A Consultant's View

Prairie Trail Software, Inc. ............................................................. July 2012

A Recipe for Success?

Browsing through the stacks of business books, it is easy to see that many people think that they have found a recipe for success. Over the last few decades, we have seen business book after business book tout "Excellence", "Six Sigma", "Walking Around", and many other business ideas. But few of these books have made a significant difference in American business.

Part of the reason is that the books are based on pulling together case studies of a number of businesses, trying to see some characteristic in common, and then push that one thing. This effort has a fatal flaw: the studies do not check if the featured companies are successful because of superior capability or strategy or if they successful because they were lucky. Did the company do well because they were doing something extraordinary or if they "won the corporate equivalent of the lottery"?

In any environment, there is a wide range of results from the same level of effort. There will be people who are very lucky and those who have abysmal luck. Most people will have average luck and not see all that much results from the effort.

The problem for the rest of us is that if the business advice is based on luck, then following that advice will not make your company any better (and might make it worse if you follow advice that falls on "the wrong side of the dice" for you.)

Deloitte did a systematic study of firms to try to find out if they could isolate out the difference between outstanding performance and luck. In their database of over 21,000 firms covering the period of 1966-2006, fewer than 400 companies appeared to have behavior that was substantially different than what could be explained by luck.

In Good to Great, the author analyzed 6500 years of commercial operations. The author agrees that most successful companies were not luckier than other companies. The key is that they used their luck in a different way than their competitors. However, the list of companies that he claimed were great has shown itself to be limited. Many of the companies on that list have not survived the years since then very well.

Most of the business books out there should not be taken as recipes for success but for inspiration for continued experimentation and exploration of what might work for you. (It can be disheartening to find out that the data for the book was faked as one major book is supposed to have been.)

It is also important to know about the bad side of life. The book, "In Search of Stupidity" is a fun analysis of how badly companies can blow it.

Inspiration for the dark days in your venture is very important. When we are not seeing the luck, it is very easy to want to give up. Business books showing ways to succeed are very important at those moments.