First time here? Before you dig into this post on competitive analysis, check out our previous entries in this series on how to use game theory to respond to proposals.

• Game Theory & Proposals: An Intro
• Applying Game Theory to the Bid/No-bid Decision
• Competitive Analysis in Proposal Response
• Competitive Analysis in the Dark: Strategies for Unknown Competition

---

We have explored how game theory can help guide the bid/no-bid decision and facilitate effective competitive analysis. In this blog, we’ll dive into the heart of the proposal response process – proposal development – and see how game theory can play a crucial role.

Game Theory in Proposal Development

Proposal development is where an organization’s understanding of its capabilities, the requirements of the grant or RFP, and the competitive landscape come together to form a compelling narrative. It is where the organization communicates its value proposition and tries to convince the decision-makers that it is the right choice.

Given the inherently strategic nature of this process, it’s not surprising that game theory has a significant role. Let’s delve into two key game theory concepts – sequential games and subgame perfect equilibrium – and see how they can guide the proposal development process.

Sequential Games in Proposal Development

Understanding the Iterative Nature of Drafting, Reviewing, and Refining

Proposal development can be likened to a complex sequential game where stakeholders, including your team and potential competitors, make moves at various stages. This analogy helps underscore the dynamic, evolving nature of the process.

• Drafting: The initial phase where you carve out the basic structure of your proposal. At this stage, it’s crucial to understand the immediate demands of the RFP and envisage the broader strategic landscape, including potential moves by competitors. Having an insightful start sets the stage for subsequent, more nuanced developments.
• Reviewing: This involves revisiting the initial draft with a critical lens, incorporating feedback from team members, and perhaps even seeking external insights to fortify the proposal. This step is akin to recalibrating your strategies based on the initial ‘moves’ or feedback received, aligning your position better for the upcoming ’rounds’.
• Refining: The final stage before submission, where the proposal undergoes further improvements to ensure alignment with the client’s expectations and to outmaneuver competitors. At this juncture, the strategy is fine-tuned to anticipate potential counter-moves from competitors and to preempt possible questions or concerns from decision-makers.

Planning Ahead and Anticipating Reactions

Forward-thinking is key in sequential games. In proposal development, this means anticipating the reactions of both decision-makers and competitors at each phase.

• Decision-Makers: Predicting the questions, concerns, or feedback from decision-makers requires a deep understanding of their needs, goals, and pain points. Foreseeing the possible areas where they might seek further clarifications or negotiations is crucial, allowing you to craft a preemptively equipped proposal to address these aspects.
• Competitors: Similarly, anticipating competitors’ strategies can be a significant advantage. By predicting potential moves by competitors, such as pricing strategies or technical solutions, you can craft a proposal that not only meets the RFP requirements but does so in a way that highlights your unique value proposition, distinguishing you from the competition.

A Fluid and Responsive Strategy

A successful proposal development process is not rigid but fluid, able to adapt and respond dynamically to new information and changes. Being receptive to feedback and willing to adjust strategies at each stage can make the difference between a winning and losing proposal.

Viewing proposal development as a sequential game underscores the importance of a dynamic, iterative approach that is cognizant of the broader competitive landscape. It encourages teams to not only respond to the immediate demands of an RFP but to craft strategies that are forward-thinking and adept at anticipating the ‘moves’ of both decision-makers and competitors, fostering a more robust and compelling proposal.

Let’s explore the concept of “subgame perfect equilibrium” more in the context of proposal development:

Subgame Perfect Equilibrium in Proposal Development

Foundation of the Concept

Before delving into its application in proposal development, fully grasp what “subgame perfect equilibrium” entails. It advocates that the strategies employed at every stage (or subgame) must embody a Nash equilibrium – a state where each player’s strategy is optimal given the strategy chosen by the other players. This implies meticulous crafting of strategies at each subgame that aligns with the overarching goals.

Detailed Application in Proposal Development

In proposal development, each document section can be viewed as a “subgame.” Each section, be it technical solution, cost estimation, or project management approach, must be meticulously developed to stand robust and competitive on its merit.

• Technical Solution: The technical solution section must fulfill the RFP requirements and showcase innovation and expertise. It should represent a strategy that preempts potential technical queries or objections from decision-makers and showcases superiority over potential solutions from competitors.
• Cost Estimate: When crafting the cost estimate section, offering a competitive yet realistic financial plan is pivotal. This segment must illustrate value for money, potentially leveraging insights into competitors’ pricing strategies to balance competitiveness and profitability.
• Project Management Approach: This section should outline a well-structured, feasible plan demonstrating the ability to manage and deliver the project successfully. It should encapsulate best practices and innovative approaches to managing potential risks and uncertainties, thereby portraying a strategy best suited to deliver the project outcomes as promised.

Beyond individual robustness, the proposal must integrate the sections well to present a compelling narrative. This necessitates an equilibrium where the merits of one section amplify the strengths of others, crafting a proposal that stands unparalleled in its competitive advantage.

Strategic Foresight

Embracing the concept of subgame perfect equilibrium also calls for strategic foresight. This involves anticipating competitors’ potential moves and strategies in each “subgame” and crafting a response that not only counters but also transcends these strategies, creating a pathway to a winning proposal.

Techniques for Anticipating Competitor Responses Using Game Theory

Utilizing game theory, organizations can dissect, understand, and even predict competitors’ possible moves, enabling them to craft proposals that meet the RFP’s demands and outshine competitors. Let’s unpack the potential techniques and how they can be integrated into the proposal development process.

Scenario Analysis

• Mapping Competitor Strategies. A fundamental technique involves mapping out various scenarios that delineate potential responses from competitors. This process necessitates a deep dive into competitors’ previous strategies, strengths, weaknesses, and tendencies to form a comprehensive understanding. From this basis, potential strategies competitors might adopt can be extrapolated.
• Simulating Responses. Post-mapping, these potential strategies can be simulated to predict possible outcomes. The simulation here involves creating a mental model or even a computational one to understand how different strategies interact and the possible results of those interactions. This foresight enables the organization to craft preemptive and counteractive responses to potential competitor strategies.

Analytical Tools and Methods

• Decision Trees. Decision trees can be employed to visualize the possible moves and counter-moves in a graphical representation. This tool allows organizations to dissect and understand the potential pathways a competitor might take and the subsequent best responses to those pathways.
• Bayesian Analysis. Implementing Bayesian analysis can be another sophisticated method to anticipate competitor responses. This involves updating the probability of different competitor strategies based on new information, allowing the organization to remain agile and responsive in its strategy formulation. There’s probably a whole series of blog on Bayesian methods that we’ll eventually get to.

Leveraging Insights for Proposal Development

Organizations can then craft proposals that satisfy the RFP’s demands and hold a competitive edge by highlighting the unique value propositions that set them apart from potential competitor strategies and offering solutions that preemptively address decision-makers concerns regarding competitor proposals. Furthermore, organizations can develop contingency plans based on the anticipated competitor strategies. This ensures that they are not caught off guard by competitor moves and can respond swiftly and effectively, showcasing a proactive and strategic approach in their proposal.

Embracing game theory in proposal development enables organizations to have more proactive, insightful strategies that can significantly enhance their competitive advantage. By anticipating competitor responses through meticulous analysis and simulation, organizations can craft robust and strategically positioned proposals to win in the competitive landscape. This approach fosters a culture of strategic foresight and agility, where organizations are not just responding to RFP requirements but are actively shaping the narrative to their advantage, paving the way for a higher success rate in securing contracts.

Case Example: Successful Proposals Influenced by Game Theory

Consider a scenario where a budding non-profit organization is responding to a grant application to fund community development projects. Despite having a lean team and limited resources, the non-profit is buoyed by its deep community roots and a rich understanding of local needs.

Utilizing the principles of game theory, the non-profit decides to harness its intrinsic strengths in its proposal, focusing on showcasing the community engagement and grassroots impact they have cultivated over the years. Anticipating the potential strategies of larger organizations with more resources, the non-profit articulates a case emphasizing the deep relationships and trust it has nurtured within the community, which can facilitate more effective and sustainable project outcomes.

This approach shapes a successful proposal, as the grant evaluators are swayed by the genuine connection and understanding the non-profit has with the community, realizing that their local expertise and community-centric approach can foster more meaningful and lasting impacts compared to resource-heavy but less connected competitors.