Business Exposed10
of what their peers are doing, merely for the sake of doing
something different.
Similarly, some time ago, I was working with several top execu-
tives of a British newspaper company, who faced the decision that
I discussed earlier: whether or not to also adopt the new small-
size paper format, just like several of their peers/competitors
had. Ultimately, they decided against it. One of the executives
said, “Had we been the rst one to come up with the idea, we
would have done it, but now that others have done it before
us, we can’t; it just wouldn’t be very original.” And in a way, I
like this attitude. Granted, when you simply do the opposite of
what others are doing, or explicitly do not want to do something
just because your peers have done it, you’re as much inuenced
by peer behavior as when you’re an imitator (only 180 degrees
opposite). Yet it also brings a bit more variety to the world, and
hence makes life a bit more interesting. It gives you the oppor-
tunity, as a rm, to stand out from the crowd. And, who knows,
perhaps even make an above-average prot as a result of it.
But, although we like being different, it is a difcult step to take,
because it often also means that the outcome is uncertain. For
example, if we wanted to go into the newspaper business in, say,
1990, we can get a pretty good idea what could happen if we used
broadsheet paper; that market exists and is observable. But it is
much harder to assess and compute what would happen if we
entered with a tabloid-sized quality newspaper; that market did
not yet exist and was therefore impossible to analyze or forecast.
And we usually base our decisions on what we can see and analyze,
and forget to pay attention to the things we cannot observe.
This relates to a broader, often overlooked, yet very prevalent and
infuential phenomenon in the world of business and business
decisions, and that is the stealthy danger of “selection bias”.
“Selection bias”
During World War II, American military personnel noticed that
some parts of planes seemed to be hit more often than other
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Management happens
parts. They analyzed the bullet holes in the returning planes,
and set out a program to have these areas reinforced, so that
they would be better able to withstand enemy re. This may
seem natural enough, but it also contains a fundamental error:
selection bias.
Assume, for the sake of the argument, that planes got hit in
all sorts of places. If the areas which formed vital parts of the
machine were hit (call it part A), the aeroplane was unlikely to
make it back to base; it would crash. If bullets hit the plane in
parts which were not so vital (part B), the plane was much more
likely to make it back home. Then, military personnel would
inspect the plane and conclude, “Darn, this plane also got hit in
part B! We’d better strengthen those places . . .”
Of course, the military personnel were wrong. Planes got hit in
part A just as often as in part B; it’s just that the former never
made it back home. What’s worse, strengthening part B was
exactly the wrong thing to do: those parts weren’t so vital; it is
part A which needed strengthening!
This is why we call it “selection bias”; we only see a selection
of the outcomes, and therefore draw false conclusions. And
the world of business is full of this. Consider, for example, the
popular notion that innovation projects require diverse, cross-
functional teams. This notion exists because if we analyze some
ground-breaking innovation projects, they were often staffed
by such teams. However, Jerker Denrell from Oxford University
suggested that diverse, cross-functional teams also often created
the biggest failures of all! However, such failures never resulted
in any products. Therefore, if we (only) examine the projects
which actually resulted in successful innovations, it seems the
diverse cross-functional teams did much better. Yet, on average,
the homogeneous teams – although not responsible for the few
really big inventions – might have done better, always producing
a reliable, good set of results.
Similarly, we applaud CEOs who are bold and risk-taking, using
their intuition rather than careful analysis, such as Jack Welch.
However, risk, by denition, leads some to succeed but it also
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