty due to the COVID-19 pandemic, it can be even more difficult to get decisions made. With teams spread out and working remotely, it can be challenging even to pull key decision makers together, much less to formulate a coherent strategy. But for every challenge there’s an opportunity, and for every problem there’s a potential solution. It turns out that game theory may hold some of the answers to this dilemma.

“How can we best make decisions?” Harm-Jan Borgeld, PhD, MBA, CSAP, asked in a recent ASAP Netcast webinar. “There is now an opportunity. Now is the time for alliance leadership.”

Borgeld is vice president and head of alliance management at Merck Healthcare KGaA, based in Darmstadt, Germany, and he copresented the webinar with Professor Stefanie Schubert, PhD, CA-AM, professor of economics at SRH University Heidelberg. Titled “Decision Making Beyond COVID-19 Times: Leveraging Your Capabilities by Employing Game Theory,” the May 5 presentation examined how decisions should be analyzed using game theory, how to make decisions more efficiently, and the important steps needed to move from thinking about a decision to implementing it and aligning around it.

Just Decide, Please

Even in the absence of a crisis, Borgeld noted, it’s more important for leaders to be decisive than to actually make “the right decision.” He even cited an article showing that of those CEOs who were fired, one third were let go for making the wrong decision, while the rest—the vast majority—were sent packing for their indecision. The bottom line? Alliance leaders, like other executives, can’t afford to be indecisive.

This becomes even more true under the conditions of COVID-19, according to Borgeld, given the following factors:

• There is a greater need for speed in decision making now than ever before.
• The usual ways of “informal influencing,” such as hallway meetings and watercooler conversations with key stakeholders, are currently unavailable.
• Decisions are now often being made alone or in small groups of two or three.
• There’s a very uncertain future ahead.

In effect, Borgeld argued, alliance leaders need to do the same things:

• Negotiate
• Communicate
• Influence
• Look ahead
• Align
• Implement

These actions will no doubt be familiar to alliance professionals in every industry, but in COVID-19 times, they’ve all become more challenging. Take alignment, for example. Before the pandemic, aligning with key stakeholders and team members could often be informal, taking place during a coffee break or over lunch, Borgeld said. But “now we need to align in a different way.”

Games People Play

How could game theory assist in this process? Schubert emphasized that “game theory is actually the science of strategic decision making”—a critical skill at any time, but all the more so during a crisis. In addition, the principles of game theory provide “a structured framework for deriving optimal decisions,” she said. This helps avoid situations where decisions are made on the fly without benefit of proper analysis, or conversely, where decisions are not made at all due to organizational paralysis and lack of leadership.

In brief, the application of game theory to a decision means asking these questions:

• Who are the decision makers?
• What are their options?
• What is the timing?
• What are the payoffs?

Borgeld and Schubert presented a fictitious case study involving Sandra, an alliance manager for Sapphire, a biotech based in China, and Michael, an alliance manager for Diamond, a US-based company. Sapphire licenses a drug product to Diamond under a codevelopment and cocommercialization agreement, and the two companies had planned to conduct Phase II clinical trials beginning on July 1, 2020. But once COVID-19 hit, the timeline for these trials became very uncertain, and the costs the two companies had budgeted for could be way off the mark. So what to do? How can Michael and Sandra make a good decision and align around it?

Schubert showed how, from Michael’s point of view, he needed to look at his options and Sandra’s preferences and decide on the best option based on the potential outcomes, or payoffs. Given this information—and the uncertainties—he and his company prefer to wait six months before deciding, by which time perhaps they’ll have a more accurate sense of how much the trials will cost and whether they can be carried out properly. Thus he needs to steer Sandra toward this decision and convince her to accept it, even though it is not her or her company’s preferred option. It’s not her worst option, either, so with this compromise perhaps they can agree to move forward.

If the outcome is not the one you prefer, as in Sandra’s case, you may need to “change the game you want to play,” Schubert noted, being creative about options and the timing of moves. She also stressed that this represents a simplified version of game theory application; to perform a more detailed analysis, you would need to calculate eNPVs—estimated net present values—including for situations where payments are uncertain, as with COVID-19.

“When you want to apply game theory, you have to focus on the aspects that are really important,” she explained. That also means you need to “put yourself into someone else’s shoes,” figuring out what their preferences will be before you can make your own decisions, taking both their preferred outcomes and yours into account.

Game Theory and Practice

Borgeld also had some tips for how these game theory principles could best be applied in actual alliance management decision-making practice. These include:

• Look at all options at the same time instead of sequentially, the way you would when buying something on Amazon or eBay.
• Go to the decision makers, present them with three options and their pros and cons—including one non-COVID option—and get approval for the option you recommend.
• Be more efficient in conference calls and virtual meetings by paring things down to a “perfect agenda,” using strict time management and making sure to include one “context” slide before giving the options.

“Where you can really shine as an alliance leader is when you put the context there,” Borgeld noted. “And especially in these times when people are [spending] eight, nine, ten hours a day on conference calls, they are really happy when you end early. So try to limit it. I would never recommend a JSC call go on for three hours.”

In addition, Borgeld recommended monitoring the financial status of biotech partners, reviewing the contract’s force majeure clauses (“What could be the consequences? What could happen to us? Also, what could happen to the partner? Discuss it with the partner, and don’t wait too long”), and staying “two steps ahead” by looking at the short-term, midterm, and long-term horizons.

Schubert stressed that “Life is very complicated, and you have to find out what aspects are important, what are the decisions, and who are the players, the decision makers?” Approach the right people in order to decide together, she advised, based on a clear analysis of payoffs and outcomes.

One final thought from Borgeld: Get the meeting minutes out on time! Alignment and implementation are critical, so it’s important once decisions are made to communicate those decisions and send minutes out immediately—the same day if possible to avoid foot-dragging. “If you wait two weeks, people sometimes have second thoughts.”

All in all, it looks like applying game theory to alliance decision making could be a winning strategy.