Friday, February 26, 2016

magic, monkeys, moggies and management gurus

There’s a clip in an episode of illusionist Derren Brown’s TV show in which he predicts he can flip a coin 10 times in a row and it will come up heads every time.

He proceeds to do exactly this, flipping the coin into a bowl 10 times and it comes up heads every time, just as predicted.

Magic, right? Or at least some sort of quantum entanglement.

The truth is less mysterious; he flipped the coin for about ten hours straight until he produced the sequence he wanted. His team then edited out all the failed flips and presented only that successful sequence.

Similarly, you’ll be familiar with the famous thought experiment that describes how an infinite number of monkeys bashing on typewriters for long enough, will result in one of them eventually writing a novel.

But what are the chances our monkey author would bash out a follow-up?

Or another monkey would come up with anything?

How about the many popular videos on YouTube that feature cats?

Is this evidence that featuring cats in your video makes it more likely that it will be successful?

Perhaps the success of some cat videos is simply proportionate to the huge number of cat videos that are out there in the first place, the vast majority of which receive little or no views at all, bar their proud owners.

In the coin-flipping skit, monkeys who produce nothing, and the mountain of unwatched cat videos that are forgotten, we only see the survivors.

The same survivorship bias is prevalent in marketing departments and agencies every day. For instance, it’s common for marketers and agencies to get distracted by the high response rates and dramatic ROI that appear to result from certain marketing activities.

Discounts and price promotions are just one salient example. While they can contribute to short-term sales boosts, they tend to be taken up by consumers who are already brand buyers, and are therefore detrimental to profitability.

Survivorship bias is the error of looking only at features that winners appear to have in common, and assuming they’re the only reasons why things are successful.

Management guru Tom Peters studied several companies enjoying successful periods and published a book – In Search of Excellence – outlining a success formula based on those things that the companies appeared to have in common.

However, many of the organisations highlighted by Peters then found themselves having difficulties within a few years, while employing virtually the same strategies that had made them successful.

Perhaps the book would have been more appropriately titled In Search of Halo Effects.

One does not have to look far on the interwebs to find studies that appear to show how a single factor, such as company culture, customer focus or a company’s commitment to social responsibility, lead to high performance.

It could just as easily be argued that it’s because companies are high performing that they subsequently benefit from better culture, or are able to contribute to social responsibility activities.

More recently Richard Shotton and Aiden O’Callaghan from ZO in the UK published a splendid report debunking the idea that brand ‘purpose’ is a driver of success as popularised by the Jim Stengel book ‘Grow’.

It turns out that spectacularly failing brands like Nokia and Kodak were just as ideal-driven as the successful brands Stengel chose to feature in Grow.

But those examples didn’t fit the story.

And we prefer the story, if we are honest.

Sometimes this means turning fact into fiction, even for business book authors.

As our favourite literary Darwinist, Jonathan Gottschall, points out in The Storytelling Animal.

'When we read nonfiction, we read with our shields up. We are critical and skeptical. But when we are absorbed in a story, we drop our intellectual guard. We are moved emotionally, and this seems to leave us defenseless.'
It turns out that many of the things that we commonly believe to be contributions to company performance are in fact attributions.

We’re mistaking outcomes for inputs.

Skill is a factor, but so is luck. Skill allows you to make punts that are a bit more informed, but it’s no guarantee of success.

Success is, for the most part, the result of decisions made under conditions of uncertainty, and always shaped in part by factors outside our control.

As Daniel Kahneman famously noted, 'A stupid decision that works out well becomes a brilliant decision in hindsight.'

Business theorist Phil Rosenzweig unpacks much of this flawed logic prevalent in contemporary business thinking, in his book The Halo Effect.

“Business is full of mysteries, but none greater than this: What really works?”

In finding out what works, Rosenzweig advises that we should be mindful of dazzling halo effects from apparent winners, and examine the failures a bit more closely.

What can we learn from magic, monkeys, moggies and management gurus?

Firstly, all strategies involve managing risk and uncertainty.

Execution is also uncertain. What works well for one situation may not be effective for another, however similar.

Randomness plays a greater role in success (and failure) than we like to admit and bad outcomes don’t always mean that mistakes were made.

(Likewise, successful outcomes don’t necessarily mean that we made brilliant decisions.)

Successful strategy, then, is skillfully interacting with chance.

It could be that successful strategy emerges simply because some people are better at interacting with chance and bad strategy comes from the failure to take chance opportunities by confusing outcomes with inputs and being too easily distracted by halo effects.

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