Norah Jones sold 20 million albums as a new signing to EMI, but her second record’s global sales are just short of 10 million. In an interview with the boss of EMI’s Jazz Classics label, the FT today illustrates how success can go to the collective executive head. Bruce Landvall indicates that one of his superiors was completely confident that the second album would sell 20 million records just off the bat. This must be an experienced person working in a notoriously fickle business, so it is interesting to consider why someone in such a position should be such a willing victim to the old saying of “the triumph of hope over experience.”

In mathematics, this kind of retracement from an unusually high point is called “regression to the mean:” the gravitational pull of the average is very powerful in all areas of nature. But for some reason, and it must usually be fear or greed, this rational understanding of the natural order of things, and the inability of success to constantly outpace itself, gets suspended, especially in business.

A retired executive the other day told of a similar dynamic to the Jones phenomenon in a board level discussion to set sales targets for the period going into the 1990, a period that marked the beginning of a deep recession. The board was unanimous, (except for this executive), that sales targets should be set higher than the previous successful year. The executive argued that the business had always followed the economic cycle, and had never been able to grow market share faster than the manufacturer whose sales franchise they owned. This caution was dismissed, as was the executive later the following year when he failed to meet the new sales targets, despite his own record sales the previous year. The executive who replaced him in the short run seemed to be succeeding, but word eventually reached the manufacturer that the way he was presenting his own sales figures to qualify for bulk discounts might not have been all they appeared to have been. There was an audit, the figures were shown to be cooked (not just in the lean years, but in the good years too.) Sales later fell back and the company lost the franchise completely.

Performance managers and investors need to understand that real, sustainable success is not achieved by a straight line. Unfortuantely, our loss aversion bias, makes us poorly equipped to accept the necessary retracement in performance, from which subsequent higher performance can be achieved.

Athletic training offers a very tangible metaphor. A runner must modulate his/her training load during a week, with hard and more relaxed recovery exercises, and from week to week, there must be modulation too. Without that, you get “blow up”, which normally manifests itself in injury that can last weeks and months.

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