The Halo Effect: How Managers let Themselves be Deceived

by Philip M. Rosenzweig

Why do some companies prosper while others fail? Despite great amounts of research, many of the studies that claim to pin down the secret of success are based in pseudoscience. THE HALO EFFECT is the outcome of that pseudoscience, a myth that Philip Rosenzweig masterfully debunks in THE HALO EFFECT. THE HALO EFFECT highlights the tendency of experts to point to the high financial performance of a successful company and then spread its golden glow to all of the company's attributes - clear strategy, strong values, and brilliant leadership. But in fact, as Rosenzweig clearly illustrates, the experts are not just wrong, but deluded.Rosenzweig suggests a more accurate way to think about leading a company, a robust and clearheaded approach that can save any business from ultimate failure.

Genres: Business, Management, Nonfiction, Psychology, Leadership, Economics, Finance

256 pages, Kindle Edition

First published January 1, 2007

Reviews

[Herve · Rating 4 out of 5]

When I read that Nassim Nicholas Taleb said this is “one of the most important management books of all time”, I was intrigued. Usually I do not like general business books. But here, not only is it a great book, but fun to read!

What is the halo effect? A tendency to make inferences about specific traits on the basis of a general impression [Page 50].

The author has a major question: Is management a science? Pages 12-17 cover that sensitive topic: “In other fields, from medicine to chemistry to aeronautical engineering, knowledge seems to march ahead relentlessly. What do these fields have in common? In a word, these fields move forward thanks to a form of inquiry we call science. Richard Feynman once defined science as “a method for trying to answer questions which can be put into the form: If I do this, what will happen?” Science isn’t about beauty or truth or justice or wisdom or ethics. It’s eminently practical. It asks, If I do something over here, what will happen over there? If I apply this much force, or that much heat, or if I mix these chemicals, what will happen? By this definition, What leads to sustained profitable growth? is a scientific question. It asks, If a company does this or that, what will happen to its revenues or profits or share price?” [Page 12]

“Our inability to capture the full complexity of the business world through scientific experiments has provided fodder for some critics of business schools. Management gurus Warren Bennis and James O’Toole, in 2005 Harvard Business Review article, criticized business schools for their reliance on the scientific method. They wrote: “This scientific model is predicated on the faulty assumption that business is an academic discipline like chemistry or geology when, in fact, business is a profession and business schools are professional schools – or should be”. The notion seems to be that since business will never be understood with the precision of the natural sciences, it’s best understood as a sort of humanity, a realm where the logic of scientific inquiry doesn’t apply. Well, yes and no.” [Page 14]

Rozenzweig concludes this 1st chapter with a beautiful story (page 16), again from Richard Feynman: In the South Seas, there is a cult of people. During the war they saw airplanes land with lots of materials, and they want the same thing to happen now. So they’ve arranged to make things like runways, to put fires along the sides of the runways, to make a wooden hut for a man to sit in, with two wooden pieces on his head like headphones and bars of bamboo sticking out like antennas – he’s the controller. And they wait for the airplanes to land. They’re doing everything right. The form is perfect. But it doesn’t work. No airplanes land. So I call these things Cargo Cult Science, because they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential, because the planes don’t land. He called that last section Science, Pseudoscience and Coconut Headsets.

Storytelling and science

His criticism in chapter 6 of famous bestsellers In Search of Excellence by Peters and Waterman [page 83] and then of Built to Last by Collins and Porras [page 94] are particularly striking. Stories and science are different and the author explains many delusions created by approximate science:
#1: The Hallo Effect
#2: The delusion of Correlation and Causality
#3: The Delusion of Single Explanations
#4: The Delusion of Connecting the Winning Dots
#5: The Delusion of Rigorous Research
#6: The Delusion of Lasting Success
#7: The Delusion of Absolute Performance
#8: The Delusion of the Wrong End of the Stick
#9: The Delusion of Organizational Physics.
(if you are too lazy to read this great book, have at least a look at https://en.wikipedia.org/wiki/The_Hal...)

Rosenzweig tries to explain the complexity of measuring company performance. What are the key elements that managers should take into account for excellence? And Rosenzweig shows that storytelling has been as important as research in that quest. He further claims that authors of bestsellers such as In Search of Excellence, Built to Last or From Good to Great who claim their results were based on research, indeed were more excellent story tellers than rigorous researchers.
“It’s not that the important elements are not right. In Search of Excellence gives eight best practice: a bias for action; staying close to the customer; autonomy and entrepreneurship; productivity through people; hands-on, value-driven; stick to the knitting; simple form, lean staff; and simultaneous loose-tight properties.” [Page 85]

“Whereas in Built to Last, Collins and Porras give their 5 timeless principles: having a strong core ideology; building a strong corporate culture; setting audacious goals; developing and promoting people; creating a spirit of experimentation and risk-taking; driving for excellence”. [Page 96]

“Several researchers have studied the rate at which company performance changes over time. Pankaj Ghemawat at Harvard Business School examined the return on investments (ROI) of a sample of 692 American companies over a ten-year period from 1971 to 1980. He put together one group of top performers, with an average ROI of 39 percent, and one group of low performers, with an average ROI of just 3 percent. Then he tracked the two groups over time. What would happen to their ROIS? Would the gap persist, would it grow, or would it diminish? After nine years, both groups converged together toward the middle, the top performers falling from 39 percent to 21 percent and the low performers rising from 3 percent to 18 percent.” [Page 104]

“These studies, and others like them, all point to the basic nature of competition in a market economy. Competitive advantage is hard to sustain. Sure, if you want to, you can look back over seventy years of business history and pick out a handful of companies that have endured, but that’s selection based on outcomes.” [Page 105]

“Interviews with managers, asking them to look back over the ten-year period and recount their experiences (…) these sort of retrospective interviews are likely to be full of halos, as people take cues from performance and make attributions accordingly.” [Page 108]

Again Rosenzwieg has nothing against interviews, he just warns the reader that they have to be meticulously prepared to avoid any bias and answers based on outcomes.
“Another famous study, the Evergreen project, identified eight practices: strategy; execution; culture; structure; talent; leadership; innovation; and mergers and partnerships (Page 110). Yet once we see that performance is relative, it becomes obvious that companies can never achieve success simply by following a given set of steps, no matter how well intended; their success will always be affected by what rivals do” [Page 116].

“Perhaps the most interesting factor in Big Winners and Big Losers is mentioned as a brief aside but not examined closely: Marcus points out that large companies show up more frequently among the Big Losers, while almost all the Big Winners are small or midsize companies. This observation ought to spark one’s curiosity, because large companies got that way in the first place by doing things well – they didn’t grow by being Losers – yet something seemed to prevent them from maintaining that high performance. Extremer performance, for better and for worse, is more common among small companies”. [Page 132]

But a 10 percent difference in performance doesn’t say anything about what will happen at my company – the impact could be more or less or nothing at all. There’s no guarantee, no promise that inspires me to take action. Books, which provide simple and definitive advice and studies of organizational performance, stand in two very different worlds. The first world speaks to practicing managers and rewards speculations about how to improve performance. The second world demands and rewards adherence to rigorous standards of scholarship. Here science is paramount, storytelling less so. The result is a schizophrenic tour de force in which the demands of the roles of the consultant and teacher are disassociated form the demands of the researcher”. [Page 135]

“According to the Economist, Tom Peters can charge corporate clients up to $85,000 for a single appearance, and Jim Collins commands a fee of $150,000. There’s a lucrative market for spinning stories of corporate success. Will anyone hire (a researcher) at $85,000 or $150,000 a pop to talk about a statistically significant 4 percent difference in performance? Somehow it seems doubtful [page 136].

The test of a good story is not whether it is entirely, fully, scientifically accurate – by definition it won’t be. Rather, the test of a good story is whether it leads us toward valuable insights, if it is inspires towards helpful action, at least most of the time. [Page 137]

Strategy and execution

“Here’s how I like to think about company performance. According to Michael Porter of Harvard Business School, company performance is driven by two things: Strategy and execution.” [Page 144]

But both are full of uncertainties: “Strategy always involves risk because we don’t know for sure how our choices will turn out. […] A first reason has to do with customers. […] Sam Philips, the legendary Sun records producer, once cautioned, “Anytime we think you know what the public’s going to want that’s when you know you’re looking at a damn fool when you’re looking in the mirror”. Market reaction is always uncertain, and smart strategists know it. [Page 146]

“A second source of risk has to do with competitors. […] An entire branch of economics, game theory, has grown up around a simple form of competitive intelligence. […] A third source of risk comes from technological change. […] In his groundbreaking research Clayton Christensens at Harvard Business School showed that in a wide range of industries, from earth-moving equipment to disk drives to steel, successful companies were repeatedly dislodged by new technologies. [Page 147]

Jim Collins expressed surprised that [his] eleven Great companies came from ordinary, unspectacular industries. […] I suspect a different interpretation. These industries can be described as dowdy, but a better word might be stable. They were less subject to radical changes in technology, were less susceptible to shifts in customer demand, and may have had less intense competition. [Page 147]

As James March of Stanford and Zur Shapira of New York University explained, “Posthoc reconstruction permits history to be told in such a way that “chance”, either in the sense of genuinely probabilistic phenomena or in the senses of unexplained variation, is minimized as an explanation.” But chance does play a role, and the difference between a brilliant visionary and a foolish gambler is usually inferred after the fact, an attribution based on outcomes. [Page 150]

There are fewer unknowns […], yet execution still involves a number of uncertainties. [Page 151] And that brings us to the best answer I can provide to the question, What leads to high performance? If we set the usual suspects of leadership and culture and focus and so on – which are perhaps causes of performance – we’re left with two broad categories: strategic choice and execution. The former is inherently risky since it’s based on our best guesses about customers, about competitors, and technology, as well as about our internal capabilities. The latter is uncertain because best practices that work well on one company may not have the same effect in another. […] Wise managers know that business is about finding ways to improve the odds of success – but never imagine that success is certain. If a company makes strategic choices which are shrewd, works hard to operate effectively, and is favored by Lady Luck, it may put some distance between itself and its rivals, at least for a time. But even those profits will tend to erode over time. [Page 156]

The answer to the question what really works? is simple: Nothing really works. At least not all the time. […] So what can be done? A first step is to set aside the delusions that color so much of our thinking about business performance. To accept that few companies achieve lasting success. To admit that the margin between success and failure is often very narrow, and never quite as distinct or as enduring as it appears at a distance. And finally, to acknowledge that luck often plays a role in company success. [Page 158]

Rosenzweig finishes his book with examples of bold decisions from leaders at Goldman Sachs, Intel, BP, Logitech. Entrepreneurship inherently involves risks, but not doing anything would be much riskier.

[Paul · Rating 4 out of 5]

From HBR:
If a company is making a lot of money and you ask its employees to rate its performance on other dimensions – talent management, customer orientation, innovation, and so forth – they will give it high marks across the board. If a company is struggling financially, the ratings will be low across the board. This is due to the “halo effect,” a term coined decades ago by psychologist Edward Thorndike to describe people’s tendency, having already formed a conclusion about something’s merit, to attribute other qualities to it that are in line with that assessment.
With regard to organizational performance, it isn’t just the workforce that falls into this trap. The halo effect also distorts the judgments of analysts and journalists – and, in turn, the findings of management
researchers.
Phil Rosenzweig, a professor of strategy and international management at IMD in Switzerland, explains this problem and others in The Halo Effect…and the Eight Other Business Delusions That Deceive Managers and shows how these biases have undermined efforts to answer the “mother of all business questions”: What leads to high performance? That’s what Jim Collins famously examines in Good to Great and William Joyce and coauthors ponder in What Really Works. Rosenzweig shows, for instance, why we can’t trust John Kotter and James Heskett on the matter of
how culture drives performance. They surveyed employees and found that successful companies have strong cultures. That, says Rosenzweig, is a classic halo finding, as well as a probable muddling of cause and effect. Since people love being on winning teams, it may be that it’s the great financial results that are creating positive vibes in hallways, rather than the reverse.
The Halo Effect is immensely readable and will find an audience among management practitioners – no small feat for a text on research method. Rosenzweig crafts his narrative well, getting readers on board with his argument before putting their most beloved gurus in his crosshairs. By the end of the book, he’s getting away with borderline snarky comments he couldn’t have made in chapter one. He’s become a friend who rants but is right.
To say that this is a book for managers, though, is stretching it. The author says his goal is “to help managers become…less vulnerable to simplistic formulas and quick-fix remedies.” That’s noble, but managers are plenty skeptical about such claims. Indeed, when Rosenzweig decries the harm done by delusional research, he doesn’t put much heart into it. “Pursuing a dream of enduring greatness may divert attention from the pressing need to win immediate battles,” he notes. And “believing that performance is absolute can cause us to take our eye off rivals.” It’s all theoretically true – but just as clearly not happening.
The people who are really being saved here are management scholars. For
the ones who want to do rigorous research but don’t know how, this is as
concise and memorable a text as they’ll get. For those who’d like to get away with less, it’s fair warning. Enough of us will have read Rosenzweig to call them on it.

[Pavel Annenkov · Rating 5 out of 5]

О ЧЕМ КНИГА:
Автор утверждает, что невозможно разработать систему, которая бы давала рецепт достижения успеха в бизнесе. Все бизнес-бестселлеры и статьи в бизнес-журналах, которые мы с вами видим вокруг, просто подгоняют факты под определенные выводы своих авторов.
Они наделяют успешных руководителей и успешные компании нужными качествами, чтобы доказать свои утверждения.

Автор жестко проходится по таким книгам как «В поисках совершенства» и «Построенные навечно». В итоге оказалось, что авторы этих книг сами признают, что создали красивую историю, а не учебник по бизнесу.

Нет ничего более изменчивого, чем бизнес-среда и рынки. Поэтому то, что сработало у одних компаний в определенный момент времени, вряд ли сработает в вашем бизнесе прямо сейчас. Тогда возникает вопрос - «Что, теперь вообще не читать бизнес-литературу?». Конечно, читать. Только выбирайте авторов более придирчиво и относитесь всё-таки к большинству книг, как к красиво рассказанной истории.

ГЛАВНАЯ МЫСЛЬ КНИГИ:
Мы не можем определить, что влияет на успешность той или иной компании. Поэтому часто используем в своих объяснениях то, что проще. Мы создаем красивые истории успеха. Такой подход ошибочен и вреден.

КАКАЯ БЫЛА ЦЕЛЬ ЧТЕНИЯ:
Я давно говорю, что большинство бизнес-книг не работает. Хотелось узнать, как это объясняет автор «Эффекта ореола».

ГЛАВНЫЕ ВЫВОДЫ:
- Если собранные о компании данные не являются независимыми от результата, то как мы можем судить, приводят ли принципы по которым работает компания к успеху или успех сам способствует появлению этих принципов.

- Только научными методами можно доказать правильность утверждения. Наука беспристрастна. На нее не влияют вопросы красоты, истинности или справедливости. Её подход заключается в формуле - «Что случится, если будет вот это».

- Предъявите мне успешную компанию и я всегда найду, что сказать хорошего о ее руководителе. Покажите мне неуспешную, и я с такой же легкостью скажу, чем плох ее лидер:)

- Как ни крути, а судя по всем исследованиям, клиентоориентированность сильно влияет на успех компании.

ЧТО Я БУДУ ПРИМЕНЯТЬ:
- Буду пропускать в бизнес-журналах восторженные статьи про великих руководителей.

ЕЩЕ НА ЭТУ ТЕМУ:
Бен Хоровиц «Легко не будет»

[Milan · Rating 2 out of 5]

I wanted to learn about biases but Halo Effect by Phil Rosenzweig did not deliver on that count and turned out to be a business book. A few points from the book:

• The Halo Effect - If you think well of a particular business, you will attach positive attributes to anything connected to it, even without any logic.
• Connecting the Winning Dots - Most of the time researchers look for similar traits among prosperous companies.
• Lasting Success - Don’t be sure that once you get lucky, it will last forever.

Rosenzweig list five things that 'enlightened' managers should be aware of:
1. Good strategies involve risk and no strategy can be foolproof.
2. What works well for one company may not be effective for another company.
3. Chance plays a greater role in success than managers may want to admit or even realize.
4. Bad outcomes don’t always mean that managers have made mistakes. Likewise, favourable outcomes don’t necessarily mean that managers have made great decisions.
5. “When the die is cast, the best managers act as if chance is irrelevant. Persistence and tenacity are everything.”

[Craig a.k.a Meatstack · Rating 4 out of 5]

I have to admit, I have a bit of a soft spot for business books. I've read through all the greats. However this book has opened made me reconsider them from a whole new light.

The basic premise, the "Halo", is that when a company does well, it's reflected in the soft aspects of the company. When it does poorly the opposite is true.

So, Intel dumping it's memory chip line to focus on processors was a bold stroke and demonstrated visionary leadership because it worked. Had it not worked, business books would have said that Intel strayed from it's core, or lost focus.

Thinking about all those books I've read, I have to agree on this.

This book is a great reality check to cut some of the sweet from the genre. If you've read "Good to Great" "Built to Last" etc, then you ought to check this one out too.

[Zohreh Avatefi hafez · Rating 4 out of 5]

Beyond that i read too much about this book title but it have too much good points of view (especially in management) and i like it.

[Preston Kutney · Rating 5 out of 5]

Foundational for anyone who reads business books.

The "Halo Effect" in social psychology is the tendency for competence or success in one area to spill into evaluations of other areas that are not necessarily related. In management research this manifests itself as the tendency to positively evaluate characteristics of companies that are successful, and negatively evaluate characteristics of companies that are unsuccessful, even if those characteristics in isolation are identical. As an example of how this works, take the statement: "Winners are confident, losers are arrogant". The exact same manager could be evaluated completely differently depending on the outcome. And the problem with most management research is that it is conducted retrospectively - we know whether the company succeeded or failed, meaning that our evaluation of the characteristics, behaviors, components of the company that led to that outcome are colored by our knowledge of the outcome. This becomes a chicken-and-egg problem where the process of success cannot be untangled from the success, because our evaluation of the process is affected by the outcome.

"Do these practices lead to high performance? Or do high-performing companies tend to be described in these terms? The latter explanation is at least as likely as the former. "

Lessons: Culture or leadership factors probably lead to business success, but it is hard to separate them from the outcome - you get positive attribution from positive outcomes and vice versa.

So then...what's left? Rosenzweig gives his conclusion:

"We're left with two broad categories: strategic choice and execution. The former is inherently risky since it's based on our best guesses about customers, about competitors, and technology, as well as about our internal capabilities. The latter is uncertain because practices that work well in one company may not have the same effect in another. In spite of our desire for simple steps, the reality of management is much more uncertain than we would often like to admit -- and much more so than our comforting stories would have us believe. Wise managers know that business is about finding ways to improve the odds of success -- but never imagine that success is certain....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 its rivals, at least for a time."

Not a reassuring takeaway for someone about to study management, but a sober look at a subject whose claims often reach delusion.

[Moh. Nasiri · Rating 5 out of 5]

اثر هاله ای یا خطای تعمیم
اثر هاله ای (خطای هاله ای) به نوعی خطا در شناخت و تصمیم‌گیری گفته می شود که تحت تاثیر ذهنیت قبلی قضاوت کننده شکل می گیرد و میتواند از حقیقت به دور باشد.
نویسنده آقای فیل روزنویگ در این کتاب به انتقاد از الگوهای شبه علمی در توضیح دلایل موفقیت شرکت‌ها می‌پردازد. وی بر این باور است که حجم زیادی از محتوای مکتوب در حوزه کسب‌وکار ماهیت دقیق علمی ندارد و بنا بر تعریف ریچارد فاینمن در زمره علم محموله‌پرست‌گونه جای می‌گیرند.
خیلی از کتابهایی که درباره‌ی موفقیت در کسب و کار نوشته‌شده‌اند پر از تضمین‌های محکم و راهنمایی هستند که نویسنده ادعا می‌کند به روش کاملا علمی و از مطالعه‌ی شرکتهای دیگر استخراج کرده. این کتاب نشانمان می‌دهد چرا بیشتر این کتاب‌ها خطاهای بزرگ شناختی و منطقی دارند و اگر این کتابها نمی‌توانند منبع خوبی باشند کجا باید دنبال راهنمایی‌های درست و حسابی بگردیم.
(پادکست بی پلاس)
https://bpluspodcast.com/archives/the...
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Rosenzweig identifies nine popular business delusions. Among them:

"The Delusion of Absolute Performance: " Company performance is relative to competition, not absolute, which is why following a formula can never guarantee results. Success comes from doing things better than rivals, which means that managers have to take risks.

"The Delusion of Rigorous Research: " Many bestselling authors praise themselves for the vast amount of data they have gathered, but forget that if the data aren't valid, it doesn't matter how much was gathered or how sophisticated the research methods appear to be. They trick the reader by substituting sizzle for substance.

"The Delusion of Single Explanations: " Many studies show that a particular factor, such as corporate culture or social responsibility or customer focus, leads to improved performance. But since many of these factors are highly correlated, the effect of each one is usually less than suggested.

Drawing on examples from leading companies including Cisco Systems, IBM, Nokia, and ABB, Rosenzweig shows how the Halo Effect is widespread, undermining the usefulness of business bestsellers from "In Search of Excellence" to "Built to Last" and "Good to Great."

[Geoff Noble · Rating 5 out of 5]

I will the first to admit I read a lot of business "how to" books, stories about bubbles and crashes etc. This book made me rethink everything I have read in the past and made me realise how I am as guilty as anyone for letting the Halo effect cloud my decision making.

The Halo Effect is essentially about our very human desire to find meaning in everything by ascribing causes to certain outcomes. In other words, we tend to judge our decisions by the outcomes they produce. Unfortunately (or some would counter fortunately), we live in an uncertain complex world where the outcome of most decisions cannot not be predicted.

This resonates with me due to the fact I work as a fund manager. We are judged by the performance of the funds we manage (and more often than not over the short term). Sometimes you follow a sound process and end up with a poor investment result and on other occasions your process is flawed and you end up with a good result (if we honest we should call the outcome luck!). The point is investment professionals should be judged by how they came about a decision rather than merely the outcome. This of course is unrealistic as it completely against the outcomes obsessed nature of humans.

This book is also about thinking in probabilistic terms. We should make decisions based on probabilities. This acknowledges that we will not always get the outcome desired but if we consistently follow probabilities then we should more often than not end up with a satisfactory result.

A great book that I will read over and over again.

[Нестор · Rating 5 out of 5]

Жёсткая, сильная, правдивая книга.

Очень рекомендую как противоядие от мифов и легенд бизнес-литературы и периодики.

Книга хорошо заставляет подумать и переоценить как ряд модных концепций, так и несколько модных бестселлеров.

[Jurgen Appelo · Rating 5 out of 5]

Every management consultant, speaker and writer should read this.

[Viktor Lototskyi · Rating 5 out of 5]

It says on the cover, "One of the most important management books of all the time."

After reading this one and a dozen 'how to build a successful company .' I can relate.

The book brings a fundamental question, can you measure company success and what brought it in with some data and analysis?

And then it answers, you can't (in majority cases), but what's more important is that author shows you why you can't, how much you don't know and how much you and many authors are biased.

Companies' performance is always relative; it's all about strategy and execution, taking risks during unknowns and uncertainties, acknowledging an always-around lurking chance and luck and moving forward. Good luck putting it into the framework.

I think in the end, successful companies are like marriages.

Every successful company is successful in the same way (great people, culture, innovation and so on); every not that successful - has many reasons to explain it.

[Eugene · Rating 5 out of 5]

The true "success formula" often is not what we want to think and to hear!

[Dr. Tobias Christian Fischer · Rating 4 out of 5]

Ein schönes Buch fernab vom Mainstream. Es macht sich und sein Vorgehen als Manager zu hinterfragen.

[Shahab · Rating 3 out of 5]

خیلی از کتابهایی که درباره‌ی موفقیت در کسب و کار نوشته‌شده‌اند پر از تضمین‌های محکم و راهنمایی هستند که نویسنده ادعا می‌کند به روش کاملا علمی و از مطالعه‌ی شرکتهای دیگر استخراج کرده. این کتاب نشانمان می‌دهد چرا بیشتر این کتاب‌ها خطاهای بزرگ شناختی و منطقی دارند و اگر این کتابها نمی‌توانند منبع خوبی باشند کجا باید دنبال راهنمایی‌های درست و حسابی بگردیم.

کتاب جایگزین هوشمندانه‌تری برای طرز فکر معمول ما درباره‌ی موفقیت کسب و کارها پیشنهاد می‌کند و کمک می‌کند بهتر و با چشم بازتر دنبال دلایل موفقیت و شکست کسب و کارها بگردیم و نسبت به خطاهای منطقی و شناختی معمول آگاه‌تر باشیم.
https://bpluspodcast.com/archives/the...

[Adrienne · Rating 5 out of 5]

Why didn't I learn about The Halo Effect until the end of my MBA? This book will help you apply critical thinking to the masses of business books out there. Quite simply, there are no easy steps and no guarantees. Take the good ideas from the business literature, STUDY YOUR COMPETITION, and respond to their moves appropriately. Then cross your fingers.

****
Update: I’m employee #1 in a startup now, which motivates me to revisit some B school faves. I’m not only looking for refreshers on strategy, but also for help in framing the product.

Here are some of my notes from this second read:
* A scientific question: “What leads to sustained profitable growth?”

* What is a halo? Attributions based on performance. A halo doesn’t contribute to performance, but rather is based on it.

* Our desire to tell stories, to provide coherent direction to events, may also cause us to see trends that do not exist or infer causes incorrectly.

* According to Michael Porter (HBS), company performance is driven by STRATEGY and EXECUTION. Strategy is about performing different activities from those of rival companies, or performing similar activities in different ways. Execution is all about carrying out those choices:
- Building high quality products
- Providing customer service
- Managing working capital
- Developing and deploying talent

* Strategic choice is hugely consequential for a company’s performance, yet also inherently risky. The key is to ask: “For OUR company, at THIS time, competing against OUR rivals, which of the many dimensions of execution are MOST important?

* Tom Peters observed, “To be excellent, you have to be consistent. When you’re consistent, you’re vulnerable to attack. Yes, it’s a paradox. Now deal with it.”

* A decision process should include information gathering, assumptions, calculations (if applicable), and possible outcomes with impacts estimated. (Then you can compare with actual results.)

* Continuously scan the environment to learn of changes in technology and competitors and customers, gathering info the whole time.

* Improve your chances of success by looking clearly and carefully at the odds, at your own capabilities, at the motives and abilities of your rivals, and make the best judgment you can.
- THEN follow disciplined execution.
- MEASURE performance every step of the way.
- ADAPT to new information.

[Chris Rock · Rating 4 out of 5]

I didn't think I'd ever give 5 stars to a business book, but this is no ordinary business book. This book points out the logical errors that are made by most other business books--mainly, that when you examine success (or failure) in a business, their practices are influenced by your initial impression of the company. A successful company that tries something new is "innovate", "creative", "risk-taking". A company that tried something new and failed is "overextended", "unfocused", and "risky".

Add in difference between correlation and causation, the cumulative effect of positive traits, and the human bias for storytelling and explanation and you've got all the reasons I've disliked almost every other business book I've read (especially "research"-based ones).

The book lays out why it's difficult to find "silver bullet solutions" to business practices and just from that it's a refreshing change from almost every other business book out there.

[Fraser Kinnear · Rating 3 out of 5]

I liked this in that it's a business book that tells you not to trust business books. This book discusses the halo effect as it applies to businesses and business leaders. The book points out how difficult it is to identify what factors cause a business or business leader to be successful. Like any business book, I think I would have preferred to get this as a short article - not really worth reading in its entirety.

[Monalili · Rating 4 out of 5]

وسط میلیون ها کتاب راهکارهای مدیریت این بهترین بود. و اولین کتابی بود که به این موضوع پرداخت که برای رفتارهای مدیر و شیوه مدیریت یک سازمان امکان نوشتن دستورالعمل نیست. مدیریت علم ریاضی نیست که همیشه دو به اضافه دو چهار شود. شیوه های یکسان در یک سازمان باعث پیشرفت و در دیگری اثری مخرب دارد.
کتابهای مدیریت که همانند مجله های زرد هر روز چاپ میشوند امروز رفتار مدیر سازمان خاصی را ستایش میکنند و فردا روز بعد از شکست وی همان روشهای اورا به عنوان عامل شکستش مطرح میکنند.

[Danial Kalbasi · Rating 4 out of 5]

This shouldn't be a book with 200 pages, it should be just an article. Maybe a long one.

Full of repetitive sections which totally ruin the reading experience.

Not the book has nothing good, but it has a little. The most part of the chapters spends to criticize the other writers and their books. This is fine at some point, but only if it comes with lots of other suggestions.

[Prakriti · Rating 4 out of 5]

Perhaps the best management book of all time. It is not inspiring (which is why the four stars) because it is critical. Needs to be read by anyone who is exposed to management writing of any kind, and that includes journalism's coverage of business. Very highly recommended.

[Leonardo · Rating 3 out of 5]

It's a good book in general and draws our attention to the biases of many of the books I had read in the past - such as "Good to great".

However it is repetitive and I feel the ideas could have been conveyed in half the amount of pages.

[Alexey Vyskubov · Rating 1 out of 5]

Water, water, and more water.

The short summary of the book: blah, blah, blah, one trivial idea, blah, blah, blah, wow! popular "business" books are not science! blah, blah, blah.

[Mads Gorm Larsen · Rating 5 out of 5]

Finally a book that takes on all the hot air and bullshit in mangement litterature. I do hope that Rosenzweig will one day run over Simon Sinek.

[Arno Mosikyan · Rating 5 out of 5]

EXCERPTS:

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 company 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 Explanations Many studies show that a particular factor—strong company culture or 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 of good quality, it doesn’t matter how much we have gathered or how sophisticated our research methods appear 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.

“We don’t mind if others put a halo on us, but we never want to be fooled by our success. We need to understand what drives our success, and strive to do better.” ICICI’s leaders wanted to focus on the real drivers of performance for a financial institution and not merely infer that they were doing well at execution or customer service just because the overall results were strong. They didn’t want to be taken in by the Halo of their own success.

Is delusion too strong a word? I don’t think so. A longtime friend of mine, Dick Stull, explains the difference between illusion and delusion this way. When Michael Jordan appears to hang motionless in midair for a split second while on his way to a slam-dunk, that’s an illusion. Your eyes are playing tricks on you. But if you think you can lace up a pair of Nikes, grab a basketball, and be like Mike, well, that’s a delusion.

The delusions I describe in this book are a bit like that—they’re promises that you can achieve great success if you just do one thing or another, but they’re fundamentally flawed. In fact, some of the biggest business blockbusters of recent years contain not one or two, but several delusions. For all their claims of scientific rigor, for all their lengthy descriptions of apparently solid and careful research, they operate mainly at the level of storytelling. They offer tales of inspiration that we find comforting and satisfying, but they’re based on shaky thinking. They’re deluded.

The business world is full of people who are plenty smart—clever, quick of mind, and conversant in current management concepts. In short supply are managers who are wise—by which I mean discerning, reflective, and able to judge what’s correct and what’s wrong.

One of my role models here is the late Herbert Simon, father of artificial intelligence, Nobel Prize winner in economics for his work on decision making, and professor at Carnegie Mellon University from the late 1940s until his death in 2001. In his memoirs, Models of My Life, Simon described how his service on several foreign fact-finding missions in the 1960s, often time-consuming and very costly, led him to formulate his Travel Theorem, which goes like this: Anything that can be learned by a normal American adult on a trip to a foreign country (of less than one year’s duration) can be learned more quickly, cheaply, and easily by visiting the San Diego Public Library.

Another of the wise men whose voice appears in these pages, the physicist Richard Feynman, once remarked that many fields have a tendency for pomposity, to make things seem deep and profound.

It’s as if the less we know, the more we try to dress things up with complicated-sounding terms. We do this in countless fields, from sociology to philosophy to history to economics—and it’s definitely the case in business.

Chris Zook at Bain & Company argued in his 2001 book, Profit from the Core, that companies often do best when they focus on relatively few products for a clear segment of customers. When companies get into very different products or go after very different sets of customers, the results often aren’t pretty. But here’s the catch: Exactly how do we define a company’s core?

The social psychologist Eliot Aronson observed that people are not rational beings so much as rationalizing beings.

Richard Feynman once defined science as “a method for trying to answer questions which can be put into the form: If I do this, what will happen?” Science isn’t about beauty or truth or justice or wisdom or ethics.

They’re better described as pseudoscience. Richard Feynman had an even more memorable phrase: Cargo Cult Science. Here’s the way Feynman described it: In the South Seas there is a cult of people. During the war they saw airplanes land with lots of materials, and they want the same thing to happen now. So they’ve arranged to make things like runways, to put fires along the sides of the runways, to make a wooden hut for a man to sit in, with two wooden pieces on his head like headphones and bars of bamboo sticking out like antennas—he’s the controller—and they wait for the airplanes to land. They’re doing everything right. The form is perfect. But it doesn’t work. No airplanes land. So I call these things Cargo Cult Science, because they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential, because the planes don’t land. That’s not to say that Cargo Cult Science doesn’t have some benefits.

Show me a company that has fallen on hard times, and I can always find some reason to explain why the leader failed.

All of which brings to mind a 1964 Supreme Court case about free speech and pornography, in which Justice Potter Stewart memorably wrote that while he could not provide a good definition of hard-core pornography, “I know it when I see it.” Since good leadership is usually difficult to identify in the absence of data about performance, it seems that leadership is even more difficult to recognize than is hard-core pornography—which at least Justice Stewart knew when he saw it.

But when some researchers took a closer look, they found that Fortune’s Most Admired ratings were heavily influenced by a Halo Effect.

Foster and Kaplan conclude: “McKinsey’s long-term studies of corporate birth, survival, and death in America clearly show that the corporate equivalent of El Dorado, the golden company that continually performs better than the markets, has never existed. It is a myth. 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” (Italics in the original).

The Delusion of Absolute Performance is hugely important because it suggests that companies can achieve high performance by following a simple formula, regardless of the actions of competitors.

Add together these three factors—uncertain customer demand, unpredictable competitors, and changing technology—and it becomes clear why strategic choice is inherently risky.

Anyone who claims to have found laws of business physics either understands little about business, or little about physics, or both.

Any good strategy involves risk. If you think your strategy is foolproof, the fool may well be you.

Chance often plays a greater role than we think, or than successful managers usually like to admit.

[Christian · Rating 5 out of 5]

This book is the cold water splashed in the face of the fast food philosophers that are business book writers. This is the most lucid, clearheaded and realistic business book I have ever read. I would argue the best one of all time because it clears away the myth of simplifying an extremely complex science into “these five rules that will propel your business to greatness”, or “this simple trick which will unlock your inner potential”, or whatever click bait ad like title is the name of the next best seller. Wonderful.

[Adriano · Rating 2 out of 5]

Reflexiones interesantes que entran en pocas páginas. Acompañado de extracto de entrevistas, comentarios de la prensa especializada en negocios, alguna que otra frase célebre del mundo corporativo. No es un libro de autoayuda empresarial, como lo son la mayoría. Por ese motivo le pongo 2 estrellas en lugar de 1.

[Allisonperkel · Rating 4 out of 5]

Finally a business book that doesn’t give 5 steps to success. This book talks about no easy answers and how we can be misled by history.

[Maysam Ebadi · Rating 3 out of 5]

خلاصه این کتاب رو در پادکست بی‌پلاس گوش کردم. کتاب جذابی به نظر میرسه، سرفرصت باید کامل بخونمش.


لینک پادکست:
https://bpls.me/h6n-he

[Manas Saloi · Rating 5 out of 5]

A business book that will make you stop reading more business books about what makes a company successful.