Company Success: How Much of It Is Just Plain Luck?
Stan Truskie, Ph.D. Executive Leadership Presence Coach
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Stan Truskie, Ph.D. Executive Leadership Presence Coach
Highly Trusted Executive Coach & Advisor to Top US Companies | LinkedIn Advisory Board Founder | Leadership Professor/Expert | Keynote Speaker | Author
Luck plays a significant role in the fate of a company. I coach and advise senior executives. When I share this finding with my coaching clients, I get two reactions. My less experienced executives are somewhat surprised by this. On the other hand, my more experienced executives are not surprised at all. In fact, most endorse the fact that luck absolutely impacts a company's fate.
While I was conducting research to write my book on leadership and organizational culture, my findings showed that companies succeed or fail due to one and/or two major factors.
Strategic Direction
Strategic direction refers to a course of action that leads to the achievement of the goals of an organization. The broad roadmap outlines how an organization should move forward to reach its vision, mission, and long-term objectives. It is the guiding principle that shapes an organization’s actions, operations, and decisions. Strong, high-performing companies have a clear, concise, and compelling strategic direction. They know where they are going and how to get there. Weak, under-performing companies either have no defined, compelling direction and/or they lack the ability to achieve it due to their vague, ill-defined strategic intent.
Organizational Effectiveness
Organizational Effectiveness involves people, processes and resources. It represents the ability to align the organization to its goals and objectives. Strong companies have an effective organization to support their strategic direction. They have the right people in the right positions, the right structure, proper alignment, and a healthy, balanced culture. Weak, under - performing companies have an ineffective organization that is fraught with a myriad of problems associated any or all of the factors I just mentioned.
In further considering these findings, I was curious about which major factor had more of a impact on the performance of a company. Was it the strategic direction, or organizational effectiveness? So I conducted what is called a Meta-Analysis. This study compiles the quantitative data from previous research studying both variables.
According to my research, this is what I discovered. Strategic direction contributes approximately 40% to the variance in the performance of an organization. The other factor, organizational effectiveness contributes approximately 45% to the variance in the performance of an organization. Add the two together and you get 85%. What about the remaining 15%?
The Serendipitous Factor
What I found is that the remaining 15% has to to with unexpected events or just plain luck - that over which management has no control. And it can be good luck as well as bad luck.
Good luck includes positive, unexpected events that favor a company's performance and success. For example, a competitor closes down and allows for a greater market share, a well known celebrity gives an unexpected and unsolicited endorsement for the company, market demand for the company's products and or services unexpectedly increases, or a new government regime takes office and passes laws favoring a company's products over its competitors' products.
There is also bad luck or negative, unexpected events. An economic downturn, a pandemic, implementation of overly controlling government regulations, severe, and damaging weather conditions and supply chain shortages are a few examples of negative, unexpected events over which company leaders have no control.
Effective and Ineffective Leaders
Effective leaders who build strong companies deal with luck in two ways. When good luck occurs, they are able to take advantage of good fortune and maximize the effects to the fullest. If bad luck occurs, they minimize the effects so that the negative event has minimal impact on the company.
Ineffective leaders who run weak companies use hope as a strategy. They hope for good luck events and pray that negative events do not occur. The good luck they hope for is that a buy out happens before they have to start closing down divisions/stores and laying off workers. And they pray that a negative event does not occur that accelerates the process.
And finally, I refer to this quote:
"Sure, luck means a lot in football. Not having a good quarterback is bad luck." Don Shula
For my article I would change the quote as follows: "Sure, luck means a lot in business. Not having a good leader is bad luck" Stan Truskie, Ph.D.