The central mission of JAM Views is to explain in simple terms what is really going on out there in business and the economy, and this week we want to look deeper into what makes organizations great. Is it brilliant strategy and execution, or is it a lot of luck? This question always reminds me of the Forrest Gump scene at Jenny's grave under their favorite tree. Forrest says, "I don't know if we each have a destiny, or if we're all just floatin' around accidental-like on a breeze, but I, I think maybe it's both. Maybe both is happenin' at the same time." We all of course remember the floating feather at the beginning and end of this epic movie signifying this question of destiny.
In this pursuit, let's first remind ourselves the majority of what "they" are telling us is not true. The "experts" are simply Monday morning quarterbacks, and we must find our own truths. In 2007, right before the economy went into thermonuclear meltdown, Phil Rosenzweig published "The Halo Effect" which is a study of studies on successful organizations. Phil's independent viewpoint allowed him to not be swayed by confirmation bias, and his post-hoc review enabled him to see if the conclusions held up for the future. Phil eventually determined that the halos developed by successful companies tainted nearly every glowing analysis, and the successful attributions were either wrong or at least rarely lasting. He concluded that the stories were great, but rarely did the successful continue to win, or did the laggards continue to lose.
We must constantly remind ourselves that human beings are not rational yet are rationalizing beings. Our brains must have reasons for why everything is happening, because our concept of self is not strong enough to believe that chaos may be spinning all around us. Malcolm Gladwell, in his successful books, The Tipping Point and Outliers, taught us that the smallest push can start social epidemics that change whole cultures, and most of the time we are totally wrong about why things happen in our society.
We constantly confuse correlation and causality. Correlation attempts to explain two things are related and occur in a way not expected by chance alone. Your Statistics 101 class taught you two items with a correlation of 1.0 moved in tandem, while a correlation of -1.0 made them pure opposites. In the investing world, we want to sprinkle our portfolios with non-correlated asset classes, so when some markets are zigging, others are zagging, and our overall volatility (risk) is greatly reduced. Causality attempts to explain that A created B, and there is a solid reason for a resulting action or condition. We constantly misinterpret correlations for causality.
The riveting analyses by CNBC guests, or the sensible critiques in Forbes and Fortune Magazines, while entertaining, are espoused by business critics who actually have no idea why things happen. To their chagrin, business and economics are much more of an art rather than a science, and the algorithm for figuring out what actually created the specific outcome is too complex, with too many variables, for the human brain to understand. So, we make things up which seem to make sense to us. We rationalize.
Tom Peters commercialized this "business guru business" when he wrote In Search of Excellence in 1982, and we all fell in line with the core principles which made companies great! Unfortunately, in 2001 Tom admitted, "I confess, we faked the data." Tom admitted that as a consultant with McKinsey he came up with good maxims, such as "stick to the knitting," but then went back and collected the quantitative data which supported his beliefs. I'm not claiming that Tom operated with malice. I am sure Tom believed in his mission, for which he was greatly rewarded, but we must find our own truths.
In 1983 and 1984, IBM topped the list of America's Most Admired Companies as the periodicals gushed with praise for their culture, work freedom, and leadership vision. By 1992, IBM's bottom line had turned red, the CEO was fired, and Forbes, Fortune, and the Wall Street Journal crucified IBM for their medieval culture, bloated bureaucracy, and complacent executives.
I am sure you have seen the ridiculous recaps of daily stock market reports claiming why the market was up or down today. I love the YouTube reports which show the same rationale used for why it was up yesterday and then blamed for why it was down today! Twenty-five years ago, John Schantz, my Branch Manager, told this rookie stockbroker the real truth, "The market went down today because there were more sellers than buyers. All the rest is BS! He was correct.
Jim Collins next picked up the guru flame and wrote Built to Last in 1994, and then the follow up Good to Great in 2001, as he rode the wave of incredible book sales and huge profits. Again, I am sure Jim's intentions were honorable and that he believed his thorough analysis truly determined what made companies great. Yet, if you would have invested in Jim's 18 "Visionary Companies" when his wildly popular analysis was published, you would have underperformed even a random stock portfolio over the next decade. His list didn't even match the market average. How is this possible?
Now don't think that I don't want you to read these books, because I want you to read them all, including my own! All these books and studies mentioned this week provide fantastic knowledge, lessons learned, and basic guidelines to help you become an exceptional leader. Just remember when things are going well you are not as smart as your halo leads everyone to believe, and when everything goes wrong don't ever believe you are as dumb or evil as everyone claims. Phil Rosenzweig wrapped up his book with two great maxims: "Lasting business success, as it turns out, is largely a delusion," and "Success is not random -- but it is fleeting."
Try to understand we see qualities and traits in other people and organizations according to our own mind. We see our own expectations and mental projections. We think we see them doing a certain thing or being a certain way or having a certain motive or attitude or feeling, but we are seeing our own thoughts, our own expectations and assumptions reflected back to us. Now multiply those perceptions over 300 million Americans, and you can understand the confusion.
So, what should we do? We must keep our eyes wide open and know that the rationale, causality, and explanations provided by the experts are most likely wrong, or at least irrelevant. We must get ourselves as educated as possible, outwork our competition every single day, and remember we don't know what we don't know. If you really think about it, it's quite liberating and empowering. Do the best you can this week and have faith that everything is going to be okay. You are a feather that seems destined for success.
"It is one of the paradoxes of success that the things and ways which got you there are seldom those things that keep you there." - Charles Handy.