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

This quick read must have started as a lecturn-pounding rant on 'why most famous business books are nonsense.' He certainly makes the case well, and delivers some well-deserved slams (I could not resist reading some of his more-cutting passages aloud to my colleagues, to their annoyance). Example: "Collins claimed to explain why some companies made the leap while others didn't, but in fact he did nothing of the kind... 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." Famous studies (such as the Collins series) are typically afflicted by two fundamental errors: selecting on the dependent variable, and using as evidence indicators which are colored by outcomes (and not independent of each other, either). As a result, these studies work better as encouraging stories than as reliable guides to action. Give this book to the guy in the next office who's always quoting from 'Good to Great,' or to the nearest McKinsey partner you find (if they know what it is, they'll recoil like a vampire from holy water). And use Rosenzweig's Delusions as a checklist for exposing sloppy thinking on the part of anyone peddling "five simple steps" (or whatever) as the ticket to better business performance.

Agree with him or not, this book calls into question the piles and piles of business books sittting in offices and homes all across the USA. Its Big Idea: these books are little more than useless self help books, telling inspiring stories but little more. No one is spared, including Jim Collins. Why? The books are generic, not taking into account the uncertainity and unpredicitability of business. The generic books always reverse engineer---a company makes a lot of money and thus what it did is smart and should be adapted by all. Not so says Rosenzweig, who preaches that one size does not fit all. His zen take:"success is not random but it is fleeting." We learn nothing from a company doing well or poorly because a company's expereince in the market place is unique to that company and its competitiors and its own business eco-system. It is short and compelling.

I have just finished reading what I consider to be one of the most valuable business books in a long time. Maybe a long, long time. Written by Phil Rosenzweig, a professor at IMD in Lausanne, Switzerland, The Halo Effect ... and the Eight Other Business Delusions That Deceive Managers claims that most business books contain errors of logic and flawed judgments that distort our understanding for a company's performance. The_halo_effect Moreover, Rosenzweig argues that media is no less error-prone in divining the reasons for a company's performance than gurus who write books on company performance. He uses two prominent case histories to support the latter claim. Cisco and ABB. He recalls for readers how before the dotcom bubble collapse Cisco's John Chambers was widely regarded as the world's best manager and Cisco itself as without surpass in its organizational structure and corporate culture. Beyond that, according to the common view expressed in media, no company operated with greater customer centricity. Within months of the dotcom collapse the same media that had virtually canonized Chambers were ripping his reputation as a great CEO to shreds. Cisco's was criticized for lack of attention to customer needs. This was alleged to have played a major role in its downturn in revenues and consequent precipitous loss in stock value. Writers told how the company's organization was fragmented and its culture grossly defective. Rosenzweig tells a similar story of the Swiss-Swedish power company ABB. From being one of Europe's most highly regarded company to being a favorite whipping boy in media within not very many months, ABB turned out to be another example of what Rosenzweig calls the Halo Effect. As Rosenzweig explains it, the Halo Effect refers to the aura surrounding a company and its leadership that promotes gross generalizations about its nature. When a company is outperforming, most everyone assumes everything about the company is exemplary. When the same company is underperforming, most everyone assumes everything about the company is defective. Rosenzweig reminds us that externalities accounted mainly for Cisco's and ABB's decline in fortune. Cisco's downturn for example was inextricably linked to its Internet customers who flamed out in droves when the dotcom bubble burst. No amount of executive brilliance could have stayed the fiscal injury inflected by the dotcom bust. Rosenzweig takes on the business book genre with lethal dispatch. While observing that some of the principles presented in Tom Peters and Bob Waterman's classic, In Search of Excellent, have wonderfully withstood the test of time, he say Peters and Waterman's prose is filled with extractions from corporate halos. However, he ruthlessly guts Jim Collins' two books, Built to Last and Good to Great for their errors of logic and flawed judgments. Rosenzweig avers that Collins' and most other writers of business books usually ignore external influences on a company's per

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 a

This is a rare business and management book. But a warning is in order. It is not intended for those seeking the "secret to success" or the formula to "dominate the market." Phil Rosenzweig, a professor at IMD in Lausanne, Switzerland and strategy consultant, argues that much of business thinking is dominated by nine delusions: 1. The Halo Effect - many performance drivers are simply attributions based on prior performance. 2. The Delusion of Correlation and Causality - Two things may be correlated but we may not know which is the base cause. 3. The Delusion of Single Explanations - Many explanations are highly correlated; the effect of each one is usually less than suggested. 4. The Delusion of Connecting the Winning Dots - It is difficult to isolate the reasons for success. There is no way of comparing them with less successful companies. 5. The Delusion of Rigorous Research - If the data are not good, it does not matter how sophisticated the research methods appear to be. 6. The Delusion of Lasting Success - Almost all high-performing companies regress over time. 7. The Delusion of Absolute Performance - Company performance is relative, not absolute. 8. The Delusion of the Wrong End of the Stick - Highly-focused companies are often successful; yet highly-focused companies are not all successful. 9. The Delusion of Organizational Physics - Despite our quest for certainty and order, company performance does not obey the laws of nature and science. In his final two chapters, Rosenzweig suggests ways for managers to replace delusions with a more discerning way to understand company performance. This book carries no promises of success. Rosenzweig guarantees no successful results. He believes, and I agree, that a clear-eyed, critical and thoughtful approach to management is better than the causal tripe that dominates today's business bookshelves.