The secret sauce of corporate success – luck
From baseball to Korean rap to powerful corporates, the role of chance should never be forgotten.
At one point in Moneyball, Michael Lewis’s book on the improbable winning run of the Oakland As in the early 2000s, Billy Beane, general manager of the underfunded baseball outfit, makes a surprising declaration.
His statistical analysis doesn’t work in the playoffs, he says – that’s down to luck.
Beane uses more colourful language, but the point is that Beane is aware, for all his ingenuity in winning an unfair game, luck or randomness is an inescapable factor in all walks of life – even in baseball.
And luck played a part in the As’ story in more ways than one. Moneyball is often portrayed as a triumph of data analytics, but that is not sufficient to explain the success of the As, because data on players and the techniques for crunching it had been publicly available for decades.
What helped swing things Beane’s way was his rivals’ tendency to reach too soon for luck as an explanation for performance in some situations while ignoring it in others.
That happened in several ways.
THE MISFIT CANNOT BE THAT GOOD
Across many years, scouts and team managers had built up stereotypes about what good players looked like. Competent but counter-stereotypical players such as “submarine pitcher” Chad Bradford were underestimated because managers concluded their successes had to be down to mere luck.
Such misattribution of luck protected these hidden gems from discovery until Beane’s statistical approach cut through to the facts.
Beane’s rivals also brushed off the As’ unusual success. The team’s achievement – winning many games with a limited budget – became so salient that Major League Baseball organised a committee to study this “aberration”, but its conclusion was mainly that “they’ve been lucky”.
Misattributing the successes of the atypical to good luck was a blessing for the underdog, such as the As and Beane. If the As’ success was perceived as a matter of luck, rivals would not worry about this outlier and there would be no need to study their strategy.
The result was a team that could take on the giants of the sport and reach the playoffs four seasons running, until the bestseller Moneyball publicly demystified the luck bias.
EXCELLENCE – OR LUCK?
The popular idea that doing what great performers do will increase your odds of success conceals several biases around luck. In Search of Excellence, the most widely owned book in the US between 1986 and 2006, presented a formula many business bestsellers followed: select a few firms that were exceptionally successful; analyse their shared practices when they moved from “good to great”; frame these practices as the principles for others that aspire to become great.
But the performance of these exceptional successes typically did not last. Take the 50 firms featured in the three most popular business bestsellers: In Search of Excellence, Good to Great and Built to Last. My research shows the significant improvements of these firms (good to great) before being featured were followed by systematic decline. What happened after becoming great is clearly not enduring greatness but a strong regression to mediocrity.
The usual explanations for these declines include the chief executives’ complacency or hubris. A simpler explanation is the chief executives were never that special in the first place. It was luck that enabled their successes and unwarranted attention. And it was (bad) luck that made many of them attract unwarranted blame after their failures. This means you’re unlikely to benefit much from learning from these role models because even if you could replicate everything they did, you could not replicate their luck.
WHEN SECOND BEST IS BEST
If the most successful are not good role models, whom should managers look up to? My research shows the second best may be a good alternative.
Take the music industry. If a musician has a top 20 hit, should a music label immediately try to sign him or her? My analysis of 8297 acts in the US Billboard 100 from 1980 to 2008 would suggest not. Music label bosses instead should be looking to sign up those reaching positions between 22 and 30, the “second best” in the charts.
A classic example is Gangnam Style by South Korean artist Psy.
The music video went viral beyond anyone’s foresight. Since such an outcome involved exceptional luck, Psy’s success is unsustainable. In fact, artists charting in the top 20 will likely see their next single achieve between 40 and 45 on average, regressing disproportionably more to the mean than their lower performing counterparts.
Those charting between 22 and 30, meanwhile, have the highest predicted future rank for their next single. Their less exceptional performances suggest their successes depend less on luck, making their performances a more reliable predictor of their merit and future performances.
GRIT IS OVERRATED
Some managers were offended when I presented my research. They believe successes result from hard work, strong motivation or grit, not luck, so the most successful don’t deserve to receive lower reward and praise. Some have even suggested that there is a magic number for greatness, a 10,000-hour rule.
Many professionals do indeed acquire their competence through persistent, deliberate practices. But detailed analyses of these experts often suggest certain situational factors beyond their control also play important roles.
When it comes to moderate performance, our intuition about success is more likely correct. Conventional wisdom, such as “the harder I work the luckier I get” or “chance favours the prepared mind”, makes perfect sense when talking about someone moving from poor to good performance. Going from good to great is a different story; being in the right place at the right time can be so important that it overwhelms merit and grit. The managers offended by my research were probably right; hard work and grit are likely to play a more important role than luck in their decent successes.
But the same factors are unlikely to enable them to move from good to great. Believing otherwise is to engage in the illusion of control and overconfidence – two dangerous biases that have ruined countless business.
ROLE OF LUCK IN BUSINESS EDUCATION
Management research and education often focus on prescriptive theories that address how to move from good to great. This is problematic because being great in business often cannot occur without luck. Business educators need to acknowledge that we can help business practitioners to make fewer mistakes – “move from incompetent to OK” — but there is little we can teach about how to become exceptionally successful.
Chengwei Liu is a professor at ESMT Berlin.
Copyright 2021 Harvard Business Review/Distributed by NYTimes Syndicate
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