On The Halo Effect

I recently finished reading The Halo Effect…and the Eight Other Business Delusions That Deceive Managers by Phil Rosenzweig.

As best summarized by the author: “The central idea in this book is that our thinking about business is shaped by a number of delusions…More recently, cognitive psychologists have identified biases that affect the way individuals make decisions under uncertainty. this book is about a different set of delusions, the ones that distort our understanding of company performance, that make it difficult to know why one company succeeds and another fails. These errors of thinking pervade much that we read about business, whether in leading magazines or scholarly journals or management bestsellers. They cloud our ability to think clearly and critically about the nature of success in business.”

The book then goes on to present the nine delusions excerpted below:

“Delusion One: The Halo Effect – The tendency to look at a company’s overall performance and make attributions about its culture, leadership, values, and more. In fact, many things we commonly claim drive performance are simply attributions based on prior performance.

Delusion Two: The Delusion of Correlation and Causality – Two things may be correlated, but we may not know which one causes which. Does employee satisfaction lead to high performance? The evidence suggests it’s mainly the other way around – company success has a stronger impact on employee satisfaction.

Delusion Three: The Delusion of Single Explanation – Many studies show that a particular factor  – strong company culture of customer focus or great leadership – leads to improved performance. But since many of these factors are highly correlated, the effect of each one is usually less than suggested.

Delusion Four: The Delusion of Connecting the Winning Dots – If we pick a number of successful companies and search for what they have in common, we’ll never isolate the reasons for their success, because we have no way of comparing them with less successful companies.

Delusion Five: The Delusion of Rigorous Research – If the data aren’t good quality, it doesn’t matter how much we have gathered or how sophisticated our research methods appears to be.

Delusion Six: The Delusion of Lasting Success – Almost all high performing companies regress over time. The promise of a blueprint for lasting success is attractive but not realistic.

Delusion Seven: The Delusion of Absolute Performance – Company performance is relative, not absolute. A company can improve and fall further behind its rivals at the same time.

Delusion Eight: The Delusion of the Wrong End of the Stick – It may be true that successful companies often pursued a highly focused strategy, but that doesn’t mean highly focused strategies often lead to success.

Delusion Nine: The Delusion of Organizational Physics – Company performance doesn’t obey immutable laws of nature and can’t be predicted with the accuracy of science – despite our desire for certainty and order.”

Every now and then one comes across a book, that makes its reader take a step back and re-assess his views, experiences and readings. The Halo Effect is one of these books. It delivers both on account of the content and also of the numerous corporate examples and references to leading work in the leadership/management space to illustrate the concepts presented. A very refreshing and highly recommended read!

Below are excerpts from the book that I found particularly insightful:

1- “In fact, for all the secrets and formulas, for all the self-proclaimed thought leadership, success in business is as elusive as ever.”

2- “…There was talk, over and over, about customer orientation and leadership and organizational efficiency, but these things are hard to measure objectively, so we tend to make attributions about them based on things we do feel certain about – revenues and profits and share price. We may not really know what leads to high performance, so we reach for simple phrases to make sense of what happened.”

3- “If we start with the full data set and look objectively at many years of company performance, we find the dominant pattern is not one of enduring performance at all, but one of rise and fall, of growth and decline. Foster and Kaplan conclude: “…Managing for survival, even among the best and most revered corporations does not guarantee strong long term performance for shareholders. In fact, just the opposite is true. In the long run, the markets always win”.”

4- “March and Sutton explain: “In its efforts to satisfy these often conflicting demands, the organizational research community sometimes responds by saying that inferences about the causes of performance cannot be made from the data available, and simultaneously goes ahead to make such inference.””

5- “We can’t turn back the clock, change one variable, and then run the experiment again…It’s easy to blame one man for a company woe’s, but these sorts of attributions, while appealing for their simplicity, may not provide the best basis on which to manage a company.”

6- “…An organization isn’t a system of mechanical parts, interchangeable and replaceable. It’s better understood as a sociotechnical system, a combination of mean and machines, of people and things, of hardware and software, but also of ideas and attitudes. Some technical elements can often be copied and applied with predictable results…but when we begin to examine how those technical systems interact with social systems, with people and values and attitudes and expectations, the results are harder to predict.”

7- “Managers quite naturally find it easier to keep the attention on execution, which everyone will always agree can be done better.”

8- “What leads to high performance?…we’re left with two broad categories: strategic choice and execution…In spite of our desire for simple steps, the reality of management is much more uncertain that we would often like to admit – and much more so that our comforting stories would have us believe.”

9- “As Tom Peters observed: “To be excellent, you have to be consistent. When you’re consistent, you’re vulnerable to attach. Yes, it’s a paradox. Now deal with it.””

Regards,

Omar Halabieh

The Halo Effect

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