Monthly Archives: July 2012

What is your Return on Luck?

Perhaps my favorite chapter in Jim Collins and Morten Hansen’s recent book – “Great by Choice” is his chapter titled “Return on Luck”.

“Great by Choice” is Jim’s latest book that attempts to answer the question – “Why do some companies thrive in uncertainty, even chaos, and others do not?”
If you’ve read any of Jim’s previous books (How the Mighty Fall, Good to Great, Built to Last) you know that his research is thorough, insightful, and compelling.

In his typical leave no stone unturned research style, Jim and team researched the impact of luck to see if luck caused either the success of failures of the companies his team was studying.
The evidence shows that bad luck can not be blamed for the comparison companies that faltered in rough times.
Likewise, the evidence also shows that good luck can not be praised for the “10X” or good example companies that thrived during rough times.

The book does discuss however, a concept called “Return on Luck” which I find to be very compelling.
Essentially the companies that thrived were able to turn bad luck into something positive, and capitalize more completely on good luck.

Two examples show what I mean, first an example of bad luck.
Progressive Insurance (and all insurance companies in California) were hit with an extreme law in 1988 that essentially forced them to lower their prices by 20%. This law was passed by voters because of incredibly negative perceptions of insurance companies. As Ralph Nader (who helped the bill be passed) told Peter Lewis (then CEO of Progressive) — voters hate you.
Having a law passed that forces you to slash your prices by 1/5th due to an outrage against your industry can be called bad luck.
What Progressive did with this, helps show why they thrived during rough times.
The CEO of Progressive took the message directly to his company. “Our customers actually hate us.” What a good way to start a meeting.
Progressive turned their focus to making auto insurance claims as easy and painless as possible.
They rolled out mobile claims adjusters to come to you for an adjustment.
They rolled out a simple policy – 24x7x365 service.
Over the next 14 years, Progressive took this turn of bad luck, and literally capitalized on it – going from 13th in the industry in 1987 to 4th in the industry in 2002.

On the flip side, good luck can be squandered if you are not ready and disciplined to be able to pounce on it.

AMD had several bouts of good luck in the mid 1990’s.

* The market was desperate for an alternative to the dominant and monopolistic Intel.

* AMD was given rights to clone Intel’s x86 architecture by a federal judge

* IBM stopped shipments due to a PR nightmare for Intel – errors in the 1994 flagship Pentium 5 chip.

* They were able to buy a competitive chip maker and turn out the AMD K6 which was rated faster than the competing Intel Pentium Pro
* The entire PC market moved toward sub $1,000 PC’s which favored AMD’s price conscious marketing

Even through those luck windfalls, AMD wasn’t able to capture more than spurts of momentum due to lack of readiness for success.
According to Great by Choice – AMD’s stock over 70% behind the general market from 1995 through 2002.

I’ll close with two calls to action:

1. Apply discipline and consistency to your life and organization NOW, so that you can fully capitalize on good luck when it happens
2. When hit with bad luck, ask how you can use the bad luck to your advantage