I was first made aware of the concept of return on luck through the work of management guru Jim Collins, in his book Great by Choice: Uncertainty, Chaos and Luck – Why Some Thrive Despite Them All. The book highlighted that regardless of the good or bad luck we receive, we can adopt our behaviour to maximise our return on it. Therefore, return on luck is something that we can prepare for.  

A fishing analogy

This concept is also true for fishing – an activity that is highly dependent on luck: while we cannot control the weather on any specific day, we can still arrange our trip to coincide with the best fishing season. In addition, we can arrive early in the day in order to secure the best possible spot and can pay for better bait. We can also choose a different tackle and hook, as well as prepare a big net in case a bigger fish appears.

Of course, there will be times when irrespective of these preparations we will still return home with no fish. Yet, there may also be times when even without any preparation we will catch a big fish. We cannot control our luck – but we can nonetheless improve our return on luck.

Using this analogy, the term ‘return on luck’ is the use of extra effort in order to increase the probability of a good outcome, particularly in a scenario characterised by unpredictable luck.  

Kuraray – a case study

The concept of return on luck applies to businesses as well. Let me share a personal example that I experienced as Director of Kuraray (a Japanese manufacturer of speciality chemicals), Hong Kong.

In 2002, a major sub-contractor of Kuraray went bankrupt. A family-owned Taiwanese company, the sub-contractor was a critical part of our supply chain. The sub-contractor transformed Kuraray’s micro-fibre substrates into synthetic leather that was eventually used in the manufacturing of shoes.

When news of the bankruptcy broke, the sub-contractor’s debtors turned to me for help. Perhaps they looked to me, as Kuraray was a major customer of the sub-contractor; we accounted for around 60% of the latter’s total income.

At the time, as the director of Kuraray Hong Kong, I had been responsible for the sub-contracting relationship with this particular Taiwanese company. It thus fell on me to continue the sub-contracting in every possible way in order to ensure the continuance of Kuraray’s supply chain. Hence, ‘Kuraray the customer’ ended up being the problem solver, and my hotel room in Taiwan becoming the negotiating table.

My first decision was to stop the foreclosure of the Taiwanese sub-contractor. I was personally very invested in the negotiations, as I knew the company could become profitable again upon the reorganisation of its management. The negotiations with the banks and debtors were so intense that I did not sleep for three full days.

I spent one and a half days, analysing the overheads of the factory, estimating the minimum headcount needed to be operational and forecasting the profitability. For the remaining one and a half days, I undertook some tough negotiations with the debtors. The entire process was particularly challenging as each debtor wanted to secure their own interests first.

At the end of three days, my hard work to make a good return on the bad luck appeared to be rewarded. The negotiations ended well, and we signed a restructuring plan. Then another piece of bad luck hit.

I received news that the line workers had locked out the factory. They had not been paid for six months. Even with factory operations resuming, we could only retain up to a third of the workers. To make matters worse at this point, the president of the Taiwanese sub-contractor went off into hiding. It was rumoured that his mother flew off to the US after embezzling the sub-contractor’s cash!

This time round, I was in shock and could not speak. We could not proceed with the restructuring plan, and I felt that the efforts of the past three days were made in vain. I waited for the factory manager to persuade the workers to return. Ultimately, he failed.  

Alternate solutions

Difficult as it was, I had to accept my luck. I could not change things that were out of my control. With this turn of event, it became imperative to look for alternate solutions. One way forward was to look to China for alternative sub-contractors. At that time (in 2002), it was challenging to find a reliable sub-contractor in China with great technological expertise.

In addition, while many international brands such as Nike, Adidas and Asics had already moved their factories to China, none of them permitted the use of China-made synthetic leather in their shoe manufacturing processes. This was due to the poor quality of the materials and lesser shoe-making techniques used back then.

Kuraray decided to better its probabilities of success by spending much effort on technology transfer with the chosen partner. Even so, our foray into China was a tough one in the beginning. In particular, stabilising the quality was a challenge.

The first product was an ugly ‘D-grade’ compared to the ‘A-grade’ that we used to receive from Taiwan. The line workers in China also did not understand international specifications and assumed that quality acceptable by Chinese domestic standards would be acceptable to all customers.

Continued persistence and efforts to educate and train the workers eventually paid off. Our experience in China gradually turned out to be better than what we had in Taiwan. We had eventually found partners that could provide high quality products at slightly lower costs.

It was a real achievement when our customers, international shoe manufacturers, accepted our made-in-China synthetic leather. As a matter of fact, through a joint venture with our Chinese sub-contractor, Kuraray became the first micro-fibre synthetic leather manufacturer in China.

Looking back, I can now better evaluate Kuraray’s return on luck. Indeed, on hindsight, the crisis with our Taiwanese sub-contractor may not have been bad luck at all. With the urgency of the situation, we managed the relocation to China in six months, when if under normal conditions, we would have taken three to four years.

This relocation also gave us a first-mover advantage. It became the trend for companies to relocate their supply base to China. What seemed to have been bad luck – the bankruptcy of our original Taiwanese sub-contractor and subsequent factory lockout – turned out to positive in the end. We cannot control luck, but we succeeded in China because we worked hard to identify and develop our sub-contractors there.  

The golden rule

It is hard for us to know if we are lucky when we are still out fishing. This can only be clear at the end of the fishing trip, when we are safely home and evaluating our haul. When we are out fishing, we should not worry about luck – but instead work hard to maximize our return on luck.

The golden rule is to know that return on luck is due to efforts of the present, and will only truly be known in the future. Therefore, one must focus on active preparation now. A volatile and uncertain world presents many twists, but a good return on luck can still be gained for the future.

As the Japanese saying goes, “禍転福成”. Originally a proverb from ancient China: “It is our will that will flip our fortunes and turn misfortune to fortune.”  

This article was first published in HQ Asia (Print) Issue 05 (2013).