the role of chance

I had a chance to catch up with my friend Rick while I was in Seattle. Since we go back a long time, we had plenty of things to talk about. One of the things that we touched on was his time with Microsoft – he worked there on software development starting in the mid-80s. He said that he thought that one of the primary drivers of Microsoft’s success was the HR department during that period – Rick felt that the quality of people there had been extremely high. My observation at the time was that in hiring people, they were skilled at identifying quality rather than just looking for conformance to criteria as a proxy for quality. So even though I don’t often look at the HR department as a driver of innovation, I think that in this case it probably was.

Right after our talk, I was on the plane back to Brisbane where I finished reading The Drunkard’s Walk: How Randomness Rules our Lives by Leonard Mlodinow. Towards the end of that book (which is very good and well worth checking out), Mlodinow talks about the role of chance in the success of Microsoft in the middle of a discussion of whether or not CEOs really deserve all of the credit and blame that they get the outcomes their firms experience. One of the points that Mlodinow makes in the book is that the vast majority of variation in profits that firms experience fall well within the normally expected range of random change, and that consequently, our tendency to credit CEOs with the relative success or failure of their firms is not very well-grounded in evidence.

I mostly agree with this angle, and it’s one that I try to get across in my classes. It is one of the logical consequences of viewing the economy as an evolving complex system. Which ties in to another issue that Rick & I discussed – power law distributions. Power law distributions are commonplace in the economy – two key examples are the distributions of wealth and returns to innovation. When I’m teaching this idea, the ‘so what’ question is fairly important. One natural conclusion is that people should be a bit more humble in the face of success, and a bit more persistent after experiencing failure. I also gained an insight into this when I was talking to Rick. Mlodinow makes the point that a lot of business processes generate random returns, but that one strategy that you can use is to increase your likelihood of success by increasing your skill level, or the quality of your product or service. One way that you can do this is implementing the mid-80s Microsoft strategy – make sure that you’re hiring better people than everyone else. This doesn’t guarantee success, but it improves your chances. And in a complex economy, improving your chances is probably the number one management task. You’ll still face mostly random outcomes, but investing in quality definitely tilts the odds a bit more in your favour.

Student and teacher of innovation - University of Queensland Business School - links to academic papers, twitter, and so on can be found here.

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10 thoughts on “the role of chance

  1. Hey Tim,

    I totally buy the idea that an astute HR department can drive success. I changed careers about five years ago to IT. I got hired by a geek-centric company. We were expanding rapidly, but couldn’t hire quickly enough because we had to be picky: You had to know TCP/IP, Oracle, python, and a whole host of other skills. And it wasn’t just to tick off checkboxes, you really needed and used the skills. We wouldn’t have succeeded without a team of ubergeeks.

    Anyway, long story short. We got bought by HP and things are different now.

  2. Hi Mike! I’ve worked with one very good HR group in my career – in most other cases they’ve ended up being more of a hindrance than a help, which fuels my cynicism a bit. But it’s good to hear stories that remind me that that’s only cynicism, and not necessarily a universal truth…

  3. I’m trying to get a job in HR before I graduate so that I may understand how they work better. I’m every bit as cynical about HR as you, Tim, and probably then some. Some perform at their jobs, and some are very bad. It seems the real purpose of HR is to limit the company’s liability.

    Microsoft’s 1980s HR did a particularly poor job of that, since the company was forced to fork over $97 million in settlement for temps who were treated as second-class citizens while performing the same work as regular employees.

    Re: CEOs taking outsized blame in comparison with their actual influence – I think that’s more complaints about golden parachutes than it is what they really did during their time there. If CEOs presided over a company through great loss, then declined their salary for their final year in recompense, I’m pretty sure that viewpoint would turn on a dime, since it would indicate willingness to take ownership of what happened.

  4. The liability issue is an interesting one – I think HR depts are often far too conservative in that regard (although, to be fair, the level of litigiousness has increased dramatically over the past 20 or so years, especially in the US and to a lesser extent down here). They’re not always as good at talent acquisition as they should be, which is my main criticism.

  5. “They’re not always as good at talent acquisition as they should be, which is my main criticism.”

    Indeed. My understanding is that, over the last ten or so years, this has led to a big shift towards ideas of strategic HR with it’s focus on ‘recruitment, reward and retention’ as an organizing framework for adding value in organisations. This focus encouraged HR departments to shift from their traditional role of ‘admin and payroll’ to more value adding roles around the three Rs.

    The real challenge I guess they face is in gaining legitimation for this role within the organisation and then having the capability to implement it.

  6. So I came across this article in the NYTimes and thought of this entry. First of all, in thinking on the topic of HR there are two things I don’t have enough knowledge of:

    – We seem to be talking about recruiting, and not the nuts and bolts of HR. Until now, I had thought they were pretty much entirely separate. Where I’ve worked where I had a peek inside (Sierra of Bellevue, before they went under in 2004), the recruiters and HR were quite separate. In fact, technical recruiters I’ve known and worked with (in Seattle and the Bay Area) were usually quite far removed from the duties of day-to-day HR – once the candidate was in, the process for them was over. At least it seemed; I’m speaking from a position of unawareness of the inner workings.
    – How this structure has changed since the 1980s, or even how it has changed since the tech meltdown in 2001. From my readings of business publications, the impression I’d had was that outsourcing of both HR and recruiting duties – as two separate entities – has only increased.

    Another Hurdle for the Jobless: Credit Inquiries

    I’m glad it has become an issue in this recession. In the last one, there were thousands of us former IT employees who couldn’t get a job because of our credit ratings. It’s heartening to see this being legally addressed:

    “In Washington, which has perhaps the most stringent requirement, a candidate’s credit history must be substantially related to the job under a law that took effect in 2007.”

    I would like to think that the suffering we went through back then wasn’t for nothing, then, and that it led directly to this law eventually being enacted. (Washington was particularly hard-hit; as was California, but the law was vetoed there.)

    From the article:

    “If I see too many negative things coming up on a credit check, it’s one of those things that raises a flag with me,” said Anita Orozco, director of human resources at Sonneborn, a petrochemical company based in Mahwah, N.J. She added that while bad credit alone would not be a reason to deny someone a job, it might reveal poor judgment.

    “If you see a history of bad decision-making, you don’t want that decision-making overflowing into your organization,” she said.

    From the comments:

    May a just God strike Anita Orozco, the ruthless and pompous HR flak quoted in the article, to a layoff she can’t avoid and debts she can’t pay, and then a credit check she can’t pass to get the job that would allow her to pay off her debts. God in heaven, what a country this has become, what a fatal obstacle course for working people.

    And then to see that Arnold Schwarzenegger vetoed a California law that would have protected workers from abusive pre-employment credit checks–showing his true colors, once again, as a stooge for business lobbyists. He’s been a huge disappointment.

    It’s one of the highest rated comments, despite the peculiar tone. Apparently, a lot of people share a frustration with HR and their inhumanness, for lack of a better term.

  7. Thanks for another thoughtful comment Amber. Rick was definitely talking about Recruiting specifically when we were discussing HR. I’ve never been in a firm where the two have been distinctly separate, so that’s why I use ‘HR’ to refer to primarily recruiting. The issue with credit checks is just absurd (as is the new trend in looking at peoples’ facebook profiles) – I really wonder sometimes what happened to developing skills in telling whether or not someone will be good at a job – the firms (and people) that can actually build those skills rather than relying on a series of questionable proxies are ultimately the ones that will win…

  8. Thanks Amber. I’ve run across recruiters before (and used them a couple of times too), but the hiring strategy still came from HR. Or, rather, often from managers as mediated by the HR group… But overall, I’ve found HR departments incredibly frustrating to deal with.

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