Ron Johnson's 17-month tenure as JC Penney's CEO was disappointing.
I’m sure there are numerous important details that contributed to the failure that no onlooker or journalist is privy to. Nobody will know the complete story for some time.
Regardless, this case of a successful former Apple exec applying the Apple playbook to another company underscored one thing: One successful wild run does not make a trend.
It reminded me of a recent academic study, “Predicting the Next Big Thing: Success as a Signal of Poor Judgment,” by Jerker Denrell of Stanford Graduate School of Business and Christina Fang of New York University’s Department of Management and Organizational Behavior.
Through a forecasting model and data from two lab experiments, the study showed that an accurate prediction about extreme events (like a big hit) is most likely an indication of poor rather than good forecasting ability. The forecaster with poor judgment is more likely than the one with good judgment to predict the rare and extreme event success.
The authors explain: “[B]ecause extreme outcomes are very rare, managers who take into account all the available information are less likely to make such extreme predictions, whereas those who rely on heuristics and intuition are more likely to make extreme predictions...[A]n individual who predicts accurately an extreme event is likely to be someone who relies on intuition, rather than someone who takes into account all available information. She is likely to be someone who raves about any new idea or product. However, such heuristics are unlikely to produce consistent success over a wide range of forecasts.”
The mandate for business leaders is that if you’re considering placing a bet on someone or a team, it’s best to remove rare, blockbuster hits from consideration, no matter how difficult that may be. Instead, evaluate and heavily weight factors like history of repeat successes, deep domain knowledge, and history of adapting strategies to multiple, unique situations.
The second mandate for business leader is: Don’t give yourself too much credit if you happen to get lucky once.