However, new research provides systematic evidence that luck plays a critical role in exceptional successes, not only in business but also in music, movies, science, and professional sports.
In this Hot Topic, we will explore the secrets of luck, uncovering how it can be used effectively in business strategy.
Ignore the most successful, learn from the second-best
There is a lot of sound advice about how successful leaders rely on factors such as leadership, innovation, competition, and geography, but what about good fortune? Often overlooked in favour of meritocratic explanations, luck plays a central role in understanding successes and variations in business performance.
While we tend to imitate the most successful and try to replicate their exceptional good luck, research shows that more can be gained by paying attention to the “second best”. Top performers are luckier than the rest, but also become predictably worse.
Continuing to reward the luck of the “first” not only leads to disappointment, but also augments inequality and strengthens the myth of meritocracy. If you aspire to become great, instead of blindly rewarding top successes, reward and learn from the second-best – or even third- or fourth-best.
Case Study: For example, businesses with the current top growth rate (more than 34% per annum) are significantly less successful next year than firms with a high but less extreme current growth rate (between 32% and 34% per annum).
Untangling skill and luck
The more uncertain the world becomes, the more we are inclined to rely on top-performing leaders and their misleading certain solutions in order to find success. However, we need to remember that luck plays a substantial and distinctive role in various fields and activities.
Mauboussin, author of The Success Equation, proposes a “luck/skill continuum” where roulette is placed at the “pure luck” end of the spectrum, while chess is at the “pure skill” end. To assess where an activity or business enterprise sits on the continuum, use the following question as a guide: “Can you lose on purpose?” In games of skill, you can lose intentionally, but when playing roulette or the lottery you can’t lose on purpose.
How can this be translated in business? Here are some practical ideas that you can easily implement to untangle skill and luck, and increase your chances of success:
- When skill plays a large role in an activity, you can affect outcomes with deliberate practice and timely, specific feedback.
- When luck predominates, concentrate on the process to ensure acceptable results over the long run.
- When an activity is a mixture of luck and skill, extreme performances, either good or bad, tend to be followed by less extreme ones. To reduce luck in a specific situation, choose your competitive responses based on your opponent’s and your strengths. When you are stronger than your opponent, restrict the number and variety of encounters, and keep the game simple. When you are weaker, increase the number of encounters and complicate the game.
Action Point
Can you think of a time that you wanted to do something but felt quite certain that you would not succeed and a time that you wanted to do something and were confident that you would succeed? How did you approach that task in both situations? How could you have used the luck/skill continuum to adapt your approach?