The Halo Effect... and the Eight Other Business Delusions That Deceive Managers

As a business coach and advisor, I read a lot of business books looking for extra ideas on how to improve businesses.This book provides a major warning that recipes for success in these books are often misleading. It's particularly critical of best sellers like "In Search Of Excellence", "Built To Last" and "Good To Great" for their research methods and extravagant claims.The problem is the title of the book - the halo effect. It seems that generally people assess successful, growing, profitable companies as having a wide range of virtues while struggling companies must be weak at many things. It sounds sensible but problems occur when a good company becomes bad, despite carrying on with all the virtues.The book correctly identifies as a big issue that companies don't operate in a vacuum. A company can improve in many different ways but still fall behind an existing competitor or new entrant to the market. It then goes on to talk about the importance of both strategy and execution. Getting one right isn't enough and strategic choices are inevitably uncertain. I welcome this focus on strategy although the development of that body of knowledge isn't without its difficulties.The book also briefly looks at something that is the focus of Goldrat's Theory Of Constraints. At any time, there is one big leverage point - the constraint - and improvements away from that area will have a disappointing impact.The author then goes on to look at three successful executive who do things the right way because of their process of recognising opportunities and the associated risks.I can understand why people give the book a five star rating. I haven't because I'd have liked to have seen more discussion on doing the right things in the right way. Much more time is spent knocking down than building up. I feel this might give people the wrong impression. There is plenty to learn from reading business books and they can inspire people to question what they are doing and what they need to be doing in the future. Many books are bought and not even started, probably more are started and not finished.I believe you can learn from what people have done to create business success and what others have done or not done that leads to failure. You don't have to keep reinventing the wheel. However the right things to do are dependent on your own situation. Just like in medicine, applying the right cure to the right situation is likely to work, the wrong prescription to a problem won't solve it and may make things worse.Paul Simister, a business coach who helps business owners who are stuck, get unstuck.

Stories are encoded into the human DNA; it is how we make sense of the human condition and give meaning to our existence. After observing the performance of a successful company or athlete, for example, we draw inferences about the character of the company's managers and the athlete respectively. We innocently conclude that sustained high performance cannot be due to luck or randomness, but must be due to some inherent trait of the actor. This is the Halo Effect that Phil Rosenzweig brilliantly describes in this wonderful book.Essentially, the book's key idea is this: we can never measure with certainty the factors that explain sustained high financial performance principally because we cannot disentangle the outcome (financial performance) from the independent variable (company culture, managerial skill etc). Therefore, managers who fall for easy answers such as those provided by Tom Peters in 'In Search for Excellence' and Jim Collins in 'Good to Great, fall for a number of fallacies. These include:1. THE WINNER SELECTION BIASBooks like 'In Search of Excellence' study only successful companies and characterise these companies based on perceived common traits such as "sticking to the knitting", being "close to customers" and "laser-like focus". While these companies may indeed display these traits, it does not follow logically that if another company copies the traits of the "excellent" companies that success will surely follow. Reason: we only know what the winners are like; we do not know how many "losers" actually "stuck to their knitting" but failed miserably.2. THE HALO EFFECTAsk a manager at a successful company what she thinks about her company's corporate culture and you are likely to hear a description of the culture in glorious terms. Ask the same manager about her company's culture if the company suffers financial losses, then you are likely to hear that the culture is dysfunctional. Is it possible that company culture swings that drastically? Rosenzweig argues that studies which ask managers of a company about some variable (such as culture, attitude to risk) are hopelessly flawed because the halo of financial performance overshadows the variable that is being measured.Rosenzweig provides two excellent examples: ABB and Cisco. When both companies were on the rise, the financial press fell over themselves, describing the companies' leaders as visionary; however, when performance faltered, the press--often the same magazine that had praised these leaders in the first place--inferred that the leaders had lost vision. How could that be?Rosenzweig concludes that success in business is based on strategy and execution--both fraught with uncertainty. No one really knows whether customers will buy a new product or if strategy can be communicated and executed well. Therefore, uncertainty lies at the heart of business. Any consultant or management guru that offers "six easy steps to breakthrough performance" is little more than a snake oil salesman.CAVEAT EMPTORToday's managers are under tremendous pressure to deliver financial results. They yearn for stories that promise certainty in a turbulent business world. Management studies, dressed up as rigorous science, feed managers' need for stories; they are unhelpful in confronting the challenges in the competitive environment. The Halo Effect is a refreshing reminder that human interaction is messy, non-linear and complex. It cannot be reduced to the elegance of mathematical physics or to the biases of a single academic discipline. Perhaps most importantly, the book reminds busy managers to be skeptical of quick fixes peddled by the business press and its huge army of consultants, whose research methods are often questionable, coloured by the halo effect, and hopelessly myopic. Rosenzweig gives examples of wise managers like Andy Grove and Robert Rubin. These men did not search for the El Dorado of business performance, but focused, instead, on winning immediate battles and improving the profitability that their companies. Through fortune and preparation, they were well-positioned to ride the waves of technological change that swept their industries. No revolutionary vision there; just plain old working and sweating the details of day-to-day management. For championing critical thinking, skepticism and a refreshingly contrarian view of management gurus, The Halo Effect deserves five stars.