January 20, 2016
Guiding Principles

The Outcome Is Not the Whole Story

I am just about to hit the six month mark in my career with Kenway Consulting. One aspect of the company that attracted me was its focus on the means rather than just the results. For ethical, philosophical, and practical reasons, I am a big believer in this approach. While it’s clear that companies, organizations, people, etc. need to have good results, I believe that how those results are achieved are more important than just the outcomes.

I had never seen an organization operate in this manner. Throughout my career, when a revenue goal was at risk at the end of a quarter or at the end of a year, the mantra became, “Do whatever it takes to make the number.” Inevitably, the sales manager dropped prices in order to entice friendly customers to agree to deals to buy and hold more product than their demand warranted. The short-term results appeared to be a success. The revenue number was met, and the sales manager and organization head collected his or her bonus, but the long-term effects were devastating. The discounted price and its razor thin margins became the standard price. The excess inventory held by the customer led to little to no sales at the start of the next period, setting up the same situation at that period’s end. Finally, the customer would eventually lower the price at which it offered the product to end consumers in order to relieve themselves of the excess inventory. This ultimately damaged the brand of the producing company. This is just one of many examples of a real-world situation where a focus strictly on the end result (meeting periodic sales goals) and ignoring how you get there (cutting prices to suboptimal levels) leads to long-term bad results (lower prices moving forward and a damaged brand reputation).

A driver of this way of thinking is how decisions are valued. A decision should not be judged by its outcome, but by the choice that was made based upon information available at the time it is made. While good decisions should lead to good outcomes and bad decisions should lead to bad outcomes, this is not always the case. The reasons for these unpredicted outcomes are:

  • Good Decision → Bad Outcome = Bad Luck
  • Bad Decision → Good Outcome = Dumb Luck

Examples of these outliers are:

  • One person eats well and exercises regularly, but has a heart condition. Another one has bacon at every meal, drinks too much, and smokes two packs of cigarettes a day, but lives a surprisingly disease free life into his or her nineties.
  • The quarterback that decides to pass to his best receiver in one-on-one coverage against a weaker opponent, but the receiver tips the ball into a defender’s hands, resulting in an interception. Another player throws into triple coverage, but his receiver make an outstanding play to score a touchdown.
  • A project manager commits to a well thought out, risk adjusted schedule but misses the delivery date. Another project manager promises a date with no well thought out project schedule, yet succeeds.

To put a little more rigor behind this, if you’re faced with an opportunity where the potential risk is equal to its potential reward, and your chances of success (i.e. achieving the potential reward) are 90%, you would be a fool not to pursue the opportunity. However, one out of ten times that opportunity is not going to pan out. An unreasonable response to the opportunity’s failure would be to look solely at the outcome and deem the decision a bad one.

The opposite case is true as well. If an opportunity’s potential risk is equal to its potential reward, but your chances of success are only 10%, it would be foolish to pursue this opportunity. That is because your expected value is negative, you’re expected to have a negative Return on Investment (ROI). If someone were to do this and be fortunate enough to be the one out of ten that succeeds, that success should not be celebrated as the actions of a bold risk taker or a crafty gambler. The person made a foolish decision and got lucky.

While we rarely face decisions with clearly defined probabilities as detailed above, the principle is what is important. Whether it is a manager evaluating an employee, or a person reflecting on the decisions that were made, it is important to not second guess the decision or the rationale behind it if the outcome turns out bad, provided all the prior information signaled to move forward. It is equally important to not ignore the previous warning signs when an outcome is good.

I am sure you have heard the phrase, “I’d rather be lucky than good.” This is usually said when an outcome is the result of good fortune rather than sound methodology. At Kenway Consulting, our approach in both strategic initiatives as well as client engagement is driven by planning, sound processes, and rational objective decision making rather than relying on luck. I guess you could say we would rather be good than lucky.

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