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Bias, Bias Everywhere Many of the popular theories on performance are riddled with selectionbias. One of the most enduring ideasin management, for instance, is the notion that successful firms are those thatfocus most of their resources on onearea or technology rather than diversifying. Books such as In Search of Excellence, Built to Last, and Profit fromthe Core all recommend that managers"stick to their knitting" and "focus on the core."Typically, the research studies behindthese books look only at existing companies or - even more narrowly - onlyat highly successful companies. As a result, their authors overestimate the benefits of focus. Consider, for example,Chris Zook and James Allen's finding inProfit from the Core that 78% of all high-performance firms focused on one set of core activities while only 22% of lower-performance firms did. The study comprised some 1,854 companies, judginghigh-performance according to share price returns, sales, and profit ratios, butit included only businesses that survivedthroughout the study period. It did not,therefore, consider any company thatstarted with a focused strategy but then failed.Including those failures would havechanged the picture substantially. According to Zook and Allen, 13% of allfirms achieved high performance, ofwhich 78% - or 188 firms focused onthe core. If in that period just 200 other companies with focused strategies thathad gone out of business had been included in the sample, then the true relationship between focus and performance would be the precise opposite ofthe one Zook and Allen infer. Another fond notion often lauded by management gurus and the popularpress is that CEOs should be bold andtake risks. Indeed, many stories in thebusiness press celebrate the intuitionof certain great leaders. No less an authority than Jack Welch entitled hisautobiography Straight from the Cut.Some leaders - notably Sony's AkioMorita - have gone so far as to eschewmarket research altogether, believingtheir instincts are a better guide to market changes.It's certainly true that companies can be handsomely rewarded when theirCEOs take big risks. Suppose you areoperating in an industry-fashion, say,or consumer electronics - where firstmovers have an advantage but wherethere is also considerable uncertaintyregarding consumer preferences. Togain first mover advantage, a companymust act quickly. The top-performingcompanies will be those that, led largelyby the instincts of their senior managers, are lucky enough to launch products that happen to appeal to customers.But the worst-performing companieswill also be those that act on hunches-and happen to launch products thatdon't appeal to customers. Since fewpeople advertise their failures, andmany of these unfortunate firms ceaseto exist, we hear mainly about the success of decisions based on gut feelingsand little about the countless "visionaries" who similarly tried to revolutionize industries but did not.The point here is not that all the popular theories about performance are wrong. I don't know. There may be agenuine link between success and focus.In some industries, the strength of a culture may matter regardless of its nature.And the instincts of some managersmay be as sound a basis for strategic decision making as any amount of analysis. But what 1 do know is that no managers should accept a theory about business unless they can be confidentthat the theory's advocates are workingoff an unbiased data set.