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Journal of Management Inquiry
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Should We Be Impressed With High Performance?

Jerker Denrell

Stanford University, denrell{at}gsb.stanford.edu

Popular discourse as well as several recent academic theories view high performance as a signal of capability. Although it is reasonable to believe that more capable firms will achieve higher performance, several other factors influence firm performance, including luck. As a result, high performance is, at best, a very noisy signal of capabilities. Moreover, because it is a rare event, high performance is more likely for firms that engage in practices that produce high variability in outcomes. If such practices lead to lower average performance, exceptionally high performance will in fact be a signal of incompetence rather than competence.

Key Words: performance • capabilities • luck

Journal of Management Inquiry, Vol. 14, No. 3, 292-298 (2005)
DOI: 10.1177/1056492605279100
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