Why Most Things Fail
Author: Paul Ormerod
What do human institutions share in common with the extinction of species? This book says it is how both predictably, and inevitably, fail. The author refers to this as the Iron Law of Failure (pages ix-x), and he cites harrowing statistics to demonstrate how this causes human establishments to flounder and flop with disturbing regularity (page vii). The books pessimistic title, and its gloomy outlook, are unfortunately borne out by the numerous examples the author uses to support his argument.
The book is a detailed study of the nature of organisational failure, and it draws many parallels with the way organisms become defunct. The author says, for example, that ‘extinction is a striking and pervasive feature of firms’, and this occurs ‘at anytime and for no particular reason’ (pages 170-180). He says both organisations and species fail in a predictable cyclical pattern, and this follows the power law or the Nemesis hypothesis; the larger the structure, the more frequent the extinction (pages 160-165). Citing the biologist Stephen Jay Gould, the author showed that even the massive emergence of companies, such as occurred in America around 1900, has eerie similarities in nature to the Cambrian explosion of species about 540 million years ago (page 1). Similarly, the regular crashing of economies resembles the sudden extinction of 90% of marine species which occurred about 250 million years ago (page 160). Furthermore, the seeming paradox of companies co-existing, despite strongly competing with each other, has an echo in nature as described by Vito Volterra‘s theory of survival of species (pages 148-149).
The book makes the key assertion that the most important reason for organisational failure is uncertainty. This bedevils most economic decisions because it limits the ability of organisations to plan for the future (pages 23-24). The author says ‘the uncertainty that shrouds the future is not so much a veil as an iron curtain‘ which ‘cannot be penetrated’ (page 35). He shows how uncertainty besets even basic decisions such as setting product prices, saying that if an organisation ‘makes a big enough mistake on this… it will fail’ (page 22). The book gave examples of GM and KLM to illustrate the inability of even large companies to overcome uncertainty (pages 26-27). The author asserts that organisational success is ‘far more the result of a series of accidents than of a far-sighted, planned strategy‘, asserting that getting predictions and decisions right is often down to sheer luck (page 122).
The book explored how failure also hounds government programmes such as schemes aimed at reducing social inequality and eliminating segregation. The author illustrates how such well-intentioned plans consistently fail, and he gives striking case studies of Manchester and Northern Ireland (pages 37-63). He discusses how social class continues to be a major life determinant, illustrating this with examples such the impossibility of large segments of society to gain entry to the prestigious Oxford and Cambridge universities (page 39). The author supported his view with many economic concepts and laws such as Thomas Schelling‘s modelling work which shows that geographical segregation develops even if individual preferences for this are weak (pages 70-76).
The book reviewed various economic tools which have been developed to cope with uncertainty. One is the Edgeworth box which analyses the interplay of supply and demand (page 79). Another is Game Theory, developed by John von Neumann and Oscar Morgenstern, which ‘appears to offer economics a rational, calculable way of dealing with uncertainty’ (page 87). Other tools are the Prisoners Dilemma developed by Merrill Flood and Melvin Dresher (page 88), and the Nash Equilibrium, developed by John Nash for which he received the Nobel prize for economics (page 94-98). The author was however critical of the real benefit of these tools.
On the strength of his observations, the author offers suggestions to mitigate against failure. For example, he argues against ‘a futile search for the best possible move’, and advises individuals and groups to ‘look for reasonably good strategies‘ (pages 116-117). His other suggestions include ‘drawing on the knowledge and experience of others’, and ‘learn strategies that avoid obvious loss‘ (page 139). He advocated the use of Bounded Rationality, an idea developed by George Akerlof and Joseph Stiglitz which the author says is the only economic tool which takes into consideration human cognitive and rational limitations (page 208).
This is a rather gloomy but realistic take on human institutions. The author, an economist, lists the reasons why failure is so pervasive, and offers suggestions on how to avoid it. The focus is on economics and politics, but the principles apply equally to healthcare which regularly experiences failure at individual and organisational levels. The book is well-researched, and the writing is lucid. I thought most of the last four chapters were redundant, adding nothing new rehashing arguments the author has previously made. This aside, it is an informative and insightful read.
The concept of failure is important to healthcare, and this book addresses the reasons organisations fail. It is mainly descriptive but there are important recommendations which I recommend to all doctors.
- Publisher, Place, Date: Faber and Faber, London, 2005
- Number of chapters: 14
- Number of pages: 255
- ISBN: 0-571-22013-4
- Star rating: 4
- Price: £11.99