“Moreover, we should expect, by chance alone, about 1 in 10 of the CEOs to have five winning or losing years in a row.” from “The Drunkard’s Walk: How Randomness Rules Our Lives” by Leonard Mlodinow
Let’s say you want to hire the best CEO for your company, so you start following the yearly results of the top Fortune 500 companies. After 5 years you shortlisted 50 of them from the 50 companies that have had 5 successful years! Impressive right?
So your man is one of those clever successful CEOs and your company is off to a brilliant start… Or isn’t it?
Before you hand over a multimillion contract to someone and start dreaming on your future house in the Bahamas, allow me to do some numbers… It will be quick, promise!
Let’s first assume the average success rate for a Fortune 500 company is 65% (the actual number does not matter much).
Under those circumstances the probability a company has 3 successful years out of 5 (i.e ≈65% success rate) is only 1/3. That means only one third of the companies will actually follow that 65% promised success rate.
Sense check: 333 of those companies will not… That’s double of the ones that will do a 65% success rate.
That should make you raise an eyebrow…
So still , 3 out of 5 is the most usual case, right? (eyebrow down?)… So, What about the other options? 2 successful years out of 5? 1? Anyone 5 successful years in a row?
Let’s jump to the interesting one here: It turns out that 1 of every 10 companies will, by pure chance alone, have 5 successful years in a row! That is, 50 of the top 500 fortune companies are expected to do 5 consecutive successful years just because someone has to! No need for a good CEO for those 50… 😜 (both eyebrows up, mouth open). So better put that offer away for now…
Thought: This situation can be found in almost every field: sport, economy, lottery… When looking at any population some of its individuals will show extraordinary performances just because of how chance works
So next time you think you see an extraordinary sequence of events (like 5 successful years in a row) think if the numbers involved are big enough to actually make it extraordinary…
Final thought: be carefully when using statistics for decision making, after all no matter how well your initiatives perform, half of the population will always perform below average… and the other half over the average