Never mind that Chengwei Liu is one of the more self-effacing academics you are ever likely to meet. He can hardly deny an element of good fortune in his success to date.
After all, the role of luck and randomness in exceptional performance is
exactly what he studies.Liu has spent a number of years researching extraordinary performance in the world of business, and concluded that often luck is mistaken for skill. The latest accolade to come his way is being listed as one of the global management thinkers most likely to shape the future of how organisations are managed and led. Every two years, his Thinkers50 poll ranks and shares the best in management ideas and heavyweights Michael Porter,
Clay Christensen and Peter Drucker are among previous winners.“One common feature of the people .I know on this list is that we all challenge the wisdom of some existing management gurus,” says Liu.
For example, instead of learningfrom “great firms” and trying to imitate
the most successful people and organisations, his research suggests that the more exceptional a success is, the less we can learn from them, because moving from “good to great” often requires luck by being in the right place at the right time.
“Some wisdoms now need to be modified and adapted,”says Liu, Associate Professor of Strategy and Behavioural Science at Warwick Business School. Of course, successful
people don’t like to have their success explained by luck, while audiences too seem unwilling to acknowledge the role of luck in the success of outliers. As a result, the stories of the most successful attract the most media attention.
Don’t follow Gates
So why is the idea that exceptional performers are the most skills-flawed? Because exceptional performance often occurs in exceptional circumstances, wrote Liu in research with JerkerDenrell, Professor of Behavioural Science at Warwick Business School. Top performers are often the luckiest people, who have benefited from rich-get-richer dynamics that boost their initial fortune, concluded their research.
Consider a college dropout who turns out to be the wealthiest person in the world. Yes, Bill Gates may be very talented, but his extreme success perhaps tells us more about how circumstances beyond his control created such an outlier.
In other words, what is more exceptional in this case may not be Gates’ talent, but his circumstances. For example, Gates’ relatively privileged background enabled him to gain extra programming experience when less than 0.01 per cent of his generation then
had access to computers. He attended one of only 50 schools in the country that had a computer at the time.
And his mother’s social connection with IBM’s chairman– she served alongside him on the board of a charity – enabled Gates to gain a contract from the then leading PC company, generating a lock-in effect that was crucial for establishing
his software empire. Of course, Gates is not a stupid man. His talent and effort play important roles in the Microsoft success story. But that’s not sufficient for creating such an outlier. Talent and effort were probably less important than the circumstances. He could not have been so successful without the latter.
But for Liu, calling out the role played by luck is not enough.“I realised early on that if I wanted to have a career in business schools, I had to say something more actionable
and constructive,” he admits, with a laugh.
Second best are best
So if we can’t learn from the best, who can we learn from? It is more useful, says Liu, to draw lessons from the less exceptional performers, the second best, because their circumstances are likely to be less extreme, implying their performances are more informative and offer more evidence for skill.
However, the “luck bias” is very persistent. Liu’s research found that even when observers are given clear feedback and incentives to be accurate in their judgement of performers,58 per cent of them still assumed the most successful were themost skilled when they were clearly not, mistaking luck for skill. Liu has, for example, tried to apply his research with some financial institutions, where he believes the most successful Traders may simply be the luckiest ones who took more risks than their colleagues.
These traders tend to be rewarded with bonuses as a result, but in all likelihood their luck will run out. “I seek to help HR departments identify the lucky outliers and discount their performance in evaluation,” explains Liu.
“Continuing to reward high performing stars on the trading floor could lead to a dangerous risk-taking culture in the long run. Far better to improve your own evaluation internally, and take advantage of your competitors who will continue
to systematically mistake luck for skill.”
The lucky few should understand and appreciate the role that luck has in their extreme success – Liu’s research finds, interestingly, that entrepreneurs are more willing to acknowledge the role of luck in their success than corporate managers – and with that understanding comes an obligation to those that have not.
“I do a lot of teaching on executive education courses and I’ve found it really difficult to convince some executives that luck plays an important role,” he says. Still, there are ways to ‘get lucky’.
“Chance favours the prepared mind,” as Louis Pasteur, the French chemist, once wrote. Good and bad luck befalls to all, but only some can maximise the return on luck. And only some organisations are able to see what others do not see, says Liu.
Finally , If you want to keep beating the competition, says Liu, don’t let others know how you did it. Just say you were lucky!
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