Wednesday, 3 March 2010

Beware of the super performers !


The mantra of all business (actually most walks of life) is superb & outstanding performance isn’t it ? It shouldn’t ! If this sounds absolutely ridiculous, read on …

Everywhere, the great performers are the stars. They are the ones who get big bonuses. They are the ones who get promoted lightning fast. The division that shows triple digit growth is treated akin to God. The bunch that didn’t meet its target is screwed. The lot that exceeded target by 354% is taken on an all expenses cruise to Hawaii. Right ? Maybe not so right.

One of my blogging friends took a light hearted dig at me for a mantra that features about once every month in this blog – If its too good to be true, its too good to be true ! I have learnt over the years to watch out for superlatives. Good performance – absolutely the minimum. Better than good performance; holy grail. But superfantasticstupendousunbelievable performance ? Take it with a huge pinch of salt.

One of the truisms in the business world is that there are a lot of smart people and lot of smart companies around. Its difficult to beat everybody all the time. It’s the same as in the stock market. Nobody can consistently overperform the index over say 20 years. Not even Warren Buffet. The right investing strategy is to pick an index fund and simply hold it for a long time. Actually all the smart alec fund managers are redundant. In the short run, you can beat everybody by a mile. In the long run it is empirically proven that its tough to beat the index. Good performance is the goal – not superfantastic ….

This post was prompted by the news of the sale of AIG’s Asian businesses to Prudential for $ 35bn. This business, called AIA is a star in Asia. It’s a solid business, performs very well, growing very well, etc etc. In fact most of AIG is like that. Its full of very well run businesses. One division – the Financial Products Division brought the whole house down. They were actually star performers in the years before. The Board should have looked critically at the “star performer”, instead of treating them as royalty. But then business, as indeed life, is full of "If only ...".

I am not making a case for mediocrity. Far from it. I am just cautioning not to go ga ga on exceptional performance. Look at it critically. Is it sustainable ? Was too big a risk taken ? Has there been jugglery with the numbers ? Is something being hidden ?

Superfantasticstupendousunbelievable is applicable only to God. When man lays claim to it, …. Beware. Watch out.

17 comments:

  1. Anonymous3/3/10

    //Superfantasticstupendousunbelievable //

    it fits ur blog 2 :Di can think of one more...supercalifragilisticexpialidacious :D :D :D watta wonderful thing to say :D :D

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  2. Anonymous3/3/10

    and the previous comment was by me thalaiaray...~gils

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  3. gils has stolen my words :-(( i was precisely going to write the same thing.

    i think we all grow up reading stories of superman and superheroes that we are only more than delighted to acknowledge than challenge.

    well i cant speak about funds as i dont know much on that but on people, its a double edged sword. it is important to recognize superlative performance but where and how much to wear the glass of critical evaluation is a tough call. it is difficult but required to take.

    i just remember a small joke which someone circulated to me yesterday - lil out of context but maybe on the lighter side - attached below

    Sacchin's appraisal

    Agree you have done GREAT BUT BUT BUT BUT

    25 x 4s = 100
    3 x 6s = 18
    IT implies that you have done 118 Runs in 28 Balls.
    And 12 x 2s = 24
    58 x 1s = 58
    IT means you have done all 200 Runs in only 98 balls
    So you have wasted 147-98 = 49 balls
    Considering only 1 run scored on each of these balls you could have earned
    49 valuable RUNS FOR OUR TEAM

    MANAGER’S COMMENT: So you only met the expectations and NOT EXCEEDING
    (though anyone of our team could not do it) and your Grade is C

    Trainings for him: Learn from how to STEAL singles.


    One Addition:
    It’s good that you played all 50 overs but you should encourage juniors in
    your team and let them showcase their talent to client – it’s all @ team
    effort.
    I’m not saying you didn’t perform well.. it’s just a improvement area you
    can focus

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  4. Its the steady performers that need to be be picked not the once in bluemoon performerss.. Thanks for the article....

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  5. @gils - I am totally flattered thalaivaray :)

    @Sandhya - Completely brilliant. Isn't this sort of an assessement all too common in the corporate world !

    @Clipped.in - Thanks for visiting and commenting.

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  6. I completely agree with "if it is too good to be true, it is too good to be true!" as well as the index fund.

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  7. I agree that we could do with some skepticism when companies do brilliantly. But who is to rock the boat when things are going great? I think that one brilliant year is entirely possible and should be fully rewarded but that cannot become the benchmark for the future because then it creates incentives to do "whatever it takes" to repeat the brilliance and sustained over-achievement is what I find hard to believe.

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  8. @zeno - Thanks zeno; I thought I would get some brickbats at the index fund theory !

    @J - Zeno mentioned in an earlier post that the comments in this blog are simply outstanding. Here is proof, if proof were needed. One brilliant year is indeed possible and even desirable, but that cannot be the base for future. Superb observation.

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  9. Wow ... that was amazing! And yes, it is logical too. Nobody short of God can run on the "Superfantasticstupendousunbelievable" fuel for too long. Great post Ramesh and as always makes a whole lot of sense!! :-)

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  10. @thoughtful train - Hey Thanks. great to see you back in full action.

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  11. Cat on the wall syndrome for the manager of that team! To judge the super-performance as flash in the pan (or) is it relatively sustainable? If not acknowledged appropriately, it is taken as negative by the performer, if 'aaha-ohOed', sets a unrealistic bargain on their future.

    Sandhya's little anecdote was fun. That is what happens most of the time. Appreciation is never sincere and is always in very small does, but always tagged with a 'but, you could have...'.

    True, the law of averages always catches up. :-) (Probability distribution is an interesting topic. You can always tweak statistics to be good for whatever your position is on the same set of data. I am having fun looking at different newspaper ads showing each of the main business channels (there are 4 here) claiming to have garnered the most eyeballs during the budget presentation early this week)

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  12. Very true, whenever man lays claim to it, everybody kind of watches out for it. Peers and competitors try to figure out the way forward to negate the impact on their own success story, whereas managers and regulators keep a close eye and contemplate on whether it is too good. Too good a performance also raises the bar to a more difficult level and graph invariably starts to flatten with the course of time.

    Very well said, Gils! This blog is special. :-)

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  13. @Vishal - Gils is always right !!

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  14. @RamMmm - Oh yes - you can tweak statistics to say anything. I am sure that the total viewership claimed by the four channels is twice the population of the country !!

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  15. Viji7/3/10

    Fully agree with your word of caution towards the superfan....... performer. It is indeed difficult to practice but one that teaches you a very hard lesson if you are not able to understand the early warning signals. My vote is and always for the steady person, who can of course show a flash once in a while (can't really be too predictable all the time!!!)
    Very well written, as always.

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  16. i totally agree with the index fund theory cause statistics proves that.[though i dont have it ready at hand] it is more like house always wins in the casinoes :)

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  17. @Viji - We've seen these shooting stars manytime before; haven't we !

    @Zeno - Yes there is enough empirical proof. You metaphor with the casino is very apt - we all know in the long run we can never beat the house. But in the short run, we can - so in that eternal hope we go gambling ....

    ReplyDelete

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