The Role of Luck in the Strategy-Performance Relationship

Abstract

Purpose – Strategic management scholars seek to link strategic factors to performance. When specific causal links cannot be identified, however, other potential explanations should be considered, including the notion of luck. This paper aims to introduce a distinction between scholarly and practitioner perspectives of luck and identifies why this distinction is critical to both scholars and practitioners. Design/Methodology/Approach – This paper proposes a framework linking luck and competitive advantage. It also reports the results of an exploratory empirical investigation on the perceived role of luck in firm performance. Findings – Scholars and practitioners have different views of luck’s role in organizational performance. Managers are more likely to assign luck for bad outcomes rather than good. In addition, the more quantitative a manager’s work function, the less likely he or she is to perceive a luck-performance linkage, and the higher the manager is in the organization, the more likely he or she is to perceive luck as affecting outcomes. Research Limitations/Implications – There are a number of reasons why luck should receive prominence when considering the strategy-performance relationship: many of the linkages between strategic factors and performance are identified after the fact – they are viewed as causal when they were actually lucky; empirical research may identify relationships whether they actually exist; researchers tend to find what they are looking for; and academics will be more likely to explain “luck” if they are using the appropriate tools to reveal it. Practical Implications – The positive link between management level and luck’s role in performance identified in this study suggests that the more a manager knows about a firm’s resources and attributes, the more likely he or she is to downplay the role they actually play in performance. From this perspective, managers seem more willing to acknowledge the role played by luck as they progress into greater levels of responsibility and control. Originality/Value – A significant portion of empirical work seeks to explain differences in performance across organizations by identifying the links between various strategic factors and performance. Although this research has contributed much to the knowledge about the strategy-performance nexus, it assumes that strategy-performance linkages necessarily exist and that they can be readily identified. In other words, most scholarly work in this area is based on assumptions that minimize or preclude the role of luck or randomness in the determination of firm performance. Building on previous work, this paper adopts an alternative perspective on the strategy-performance relationship, highlighting the often overlooked role of luck.