THE DANGEROUS LURE OF UNCALIBRATED CANNONBALLS Embracing the fire bullets, then cannonballs principle requires a combination of activities:

Fire bullets. Assess: Did your bullets hit anything? Consider: Do any of your successful bullets merit conversion to a big cannonball? Convert: Concentrate resources and fire a cannonball once calibrated. Dont fire uncalibrated cannonballs. Terminate bullets that show no evidence of eventual success. Both the 10Xers and the comparison cases fired cannonballs. The comparison companies, however, tended to fire cannonballs before theyd obtained a confirming calibrationempirical validation gained through actual experiencethat the cannonball would likely reach its intended target. For shorthand, we call a cannonball fired before you gain empirical validation an uncalibrated cannonball. The 10Xers were much more likely to fire calibrated cannonballs, while the comparison cases had uncalibrated cannonballs flying all over the place (the 10X cases had a 69 percent calibration rate on cannonballs versus 22 percent for the comparisons). Whether fired by the 10X case or the comparison case, calibrated cannonballs had a success rate nearly four times higher than uncalibrated cannonballs, 88 percent to 23 percent. (See Research Foundations: Bullets-Then-Cannonballs Analysis.) In 1968, PSA launched a bold new cannonball called Fly-Drive-Sleep. On the surface, the idea made sense. Youre an airline. People who fly need to rent cars and they need hotel rooms. So, move into the hotel and rent-a-car businesses. PSA began buying and taking out 25-year leases on California hotels, including the permanently docked ocean liner the Queen Mary. It also bought a rental-car company, rapidly expanding to 20 locations and more than two thousand cars. PSA could have fired a series of bullets, buying one hotel, partnering with a rental-car company, testing it out in a specific location, learning where it could (and could not) make the concept work. Instead, it went big, and unfortunately, the Fly-Drive-Sleep cannonball flew off into the ether, generating losses every single year. Were damn poor hotel operators, reflected PSA Chairman J. Floyd Andrews.26 Then in the early 1970s, PSA fired another uncalibrated cannonball when it contracted to buy five L1011 super-wide-body jumbo jets at a price equal to 1.2 times its total stockholders equity. Keep in mind, PSA was a short-haul commuter, doing rapid gate turns to shuttle people up and down the California corridor (not a great fit with super-wide jumbo jets that can take a long time to board). Furthermore, PSA made special modifications (such as wider exit doors and no food-preparation galley), which would make the jets hard to sell to other airlines if PSA needed cash. The L1011 plan required substantial upfront investment in new towing tractors, maintenance equipment, boarding equipment, and training. Forty-two-thousand-pound thrust engines would burn through gigantic quantities of jet fuel, inflicting huge per-flight losses if PSA failed to fill the 302-seat aircraft.27 Unfortunately, an Arab oil embargo doubled jet-fuel prices just as PSA began to put the huge L1011s into service and struggled to exit from its FlyDrive-Sleep fiasco. The economy fell into recession. Inflation drove up costs, yet the California Public Utilities Commission (which regulated airline prices) granted only a 6.5 percent fare increase in response to PSAs plea for 16 percent. Then the machinists union went on strike. The L1011s went unfilled, and eventually they were mothballed in the desert, never to fly again with the PSA fleet. Said PSAs senior vice president for finance in 1975, We have come very, very close to insolvency.28 PSA never regained its prior greatness and continued to fire uncalibrated cannonballs in a desperate attempt to regain momentum. It tried to launch a joint venture with Braniff Airlines, hoping for a shortcut to becoming a national carrier (the potential venture ended when Braniff went bankrupt); abandoned its simple no-frills model; switched to McDonnell Douglas aircraft for its smaller jets (moving away from its proven success with Boeing); and moved into the oil-and-gas-exploration business. And it did all this while getting clobbered by a never-ending series of disruptive events. Deregulation exposed PSA to a swarm of ferocious competitors. A lawsuit with Lockheed over the L1011s created financial uncertainty. A pilots strike shut down the air line for 52 days. A shift to McDonnell Douglas DC-9-80s came with unexpected delivery delays, leaving PSA short of aircraft just as the strike ended, dashing the airlines reputation for reliable, on-time performance. And tragically, a Cessna student-trainer airplane hit a PSA 727 descending into San Diego, sending both aircraft hurtling to the ground. Tower, were going down, said the jet pilot. This is PSA.29 Finally, on December 8, 1986, PSA capitulated to a buyout from US Air. PSA jets with the signature smile rolled one by one into yawning hangers, where workmen attacked them with chemicals and blasters. The aircraft emerged, faceless, repainted as interchangeable machines in a giant fleet.30 PSAs demise

illustrates the danger of firing uncalibrated cannonballs in an uncertain world full of turbulent disruption. If an enterprise gets slammed by a series of shocks just as its uncalibrated cannonballs go crashing off into space, its more likely to have a catastrophic outcome. Of course, were focusing here on uncalibrated cannonballs that dont find a target. But what if you fire uncalibrated cannonballs that do hit a target? If theres a big enough potential payoff, perhaps the big uncalibrated bet is worth the risk. But heres the irony: firing an uncalibrated cannonball that succeeds, generating a huge windfall, can be even more dangerous than a failed cannonball. Keep in mind the danger of achieving good outcomes from bad process. Good process doesnt guarantee good outcomes, and bad process doesnt guarantee bad outcomes, but good outcomes with bad processfiring uncalibrated cannonballs that just happen to succeedreinforces bad process and can lead to firing more uncalibrated cannonballs. Would you advise a friend or relative to go to Las Vegas and bet half of his entire net worth on a single spin of the roulette table? Suppose your friend believes that people win big only if they make big risky bets on games like roulette, and he heads off to Vegas, places a huge roulette bet, and wins. He comes home and says, See, its a good idea to bet on roulette, just look at my success. Im going back next week to bet my entire net worth! Collins, Jim; Hansen, Morten T.. Great by Choice (Kindle Locations 1448-1513). HarperBusiness.