How can we get better at untangling skill and luck in our business?
It’s a question posed by Rasmus Ankersen, the Danish entrepreneur and director of English professional football club Brentford, in his new book Hunger in Paradise. “We make a big mistake if we assume that we will automatically be successful tomorrow because we are so today,” he writes.
The book opens with a chapter called From Greatness to Irrelevance, which is accompanied by a picture of the Nokia 3310. Once the world’s greatest mobile phone from the world’s greatest mobile phone company, it had a battery that lasted a week and was virtually indestructible. Both now are little more than footnotes in history.
Ankersen argues that there are three reasons why successful companies fail:
• Outcome bias – people assume good results come from good decisions and superior performance.
• Escalation of commitment – people stick to what worked before, even if the results are now negative.
• The ‘end of history’ illusion – you think you have learned all you are going to learn and don’t need to learn anything more.
Professional football club Newcastle United and plastic toy giant Lego are two of the European companies that Ankersen uses to anchor his ideas, which makes for a refreshing read.
Ankersen compares the decisions made by the management of Newcastle with the decisions made by professional gamblers when betting on the outcomes of football matches. In 2012, Newcastle finished in fifth place in English football’s Premier League; the club’s manager, Alan Pardew, was rewarded with an eight-year contract.
A year later, with the same team, Newcastle finished 16th, narrowly avoiding relegation. The problem is that most football managers, owners and fans use the league table to judge success. But, the league table is only a measure of past performance.
“As a gambler, the first commandment you must accept is that football is a game strongly influenced by randomness,” writes Ankerson. It is a low-scoring sport, which means the best teams win less often than in other sports.
A chart comparing the expected performance of Newcastle in the 2011/12 and 2012/13 seasons with its actual results demonstrates how outcome bias works. The team performed the same in both seasons, but was exceptionally lucky in the first season – like a person flipping a coin and getting 15 heads in a row.
The challenge is that people look at a league table and build a narrative that fits. “Very few companies are prepared to accept that good results are not necessarily a consequence of their brilliant strategy,” Ankersen says.
What can you do? Ankersen suggests you take a leaf from the Lego playbook. Chief executive Jørgen Vig Knudstorp talks about when 10,000 police station Lego sets were sent to stores missing one little grey brick, which made the overall set impossible to build.
“Despite the fact Lego’s customer service replaces everything for free if consumers believe that they have lost items or something is missing, they only heard from less than 2% of the people who had bought the police station with the missing piece. In other words, 98 out of 100 consumers who bought the set opened it, had an unsatisfactory experience, yet never complained.
As Knudstorp himself explained: “It’s really worth noticing, because that might mean that when we hear from 5,000 dissatisfied customers, they might actually represent a million.”
This is an interesting study that helps readers to question how their business is really performing. Hunger in Paradise is designed as a quick read and effectively challenges you to rethink your strategic plan.