Competitive advantage: what's luck got to do with it?

Hao Ma
Department of Management, Bryant College, Smithfield, Rhode Island, USA

Keywords It is no secret that scholars and practitioners better create customer value than others may
Competitive advantage, in strategic management tend to believe that be a potential cause of competitive advantage
Enviromental impact
general managers do matter when it comes to (Ma, 1999). Luck, by definition, discriminates
Abstract creating competitive advantage and against some players. It creates
Luck remains an elusive sustaining superior firm performance heterogeneity among firms along
theoretical concept in the (Andrews, 1971). Such a view has long been a strategically meaningful dimensions, e.g.
business literature yet a
dominant and cherished assumption in this access to a critical supply of certain unique
fascinating practical phenomenon
in business reality. In addition to field where we believe that general resources, and causes differentials in firms'
effective strategic maneuvering managers' choices and actions, to a great resource profiles and their abilities to exploit
and well-run internal management, extent, determine firm performance and the opportunities in the product markets
luck often plays a non-trivial role results (Child, 1972; Rumelt et al., 1991). There
as a determinant of competitive
(Barney, 1986, 1991). As such, it would be
also exist, however, from time to time, voices theoretically fruitful and practically relevant
advantage and firm performance.
Understanding the various types of that help direct our attention to the aspect of to examine the various ways in which luck
luck and the contextual conditions the stochastic nature of firm performance creates differential treatment among
under which luck strikes is (Mancke, 1974; Jacobson, 1988) and the
therefore expected to help a firm
competing firms and therefore confers
seemingly inexplicable term known simply competitive advantage to some while denying
gain competitive advantage. This
paper advances a typology of as luck (Barney, 1986), a sort of serendipitous others.
different scenarios of luck ± pure happenings, often unfathomable even to its
luck, prepared luck, useful weeds, beneficiaries, and unpredictable a priori.
and skunk work ± and expounds Elusive as a theoretical concept yet certain
the strategic implications of these Luck as a determinant of
in its earthly presence, luck, admit it or not,
scenarios for the firm's search for competitive advantage: a typology
as a non-trivial determinant of performance,
competitive advantage. Taking a of scenarios
proactive approach, it untangles begs our further understanding and should
the typical environmental sources perhaps neither be conveniently reduced to Using the firm as the unit of analysis, luck
of luck as well as the intra-firm can be endogenous, rising primarily within
the ``error term'' in statistical analysis nor
mechanisms and processes
casually dismissed as being atheoretical. To the firm as a system, or exogenous, effecting
through which a firm could better
induce, recognize, and exploit date, there is rarely any formal effort that primarily from outside the firm's boundary.
lucky incidents of innovations from systematically explains how luck impacts on Luck is also a two-way street. While some
useful weeds or skunk works. the gaining of competitive advantage and firms wait for the lucky break passively,
firm performance. What do we mean by luck? others seek it proactively. A firm with a
How many different types of luck are there? proactive posture toward its management
Could a firm enhance its likelihood of getting and strategic maneuvers is likely to be:
lucky? Motivated by these questions, this . more aware of the contextual situations
article attempts to dissect the luck under which one could get lucky; and
phenomenon in the context of business . better at recognizing and exploiting it
competition and provide an integrative when luck strikes.
framework expounding luck as a
Such preparedness and proactiveness on the
determinant of competitive advantage.
firm's part will, we expect, influence a firm's
Competitive advantage grows out of the
firm's unique ability in creating superior chance of getting lucky and the ways that
customer value (Porter, 1985). Therefore, any luck could contribute to the firm's gaining
factor, action, or event that could enlarge the and sustaining competitive advantage. Some
differential between rival firms on a firms, on the other hand, simply wait for luck
Management Decision particular dimension that allows a firm to to emerge in totally serendipitous fashion.
40/6 [2002] 525±536 Based on the two dimensions discussed
# MCB UP Limited above, the various scenarios where luck
The current issue and full text archive of this journal is available at
[ISSN 0025-1747] confers competitive advantage can be
[DOI 10.1108/00251740210433927] http://www.emeraldinsight.com/0025-1747.htm
classified into the following general
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Hao Ma categories: pure luck; prepared luck; useful One person's loss is another's gain
Competitive advantage: weed, and skunk work. See Figure 1 for a In an ongoing competition, chancy events
what's luck got to do with it?
graphic presentation of these scenarios. could also spell luck for certain firms in the
Management Decision To practicing general managers, however, it form of windfall gains. For instance, the
40/6 [2002] 525±536
is perhaps more meaningful to focus on how recent 11 September terrorist attack against
they could, through their own efforts, the USA had spawned a huge demand for US
improve their odds of getting struck by luck national flags for patriotic reasons. As such,
than merely knowing the fact that in most one of the side effects of this terrible tragedy
cases luck is totally serendipitous and turned out to be that some Taiwanese flag
beyond their control. As such, I shall first makers were flooded with tons of orders for
briefly explain in the following paragraphs US flags that required around the clock shifts
each of the above four scenarios with case in making them, awarding them much
examples, and then elaborate respectively in needed business in a time of a domestic
the next two segments on what general economic slump. By the same token, this
managers should do to court luck, from tragedy also spelled lucky opportunities for
either the external environment or within many New York City street vendors who
the firm. That is, this article takes an could now sell basically the same $2 T-shirts
unequivocally proactive approach toward (in quality and style) for $5 apiece, which
now feature the American flag or some
luck as a determinant of competitive
patriotic slogans such as ``United We Stand''
advantage.
instead of those usual ``I Love New York''
ones.
Pure luck
Obviously, the strategic implication of
Pure luck defies human intention and action.
such pure luck is perhaps for the firm's
Pure luck in gaining advantage refers to the
general managers to be keenly aware of the
situation where factors exogenous to the firm
presence of luck and appropriately exploit it.
give rise to competitive advantage
The real challenge here, however, is perhaps
spontaneously, not subjecting to the firm's
not to become over confident or complacent
purposeful control and/or intentional
in the face of luck, in addition to recognizing
manipulation. For instance, a lucky farmer's
and exploiting it effectively.
land happens to be more fertile than that of
its neighbors', thus conferring advantage in Prepared luck
productivity. Or even better, owners of In a business context, luck often descends
farmland may find oil underneath or upon the firm from unique historical events,
reserves of other precious natural resources. changes in social cultural trends,
Such pure luck provides firms with breakthroughs in technology, shifts in
Richardian type of rents that cannot be customer tastes and demand, governmental
created proactively (Rumelt, 1984, 1987). regulation or deregulation, or private or
From the resource-based view of the firm, asymmetric information. These factors affect
Barney (1986) explains that luck, or path- different firms in asymmetrical fashion and
dependence to use a more formal term, create differentials among the firms along
creates unique endowments for some firms strategic dimensions, which dictate the
that can be used to conceive and implement firms' value creation and options for action.
inimitable strategy, enabling sustained Beyond pure luck, which is not controllable
competitive advantage. by the firm at all, the above factors often
present themselves to firms as mere
opportunities or threats upon which firms
Figure1 can act. Whether a particular firm is lucky or
Luck and competitive advantage: a framework not depends on its particular position,
endowment, capabilities, as well as its action
at the time.
Fate shuffles the cards and we play (Arthur
Schopenhauer)

Touted by Fortune (1995a) as ``the deal of the

decade,'' it has been by now well known how
luck blessed Microsoft with the biggest break
in its history in 1980: its MS-DOS licensing
agreement with IBM. It was a story of
Microsoft buying an obscure operating
system from Seattle Computer for $50,000 and
turning around, licensing it to IBM. Seattle
Computer apparently did not know much
[ 526 ]
Hao Ma about the IBM call and why Microsoft wanted activities would be idle, irrelevant, or
Competitive advantage: to buy its system. Interestingly, the Seattle distracting.
what's luck got to do with it? What is weed? A plant whose virtues have not
Computer deal was finally nailed, not before,
Management Decision but rather 48 hours after Microsoft had yet been discovered (Ralph Waldo Emerson).
40/6 [2002] 525±536
already signed the contract with IBM to Based on the insightful remarks of Emerson,
supply the operating system, which they then I term the self-initiated activities by
renamed as MS-DOS. And the rest is history. individuals within the firm ± for whatever
Microsoft was lucky to have stumbled over motives ± as useful weeds, which may
the IBM opportunity and the Q-DOS deal. It generate advantages for the firm in new
was also lucky that Digital Research, the firm product, process, knowledge, or capability.
that developed the CP/M operating system ± The innovation and/or invention from such
the most influential one at the time ± did not activities may not be conforming to the
treat very seriously the IBM launch of PC firm's current business scope and strategy.
and Microsoft as a rival. Also contacted by The general managers have to take notice of
IBM, CP/M responded to the potential luck them and proactively exploit their
rather differently than Microsoft did, as the commercial potentials.
CP/M boss was largely turned off by IBM's For instance, the NutraSweet sweetener,
secretive and arrogant manner. However, aspartame, was discovered by a chemist at
without the software expertise, Microsoft G.D. Searle through personal activities that
was unlikely to be closely contacted by IBM. violated the formal organizational policies
If Gates and partners only thought about and standard operating procedures: he tasted
themselves as an application software maker, the overspill liquid during an experiment for
they would not have the foresight about the an anti-ulcer drug (Brandenburger and
importance of the operating system in the Nalebuff, 1996). That incident not only
future of the PC business. Foreseeing the changed the course of the firm but also
potential of IBM clones, they were able to created a brand new product that would
include a clause in the contract with IBM to quickly be of global market reach. Also
allow them to also supply their DOS to other consider the institutionalized innovative
PC makers. Aggressively soliciting software environment at 3M which gave birth to the
written for their DOS, Microsoft won the war detachable adhesive and its star product the
of operating systems in the US PC market Post-it note. The product came from a ``failed''
within a year. project where an extremely week adhesive
As such, luck is usually nothing but was developed by a scientist who was in fact
trying to create the exact opposite properties
opportunities knocking upon those who are
(Bartlett and Mohammed, 1995). The above
looking for them, who will notice them, and
cited examples, along with the discovery of
who will act on them. Luck favors the
penicillin and du Pont's Teflon, and a host of
prepared mind. And luck favors those in
other lucky incidents, all attest to the need to
action. In this sense, luck is really
view ``weeds'' from unconventional
serendipitous opportunities seized and
perspectives.
unique potential realized. The key challenge
The key challenge here is to commercialize
here for general managers is to be always on
innovations, unintended innovations that
the alert for potential opportunities and act present themselves as opportunities for
proactively. commercial viability. Until an innovation
can be channeled toward the right customer
Useful weeds markets and/or organizational activities,
A firm could also gain advantage from these spontaneous discoveries or inventions
serendipity within the firm, from its often will remain weeds. When these weeds are
seemingly accidental innovation and appropriately appreciated and acted upon,
creativity. A core element of creativity is they could often become useful and may
spontaneity. To ensure spontaneity, a firm provide the firm with unexpected
has to maintain a certain level of slack to competitive advantage. Open-mindedness
allow for self-initiated actions, and tolerance for errors are therefore also
experimentations, and improvisations by necessary.
individual employees. With these activities
sometimes come unexpected gains for the Skunk work
firm in the form of inventions of commercial Skunk work happens when individuals or
viability, discovery of new processes, or new working groups ± often temporary or
product innovation. Needless to say, such informal ones ± within an organization work
activities often also result in waste, voluntarily and secretively on their own
redundancy, and failure. In reference to initiative to tackle entrepreneurial,
formal organizational agendas, these technical, or organizational challenges which
[ 527 ]
Hao Ma will likely lead to innovative practice and encourage innovation: dare to experiment,
Competitive advantage: beneficial results to the formal organization. dare to create, and dare to stun, and
what's luck got to do with it? The fundamental difference between skunk obviously, dare to fail and learn from the
Management Decision work and managerial initiative is that the failure. Recent research on intrapreneurship,
40/6 [2002] 525±536
latter is often organization-wide and or internal corporate venturing, provides
explicitly endorsed and promoted by top solid theoretical foundation for such skunk
management while the former often concerns work and empirical evidence on how
a sub set or a special unit of the organization. innovative firms proactively seek lucky
Although it usually requires championing or breaks and inventions (e.g. Burgelman, 1983).
tacit permission from the top management,
skunk work basically works independently of Getting lucky: external sources and
or even against the entire organization's internal mechanisms
formal agenda. As such, it could be viewed as For any strategist aspiring to create
semi-grass-root effort in innovation, advantage and win, luck should expect to
potentially seeking lucky breaks or courting come only as bonus for good deeds but not as
disaster. part of base salary. In ancient Chinese tales,
Consider the example of Skunk Works at there is such a story called ``sitting by the
Lockheed (Bennis and Biederman, 1997). In tree and waiting for the rabbit.'' A farmer
1943, Skunk Works founder Clarence working in the field saw, one day, a running
Johnson hand-picked about two dozen rabbit incidentally hit a tree and drop dead.
engineers and a supporting staff and started a With this windfall gain, he thought this was
project whose mission was to develop a jet better than hunting or toiling in the field. So
fighter that could rival the Luftwaffe. The he would sit by the tree thereafter and wait
Skunk Works was able to bypass the for more rabbits to run hitting the tree.
Lockheed bureaucracy and escape from the Apparently, waiting for luck passively is a
firm's pressing operational agenda in making disservice.
military planes to support the US's war How do we predict luck? We cannot. But we
effort. The group focused solely on their can run down certain possible aspects, both
secret mission. To keep it secret, the group within the firm and in the environment,
had used neither janitors nor secretaries; where and when a firm is likely to get lucky
group members were dead silent about their and hopefully increase its odds in gaining
mission even to their own families. Bennis competitive advantage from luck (Dierickx
and Biederman (1997) observed that: ``People and Cool, 1989). Scanning the environment
wanted to work at Skunk Works not because and predicting future trends help a firm be
it was plush or prestigious, but because they better prepared (Hambrick, 1982).
loved the work.'' The mission called for the Maintaining open, innovative, and
design of the first US jet fighter in 180 days. stimulating organizational culture context
The group managed to produce a prototype of will also expect to help. Table I highlights the
the P-80 Shooting Star 37 days ahead of the various ways luck could strike from the
deadline. external environment of the firm as well as
Subsequently, the Skunk Works produced the various intra-firm mechanisms for
some of the most advanced military planes fostering useful weeds and skunk works.
ever conceived, e.g., the F-104 Star-fighter ± These external sources and internal
the first supersonic jet fighter ± and the top mechanisms will be examined in detail in the
secret U2 ± long-range reconnaissance plane. next two sections respectively.
The Skunk Works has throughout the years
undoubtedly contributed to Lockheed's
advantage and leadership position in the jet
fighter industry in the USA and worldwide.
Exploiting luck from external
No wonder now that Lockheed Martin, the
sources
much augmented and strengthened Lockheed This section discusses the various ways luck
after many a merger and acquisition, is still could strike from external sources and how
ahead of the game and has just been awarded they impact on a firm's competitive
the largest defense contract in the US history advantage. Private or asymmetric
in the amount of $200 billion to build the information allows the lucky firm to have
Joint Striker Fighter. Call it luck. But the advantageous positions in negotiation and
Lockheed people would like to believe that bargaining, in competitive attacks or
they absolutely deserve it. defense, or be first movers (Lieberman and
The key challenge here for general Montgomery, 1988), gaining advantage over
managers is to foster the spirit of innovation others in terms of customer relations, access
within the firm and maintain an to supply and distribution, and reaching a
organizational environment and culture that critical scale in operation and marketing
[ 528 ]
Hao Ma before rivals flood in. Unique historical Wei attackers. He would send a couple of old
Competitive advantage: events afford some firms resource and weak soldiers sweeping the streets,
what's luck got to do with it? endowment or market positions that cannot pretending nothing happened. He himself
Management Decision be easily obtained by rivals at a later time. would drink and play music on top of the
40/6 [2002] 525±536
Changes in social cultural trend may spell gate-fortress. Facing such a quiet city, the
luck for some firms whose products happen chief of Wei would hesitate to break in for
to be in vogue, while declaring other firms' fear of hidden troops. The Wei chief, ever a
products or service ``out'' and unfashionable. cautious man himself, knew that the Shu
Changes in technology often provide lucky chief had never before engaged in irrational
breaks for small yet ambitious firms to and hasty decisions involving high risk. And
challenge large established incumbents. Shift the empty city must be a bait in a stratagem
in customer taste and demand could reverse to induce enemies. So the Wei troop retreated
the fortunes of rivaling firms overnight. instead of attacking. Before they finally
Government regulation and deregulation realized that the city was indeed empty and
could alter the rules of the game, dictating attacked again, the Shu chief was able to
whether a firm is in favor or out of the game. recall his major troops and wait to engage the
A faltering competitor may give its rivals tired Wei attackers.
room for the necessary breath and escape Know yourself and know your enemy; a
hundred battles without peril (Sun Tzu).
from impending extinction. The presence of a
dream expediter, e.g. a focal firm's Apparently, a firm can get lucky by
complementor or substitutor of the focal manipulating competitive intelligence and
firm's supplier, could bring new opportunity hope to create information asymmetry, hence
to the focal firm and enhance its bargaining a better chance of gaining advantage.
position. Microsoft was lucky that Seattle Computer
did not know about the IBM deal. Shu was
Private or asymmetric information lucky that the Wei chief knew not the
Information can make or break a firm. strengths of his enemy. Similarly, Home
Asymmetry in information among rivaling Depot, the giant do-it-yourself home
parties could render a certain firm advantage improvement chain store, in its early days,
over others by opening the window of would usually not trash its empty boxes but
opportunity for a particular party to act and would rather pile them up on the higher-level
create competitive advantage or avoid shelves in the store so as to create the
competitive disadvantage. Consider a illusion that they were always well-stocked
military example. During the Three (Marcus et al., 1999). The rival's ignorance
Kingdoms era in China, Shu and Wei, two of and negligence spell lucky opportunity.
the three warring kingdoms, were crossing
swords at one time. Wei attacked a Shu city Unique historical events
where Shu's military headquarters resided. Certain unique historical events can bring
It happened that Shu's troops were all luck to a firm, especially international
dispatched away while Wei attacked. With an events, political, economic, and military, etc.
empty city and little forces, the chief of Shu For instance, the oil crisis in the 1970s forced
decided to play tough, based on information up gas price drastically in the USA. This
asymmetry. Instead of closing the city and crisis suddenly made gas-efficient small-sized
hiding, the general decided to open wide the cars economically more attractive. Such an
main gate so as to confuse and intimidate the event spelled luck for the automakers from
Japan, which were entering the lower end of
Table I the US auto market with cars much smaller
Luck and competitive advantage: an examination of environmental sources than those typical US made cars, and more
and intra-firm mechanisms gas-efficient. In the early 1990s, the Gulf War
certainly helped CNN, the fledgling 24-hour
Prepare to improve your odds: Private or asymmetric information
news report channel on Cable TV, to
a look at the external sources Unique historical events
establish itself and demonstrate the huge
of luck Change in social cultural trends
market potential for its then novel service.
Change in technology
Similarly, while Sony attempted to acquire
Shift in customer taste and demand
CBS Record ± an American icon ± the label of
Government regulation or deregulation
John Sousa, Duke Ellington, Leonard
Faltering competitor
Bernstein, Bob Dylan, and Michael Jackson,
Dream expeditor
the parent company CBS twice said no due to
Take advantage of useful Seducing the eÂlites and inducing initiatives through:
board pressure against ``Japanese invasion of
weeds and skunk work: spotting and encouraging bold experimenters
American cultural industry'' and the general
understanding intra-firm fostering faithful champions of grass-roots initiatives
sentiment reflected in the then Japan
mechanisms creating a hotbed for innovation
bashing (Reich and Mankin, 1986). Sony
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Hao Ma coveted the record company because it firms are closely monitoring the
Competitive advantage: believed that by controlling a software consumption pattern of high school students
what's luck got to do with it? concern, it could better promote its who will soon grow up to be their core
Management Decision hardware, e.g. digital audio tape recorder. customers in the near future. As the saying
40/6 [2002] 525±536
The stock market crash in 1987 presented a goes, figure out where everyone is going and
lucky opportunity to Sony, as then CBS boss arrive before everyone does is perhaps the
Larry Tisch, believing in a permanent down best bet at getting lucky. In this sense luck
turn, was in the selling mood. So Black can be interpreted as vision meets
Monday induced the deal on Sony's third try. opportunity and turns into reality. To the
Sony's record business had been a fair uninitiated, the winner in the next round of
success, despite its later venture into the the game might seem lucky, to those with
movie studio business which once caused intimate knowledge of the behind-the-scene
them a $3 billion plus disaster. story, it is never entirely a random process.
To business firms, particularly those
global in scope, they have to always ask Change in technology
questions like, what are the implications of a Technology often changes in discontinuous
particular event to our particular business? or revolutionary fashion, redefining
Alertness in scanning the macro relevance of a firm's knowledge and
environment will likely help better recognize competence. The Encyclopedia Britanica's
the stochastic opportunities and capture flop at the advent of the Internet and the
windfall gains. Major global firms often advancement of digital information
maintain active contacts with various technology illustrates this point (Evans and
experts so as to better track and make sense Wurster, 1997). And in this case, the lucky
of the these events, ranging from parties were the ones who offered relatively
international politics, human rights issues, inferior content yet quickly capitalized on
to global warming and El Nino effects. For new opportunities in on-line referencing and
instance, American Express periodically
CD-ROM offering. Changes in technology
consults authoritative and knowledgeable
bring more options for challenging
figures like Henry Kissinger for prediction
companies to bypass the previously
and interpretation of international events.
insurmountable barriers to entry and
By consulting with experts, it helps a firm
mobility, e.g. the huge and sophisticated
not only predict and reduce potential threats
sales force of Britannica.
but also gain advantage from lucky
Just as the arrival of the PC brought bad
opportunities.
luck to typewriter manufacturers, Netscape's
rise in 1995 with its Internet browser spelled
Change in social cultural trends
potentially severe bad luck for Microsoft's
People are social animals. And social cultural
empire in PC, derailing Gates' ``The Road
trends change. A change in cultural trend or
Ahead.'' Sun Microsystem's CEO Scott
social vogue could deliver the death blow to
some firms in some businesses while McNully even envisioned that ``the network
boosting a timely push to some firms in other is the computer.'' If that's the scenario of the
businesses. The heath craze that swept the future, it would be a big problem for Gates'
world in the past two decades or so made diet operation system based PC. Luckily for
food and drink products fashionable and Microsoft, its huge installed base provided
traditional high-cholesterol goodies needed access to customers that enabled it to
miserable. Riding the diet trend and with the quickly match Netscape's move with a
help from Coke and Pepsi, NutraSweet was competing browser within six months and
able to establish a brand in an essentially leverage its bundle-offering ever since.
commodity product and a dominant position To avoid unlucky incidents from major
in artificial sweetener (Brandenburger and shifts in technology, and better yet, increase
Nalebuff, 1996). Nike and Reebok were able to its odds of getting lucky, the deep-pocketed
thrive with the health craze, e.g. the vogue in Microsoft is investing in various start-up
aerobic exercises, gaining advantage over companies and hedges the future. To improve
providers of other types of casual or even its chance of dominance in softwares for
formal footwear. At the same time, however, Internet access through home TV, Microsoft
Kentucky Fried Chicken had to change its has invested in Web TV, cable companies,
name to KFC, largely because of the pressure and low-altitude satellite technology. Casting
to hide the ``unhealthy'' image people the net wide is expected to enhance
typically associated with ``fried'' food. opportunity. A tall tree in a low forest is
To identify and predict future cultural bound to be lucky in getting more sunlight
trends helps a firm prepare for future luck. and air and grow further. It just might also be
Some future-oriented consumer product the first one to be wiped out by a strong
[ 530 ]
Hao Ma thunderstorm, say a drastic technological Little Sweet Potato to serve that newly-found
Competitive advantage: discontinuity. Luck travels both ways. product market in potato-growing regions,
what's luck got to do with it? which proved to be hugely successful.
Management Decision Shift in customer tastes and demand Emphasis on understanding customers, so
40/6 [2002] 525±536
Customer tastes change. So they change a obvious and simple an idea, could never be
firm's luck. General Motors was an empire over-repeated to one hoping to get struck by
assembled through mergers and acquisitions luck.
in the early turn of last century. With diverse
lines of product offering and differing quality Governmental regulation or deregulation
standard across its multiple divisions, it was Government regulation often causes luck to
not able to compete with the more integrated, arise for certain firms. A case of luck can be
efficient, and dominant Ford, the industry's found in the story of Central Security and
pioneer. However, when more people were Fire Equipment Co (CSFEC). In 1994 at
becoming car buyers and some wealthier Zhengzhou, a city with a population of six
second-time buyers came to the market, they million in central China, a huge fire started
began to demand more variety in designs and in a major department store building in the
colors across different price ranges. This city's busiest central business district. Due to
demand Ford would not and could not satisfy, a heavy traffic jam in the district, poor access
as it focused on producing only one model to the building, and lack of fire equipment in
and color efficiently: ``They can have any the building, the relentless fire soon
color they want ± so long as it is black.'' The destroyed the whole building, causing
changes in customer tastes and possibly the largest fire-related loss in the
sophistication spelled opportunity for GM history of the city. One month after the
and suited GM's existing strengths, helping incident, the Provincial and Municipal
GM secure its leadership position in the auto Governments promulgated strict regulations
industry in the USA which Ford was never to enforcing fire safety in all commercial
catch up throughout the twentieth century. buildings and premises.
The King's favor is no inheritance The entrepreneurial boss of CSFEC, then a
On the other hand, customer taste also sticks, humble venture selling security and fire
affecting firms' luck. The New Coke incident protection products, was always on the alert
at Coca-Cola in the 1980s saw Coca-Cola's searching for business opportunities. Right
attempted change to its century-old formula. after hearing about the fire from a news
Customers apparently were not as ready as report, envisioning the huge market
Coca-Cola was for such a change. Shortly potential, he quickly acted to borrow funds
after the change, Coca-Cola had to put the old from any and all sources he could lay his
formula back to the market as the Classical. hands on and brought in truckloads of fire
They were lucky that the customers had a fighting and prevention equipment, further
sticky taste; otherwise, the reintroduced enhancing its scale vis-aÁ-vis its average
Coca-Cola Classical would take a major dip, competitors. Under the new governmental
jeopardizing Coca-Cola's leadership in the regulation, purchasing such equipment
soft drink industry. Retrospectively, this would soon be mandatory instead of by
might be a lucky incident that provided Coca- choice. With such a blessing, CSFEC had
Cola with lessons, publicity, and the New guaranteed sales to major businesses with
Coke. Commenting on the accusation that great buying powers.
Coca-Cola intentionally staged the publicity Similar to regulation, deregulation also
stunt, one Coca-Cola executive replied: ``We often affects firms in a business
are not that smart. And we're not stupid asymmetrically. For some this spells luck
either.'' Customer is the king. and for others disaster. Take, for example,
A proactive firm often probes further into the commercial banking industry in the pre-
customer interests for lucky opportunities. deregulation era. Some banks, even many of
For instance, the Reebok surge in the early the large local or regional banks, were used
1980s in the USA was largely fueled by its to and satisfied with their operation within
aerobic exercise shoes that featured flashy their local banking community that was
colors and trendy designs which better suit relatively stable. While banks with more
the female customers' tastes and preference expansion-minded CEOs, due to relatively
than do their performance-oriented Nike more liberal and lenient regulatory practice
counterparts. In China, Haier, the leading in their home state, constantly sought
white goods company, found that in some opportunities to grow, often through merger
rural markets peasants were using its and acquisitions. With the federal act on
washers to wash vegetables instead of deregulation being implemented in the early
washing clothes! Sensing a great opportunity 1980s, the latter types of banks were much
here, they quickly introduced a line called better prepared to expand on a national basis
[ 531 ]
Hao Ma than the former type of banks. To the 200,000 enemy troops and waiting for
Competitive advantage: expansion-oriented banks, deregulation was annihilation when the Czar of Russia
what's luck got to do with it? their lucky break. suddenly died, immediately breaking the
Management Decision A great wind is blowing, and that gives you coalition forged against Frederick the Great,
40/6 [2002] 525±536 either imagination or a headache (Catherine who wound up emerging as the winner
II (The Great)). (Rogers, 1987). Similarly in business, the
A case in point is the bank now known as death of the founder of an archrival ±
Bank of America, created from the merger especially when an internal power struggle
between Bank of America and Nations Bank, ensues ± often provides a good opportunity to
formerly NCNB, a regional bank based in attack or to receive defected talents. A
North Carolina. Headed by the expansion- faltering competitor could render a firm
minded Hugh McColl, Nations Bank advantage without ever engaging in a fight.
consolidated its positions and jumped into For instance, the bankruptcy of a major
the national scene. It became one of the top home electronics retailer in a region may be
ten banks in the country in a decade's time in a lucky opportunity to a long-waiting rival
the 1980s, through frequent and large-scale from other regions which has been coveting
mergers and acquisitions (Fortune, 1995b). entry and filling the void. The Montgomery
Without deregulation, many of their high- Ward bankruptcy in the 1990s provided lucky
profiled acquisitions would, however, not opportunity for Sears to easily lure its
have the slightest chance of going through executives.
the barriers of FTC. But the same
opportunities applied to all others in that Dream expediter
time period, only NCNB alike took the A firm can often gain advantage from luck
initiative and seized the lucky opportunity through unexpected presence of badly needed
afforded by the deregulation, shooting up to help in supply, complementary products, or
the number two position in the US banking partners for collective action. For instance,
industry, next only to Citigroup. In this when Coke's contract with Monsanto on
recently ever-consolidating industry, either NutraSweet was due to expire, Coke faced
eat lunch or be lunch. You certainly need possible greater bargaining power by
lucky breaks from deregulation, but you first Monsanto as the latter had successfully
have to have a sense of urgency and established NutraSweet as a brand itself ± a
aggression (Hamel and Prahalad, 1989). brand within a brand ± and NutraSweet and
Failing firms fail often not because they are Diet Coke were almost inseparable. Luckily
unlucky, they fail because they are clueless for Coke, Holland Sweetener, a European
in the time of change. competitor, decided to jump in the game and
submitted a competing bid for Coke's
Faltering competitor business. Such a move into the arena by an
Luck can also be found in involuntary acts or unexpected player severely weakened the
faltering of competitors. Early in this otherwise increased bargaining power of
century, music directors of major symphony Monsanto. Coke was able to renew its
orchestras of the USA were all luminary contract with Monsanto and continue using
European conductors who jealously guarded the proven brand NutraSweet for a much
their fiefdoms from rivals and even their better price (Brandenburger and Nalebuff,
1996).
apprentices. On November 14, 1943, luck
When a fish and a clam fight, the fisher gains.
struck Leonard Bernstein, then a 25-year old
assistant conductor of New York In business arenas, many times, one firm's
Philharmonic. The reigning maestro Bruno problems may be another's solutions.
Walter was flu-stricken and had to miss the Solutions look for problems; problems wait
Saturday afternoon concert, which was to be for opportunities; opportunities propel
broadcast nationally. At one day's notice, solutions. For instance, when Matsushita
without rehearsal, the junior Bernstein tried to spin off its money-losing MCA studio,
stepped in and launched his sensational it just happened that the Seagram chief was,
debut, bursting into the premier classical always fascinated by the luring glamour,
music scene and getting coverage on the ready to buy a ticket to Hollywood. To be
front page of New York Times. He would later sure, a lucky opportunity may not always
go on to become the first American-born churn out competitive advantage. What is
conductor to ever head a major US orchestra important is to seize the opportunity to
and become the most celebrated American improve a business' potential in creating
classical musician. customer value through better positions,
In war, luck often tips the balance of power resources, and access.
and even decides the outcome. Frederick the Sony's surge into the international
Great was once completely encircled by economic arena was due in no small part to
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Hao Ma the managerial talent of Norio Ohga, whose Seducing the eÂlites and inducing the
Competitive advantage: long association with the company began initiatives
what's luck got to do with it?
with his letter as ``a tough customer,'' To benefit from skunk work and useful weed
Management Decision types of activities, the innovators and
40/6 [2002] 525±536 criticizing Sony's new reel-to-reel recorder. A
lucky incident for Sony. The co-founder Akio venturers within the firm need to better
Morita was so impressed with the young understand how to gain formal support and
Ohga and would offer him a job with Sony. As needed resources from the management
a classically trained baritone, Ohga's interest (Bower, 1986) while the general managers
then was in voice and opera. After several need to know how to better design and shape
rounds of persuasion and urge by Morita, a firm's structure, system, process, and
Ohga finally joined Sony full-time, but not culture, so as to more effectively foster the
emerging of innovative initiatives
before completing a three-year study of voice
(Burgelman, 1983). Simply put, firm strategy
in Europe. His passion for technology from a
is usually an interactive process of both top-
customer's perspective and managerial
down formulation and bottom-up formation.
talent provided a much needed addition to
Innovators involved in skunk work need to
the prided Sony, which was then largely seduce the organizational eÂlites who set the
dominated by engineers. Similarly, Honda firm agenda and allocate resources.
Motor's success also benefited from a blessed The eÂlites are those actors within the
team ± Sachiro Honda was lucky to have met organization who are qualified by ``the rules
Mr Fujisawa whose financial and managerial of the game'' and their positions of power to
acumen complemented Honda's technical oversee the activities of the organization
genius. As Honda's passion lay in building (Kelly, 1976). The eÂlites usually are those with
the best engines and winning races, it took top management positions or in certain cases
Fujisawa's managerial expertise to channel people who belong to the firm's power
the firm's technical strengths to commercial coalition without holding formal or senior
viability (Pascale, 1984). positions. Skunk work needs to frame itself
as possessing potential for future advantage
for the firm so as to gain endorsement at the
Gaining competitive advantage top, although it may not be compatible with
through useful weed and skunk the firm's current strategy. It also needs to be
work packaged in such a way that, should the
skunk work be successful, it reflects
Advantage often emerges from spontaneous
positively on and brings credit to those eÂlites
discovery and windfall gain within the who championed it.
firm, from self-championed initiatives, 3M innovates for the same reason cows eat
underground activities, and informal grass ± because it is part of our DNA to do so
ventures. These activities may add extra (Dr M. George Allen, former vice president of
momentum to the firm in addition to the Research and Development at 3M).
more formal, explicit, and wide-reaching General managers who are responsible for
managerial initiatives. Whether or not a firm strategy and competitive advantage
particular firm could actually gain ought to shape and manipulate the formal
advantage from skunk work or ``useful and/or informal organizational structure or
weed'', however, depends on multiple levels context and create a climate that induces
of factors: useful weeds and skunk work and helps them
. availability of spontaneous initiatives at gain impetus. That is, any self-sponsored
the grass-roots level; initiatives must move through the
. ability of middle level managers to spot organizational ladder that is dictated by the
and champion the initiatives and organizational structure. An organization's
conceptualize them into more general current structure is usually designed to
terms meaningful to wider organizational implement its current strategy and it
audiences and agendas; and therefore filters initiatives using the criteria
. the vision and ability of top management of reinforcing the current strategy.
to allow viable initiatives to shape and Innovative initiatives by skunk works,
change the firm's corporate and/or however, often call for new directions of
competitive strategies. strategic adaptation. As such, an
organizational structure that allows for and
This section discusses the roles of the effectively promotes new self-sponsoring
different players in this game and the initiatives will help bring to light the benefits
mechanisms through which a firm could of skunk work and useful weeds type of
better husband its internal resources to activities. Moreover, general managers also
enhance its odds of luck. should proactively search for worthy and
[ 533 ]
Hao Ma viable initiatives to champion and endorse as and criticism from detractors, Mr Wang
Competitive advantage: special projects, so as to accomplish Xuan and his Founder believed in their
what's luck got to do with it? innovations that are otherwise impractical vision and worked hard toward making their
Management Decision or inconceivable within existing Chinese laser printing system the industry
40/6 [2002] 525±536
organizational context. standard. By the late 1990s, the Founder
system had been used in more than 90 per
Bold experimenter cent of the Chinese news press and thousands
Bold experimenters are first movers within of publishing businesses, boasting strong
an organization who take certain initiatives presence also in Taiwan and Japan.
that will later prove to have firm-wide Consequently, the success of the bold
implication yet are currently independent of, experimenters at Founder brings Peking
incompatible, or inconsistent with the firm's University not only financial resources but
dominant strategy or standard practice. In also the reputation as a pioneer in
the last two decades, China's economic commercializing innovations done in eÂlite
reform has lifted people's living standard Chinese universities.
multifold. Most observers would credit the
economic success to the open-door and Faithful champions
reform policy of the late leader Deng Xiao To be successful, skunk work needs
Ping. However, Deng was but the endorser of champions to promote its cause, make
the reform who carried it out nation-wide. It available funding, and provide protection
was the bold experimenters that initiated the from threats within and outside the firm. As
reform autonomously, starting in the skunk works is often secretive, isolated, and
countryside. The pragmatic minded Deng's independent from the formal structure of its
sympathetic attitude toward the grass-root host organization, it may also cause
reform certainly helped. unnecessary attention, jealousy, or even
White cat or black cat, so long as it catches outrage or resentment from other parts of the
mouse, it's a good cat (Deng Xiao Ping).
organization or outside parties, a champion
In Si Chuan and Canton, provincial is called for to also ensure its legitimacy.
governments first contracted out public- Bennis and Biederman (1997) made the
owned land to farmers to privatize the following insightful observation:
formerly collective farming activities. Such a Every great group is an island ± but an island
skunk work practice dug a hole in the ``iron with a bridge to the mainland. The Skunk
rice bowl'' of the old system and provided Works operated as an independent
community within Lockheed, its secret
incentives for farmers to take better care of
activities conducted behind unmarked doors.
their land with longer-term concern and
People who are trying to change the world
strive for productivity, because now they need to be isolated from its distractions, but
could keep the extra profit for themselves still able to tap its resources.
after meeting a certain quota of supply to the
government. The daring innovative practice And that bridge is precisely the role of the
of these pioneer provinces was tacitly champion. Dealing with the outside
permitted by a then more open-minded stakeholders, e.g. CIA and Pentagon, the boss
central government. After the success in of Skunk Works, the late Kelly Johnson,
these provinces, the household farming would cultivate close ties with Washington
system was rectified by the central and personally seek and co-opt advocates for
government and pursued as a formal national Skunk Works. Within Lockheed, the larger
strategy. The skunk work brought the setting which hosted the Skunk Works, he
pioneer provinces competitive advantages did everything he could to protect his secret
over other provinces and helped the entire group from the meddling of corporate ``suits'',
country regain economic momentum. the bean counters, company men who would
Consider also the example of Mr Wang only abide by the rules and who could easily
Xuan and The Founder Group, a technology undermine the creative project by bringing it
venture incubated at Peking University. In under corporate control.
the 1980s, when the laser printing technology While champions of skunk work try to
was in its early stages of commercial justify its existence and value to top echelons
development, Founder decided to bypass the and outside stakeholders, they often leave
then industry standard technology and work alone the creative or innovative part of the
on the fourth generation laser printing skunk work. The idea is to provide all the
technology for printing in the Chinese necessary resources and let the creative
language. Such an innovative effort was people do their own things. Johnson's
criticized by many academic and industry successor Ben Rich would comment on the
experts. Overcoming all kinds of difficulties ± style as such: ``We encouraged our people to
technological, financial, and bureaucratic ± work imaginatively, to improvise and try
[ 534 ]
Hao Ma unconventional approaches to problem value. That, is the bottom line for gaining
Competitive advantage: solving, and then got out of their way.'' competitive advantage.
what's luck got to do with it?
Management Decision Hotbed of innovation
40/6 [2002] 525±536
A firm gains competitive advantage if its Conclusion
structure and culture encourage autonomous
innovation activities better than do those of Elusive yet debatable as a theoretical
the rivals'. Matsushita used to firmly enforce concept, luck has always been a frequently
its ``one product, one division'' structure. observed phenomenon that attracts much
Such a structure facilitated internal fascination by many, from practising
competition and innovation. Because anyone mangers to industry observers. This article
who developed a new product with provides a typology of various scenarios
commercial viability was able to create their where luck strikes and confers a firm with
own division, it provided incentives for competitive advantage. It treats luck as some
people to innovate (Ghoshal and Bartlett, sort of happening stemming from both
1988). Because once a new product was spun chance event and human endeavor, ranging
off from its originating division, the old from pure serendipity in its ideal form to the
division had to find new sources of revenue case of prepared luck where random forces
to sustain. This forces people to innovate. validate foresight and purposeful action.
Such a structure served as a hotbed for Taking a rather proactive approach, it aims
innovation and provided impetus for possible to help guide general managers gain
skunk work or useful weed type of efforts. competitive advantage by pointing to the
For instance, after the tape recorder business various external sources of luck as well as
was spun off from the radio division, skunk intra-firm mechanisms for better
work in the division ended up creating the preparation.
Karaoke machine, which was wildly In summary, while pure luck acts out of the
successful in the Asian market. control of human behavior, it helps for firms
Similarly, when Ministry of International to be aware of the contextual conditions
Trade and Industry (MITI) shut out Sharp under which one's odds of getting lucky could
from its route to the computer industry on be enhanced. Many lucky incidents may
the ground that too many Japanese firms seem to be merely lucky incidents to the
were competing in that industry, Sharp was uninformed observers; they might just be the
forced to seek new business that would carry outcome of certain systematic and visionary
the firm. It pulled a skunk work over MITI efforts duly rewarded. In order to better
and focused on one part of the computer improve a firm's odds, general managers
accessories business. Its efforts paid off have to be constantly on the alert to scan the
through its dominance in LCD technology, environment, spot new trends, and act on
which provided a much needed new source of transient opportunities. They also need to
revenue and competitive advantage in
fight their own arrogance, ignorance, and
markets like laptop screens and other
negligence. Moreover, it helps that they
products using LCD, as well as first mover
remain open-minded and tolerant about
advantage in its View Cam, a line of
useful weed and skunk work type of internal
camcorder with a built in screen that serves
corporate venturing activities. To put the
as a view finder and allows for instant replay.
proactive perspective into extreme, luck is
Some organizations intentionally create
created.
skunk work type of projects to encourage
innovation outside the dominant
organizational structure. Examples include
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Application questions
1 What is the relationship between the 3 How does knowledge of the external sources
different scenarios in the typology of luck of potential luck help a firm improve its
and competitive advantage? chance proactively?
2 What are the critical challenges in profiting
from useful weeds and skunk work types
of individual or organizational
initiatives?

[ 536 ]