OUR SUMMARY OF THIS VIDEO EXCERPT: In game theory there are two kinds of games: finite games and infinite games.

A finite game is defined as known players, fixed rules and an agreed-upon objective. Baseball is an example. We know the rules, we all agree to the rules, and whoever has more runs at the end of nine innings is the winner and the game is over. Nobody ever says, ‘If we can just play two more innings, I know we can come back.’ It doesn’t work that way – the game is over. That’s a finite game.

Then you have an infinite game. Infinite games are defined as: known and unknown players; the rules are changeable; and the objective is to keep the game in play to perpetuate the game.

When you pit a finite player against a finite player, the system is stable. Baseball is stable.

When you pit an infinite player against an infinite player, the system is also stable – like the Cold War, for example. Because there cannot be a winner and a loser – there are no winners and losers in an infinite game. What ends up happening in the infinite game is that players drop out when they run out of the will or the resources to play. But there are no winners or losers.

Problems arise when you pit a finite player against an infinite player because a finite player is playing to win and an infinite player is playing to keep the game going. This is what happened to the US in Vietnam: the US was playing to win and the Vietnamese were fighting for their lives. The US was the one that got stuck in quagmire. This was the Soviet Union in Afghanistan: they were trying to beat the Mujahideen and the Mujahideen would fight for as long as necessary. Quagmire.

Now let’s look at business. The game of business has existed long before every single company that exists on this planet today, and it will outlast every single company that exists on this planet today. There’s no winning the game of business and the reason is that we haven’t agreed to the rules.

I get such a kick out of realizing how many companies actually don’t know the game they’re in. Listen to the language that companies use: ‘We’re trying to beat our competition,’ ‘We’re trying to be number one,’ ‘Did you know that we were ranked number one?’ Look at the listings based on the criteria of revenues, profits, market share, square footage, number of employees – or based on time frames of a quarter, a year, five years, 10 years, 20 years, 50 years, 100 years.

I haven’t agreed to those standards, so how can you declare yourself the winner, how can you declare yourself number one, where no one else in the game has agreed to the rules?

It’s arbitrary – there is no winning because there’s no end. In other words, companies are playing finite games.

Listen to their language. They’re trying to beat their competition. What does that even mean?

It’s the leaders and the companies that understand the game that they’re in and organize their resources and their decision-making around the infinite contest that outlast and frustrate their competition.

There are companies that are exceptions – for instance, Southwest Airlines, Apple Computers, Harley-Davidson. They are playing the infinite contest. They frustrate their competition because they not playing to win.

James Sinegal, founder of Costco, which is the only company that gives Walmart a run for its money, says public companies are looking to succeed for the quarter. But he says, ‘We’re looking for the next 50 years.’ He’s playing the infinite contest.

I spoke at a leadership summit of Microsoft. I also spoke at a leadership summit of Apple. At the Microsoft summit I would say 70% of the executives (in the Steve Ballmer days) spent about 70% of their presentations talking about how to beat Apple.

At the Apple Summit 100% of the executives spent 100% of their presentations talking about how to help teachers teach and how to help students learn.

One was obsessed with their competition; the other one was obsessed with where they were going.

So at the end of my presentation at Microsoft they gave me a gift – the new Zune, which was the competitor to the iPod Touch when it was a thing. And this piece of technology was spectacular, beautiful. The user interface was incredible, the design was amazing, it was intuitive, it was one of the most beautiful and elegant pieces of technology I’d ever seen.

Later I was sitting in the back of a taxi with a senior Apple executive and I decided to stir the pot. I said, ‘You know, I spoke at a Microsoft summit and they gave me their new Zune and I have to tell you it is so much better than your iPod Touch.’ He turned to me and said, ‘I have no doubt.’ Conversation over. Because the infinite player isn’t playing to be number one every day with every product. It is playing to outlast the competition.

If I had said to Microsoft, ‘Oh I’ve got the new iPod Touch it’s so much better than your new Zune,’ the reaction would have been, ‘Can we see it? What does it do? We have to see it.’

One is obsessed with their competition; the other is obsessed with why they do what they do and where they’re going. The reason Apple frustrates their competition is because secretly they’re not even competing against them. They are competing against themselves and they understand that sometimes you’re a little bit ahead and sometimes you’re a bit behind, and sometimes your product is better and sometimes it is not.

But if you wake up every morning and compete against yourself (‘How do I make our products better than they were yesterday?’ ‘How do I take care of our customers better than we did yesterday?’ ‘How do we advance our cause more efficiently, more productively than we did yesterday?’ ‘How do we find new solutions to advance our calling, our cause, our purpose, our belief?’), over time you will probably be ahead more often.

Those who play the infinite game understand it’s not about the battle, it’s about the war and they don’t play to win every day. And they frustrate their competition until their competition drops out of the game.

Every bankruptcy, almost every merger and acquisition is basically a company saying, ‘We no longer have the will or the resources to continue to play and we have no choice but to either drop out of the game or merge our resources with another player so that we can stay in the game.’

Think about the number of bankruptcies and mergers and acquisitions. It’s proof that most companies don’t even know the game they’re in.

If you want to be a great leader: start with empathy (see our July 2024 newsletter – editor), and change your perspective and play the game you’re actually playing.