The Halo Effect… and the Eight Other Business Delusions That Deceive Managers
Free Press/Simon & Schuster (2007)
Note: I recently re-read several books that were published a while ago. For example, this book that continues to generate significant controversy.
According to Phil Rosenzweig, “The central idea in this book is that our thinking about business is shaped by a number 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 business.” When our minds play tricks on is, the result is an illusion. “But if you think you can lace up a pair of Nikes, grab a basketball, and be like Mike [i.e. Michael Jordan], that’s a delusion. You’re kidding yourself.” Rosenzweig identifies nine separate but somewhat related delusions, the first being the Halo Effect: “The tendency to look at a company’s performance and make attributions about its culture, leadership, values, and more. In fact, many things we commonly claim drive company performance are simply attributions based on prior performance.
For example, he calls into question the validity research conducted for several of the most successful business books of recent years, notably In Search of Excellence co-authored by Tom Peters and Robert Waterman (1982) and Jim Collins’ Good to Great (2001). “According to Peters and Waterman, America’s best companies do not only a few of the eight exemplary practices, they do them all together. “In Search of Excellence was nothing less than an affirmation of basic principles of good management…How good was their research? Peters admitted in 2001 that the quantitative data analysis came after they had reached their findings…’I confess, we faked the data.’….Peters and Waterman went searching for excellence, but they found a handful of Halos.”
“Collins claimed to explain why some companies made the leap [from good to great] while others didn’t, but in fact he did nothing of the kind. Good to Great documented what was written and said about the companies that had made the leap versus those that had not – which is completely different.” More specifically, Rosenzweig explains, “If you start by selecting companies based on outcome, and then gather data by conducting retrospective interviews and collecting articles from the business press, you’re not likely to discover what led some companies to become Great. You’ll mainly catch the glow from the Halo Effect.”
Rosenzweig seems to have no quarrel whatsoever with any of the basic principles of good management that Peters and Waterman, Collins, and other prominent business book authors affirm. If I understand his ultimate objective (and I may not), it is to eliminate any delusions his reader may have about what leads to high performance in business. What then really works? “Nothing! At least not all the time.” Rosenzweig concludes his book with observations that include these:
“Success rarely lasts as long as we like – for the most part, long-term success is a delusion based on selection after the fact.”
“Company performance is relative, not absolute. A company can get better and fall further behind at the same time.”
“Execution, too, is uncertain – what works in one company with one workforce may have different results elsewhere.”
“Chance often plays a greater role than we think, or than successful managers usually think.”
“The link between inputs and outcomes is tenuous. Bad outcomes don’t always mean that managers made mistakes; and good outcomes don’t always mean they acted brilliantly.”
Rosenzweig’s rigorous analysis of the nine delusions will help a reflective manager to challenge the assumptions and premises of conventional wisdom and thereby “separate the nuggets from the nonsense.” That is precisely what Phil Rosenzweig did and then he wrote this book to share what he learned.