5 Strategy Lessons from Monopoly - The Game of Business

When I joined ISB (Indian School of Business), I had no idea about strategy in business. Strategy was a word that I used in the context of games or war. Once I was introduced formally to Porter's 5 forces model by Prof. Kale, I thought whether there is any easier way to teach and learn strategy. After ISB, I kept reading articles about different companies and business models and one day, one of my friend introduced me to this wonderful game of business - Monopoly- that really brought new insights in my understanding.

Monopoly is not a simple board game but great game of strategy, negotiations and partnerships. Out of numerous lessons that I learned from Monopoly, I am summarizing top 5 lessons  -

1. Invest Early - Reap Early & Later i.e. All the Time

In Monopoly, the easiest and most wise move is to invest early in the properties. Due to initial investment, Player gets advantage of taking rent from other players in the beginning of the game. Player can again reinvest this rent to create new properties and new revenue sources. Such move creates supply of constant revenue sources in long run. Other players get trapped from beginning and run out of cash. They can't build their properties and hence can't ask for higher rent. So, investing early matters a lot and first mover advantage can't be denied. Monopoly teaches first mover's advantage far more clearly than long HBR artciles.

2. Compete and Collaborate  Simultaneously 

In Monopoly, players have to make deals with each other. Its almost impossible to play the game without collaborating with other players to build houses and properties. All the players compete to create higher net worth for them but at the same time they collaborate to build houses. Players have to make strategic choices to create value in the economy but without making the competitors really very strong. If today, we put Google, Microsoft and Apple in this context, we will find that they are doing exactly the same. Microsoft is collaborating with Apple by providing an alternative to Google search engine. At the same Microsoft is competing with Apple in mobile and tablets market. Google is default search engine in iPad, iPhone and Safari but Google's Android is a threat to Apple.

3. Don't Kill Your Competition Entirely
In Monopoly, competitors are customers. If you kill your competitors, you actually loose a  source of revenue. So, it makes sense to weaken the players that they can't be a threat. At the same time keep them alive as killing them may make other players stronger or provide other players new strategic properties. In business too, when some industry is devoid of competition and remains lucrative to a handful of players, there is a huge disruption in store. Competition makes products better and prepare companies for innovation.  Lack of competition brings complacency in the organization. Employees do not feel challenged and hence the most creative employees leave.

Competition may be bad in short run but in long run, competition makes a company and its products better. There are numerous example to prove this point. When PC was taken by MS fully, mobiles and tablets disrupted the market. When Railways got complacent about its monopoly, Air travel threatened it. So, do not kill the competition straight away, allow them to die slowly :)

4. Take Care of Liquidity

Cash is king especially at the times of distress. A company may have a number of assets but company should not be cash strapped. A cash strapped company gives a feeling to customers and buyers that company may go bankrupt. They try to negotiate for cash further and its creates problems for the company. A company may have to sell its assets to pay to its suppliers if company is not maintaining a healthy cash flow. Same thing is taught by Monopoly. Everybody prefers to target a cash strapped player and a cash strapped may have to go for auctioning of property. Monopoly tells us that maintain cash as once bills will be raised by creditors, we can't run away. Always maintain a healthy cash asset on Balance Sheet.

5. Luck Matters

In Monopoly, a dumb player may get all strategic properties just by luck. Now even if this player shows least intelligence in the game, other players force him to enter in the deals. As all other players are competiting to crack a deal with this unique lucky player, they outbid each other to get the deal through. Lucky player easily gets the revenue sources as others plead him to cooperate. Ultimately a novice player can win a Monopoly game by luck i.e. Although its rare but possible that winner is decied by throw of die.

Same principles apply in real life situations. Sometimes a comapny enters into a industry just to diversify the portfolio and ultimately new products start bringing so much revenue that comapny have to abandon old products. Nokia is the greatest example of this. Recently Nokia started JV with Siemens and called Nokia Siemes networks (NSN). This JV was a small part of Nokia's mobile business. Nobody ever thought that Nokia will be taking NSN so seriously. Today, NSN is the profitable part of Nokia and Nokia has to sell its mobile business to Microsoft.

If you agree with my observations leave a comment and invite to play Monopoly with me :)