Fooling ourselves
A mortgage broker tells me that eventually the market will turn around, lifting my home value along with it. I don’t have the heart to tell him he’s wrong. In fact, I don’t want him to be wrong; I am clinging to Robert Shiller’s research showing that stock bubbles and real estate bubbles tend to alternate. Just because both have deflated doesn’t mean they won’t both come back some day, right? Meanwhile, companies still can’t tell the difference between reducing staff and restructuring. Down in DC (which for a town rolling in stimulus money manages to have one of the highest unemployment rates in the nation) Paul Krugman is calling out Obama’s economic team for failing to understand that securitization is dead. As if we can’t intuit from Kuhn that very smart people often cannot comprehend when change is upon them.
While we’re tearing down fantasies, here comes a study ripping apart one of the basic myths of business: great management drives performance. Books like “In Search of Excellence” and “Good to Great” have sold bazillions of copies because people want to find the magic potion that will make their company as successful as these companies. Now comes a Deloitte Consulting study, A Random Search for Excellence: Why great company research delivers fables and not facts
The study authors, Deloitte consultants Michael E. Raynor and Mumtaz Ahmed and University of Texas researchers Andrew D. Henderson, look at “Excellence,” “Built to Last” and myriad other books and studies and concludes that they are about companies that “are not demonstrably great companies” and in fact may merely be lucky companies. Building on Pfeffer and Sutton’s “Hard Facts, Dangerous Half-truths and Total Nonsense” and on Phil Rosenzweig’s “The Halo Effect,” the authors put together a database of hundreds of companies, dating back to 1966.
They then analyzed it using regression statistics. The good news is, they did find that some companies were indeed better than one would expect. But not very many. In fact, almost all the companies featured in various studies of performance were either companies that fit the pattern the author(s) were looking for, or were just plain lucky.
As they say, “success studies should be treated not as how-to manuals but as sources of inspiration and fuel for introspection. Their value is not in what you read in them but what you read into them.”