Perspective—Chance Explanations in the Management Sciences

Abstract

W e propose that random variation should be considered one of the most important explanatory mechanisms in the management sciences. There are good theoretical reasons to expect that chance events strongly impact organizational behavior and outcomes. We argue that models built on random variation can provide parsimonious explanations of several important empirical regularities in strategic management and organizational behavior. The reason is that random variation in a structured system can give rise to systematic patterns at the macro level. Here, we define the concept of a chance explanation; describe the theoretical mechanisms by which random variation generates patterns at the macro level; outline how key empirical regularities in management can be explained by chance models; and discuss the implications of chance models for theoretical integration, empirical testing, and management practice.

Good Night, and Good Luck: Perspectives on Luck in Management Scholarship

“…Whereas Rumelt highlighted the predominance of random variations at the macro level, Mintzberg makes the point that luck had to be an important part of the explanation at the micro level (for Honda). Both accounts join a steady line of scholarly contributions in the management literature that explicitly referencing luck as an explanation for performance differences (Alchian, 1950;Aldrich, 1979;Arthur, 1989;Barney, 1986;Cyert & March, 1963;Denrell, 2004;Denrell, Fang, & Liu, 2015;Hannan & Freeman, 1989;Levinthal, 1991;Lippman & Rumelt, 1982;Nelson & Winter, 1982;Porter, 1991;Starbuck, 1994). Yet such references remain the exception rather than the rule: a review of the use of luck in six leading management journals (Academy of Management Journal, Academy of Management Review, Administrative Science Quarterly, Management Science, Organization Science, and Strategic Management Journal) suggests that only 2 percent of articles included the word 'luck' in the main text, abstract or title (see Table 1).…”

“…As Barney (1997: 17) writes: what prescriptive advice can we give to managers given that the role of luck is important, 'that they should "be lucky"?' For others, luck is essential for explaining performance differences because randomness in structured environments can produce systematic patterns (Denrell, 2004;Denrell et al, 2015;Henderson, Raynor, & Ahmed, 2012;Levinthal, 1991). Still others argue that while good and bad luck can happen to anyone, some are more prepared than others (de Rond, 2014;Dew, 2009), for example, by being mindful enough to rebound from bad luck (Weick & Sutcliffe, 2006), or by securing a higher 'return on luck' (Collins & Hansen, 2011).…”

“…Rather, the importance of randomness is highlighted in several different research streams, such as in decision-making (Cohen et al, 1972), in evolutionary modeling (Nelson & Winter, 1982), in studies of the distributions of firm growth rates (Geroski, 2005), and in studies of diffusion (Salganik, Dodds, & Watts, 2006), CEO effects (Fitza, 2014) and competitiveness (Powell, 2003). While these contributions are not directly connected, the recurrent theme of how randomness in structured environment can produce systematic patterns qualifies a "random school of thought in management" (for a review, see Denrell et al, 2015). Here we discuss three directions for future research.…”

“…Third, given the empirical support for random variation, and the wide range of phenomena that have been explained by models relying on random variation (Denrell et al, 2015), it may be possible for randomness to go beyond 'naïve models' and acquire a more prominent role in management theory. In explaining an empirical regularity, a management scholar should consider explaining this regularity as a result of random variation in a structured system.…”

Predicting new venture survival and growth: Does the fog lift?

“…Conceptualising firm performance as a random walk has a long history in economics (Gibrat 1931;Ijiri and Simon 1964;Levinthal 1991;Denrell et al 2015). Random processes produce results that closely match the outcomes of many top performing companies, to the extent that investigating whether or not performance is purely random remains a valid research question (Henderson et al 2012;Denrell et al 2015;Storey 2011).…”