Co-Opetition - Adam M. Brandenburger [25]
YOUR ADDED VALUE =
The size of the pie when you are in the game minus
The size of the pie when you are out of the game
It’s hard to get more from a game than your added value. Intuitively, what you can take away from a game is limited by what you bring, and what you bring is your added value. If you ask for more than you bring, what you’ve left for everyone else to divide is less than the pie they could create without you. Why should they agree to this? They could all do better by cutting a deal among themselves and leaving you out. So don’t count on getting more than your added value.3
Let’s go back to the Card Game and reexamine it through the lens of added value. First, look at the game with Adam and his twenty-six black cards. Without Adam and his cards, there’s no game. Thus, Adam’s added value equals the total value of the game, or $2,600. Each student has an added value of $100 because without the student’s card, one less match can be made and, thus, $100 is lost. Therefore, the sum of the added values is $5,200—Adam’s $2,600 plus $100 from each of the twenty-six students. Given the symmetry of the game, it’s likely that everyone will end up with half of his or her added value: Adam will buy the students’ cards for $50 each or sell his for $50 each.
In Barry’s version of the Card Game, the added values tell a different story. Because there are now only twenty-three black cards, the pie is smaller, $2,300. So is Barry’s added value, also $2,300. But the more consequential effect of losing three cards is that each student now has zero added value. No student has any added value because three students are going to end up without a match. Therefore, no one student is essential to the game. The total value with twenty-six students is $2,300, and the total value with twenty-five students is the same, $2,300. Hence, each student’s added value is zero. Barry is the only one with any claim to the pie. So, believe it or not, he’s being generous when he offers the students $10 or $20 each.
There are some common errors that people make when they try to assess their added values. When we ask people to play the Card Game, we see these mistakes being made. The first error is to look at only half of the equation. People focus on the fact that, without Adam, they’d get nothing. They sense the weakness of their fallback option and ignore Adam’s fallback option. They quickly agree to sell their card for a low price—often no more than $20—and consider themselves lucky. But it’s not enough to ask how much worse off you’d be without Adam. You also have to ask how much Adam stands to lose without you. Without you, he’d end up with none of that $100, either. So Adam’s fallback option is really no better than yours. Consequently, Adam might pay any amount up to $100 for your card. That’s your added value. Thinking in terms of added value helps you see the strength of your position.
To calculate your added value, ask: if I enter this game, what do I add? Instead of focusing on the minimum payoff you’re willing to accept, be sure to consider how much the other players are willing to pay to have you in the game.
A second error is to confuse your individual added value with the larger added value of a group of people in the same position as you. We see this mistake when we switch to Barry’s version of the Card Game. Students overplay their hand. They think they have some added value because without the students, Barry gets nothing. It’s true that the added value of the students as a group is equal to the whole pie, namely $2,300. But that doesn’t mean that the students are likely to get a large slice of the pie. That could happen only if all the students were to change the game by banding together and acting as a single player. Doing so would certainly be in their joint interest. It would be a strategy of changing the players, which is the subject of the Players chapter. But as long as they remain separate players, there’s competition among the students to make a deal with Barry. And in that case the