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IT Really Doesn’t Matter After All, But Decisions Do.

By Andrew White | January 28, 2020 | 0 Comments

StrategyDecision MakingDecision IntelligenceCompetitive AdvantageCapital MisallocationBusiness ValueCorporate Strategy Formulation

After reading A Random Search for Excellence (2009), a research paper from Deloitte Consulting, I was both fascinated, depressed, and intrigued. The research paper surmises that management books extolling effective leadership models and best practices are next to worthless on explaining firm success.

After doing extensive analysis of thousands of firms over many years, they find insufficient reasons to explain why one firm is successful over another. They suggest that books praising great leadership models are not valid.  Such analysis is cherry picking after the fact.  If the analysis is expanded to include many more firms, and longer time horizons (for when a successful firm might not have been as successful), you find that there are too few real examples of success explained by identifiable management actions.

Here are a couple of thrilling comments:

“If one finds this analysis convincing, the implications are inescapable and confounding to the case studies we examined.”

And

“…[T]he alleged determinants of success are no more than patterns imposed on randomness.”

Given I work in IT research this is breathtaking and damning. Maybe Nicholas Carr was right all along.  Of course, I jest – he was wrong.  His book – Does IT Matter – over simplified and put into the same bucket computing/CPU power (which is a commodity) and software used to model business process and decision design (which is most definitely not a commodity) in order to sell lots of books.  But let’s continue the conversation: More broadly it’s not just IT that does not matter- anything and everything a manager or leaders does makes little impact.

We didn’t need to read all those ‘Good to Great’ or anything management guru books ever since ‘In Search of Excellence’ set the stage. Just think of the TV we might have watched or spy novels we might have read.

Can this be? Does it really mean that we only need to do a reasonable job and randomly our firm may or may not be dominant? How are decisions strung together that lead to success, and even sustained dominance? What’s is success? These are vexing question that challenge us every day.

I followed up by reading more recent notes from Deloitte that build in their original note. The odd thing is that Deloitte follows up with examples of firms that are successful; and it even calls out the characteristics of success. Deloitte introduced three rules that read rather simply:

  • Better before cheaper
  • Revenue before cost
  • There are no other rules

Yes, that’s it. That’s the totem of knowledge for CEOs and other leaders to adopt. Differentiate yourself but avoid using price for that; and grow the top line more than focus on the costs.

In some ways the advice is pleasingly simple. These are obviously good things to do, but they hardly provide unique insight. Perhaps that’s the point? The obvious makes sense but it is not specific.  Finally, Deloitte introduces their own list of successful firms, according to their rules. Oops. Don’t they fall foul to the criticism that led them to do their original analysis?

Again, I end up with a different point. Hidden in the research is the idea that leaders have choices and they take decisions. They face choices for capital allocation, and they are accountable for their decisions in terms of what to invest in. So, what are the smart decisions one needs to take to better your chances that your firm ends up a winner? Do you just adopt all known best practices?

My bottom line from the reading of this thread of work:

“Success, however measured, should come to those forms with leaders that adopt distinguished management behavior (DMBs).”

These distinguished management behaviors are not explicit best practices, though they lead to the selection of those over time.  This DMBs are decision capabilities: how to spot the right act that will work for you.  The result of these DMBs, or decision capabilities, will lead to a combination of:

  • Minimum number of known best practices the provide the random base that leads to average success
  • Enough emerging next practices that provide the unique factors that should lead to excess success over what is provided by random noise.

And the list of practices in this combination changes over time. This you know since it is self-evident. In the 1980s ERP qualified in some markets and industries. In the 1990s some of those markets ‘upgraded’ their list with CRM. The 2000s brought e-commerce. More recently we have digital. These are part of the recipe of best- and next- practices for business success.

So we all have a choice: We can either spend our time trying to spot and compose the list, knowing it will change over time and across industries; or we can develop the decision making capabilities so that we don’t have to pick the winner; we hire people around us that can do so.

 

 

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