Guest Articles

Luck is more important than judgement

by .

The following is a summary of our most recent Forum which this year enquire after the challenge of creating truly sustainable growth. Held at One Alfred Place on 11h September, the evening’s hypothesis to explore was that ‘Luck is more important than judgement’. The speakers were award-winning journalist Anthony Hilton, Alastair Dryburgh, a writer, consultant and self-declared business contrarian, and Tim Jones, a global leader in how to think about the future. The discussion has been summarised by Simon Caulkin, former Management Editor at the Observer. 

Luck and judgement 

Napoleon famously wanted generals who were lucky. Few chairmen or chief executives would think of making a similar wish. But as speakers and participants at a noisy and enthusiastic Foundation Forum on 11 September ended up agreeing, they very definitely should.

It would be hard to exaggerate the role luck plays in business, for both good and ill. When Mick Jagger sang that the consolation for not always getting what you want was that ‘if you try sometimes you might find/You get what you need,’ he wasn’t thinking of Royal Bank of Scotland and Barclays. But, as long-time Evening Standard columnist (and Foundation Advisory Board member) Tony Hilton pointed out, RBS got what it wanted in the shape of ABN-AMRO in 2007 and Barclays was lucky enough not to, and look at their relative fortunes now. Accenture wouldn’t exist if it hadn’t had the good fortune to demerge from Arthur Andersen (and change its name) months before Enron imploded. Conversely many of Enron’s supplier firms went down in the backwash along with their customer, through no fault of their own. Similarly, at an individual level, almost everyone has experienced a sudden change in career fortunes when a boss is unexpectedly promoted or sacked. Most striking of all, the state of the world economy today, affecting almost everyone alive, is the outcome of the gigantic game of chance played by the financial sector in the first years of this century. In effect, the crash of 2008 was the revolver shot that ended a game of Russian roulette being played by traders who had been using everyone else’s head as they spun the chamber. Their ‘success’ was down to good luck, which of course was everyone else’s misfortune.

Yet the role of luck is as comprehensively absent from management practice as it is from corporate history. There are two reasons for this. One is normative (and, ironically, itself the result of chance): like emotion and morals, chance doesn’t figure in the conventional academic account of management that came to dominate, entirely arbitrarily, after the 1980s, because it can’t be modelled or reduced to equations. As a result, it doesn’t enter into routine management calculations before the event. After the event, attribution bias neatly takes over, ascribing success to individual brilliance and failure to other people’s incompetence. Put differently, hindsight easily fits events into an apparently inexorable chain of causality that wasn’t evident at the time. It is further helped on its way by the story of what happened being invariably written by the winners. And on the whole, we lap it up. As the Foundation’s Charlie Dawson put it, ‘We like the model of heroic leaders who appear to have won over the forces of uncertainty and bent the future to fit their vision.’ Thus the role of chance is airbrushed out of history, with the result being people who are comically surprised when in real life it intervenes, as it nearly always does.

Therefore, as each of the speakers underlined, ignoring the role of luck is a huge error. Although, as Hilton astutely noted, skill and luck are not symmetrical – ‘luck can trump skill but not vice versa’ – luck can be managed, or at least exploited when it occurs. The remarkable number of variations on the theme of preparation – ‘Chance favours the prepared mind’ (Louis Pasteur); ‘It’s funny, but the more I practice the luckier I get’ (Gary Player); ‘For a long time now I have tried simply to write the best I can. Sometimes I have good luck and write better than I can’ (Ernest Hemingway) – is telling here. Think of business, said Hilton in a convincing metaphor, as poker: you have to play the cards as dealt (luck), but how you play them (i.e. the choice of when to draw, bet, fold or bluff, otherwise strategy, tactics and implementation) crucially affects the outcome. As in poker, success in business is not a matter of either-or but both-and: luck and judgement.

Both subsequent speakers proposed powerful ways of factoring chance into business strategies, thereby tilting the odds in their favour. There are far too many variables and possible interactions for anyone to predict the future accurately – which is why luck trumps skill and venture capitalists make 10 investments to get the one or two successes that will pay for the failures. Taking a leaf from the VC playbook, big companies, suggested Tim Jones, founder of Future Agenda and expert in strategies for long term growth, can hedge by placing intelligent bets on the future. ‘Intelligent’ is the key word here, and involves going outside the current time frames or product frameworks to find the necessary insights. For Procter & Gamble, who seek growth at the intersection between cosmetics and healthcare, the ‘aha’ moment came with the realisation that it already possessed a platform for monitoring skin health in a product that touches a sizeable minority of the world’s adult population for three minutes a day – the electric razor. For Shell, the scenario planning champion, it was to look well beyond the immediate food-versus-biofuels crops controversy to invest in second- or third-generation biofuels that didn’t use food crops at all. Vodafone found there was a potential gap in current assumptions about self-driving cars and intelligent highways. If mobile phone networks are to be their enabler, as many envisage, a car travelling down a German autobahn at 160kph must not only be able to flip seamlessly from Vodafone to T-Mobile for intelligent highways to deliver their ambition, but some trusted body also has to have, and make available, data on 100 per cent of the cars on the road – 99.9 per cent won’t do. So the question for the networks changes from the technical one of enablement to the rather deeper one of whether they are sufficiently trusted persons to hold the enormous amounts of personal data that is necessary to make the thing work. For Jones, ‘the thing with a big-company hat on is that luck and judgment interplay, but if you use judgment right and place intelligent bets then you will increase your chances of being lucky.’

Yes, it is perfectly possible, even rational, to base a strategy on being lucky, contended author and contrarian Alastair Dryburgh, although the basis for the premise is to be found in the social sciences, not management. Dryburgh illustrated his thesis with three examples. For how not to do it, consider Friendster, the (now forgotten) original social network. Friendster had some success in attracting users but offered them no way to form groups around likes or interests. Users devised a workaround by creating fictional friends that represented these collective interests, but instead of taking the hint and developing a group function of its own, Friendster declared war on the offenders, deleting the makeshift groupings and alienating users – ‘which is why it’s Facebook, not Friendster’.

Then there was the cryptographer with a start-up selling secure mobile communications. None of the entrepreneur’s initial business plans bore fruit, but he did gain a little traction with a small demonstration website for transferring money. He initially refused requests to upgrade the site, insisting he was selling encryption, not money transfer. It was only as the cash was running out that he gave in and grudgingly accepted what users were telling him: he might be in the online payments business instead. He was lucky with his bolshy customers, because the result was PayPal.

The ‘how-to-do-it’ example comes from the unlikely entrepreneurial source – Barclays. When the bank commissioned a mobile banking app, the IT department demanded two years to do it. The then head of Retail Anthony Jenkins gave the developers six months to carry out 60 per cent of the work, so the partially specified app could receive and benefit from customer feedback, and get to market early as well. The process worked so well that that’s now how Barclays does much of its software development. Jenkins, meanwhile, has been promoted to Group Chief Executive.

So how does this work? Experimental psychology, explained Dryburgh, suggests that those who think they are luckier really are. It’s a self-fulfilling prophecy. The formula includes being attuned to what’s going on around you and being ready to engage when it throws up the unexpected. A lot of management, he pointed out, ‘is about eliminating ambiguity and uncertainty. But that creates a paradox, because if you treat uncertainty as the enemy and try to eliminate it, then you end up doing a Friendster. On the other hand, if you can treat ambiguity – call it uncertainty, call it luck – as an ally, it can be a hugely important factor in success.’

That’s what Napoleon meant about lucky generals, and he was right. For luck to be able to work its magic you have to let it in by being out there. Or as Woody Allen inimitably put it, ‘Ninety per cent of success is showing up’.

A view from The Foundation 

We sensed there was more to chance than just being lucky but the evening gave guidance on what gets in the way and how to get over it.

One of the biggest issues with uncertainty is that it just doesn’t sound very good in the Boardroom. The unspoken assumptions are that everything will work, and admitting you don’t know what your best strategy is seems to be inviting someone else in to do your job. Pretending you have certainty when you don’t is also likely to be an approach with a limited shelf life.

What’s needed are ways to be confident, honest and uncertain together. Using the language of successful probability-based disciplines is a way through – a programme of experimentation, or a portfolio of investments, use positive language to forewarn of failure and a certainty only of not knowing the outcome.

The second conclusion we enjoyed was the value of a positive mindset and an orientation to action. If in doubt, try something, go somewhere different, speak to new people, ask open and curious questions. It doesn’t guarantee success, but it certainly increases the odds.

About The Foundation 

The Foundation, established in 1999, is a Growth and Innovation Consultancy. We help businesses grow more quickly, into new areas, or fend off threats to their top line. Our approach is built on the insight that clients find this hard. Why? Because to succeed, they need to see the world differently, from the ‘outside in.’ That means getting very clear about what customers value, as opposed to what the business produces, and thinking laterally about new ways to deliver that value by looking outside the sector for inspiration. We help our clients see their world differently, from this outside in perspective, and act on what they find through our border-crossing team. The borders they cross divide customer and business understanding, strategy and implementation, creativity and analysis, and these contrasts need to be combined in devising a strong response. Our work is across a broad range of clients including HSBC, Jaguar Land Rover, Visa, Tesco, M&S, O2, Intercontinental Hotels Group, Eurostar, National Air Traffic Control Services, JustGiving and Volkswagen/Audi. This link will take you to more information about our Forum events: http://www.the-foundation.com/our-events/foundation-forum/

Originally posted on www.the-foundation.com


Sign up to be kept up to date