On one side of the bookshelf, you have an ever growing pile of historic business best sellers with promising titles like In Search of Excellence, Good to Great and Built to Last. Essentially, they’re all recipes for building a highly effective company — strategic blueprints for success, writes Gord Hotchkiss.
On the other side of the bookshelf, you have books like Phil Rosenzweig’s The Halo Effect. He trots out a couple of sobering facts: A rigorous study conducted by Marianne Bertrand at the University of Chicago and Antoinette Schoar at MIT isolated and quantified a leader’s impact on company performance. The answer, as it turned out, was 4%. That’s right, on the average, even if you have a Jack Welch at the helm, it will only make about 4% difference to the performance of your company. Four percent is not insignificant, but it’s hardly the earth-shaking importance we tend to credit to leadership.
The other fact? What if you followed the instructions of a Jim Collins or Tom Peters and transformed your company’s management practices to emulate the winning case studies in these books? That would surely make a difference, wouldn’t it? Well, yes – kind of. Here, the number is 10%. A study done by Nick Bloom of the London School of Economics and Stephen Dorgan at McKinsey tested the association between specific management practices and company performance. There was an association: those practices accounted for about 10% of the total variation in company performance.
These are hard numbers for me to swallow. I’ve always been a huge believer in strategy. But I’m also a big believer in good research. Rosenzweig’s entire book is dedicated to poking holes in much of the “exhaustive” research we’ve come to rely on as the canonical collection of sound business practices.
He doesn’t disagree with many of the resulting findings. He goes as far as saying they “seem to make sense.” But he stops short of giving them a scientific stamp of endorsement. The reality is, much of what we endorse as sound strategic thinking comes down to luck and the seizing of opportunities. Business is not conducted in a vacuum. It’s conducted in a highly dynamic, competitive environment where there are few absolutes. Everything is relative. And it’s these relative advantages that dictate success or failure.
Rosenzweig’s other point is this: Saying that we just got lucky doesn’t make a very good corporate success story. Humans hate unknowns. We like to assign credit or blame to something we understand. So, we make up stories. We create heroes. We identify villains. We rewrite history to fit into narrative arcs we can identify with. It doesn’t seem right to say that 90% of company performance is due to factors we have no control over. It’s much better to say it came from a well-executed strategy. This is the story told by business best sellers.
So, what caught my eye the other day was a story about how ad agencies might not be very good at creating and executing on brand strategies.
First of all, I’ve never believed that branding should be handled by an agency. Brands are the embodiment of the business. They have to live and breathe at the core of that business.
Secondly, brands are not “created” unilaterally – they emerge from that intersection point where the company and the market meet. We as marketers may go in with a predetermined idea of that brand, but ultimately the brand will become whatever the market interprets it to be. Like business in general, this is a highly dynamic and unpredictable environment.
I suspect that if we ever found a way to quantify the impact of brand strategy on the ultimate performance of a brand, we’d find that the number would be a lot lower than we thought it would be. Most of brand success, I suspect, will come down to luck and the seizing of opportunities when they arise.
I know. That’s probably not the story you wanted to hear.
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