Paul Ormerod

Why Most Things Fail

Unemployment is up. Crime has increased. Income inequality has widened. And social mobility has fallen.

This is not to say that all public policy necessarily ends in failure. Almost at random, some will succeed. But the way of thinking, the Weltanschauung, which relies upon, which believes in detailed planning to achieved precise, carefully monitored aims is inherently doomed to fail.

In Schelling's model of segregation, it is impossible for any individual to plan a strategy which will guarantee that his or her aims are met. In the Prisoner's Dilemma or in chess we rarely know what the best strategy is at any point in time. In the model of extinction, it is not feasible to plan a strategy which will increase the probability of survival to any substantial extent. These games, these models, are simple. Their rules are straightforward and easily understood. But they give rise to complex interactions between agents. This in turn creates such uncertainty about the future consequences of actions that the ability to plan the actions in great detail and to bring about their intended consequences is very limited.

Administering public policy is a far more complicated task, and the dimensions of the problem are even greater than those described by our models and games. Not surprisingly, the cast of mind which believes in detailed planning and monitoring usually fails.

In many ways, companies understand this intuitively. The potential rewards from gaining even a very partial insight into the future are substantial. But no one can rely upon this as a basis for success. Company brands fail for a whole variety of reasons. After the event, after the failure, like any good historian or social scientist, the brand manager or ad agency responsible for the account can construct a narrative to account for failure. But these stories, to give them an equally accurate but more homely description, are precisely that. We can never know for sure why a brand or even a company failed. More importantly, we can never know for sure in advance how a new product or company will perform.

Here, for example, is perhaps the most spectacular brand failure in the whole of the twentieth century: in the early 1980s, Coca-Cola's leading position in the soft-drinks market was gradually being undermined by Pepsi. The latter brand had built successfully on its 'Pepsi Challenge' campaign, a blind test for consumers on its own product and Coca-Cola. On taste, Pepsi seemed to be winning hands down. After a massive research effort, Coca-Cola responded by withdrawing its own product and introducing New Coke on 23 April 1985. On 11 July 1985, New Coke itself was withdrawn and the old brand reintroduced because sales had collapsed.

And here is the CEO of Coca-Cola, Donald Keough, justifying this decision at the press conference: 'The simple fact is that all the time and money and skill poured into consumer research on the new Coca-Cola could not measure or reveal the deep and abiding emotional attachment to original Coca-Cola felt by so many people. The passion for the original was something that caught us by surprise. It is a wonderful American mystery, a lovely American enigma, and you cannot measure it any more than you can measure love, pride or patriotism.'

Almost all brands fail eventually. More importantly, most fail very soon after their introduction. The attrition rate in early life is very high. Companies know this to be an inherent fact of life and they respond by constant innovation, constant testing of new ideas and new brands, new products. They do so within a framework, an institutional structure, which itself has adapted over time, has evolved, and which facilitates flexibility and innovation. New Coke was indeed a spectacular failure, but the Coca-Cola board did not sit around and commission endless, meaningless reports into how they would guarantee to avoid such failure in future. Still less did they try to pretend that somehow the great Five-Year Plan was still being fulfilled. Instead, they acted.

Karl Marx famously wrote that the motto of capitalists was 'Accumulate, accumulate, that is the law of Moses and the Prophets!' As in many other respects, Marx was completely wrong. 'Innovate, innovate!'—that is the guiding principle which companies have used to try to overcome the inherent and pervasive uncertainty which surrounds all their decisions. It is the best strategy for individual survival, and it is a strategy from which we all, as consumers and citizens, have benefited immensely.