Sunday, December 27, 2009

Management Best Practices or Just an Illusion?

Thanks to Marc Effron, from the Talent Management Network, for bring this to our attention:
Recent research may shake your faith in management gurus who claim that specific business practices cause high performance. In A Random Search for Excellence, researchers report that companies' sustained high performance may simply be luck.

Their research shows that luck alone can account for above average performance for many years. They conclude that many of the best selling management books of recent years aren't really identifying high performing companies but instead are studying firms "with performance profiles that are statistically indistinguishable from fortunate random walks."

I just read the report myself – here’s a summary:

 The genre of management research that we refer to as the “success study” is flawed, including In Search of Excellence, Good to Great, Breakthrough Company, What Really Works, Stall PointsBuilt to Last, and Profit from the Core.

 The reason they are flawed is because they measured the wrong things and set the bar too low. Deloitte backs this up with lots and lots of statistically analysis and explanation, most of which I found too complex to follow.

 Deloitte is currently conducting its own “success study”, but they’ll use a better algorithm that will better define “great performance” and demonstrate true cause and effect.

 They say the flawed science behind these studies doesn’t mean you should ignore the advice from these authors and gurus. Sure the recommendations can be useful, more in the manner of “fables” than evidence-based advice. For example, no one would read “The Tortoise and the Hare” and go out and bet on a tortoise. Rather, people take from this tale the idea that there is merit in perseverance while arrogance can lead to a downfall.

This report reminds me of what Marshall Goldsmith calls “The Success Delusion”, which explains why it’s hard to convince successful leaders and companies to change. They often attribute their success to habits that have nothing to do with success – it’s closer to superstition than actual cause and effect.

I see the same thing with the “study a bunch of successful leaders and list the traits” genre of books and reports. I've gotten to the point where I won't even read them any more. Instead, I stick with what I believe to be research-based proven models (CCL, Lominder, DDI). But at the end of the day – who knows?

Red is gray and
Yellow white
But we decide
Which is right
Which is an Illusion?
From Nights in White Satin, by The Moody Blues.

BTW, can you see the hidden tiger in the picture above?


Anonymous said...

It is also a flawed way to determine success. You find correlation but have no idea if, as you say it is luck or not. It is very difficult to test management styles. But certainly no scientific method lets you examine data sets and pick out the correlated ones and decide that causation exists.

John Spence said...

Dan – was not quite sure to take this post as tongue-in-cheek or serious. Surly the fine folks at Deloitte don’t actually believe that business success is purely random – mere luck? While I do not think you can create a paint-by-the-numbers formula for instant business success, I have to believe that there are some fundamental, essential ingredients to building a great organization. I mean, really, would anyone argue with Jim Collins’ ideas of “right people on the bus” or the three circles of excellence in the Hedgehog Concept? What Really Works is one of the best business books I have ever read – and the Four Primary Practices are, to me, one of the very best short lists ever compiled of the foundational elements of creating a winning enterprise.

To me it seems much more likely that we simply have a case of a group of brilliant statisticians who do not like the way other people did their “sta-twist-ics” and an organization that knows that controversy sells books. Position yourself as a top authority (Deloitte statisticians) and then make a bold and provocative statement that everyone else is wrong and ONLY you really understand how things truly work. A good way to generate some buzz and move a few books. After all – if much of business success is random and due to luck – there would be no reason to read their book either.

Hope you had a great holiday Dan – and I wish you every success for 2010!

Dan Cooper said...

Nice piece, presented in an interesting way.

It's valuabe to know that the results of these studies might well be flukes. In contrast with well-designed science experiments, these studies don't give confidence that the same results would occur if the studies were repeated.

On the other hand, as you point out, there is no proof that these ARE flukes. If the results seem interesting, we probably should think about them and look for more evidence.


Aaron Windeler said...

Dan, you beat me to the punch. All the statistics in the study aren't saying that these books are wrong, but that they are not necessarily correct - with the way they do their studies we just can't know.

This study by Deloitte doesn't say that the Four Primary Practices aren't useful, but that from these types of studies, we can't be sure. It's like studying a new medicine - to really know you need a controlled study with some people getting the new drug and some people getting a placebo - & the types of books the Deloitte paper is talking about don't do that - what they do is a useful first step, but it is just that, a first step

Bob Hall said...

Well, when I think of Good to Great, I can't help but remember Circuit City.

Even the best management books often seem to run out of pertinent info and start recycling ideas by midway through.

The only management book I've ever thought was out ahead of the pack is The Fifth Discipline by Peter Senge.

That's not to say we can't learn from just about anything (what to do or not to do), but nothing guarantees success. We just have to take the books for what they are, learn the best we can, and continue being open to any source that can help us be better leaders.

Dan McCarthy said...

John (Curiouscat) -
Thanks, makes sense.

John -
I think your therory makes a ton of sense. And thanks, you too!

Dan -
Well said! Thanks.

Aaron, Bob -
OK, I think you all 5 of you have nailed this thing. Thanks for helping us make sense of it all. Bob, I especially like your last statement. We have to keep an open mind to new ideas, yet not jump on one-size-fits-all bandwagons.

Wally Bock said...

Ernest Rutherford, the father of nuclear physics, said that "All science is either physics or stamp collecting." The implication is that only physics has true scientific rigor.

Many in the social sciences, like history or management, suffer from "physics envy." They want, desperately, to be scientific. But those fields don't lend themselves to the kind of experiments (even thought experiments) that are the stuff of physics.

One thing I like about the Deloitte paper is that it points out that the examples in the books cited can be helpful. But I find the choice of words telling. You are to take what Deloitte does as some sort of science. But what you learn from the management books are like what you would learn from "fables."

Fables are made-up stories. They aren't based in fact and are certainly not the result of any science and therefore, not as "true."

The irony is that fables have been used since the dawn of language to convey wisdom in easily understandable packages. And the arrogance is that what Deloitte is talking about are not "made up" at all, they are observations in the tradition of people like Darwin.

Wally Bock said...

Congratulations! This post was selected as one of the five best independent business blog posts of the week in my Three Star Leadership Midweek Review of the Business Blogs.

Wally Bock

Dan McCarthy said...

Wally -
Thanks, nice breakdown. You even slipped a little Ernest Rutherford in there. (-:
And thanks for picking it for your five best!