This is a very interesting article at The McKinsey Quarterly that suggests that managers are looking in the wrong places for insights that deliver a competitive advantage. The author states that managers are depending too much on books and articles to deliver a blueprint for innovation or continual success. He states that these resources are deeply flawed and can lead to erroneous conclusions. He suggests a better alternative is to develop one's critical thinking skills and to apply them in the analysis of these research claims.

A critical flaw in this literature is to believe that a company can achieve lasting succes if it follows a prescribed blueprint. The simple fact is that no blueprint can guarantee a company?s success, at least not in a fluid business environment. The author calls this "the delusion of absolute performance."

"Following a given formula can?t ensure high performance, and for a simple reason: in a competitive market economy, performance is fundamentally relative, not absolute. Success and failure depend not only on a company?s actions but also on those of its rivals. A company can improve its operations in many ways?better quality, lower cost, faster throughput time, superior asset management, and more?but if rivals improve at a faster rate, its performance may suffer... High performance comes from doing things better than rivals can, which means that managers have to take risks. This uncomfortable truth recognizes that some elements of business performance are beyond our control, yet it is an essential concept that clear-thinking executives must grasp."

Beware the halo effect

The halo effect describes the tendency to make specific inferences on the basis of a general impression. For example, say that a company is doing well with a rising stock price, increased sales and high customer satisfication. The tendency is to infer that the company has good leadership, high employee morale and a sound strategy. However, when the company's stock price declines, people are quick to conclude that it suffers from mismanagement, employee churn and an ineffectual strategy. Many of these factors may not have changed at all but rather the company's overall performance, good or bad, has created a "halo" or overall impression that determines how others perceive their strategy, culture, employees or other attributes. Managers should be keenly aware of the halo effect and look for independent evidence of a company's situation instead of relying on current performance to shape their opinions.

The delusion of absolute performance

This "delusion" arrives from authors that look at a group of successful companies and develop generalizations as to their success.

"What the authors claim to be the causes of long-term performance are more accurately understood as attributions made about companies that had been selected precisely for their long-term performance... In fact, lasting success is largely a delusion, a statistical anomaly... Corporate longevity is neither very likely nor, when we find it, generally associated with high performance. On the whole, if we look at the full population of companies over time, there?s a strong tendency for extreme performance in one time period to be followed by less extreme performance in the next. Suggesting that companies can follow a blueprint to achieve lasting success may be appealing, but it?s not supported by the evidence."

The article has some really good points that are well worth the read.