If you want to learn the secrets of success, it seems perfectly reasonable
to study successful people and organizations. But the research of
Jerker Denrell, an assistant professor of organizational behavior,
suggests that studying successes without also looking at failures
tends to create a misleading ? if not entirely wrong ? picture of
what it takes to succeed.
To illustrate this point, Denrell relates a particularly absurd example.
All successful executives have at least one thing in common, he tells
his students: They all brush their teeth. Öbviously, that's stupid,"
says Denrell, and nobody would call toothbrushing a determinant of
success. Yet when we seek the common denominator of successful organizations,
we tend to reach similarly useless conclusions ? unless we compare
successes with failures.
Case in point: The well-known advice to focus on a single core business.
Authors of popular business books identify many successful companies
that have focused on one key product and argue that this focus caused
their success. But look at Kodak and Xerox, says Denrell, explaining
that some companies that are focused on one product tend to have
very poor performance over time. In focusing excessively on successes,
we overlook the important fact that failing companies do many of
the same things as companies that succeed.
This idea hit Denrell during a seminar on serial entrepreneurs ? those
who had started several companies. "The presenter argued that these
entrepreneurs were unusually persistent, did not give up when facing
initial failures, and were able to generate support for their projects
even when most people were initially skeptical," recalls Denrell.
"Hearing this, I thought that these were characteristics that were
also necessary in order to fail spectacularly." After all, if a project
is not a good idea, yet you stick with it and persuade others to
contribute resources and money, the costs of the failure will be
quite large.
Denrell believes such risky behavior is a prime example of the danger
of making inferences solely ? or disproportionately ? from successful
people and organizations. It's very likely, he says, that firms pursuing
risky strategies tend to achieve either a very high or a very low
performance, while firms that pursue conservative strategies always
achieve an average performance. But while risk-taking can lead to
either spectacular success or disastrous failure, looking only at
successes will show a positive correlation between success and risk-taking.
At least half the problem, says Denrell, is that data for failures
tends to disappear. After all, companies that pursue unsuccessful
strategies either go out of business or change their approach. Either
way, information about the unsuccessful strategies becomes scarce,
especially in comparison to the wealth of data from successful organizations.
The same systematic ündersampling of failure" occurs among individuals,
since organizations tend to promote high-performing managers while
ousting low-performing ones. Aspiring managers trying to emulate
those at the top might take the same kind of ill-advised risks taken
by those who never got promoted.
But if a shortage of data on unsuccessful people and organizations
were the only problem, we could correct for it through statistical
techniques. We don't do that, says Denrell, because of a more insidious
problem: psychological biases. For example, even when we know as
much about an organization that failed as we do about another that
succeeded, we delude ourselves by using different language to describe
essentially the same behavior. "We tend to argue that a decision
with a good outcome is an indication of visionary management, while
a decision with a bad outcome indicates reckless behavior," says
Denrell, adding that people want explanations to be deterministic.
"But the performance of any given firm is influenced by many random
events beyond the control of managers."
Denrell concedes that accepting his ideas is not enough to help us
understand the true determinants of success. Among the many problems
that plague this search is noisy data ? too many variables to determine
clear causes. And, of course, there's the randomness factor. But
understanding the effect of undersampling of failure has value, nonetheless,
if for no other reason than to tell us what doesn't work.
These ideas are not always an easy sell. The practice of studying
successes is so deeply ingrained and appeals so much to our intuition
that some people at first don't see Denrell's point. He says that
when he asked some "best practices" experts whether they've looked
at both successes and failures, they told him, "Well, you know, we
haven't looked at failures, but that's because we're interested in
success!"
At least one group of people probably won't make that error in reasoning:
Denrell's students. When he teaches the MBA elective Organizational
Learning, his ideas on undersampling of failure are a major theme.
"It seems very obvious that you can infer the properties of success
by looking at the attributes of successful firms, but that's not
true."
by Marina Krakovsky
FOR MORE INFORMATION:
Helen K. Chang, 650-723-3358, Fax: 650-725-6750
Vicarious Learning, Undersampling of Failure, and the Myths of Management,
Jerker Denrell, Organizational Science, 2003, v. 14 (3)
Decision Traps: Ten Barriers to Brilliant Decision-Making and How
to Overcome Them ,J. Edward Russo and Paul J. H. Schoemaker, Fireside,
1990
To Engineer is Human: The Role of Failure in Successful Design, Henry
Petroski, Vintage Books, 1992