Performance is Relative, not Absolute

One of the most seductive claims in business best sellers is that a company can achieve success if it follows a specific set of steps, but this is erroneous for a simple but profound reason: in business, in a competitive market economy, performance is inherently relative, not absolute.

Companies cannot achieve superior and lasting business performance simply by following a specific set of steps. 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.

Since performance is relative, not absolute, it follows that companies succeed when they do things differently than rivals, which means making choices under conditions of uncertainty, which in turn involves taking risks—and which may end in failure.

We have to shift our thinking about performance from one that looks for a formula for success, toward one that sees the world in terms of probabilities.  Strategic leadership is about making choices, under uncertainty, that have the best chance to raise the probabilities of success, while never imagining that success can be predictably achieved.  Even good decisions may lead to unfavorable outcomes, but that doesn’t mean the decision was wrong.

Summing-up: 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.

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