Business success stories are masterpieces of fiction

When business gurus claim to have a sure-fire recipe for success, they are adapting the facts to the story that they want to sell

Would you like your company to be as successful as Tesco? If so, you need to identify its secrets of success and emulate them. So what are they?

Oh dear. Depending on who you ask, you get completely different answers. Some point to outstanding leadership. Not many companies are blessed with the vision, insight, foresight, discipline and focus of a Terry Leahy. Others zero in on Clubcard – that massive bank of real-time, detailed data Tesco uses to fine-tune every aspect of its business. It’s the living embodiment of one-to-one marketing.

Ask others and they will stress the people and culture side of things. As we all know, happy staff lead to happy customers, to happy shareholders, and Tesco’s “do as you would be done by” approach to staff relations and staff motivation fits that bill – to support a “can do”, fact-focused, hard-driving, experimental culture.

Tesco%20shopping%20basketBut don’t forget the supply chain – the way Tesco has applied Toyota-style lean thinking to its operations so that it can cut costs, improve customer service and fatten margins all at the same time. Then, of course, there’s the clever way it has been quick to spot format trends – out-of-town, convenience – and invest in its property portfolio. If you read The Guardian, you could be forgiven for thinking this alone is the reason for Tesco’s dominance.

But we’re not finished yet. There’s Tesco’s track record of innovation: “one in front”, internet home shopping, its pioneering use of multi-tiered own-label ranges, from its Value line to Finest. There’s also its tough negotiating stance with – some would say exploitation of – its suppliers.

So which of these is the real secret of Tesco’s success? Is it just one, or a few of these factors? Is it all of them? If so, in what sort of mix? Has the mix always remained exactly the same or has it evolved over time? Perhaps supply chain was more important than Clubcard a few years ago, with the positions reversed now. Or vice versa. How do you tell?The closer you look, the harder it gets to disentangle the strands. Learning and emulating is harder than it seems.

In business, this learning conundrum is being repeated countless times every day. An endless stream of articles, books, conference presentations, agency and consultancy case studies purport to identify this or that secret of success so that “you too can share in its magic”. But how robust are these analyses?Take the typical agency or consultancy presentation. It starts out with the terrible plight the client was in – the problem – explains what the agency did and highlights how marvellous the results were. It ends with a message: if you want to be a part of this success, simply apply this formula.

What the presentation fails to mention is the many occasions when the same or similar things were done without such stirring results, or all the other things that were happening at the same time and that may have had a greater bearing on the outcome – Clubcard, supply chain, staff motivation, innovations and so on. The end result is not a real set of “learnings” but the careful selection of particular facts to fit a predetermined story. Not learning, in other words, but anti-learning. Fictionalising.

If you want a refreshing, sobering perspective on the real state of learning about business success – and how countless myths are created and perpetrated – read IMD professor Phil Rosenzweig’s new book, The Halo Effect.

The business press and management gurus are the worst culprits. They hype “stars” out of all proportion and routinely confuse correlation with causation to invent “must-dos” of dubious merit. It has been “proved” many times over, for example, that happy staff equals happy customers equals happy shareholders. But most such proofs are based on comparisons of staff morale in successful and unsuccessful companies. In which case, the line of causation might lie in exactly the opposite direction – failure makes people miserable and success makes people happy.

So what is the real learning and what action should we take? Should we try to make staff happier to make the company more successful? Or will making the company more successful make staff happier?This is just one of countless examples of flawed logic, confused thinking and unscientific use of evidence cited by Rosenzweig. Most of the secrets of success so far cited by business gurus, and most of the measures used to “prove” their status as secrets of success, fail to prove anything of the sort, he argues.

One reason for this is the halo effect (long understood by psychologists), where if a person or company seems successful in a way that matters to us, everything they do seems admirable and worth emulating. When President Bush first invaded Iraq, for example, his approval ratings as a good president soared overnight. So did his approval rating for his handling of the economy (up from 47% to 60%, when nothing new had actually happened to the economy). As public opinion turned against the war, so approval ratings on the economic front also slumped.

Likewise with successful companies. They tend to be admired for everything they do – and therefore emulated – regardless of whether it is a real “secret of success” or not.

Rosenzweig goes further. If you look at the most successful business books and gurus and compare their content with the most careful research, you discover a startling difference. The scientific investigations are cautious, partial, tentative. Boring, in other words. The blockbusters tell a brilliant story. They provide simple and definitive advice and bring a sense of apparent order and control to an uncertain and confusing world. They offer hope and comfort. Not science, in other words, but psychology at the same level as the self-help and pop psychology books that promise five easy steps to being a millionaire or six ways to happiness. “Delusions”, Rosenzweig calls them.

Does this mean all that time spent listening to and reading presentations, case studies, books and articles is a waste of time? Well, it depends. Most business skills are just that – skills, like riding a bicycle. Using words to describe them has precious little to do with actually doing them. If you are hoping to stumble upon some secret of success, including Tesco’s, forget it. It is likely to remain an enigma.

On the other hand, if you use new information and perspectives to stimulate your own thinking, that’s smart because that’s where success really comes from – thinking things through for yourself. The real secret of success doesn’t lie “out there” at all. It lies inside you.l

Alan Mitchell, www.alanmitchell.biz

The Halo Effect by Phil Rosenzweig is published by Free Press

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