T

here has always been a great desire to learn the secret of business success. Experts have examined the experiences of successful companies in order to find out what those companies did, what strategies they implemented and what qualities their leaders and employees had. Through a variety of inductive methods, these experts composed easy-to-read narrations of the “road to success”.

That is precisely what Tom Peters and Robert Waterman, McKinsey consultants, did in 1982 by publishing In Search of Excellence. They painstakingly scrutinized the most successful American companies based on long-term profitability and continuing innovation. They highlighted eight attributes of excellent companies. The result was applauded by business communities. It seemed the ingredients for success have been revealed.

Yet two years later, a Business Week cover story ran with the disparaging question “Oops! Who is Excellent Now?” A third of those “best-run” companies fell into financial trouble. Business conditions seemed to have changed. The successes of the past had in no way guaranteed success in future.

A decade later, experts still couldn’t make out the phenomena. James E. Collins and Jerry I. Porras repeated the same mistake again in 1994 by presenting Built To Last, in which they defined successful habits of visionary companies. Some of these visionary firms — Motorola, Ford, Sony, Walt Disney, Boeing, Nordstrom, and Merck — later performed badly, calling into question their management practices and leadership theories. If a similar book was written at present, Apple would replace Motorola, Toyota would replace Ford and Samsung would replace Sony.

Why do these analyses fail? The best companies can go bust any time, regardless of past success.

What Tom Peters and friends did was in hindsight, analyzing something that had happened and treated it as if it was a constant factor. These authors tried to define the causality of past action and success. It is the ever-changing and dog-eat-dog business environment that makes proven strategies suddenly irrelevant in new situations. And mostly, the causes of success could hardly be measured scientifically.

This brings us to the new approach in understanding the success and survival of companies.

Though analyses are still based on past occurrence, the new approach is in no way as strongly rooted in well-rounded theory. No constant factors such as leadership, customer satisfaction, total quality management, you name it, guarantee success. Those count and have influence, but they aren’t the real factors of success.

The best books diving deep into this new approach are Fooled by Randomness and Black Swan written by Nassem Nicholas Taleb and as well as Adapt by Tim Hartford. The underlying idea is that nobody can predict what will transpire in the future. Nobody can predict the movement of stock prices. Nobody knows the next product that will hit it big. The unpredictable emergence of the internet, cellular phone, Facebook, Twitter, and iPad are cases in point. Only small number of business people was lucky enough to have identified the serendipitous hits.

The only “constant factor” of the new approach is trial and error. (It can be disputed that trial and error is a strategy. But the big difference is other strategies usually have specific target and known path, whereas trial and error doesn’t.) Trial and error brings about variation in goods, services, business models and management. Some of them get by, but some flop. And those who succeed are just the lucky ones.

That is how business works in complex circumstances.

Erwin Wirawan
Jakarta