| Book Reviews |
 |
| |
 |
| |
 |
| |
 |
 | |  |
Title: The Halo Effect… and the Eight Other Business
Delusions that Deceive Managers
Author: Phil Rosenzweig
Stars: ****
Ever read one of those business books that touts the greatness of certain
companies only to find that the same great companies are in the toilet a
couple of years after the published date? The Built to Last companies were
seemingly not built to last after all, and the companies that went from Good to
Great have slid to mediocrity. Phil Rosenzweig explains that the research
commonly done in these widely lauded books is invalid. It is based on
people’s opinions (i.e. business writers, company managers, etc.). These
opinions are all clouded by the Halo Effect, and the fact that there are
truckloads of information collected does not change that fact. Wikipedia
defines the halo effect as a cognitive bias whereby the perception of a
particular trait is influenced by the perception of the former traits in a
sequence of interpretations. So, when a company is doing well, people will
tend to believe that it has great leadership, there is a focused strategy, there
is wonderful teamwork, etc. In other words, all aspects of the company are
blanketed in the glow of the success trait. Once the company performance
turns for the worse, the opposite is true.
We are great at explaining causality after the fact, and no matter how things
turn out, we can provide reasons in the sound bites that people crave. If a
company is doing well, it’s because their diversification strategy is brilliant. If
it’s not, the same strategy that was praised for its brilliance is vilified for
straying from the core business. The leader that was praised for vision is then
chastised for addiction to foolish acquisitions.
Why is it that we continue to get this wrong? One of the main reasons is it’s
difficult to do controlled scientific studies on businesses. There are so many
variables that can impact the direction of a business and it’s very difficult to
isolate any particular one. It’s much easier to rely on the stories and
interpretations of others.
Rosenzweig does mention certain legitimate studies, but they don’t reveal the
clear cut, silver bullet explanations that we desire. He also offers up his
explanation for what does indeed lead to higher performance – Strategy and
Execution. “If a company makes strategic choices that are shrewd, works hard
to operate effectively, and is favored by Lady Luck, it may put some distance
between itself and rivals, at least for a time. Success at one moment doesn’t
ensure success in the next because success invites new challenges, some
willing to take greater risks than incumbents… There is simply no formula
that can generate success.”
Although the Halo Effect is the concentration of the book, as the title mentions,
Rosenzweig does tend to eight other delusions as well. It’s important for
managers to be aware of each in order to get to the truth.
Delusions that Deceive Managers
Author: Phil Rosenzweig
Stars: ****
Ever read one of those business books that touts the greatness of certain
companies only to find that the same great companies are in the toilet a
couple of years after the published date? The Built to Last companies were
seemingly not built to last after all, and the companies that went from Good to
Great have slid to mediocrity. Phil Rosenzweig explains that the research
commonly done in these widely lauded books is invalid. It is based on
people’s opinions (i.e. business writers, company managers, etc.). These
opinions are all clouded by the Halo Effect, and the fact that there are
truckloads of information collected does not change that fact. Wikipedia
defines the halo effect as a cognitive bias whereby the perception of a
particular trait is influenced by the perception of the former traits in a
sequence of interpretations. So, when a company is doing well, people will
tend to believe that it has great leadership, there is a focused strategy, there
is wonderful teamwork, etc. In other words, all aspects of the company are
blanketed in the glow of the success trait. Once the company performance
turns for the worse, the opposite is true.
We are great at explaining causality after the fact, and no matter how things
turn out, we can provide reasons in the sound bites that people crave. If a
company is doing well, it’s because their diversification strategy is brilliant. If
it’s not, the same strategy that was praised for its brilliance is vilified for
straying from the core business. The leader that was praised for vision is then
chastised for addiction to foolish acquisitions.
Why is it that we continue to get this wrong? One of the main reasons is it’s
difficult to do controlled scientific studies on businesses. There are so many
variables that can impact the direction of a business and it’s very difficult to
isolate any particular one. It’s much easier to rely on the stories and
interpretations of others.
Rosenzweig does mention certain legitimate studies, but they don’t reveal the
clear cut, silver bullet explanations that we desire. He also offers up his
explanation for what does indeed lead to higher performance – Strategy and
Execution. “If a company makes strategic choices that are shrewd, works hard
to operate effectively, and is favored by Lady Luck, it may put some distance
between itself and rivals, at least for a time. Success at one moment doesn’t
ensure success in the next because success invites new challenges, some
willing to take greater risks than incumbents… There is simply no formula
that can generate success.”
Although the Halo Effect is the concentration of the book, as the title mentions,
Rosenzweig does tend to eight other delusions as well. It’s important for
managers to be aware of each in order to get to the truth.
