Lady Luck and the Science of Strategy

Volume 22 Letter 6

When I completed my racing career I started my first “real job” as a junior accountant at one of Canada’s largest marinas.   Until then I’d had plenty of jobs but with a racing career that kept me in Europe for six months each year my work experiences had all been seasonal, part time and labour intensive.

It was the early 1980’s, approximately a year before interest rates would hit +20% and the world would seem to shut down.  I was keen to be working with one of the area’s premier employers and anxious to learn what made them so successful.  During one impromptu meeting about finances, I summoned up the courage to ask my burning question.  “How do you make these important decisions?”  What I was really asking was  “How come you’re so successful?”  The principal owner looked at me and gave an answer that I still hear too often today……He said,  “You just get a feel for this stuff.”

The ability of an enterprise (large or small) to thrive long term is dependent on executives making a series of successful decisions.  An ego centric brand of leadership that relies solely on intuition rather than a systematic approach to decision making, often leads to an overinflated view of one’s ability to ‘call the market’.    Decision making that ignores the insights that objective data can provide is substituting good luck for a good strategy.   It makes for great Hollywood films but it’s lousy for business.

Cognitive Scientist and Poker Star, Annie Duke, who’s an expert on the subject of luck, stated that when making decisions “you definitely have to consider luck.  But in thinking about decision making, luck isn’t all that interesting.”   Luck always has an influence on how things turn out but thinking it can be controlled is foolish.   Ms. Duke recommends leaders focus on objective data where they can find corrective information.  In other words, we need a process that is both objective and transparent!

Ms. Duke states that too many businesses fall into a state of “Naive realism”.  This is where a group ignores objective data in favour of agreeing with a strong opinionated leader.   This type of decision making relies on the leaders ability to “call the market”…….in other words decisions (and thus the outcome) are based on luck.  My former employers consistently fell into this trap.  When data was presented to the ownership team clearly showing that corrective action was needed – no action was taken.   Why?  Because the group consensus was they could work their way out the problem – they just needed to sell more!   Sadly, this turned out to be a very bad decision.

What can we learn from Lady Luck…….

  1. Lady Luck isn’t always so lucky: Be prepared for changing circumstances; you can’t control luck (good or bad) but you can prepare for it. Be disciplined, get the facts and know the odds.
  2. Group think can be dangerous:  Naive realism may feel comfortable but confident guessing is still guessing.  Do the homework, dive deep into the data and hunt for strategic advantage.
  3. Decision making is a skill:  Practice it, gather the data and follow a process that is objective and transparent.

Not many could have predicted the devastation caused by the financial crisis of the early ‘80’s.  The business I joined had always turned a profit and continued to do so right up until they declared bankruptcy.  However, carrying sky high bank debt and with interest rates cresting north of 20% they simply ran out of cash.   To this day I’m not certain if the owners really know what happened.  Maybe it would have happened anyway, but they certainly would have had a better shot at surviving those turbulent times if they had had an objective decision-making process.  Then again …….maybe they just ran out of luck.


Strategy+Business – Interview with Annie Duke

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