The second half of the paper provides many
examples of the application of theory to the process of succession, which,
without the expertise of a mathematician, appears visually in the form of many
complex equations and is somewhat challenging to read. But even the authors
note that although “the equations may seem a bit complicated, the real idea is
to understand the outcomes of the analysis,” and therefore professional family
business advisors need not wade through the equations in the paper in order to
understand the relevance of the application of game theory to succession.
Looking at management succession as a
series of rational choices made by individuals, game theory identifies the
actors directly involved, estimates their “payoff functions” – their incentives
and payoffs for their choices – and identifies their possible strategies. This
provides a platform for understanding the nuances and intricacies of the
succession process and its related events. As a result, “[g]ame theory
addresses two of the three major problems related to understanding management
succession: that the actors have no (or limited) experience and that succession
involves emotions as much as it does rational decisions (Duh et al., 2009).”
Particularly because “harmonious
successions are the exception” rather than the rule, the authors point out that
game theory is especially useful because it recognizes the interdependency and
interconnectedness of the actors. Another reason it is very useful is that
since successions involve “a dizzying amount of information with many
interconnections,” the process often involves hard choices and the acceptance
of less-than-optimal outcomes, which can be articulated and factored into game
theory in order to help “decision-makers clearly articulate the information on
which they are making choices.” That is, since there are choices within the
process which often include conflict and indecision, indecisiveness is not far
behind, and game theory can help to clarify this.
The complexity of the process of succession
combined with the studies done to date on this subject, the authors argue, show
that a single theory likely could not ever successfully demonstrate the
intricacies of succession. The authors admit that their theory, and their
paper, is general and only provides an introduction of game theory as it can be
applied to management succession. But they argue successfully that game theory
a) provides a solid foundation of how it can be applied to succession; b) is a
rigorous tool, and c) is agile enough to include subsequent, more complex and
more complicated dynamics than they have thus far included as examples in the
paper.
By the end of the paper, one feels quite
convinced that this ‘new’ theory (as in, new to the family business field) could
and may very well advance the study of family business, as the authors write,
by improving both the theoretical and empirical basis of research and by
applying it in conjunction with other frequently used theories (such as agency
theory, stakeholder theory and the resource-based view of the firm).
While the details of this theory and
research paper are not necessarily relevant or immediately applicable to most
professionals who work with or within family firms, the very prospect of game
theory becoming applicable and more broadly used in relation to succession
would provide an interesting and hopeful avenue which may lead to better
solutions and better understanding of the complicated process of succession.
Written by Jennifer Halyk for IFEA
Article Citation:
Tim Blumentritt, Timothy Mathews, and Gaia
Marchisio
“Game Theory and Family Business
Succession: An Introduction.”
Family
Business Review March 2013 26: 51-67, first
published on October 4, 2012 doi:10.1177/0894486512447811