The Halo Effect: ... and the Eight Other Business Delusions That Deceive Managers [Paperback]

 

 

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Before you buy any other business book - read "The Halo Effect" first.

I had just written a brief review on my blog of "Good To Great" by Jim Collins when someone posted a comment suggesting I check out "The Halo Effect". I'm glad I did. The conversational style is very easy to read. The explanations are totally understandable. The arguments compelling. The conclusions just make sense - there are no quick, easy, one-size-fits-all answers. Good practices - vision, strategy, leadership, communications, customer focus, execution, etc - are probably all good but they cannot guarantee success. There's still the impact of things beyond your control - the context for your business. Even luck and the random nature of things.

The two books I had read immediately before "The Halo Effect" ("Risk" by Dan Gardner and "The Drunkards Walk" by Leonard Mlodinow) seemed to prep me perfectly for this read. Rosenzweig's arguments on cause and effect really struck a chord with me because of what I had learned in "Risk" and "The Drunkard's Walk" (the fact I had also recently read "Good To Great" was a big help too!) Although we all can be suckers for the romantic notion of "being in the right place at the right time", it's probably tough to accept that even if you do all the right things - luck, randomness and all the stuff that's simply beyond your control may well be what determines whether you succeed or fail. If that sounds a bit too doom & gloomish, don't worry, there is a happy ending - of sorts!

In conclusion, I was less bothered about Rosenzweig's revelations on the flawed research of Peters, Kotter, Collins et al, and more interested in Rosenzweig's own thinking with regard to what makes an organization a high performer. As it turned out - I was inspired. Strategy and execution ARE the chief enablers - and one is likely more important than the other (read the book!) - but don't forget to keep a close eye on the world around you.

Oh, and one more thing, Rosenzweig explains that there are certain types of business that are more susceptible to volatile outside forces (innovative industries), and some that are more resilient (stable industries). So if you want to increase your chances of success - by all means do all the right things that the gurus tell you, but also make sure you work in retail, consumer goods or government, not in the high tech world!

I read "Good to Great" and "Built to Last" some years ago because they were bestsellers and had good reviews. Although I did enjoy reading them, a voice in my head kept asking questions regarding the reliability of the research and findings. After reading "The Halo Effect", I was relieved and happy to learn that I am not the only person asking these questions.
The world of business is complicated, uncertain and unpredictable. A company's performance depends upon a variety of factors beyond the actions of its managers. These include currency shifts, competitors' actions, shifts in consumer preferences, technological advances, etc. The first delusion is the Halo Effect, the tendency to look at a company's overall performance and make attributions about its culture, leadership, values, and more. Our thinking is prejudiced by financial performance. In good times, companies are praised and their success is attributed to a variety of internal factors. In bad times, companies are criticized and these factors, which may not have changed, are attributed for the failures. The reality is more complicated and dependent upon uncertain and unpredictable factors.
An interesting section of this book is the one on 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. For instance, GM today produces cars with better quality and more features than in the past. But its loss in market share is owed to a myriad of factors, including Asian competitors.
This is an excellent book because it will make you THINK. Is an oil company great if its profits soared when oil prices went up? Can the formulas used by successful companies in the 80s or 90s be applied to guarantee success today? A professor once told me that to predict future performance by analyzing past data is like driving a car forward while looking at the rear view mirror. In the appendix of this book there are tables showing the performance of the companies studied in "In Search of Excellence" and "Built to Last". It is interesting to note the difference in performance in the years before and after these studies.
The author, Phil Rosenzweig, is a professor at IMD in Switzerland and former Harvard Business School professor. He wrote this book to stimulate discussion and help managers become wiser - "more discerning, more appropriately skeptical, and less vulnerable to simplistic formulas and quick fix remedies." In my case, this book has given me a new perspective on business books.
The following is a brief summary of the nine delusions:
1. Halo Effect: Tendency to look at a company's overall performance and make attributions about its culture, leadership, values, and more.
2. Correlation and Causality: Two things may be correlated, but we may not know which one causes which.
3. Single Explanations: Many studies show that a particular factor leads to improved performance. But since many of these factors are highly correlated, the effect of each one is usually less than suggested.
4. 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.
5. Rigorous Research: If the data aren't of good quality, the data size and research methodology don't matter.
6. Lasting Success: Almost all high-performing companies regress over time. The promise of a blueprint for lasting success is attractive but unrealistic.
7. Absolute Performance: Company performance is relative, not absolute. A company can improve and fall further behind its rivals at the same time.
8. The Wrong End of the Stick: It may be true that successful companies often pursued highly focused strategies, but highly focused strategies do not necessarily lead to success.
9. 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.
Overall, I found this to be an excellent book and recommend it to all managers.

Excellent points raised by author Rosenzweig. This book should be required reading for every MBA, BCOMM, etc. student.

My only critique: the points made sometimes seemed redundant, although perhaps the reason is because most of the business books out there keep making the same mistakes and fallacious arguments.

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5.0 out of 5 stars How to separate the "nuggets" from the "nonsense"
According to Phil Rosenzweig, "The central idea in this book is that our thinking about business is shaped by a number of delusions... Read more

Published on April 30 2008 by Robert Morris

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