Monday, April 27, 2009

The Iacocca theory

I've searched my blog, and I find no evidence I've put forth my Iacocca theory before. I find that hard to believe, as it's something I've believed since, well, Lee Iacocca would have seemed like the best illustration of that theory.

What has induced me to bring this up is a post by Greg Glockner on Decidedly, where he asks the musical question, Are "Great" Companies Just Lucky?":
When you look at an old list of "top companies" or "top executives", how many are still tops? If someone is no longer tops, what can we learn? Were they just lucky at the time that someone said they were "tops"? Or did they make some strategic blunder that caused them to fall from the top?
The Iacocca theory says: Take 100 "Lee Iacocca's," and watch them through their lives. We can even cook the game by putting them in the same circumstances, presenting them with the same options. What will happen?

Obviously, they can't all become heads of car companies and American business icons - there aren't that many spots open in a generation. My guess is that one will become the Lee Iacocca we know and love(?), nine will do very well for themselves, 50 or so will top out somewhere below the very top levels of whatever organization they end up in, 30 will stall out early through some fundamental mistake or (yes!) bad luck, and 10 will end up abject failures (or will die early or something else dire).

[Clearly those numbers are totally made up - my wife wanted me to be sure to mention that.]

If you want to seem more au courant, substitute "Bill Gates" or "Larry Ellison" or whatever business hero you have. But the point remains the same, that confusing the result with the process is a common mistake people make, that is, the assumption is that the successful had some kind of distinguishing feature that made them so successful. And that's true of companies just as it is of individuals.

Of course, there's another reinforcing factor: someone has to be in that position. Some company is going to be the number one car company, and the leaders of that company are going to seem, well, near-magical as a result. Right now Toyota's riding relatively high, and it's natural (but misleading) to focus on everything they've done right; moreover, to believe that everything they've done has contributed to that "rightness," that they are beyond criticism.

Few business leaders were riding higher a year ago than GE CEO Jeff Immelt. He seemed to have seamlessly mastered the globalization trend, taking the "legendary" Jack Welch's accomplishments on into the heavens. Now it seems clear that he was just riding the bubble, that there is little magic there, and one could easily foretell a bad end for Mr. Immelt sometime in the future. My point is not to castigate Immelt in particular, merely to point out how a year can seriously unguru some of our biggest names.

It reminds me of the studies that have been done on clutch hitting in baseball. There are few more commonly-held ideas than that there are some players who are superb in the tough situations - they rise to the occasion and carry their teams, and so are worth more than similar ball players who can't come up as big when the pressure is on.

And study after study have found that there is pretty much no clutch effect at all, that a player who does well with the bases loaded one year ("well" being defined as beyond his own norm) does not tend to see this persist year after year. Obviously, there will be the occasional player who will seem clutch for ten straight years, but no more than one would expect by chance. (There's also the memory effect in which we tend to remember the dramatic moments, all the times David Ortiz clears the bases in the 8th inning with a long double, not all the times he pops up in similar situations.)

I'm sure that Bill Gates is a pretty smart guy. I'm not sure that there aren't a whole lot of other people who would have done just as well if they had been inserted into Bill Gates's skin 30 years ago. We can't rerun history, as the saying goes.

But we need to be wary, as we evaluate individuals or companies (or any other institution), of crediting the wrong things for success that may well be indistinguishable from luck. We would do well to remember that it took even the great Bill Gates a long time to acknowledge the importance of the Internet, and only the vast market power of Microsoft kept that from being a company-killing misstep.

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