What is the difference between finite game vs infinite game ?
Here is the difference quoted from wikipedia from James Carse, the author of the book finite vs infinite game"There are at least two kinds of games: finite and infinite. A finite game is played for the purpose of winning, an infinite game for the purpose of continuing the play. Finite games are those instrumental activities - from sports to politics to wars - in which the participants obey rules, recognize boundaries and announce winners and losers. The infinite game - there is only one - includes any authentic interaction, from touching to culture, that changes rules, plays with boundaries and exists solely for the purpose of continuing the game. A finite player seeks power; the infinite one displays self-sufficient strength. Finite games are theatrical, necessitating an audience; infinite ones are dramatic, involving participants..."
The difference between business and sports is that business is an infinite game. The quarterly results are not an end goal, getting to x% market share is not an end goal. The end goal is to stay relevant and keep adapting. So how can a company play an infinite game ?
For a company of Amazon's scale(750k employees), how does a company manage to make sure every employee/project plays the infinite game. Regular companies are often plagued by short term decision making and thinking. EmployeesManagers laser focussed on getting a launch, moving that metric by x% and so on. There is one thing that Amazon does differently and that is ingrained in their culture.
No wonder the saying goes
Culture eats strategy for breakfast - Peter Drucker
Difference between input metrics and output metrics
Amazon focuses on the concept of input metrics rather than output metrics. Let us take an example to understand this better. You start a business of writing a blog which is currently generating 10k yearly revenue. Your northstar goal is to attract enough readers to the blog so that you can run ads and generate 100k in ad revenue from the blog. You are super motivated and you decide to dedicate 2 years of your life to this cause. In order to track your success, you decide to measure your progress at the yearly milestone. As you can tell, I have reduced this to a finite game so that it is easier to explain. We will see how the strategy plays out based on the cultural focus on input metrics vs output metrics.How does the strategy differ in both the cases
If you obsess for output metrics, this is how your goal setting will look like- Year 1 Goal : reach 40k revenue by end of year 1, growning revenue by 300%
- Year 2 Goal : reach 100k revenue by end of year 2, growing revenue by 150%
If you obsess over input metrics, this is how your goal setting will look like
- Year 1/2 Goal : Increase your content categories in the blog to 10 from 1(of course based on your strategy) by increasing blogs publication per month by 300% and measure per category revenue
- Year 1 goal : Diversify into 2x more categories, invest in ad revenue goals in the top 5 categories and focus on improving article quality in the bottom 5 categories
- Year 2: Take goals on getting to 100k revenue in the top 5 categories, invest the profit = revenue - expenses, into continue expanding to 2x more categories
Analysis of the strategy
Though I didn't break down the Year 1 goal into sub-goals in the first case(output metrics) deliberately, I wanted to show a point that you can achieve the goal by just focussing on the existing category. You may end up hitting your goal and have a hugely profitable blog, you may reach a dead end if other categories become more popular.In the second strategy(where you focus on input metrics), you will always be in a dual mode of exploring and exploiting levers. You will never run out of levers as you are always evaluating new levers. At the same time, you will have a list of the top levers you have identified which are waiting to be exploited.
By obsessing over input metrics rather than obsessing over output metrics, Jeff Bezos is making sure that the entire company plays the infinite game. In computer science, there is the term called breadth first search and depth first search. Breadth first search makes sure that Amazon will find the shortest distance path to revenue and will always have multiple tentacles out there.
Example from Amazon's shareholder letter
Here is an example from Jeff Bezos's 2010 letter to shareholders demonstrating the same
Shareholders understand this and reward Amazon among the highest PE ratio of all the trillion dollar companies as of this writing.
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