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

Phil Rosenzweig (Author)

Book Description

Publication Date: January 6, 2009

Much of our business thinking is shaped by delusions -- errors of logic and flawed judgments that distort our understanding of the real reasons for a company's performance. In a brilliant and unconventional book, Phil Rosenzweig unmasks the delusions that are commonly found in the corporate world. These delusions affect the business press and academic research, as well as many bestselling books that promise to reveal the secrets of success or the path to greatness. Such books claim to be based on rigorous thinking, but operate mainly at the level of storytelling. They provide comfort and inspiration, but deceive managers about the true nature of business success.

The most pervasive delusion is the Halo Effect. When a company's sales and profits are up, people often conclude that it has a brilliant strategy, a visionary leader, capable employees, and a superb corporate culture. When performance falters, they conclude that the strategy was wrong, the leader became arrogant, the people were complacent, and the culture was stagnant. In fact, little may have changed -- company performance creates a Halo that shapes the way we perceive strategy, leadership, people, culture, and more.

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.

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.

In what promises to be a landmark book, The Halo Effect replaces mistaken thinking with a sharper understanding of what drives business success and failure. The Halo Effect is a guide for the thinking manager, a way to detect errors in business research and to reach a clearer understanding of what drives business success and failure.

Skeptical, brilliant, iconoclastic, and mercifully free of business jargon, Rosenzweig's book is nevertheless dead serious, making his arguments about important issues in an unsparing and direct way that will appeal to a broad business audience. For managers who want to separate fact from fiction in the world of business, The Halo Effect is essential reading -- witty, often funny, and sharply argued, it's an antidote to so much of the conventional thinking that clutters business bookshelves.

Editorial Reviews

From Publishers Weekly

This tart takedown of fashionable management theories is a refreshing antidote to the glut of simplistic books about achieving high performance. Rosenzweig, a veteran business manager turned professor, argues that most popular business ideas are no more than soothing platitudes that promise easy success to harried managers. Consultants, journalists and other pundits tap scientifically suspect methods to produce what he calls "business delusions": deeply flawed and widely held assumptions tainted by the "halo effect," or the need to attribute sweeping positive qualities to any company that has achieved success. Following these delusions might provide managers with a comforting story that helps them frame their actions, but it also leads them to gross simplification and to ignore the constant demands of changing technologies, markets, customers and situations. Mega-selling books like Good to Great, Rosenzweig argues, are nothing more than comforting, highbrow business fables. Unfortunately, Rosenzweig hedges his own principles for success so much that managers will find little practical use for them. His argument about the complexity of sustained achievement, and his observation that success comes down to "shrewd strategy, superb execution and good luck," may end up limiting the market for this smart and spicy critique. (Feb. 6)
Copyright © Reed Business Information, a division of Reed Elsevier Inc. All rights reserved. --This text refers to an out of print or unavailable edition of this title.

Review

"I was taken by this book. It destroys myths concerning the attribution of success in the management literature using potent empirical arguments. It should stand as one of the most important management books of all time, and an antidote to those bestselling books by gurus presenting false patter and naive arguments." -- Nassim Nicholas Taleb, author of Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets

"In The Halo Effect, Phil Rosenzweig has done us all a great service by speaking the unspeakable. His iconoclastic analysis is a very welcome antidote to the kind of superficial, formulaic, and dumbed-down matter that seems to be the current stock in trade of many popular business books. It's the right book at the right time." -- John R. Kimberly, Henry Bower Professor of Entrepreneurial Studies, The Wharton School, University of Pennsylvania

"Business books all too rarely combine real-world savvy with scientific rigor. Rosenzweig's book is an outstanding exception -- it's a superb work and long overdue." -- Philip E. Tetlock, Lorraine Tyson Mitchell II Chair in Leadership and Communication, Haas School of Business, University of California, Berkeley

"Rosenzweig doesn't only poke fun at the mass of bad writing and bad science in the management world. He explains why it is so bad -- and how you can learn from it, despite the efforts of the authors." -- John Kay, Financial Times columnist and author of Everlasting Light Bulbs: How Economics Illuminates the World

See all Editorial Reviews

Product Details

• Paperback: 256 pages
• Publisher: Free Press; Reprint edition (January 6, 2009)
• Language: English
• ISBN-10: 0743291263
• ISBN-13: 978-0743291262
• Product Dimensions: 8.1 x 5.4 x 0.9 inches
• Shipping Weight: 8.8 ounces (View shipping rates and policies)
• Average Customer Review: 4.6 out of 5 stars  See all reviews (74 customer reviews)
• Amazon Best Sellers Rank: #20,380 in Books (See Top 100 in Books)
  • #72 in Books > Business & Investing > Management & Leadership > Decision-Making & Problem Solving

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Customer Reviews

Most Helpful Customer Reviews

132 of 135 people found the following review helpful:

5.0 out of 5 stars Excellent. Asks probing questions and makes you THINK., March 4, 2007

By 

Avinash Sharma "MBA, M.S., Knowledge Worker" (Toronto) - See all my reviews

This review is from: The Halo Effect: ... and the Eight Other Business Delusions That Deceive Managers (Hardcover)

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 are highly correlated, the effect of each one is usually less than suggested.
4. 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.
5. Rigorous Research: If the data aren't of good quality, the data size and research methodology don't matter.
6. Lasting Success: Almost all high-performing companies regress over time. The promise of a blueprint for lasting success is attractive but unrealistic.
7. Absolute Performance: Company performance is relative, not absolute. A company can improve and fall further behind its rivals at the same time.
8. The Wrong End of the Stick: It may be true that successful companies often pursued highly focused strategies, but highly focused strategies do not necessarily lead to success.
9. 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.
Overall, I found this to be an excellent book and recommend it to all managers.

42 of 45 people found the following review helpful:

5.0 out of 5 stars A Rare Look at Business Performance, February 20, 2007

By 

Craig L. Howe "The Pointed Pundit" (Darien, CT United States) - See all my reviews
(VINE VOICE)    (REAL NAME)   

This review is from: The Halo Effect: ... and the Eight Other Business Delusions That Deceive Managers (Hardcover)

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.

25 of 25 people found the following review helpful:

4.0 out of 5 stars Important debunking of business research. Rosenzweig suggests we might have to *gasp* think, March 26, 2007

By 

Stever Robbins - See all my reviews
(REAL NAME)   

This review is from: The Halo Effect: ... and the Eight Other Business Delusions That Deceive Managers (Hardcover)

"The Halo Effect" may be the last business book you read. Not because it has answers, but because it shows you the answers just aren't there. For you who want Truth about business, this book's for you. If, on the other hand, you find comfort in a good fairy-tale, whose magical "Drink Me" formula takes your business to the Wonderland of business success, you'll find no Magic Mushrooms here.

If you've read many business best-sellers, you may have noticed they all sound the same. And jeez, are they trite. Focus. Treat people well. Be flexible, yet focused. Blah, blah blah. Nice generalities, slightly too vague to mean anything, yet specific enough to sound meaningful. And why are they all the same? Thank The Halo Effect that gives the book its title. The Halo Effect observes that when you ask people about a successful company (or successful leaders) after the success is known, they always give the same explanation: we had great culture, teamwork, focus, flexibility, and people. Thus, after-the-fact interviews are useless in understanding what really makes a business successful, since you can predict in advance what people will say. And they aren't saying it because it's true, they're saying it because of The Halo Effect.

The Halo Effect is the first of the "Business Delusions that Deceive Managers." Actually, the delusions chronicled deceive business _researchers_. Rosensweig travels from In Search of Excellence through Good to Great, mercilessly showing how each book's research is faulty. Very faulty. The books produce $60,000 speaking fees for the authors, but their business advice is dicey at best.

Some Delusions can be fixed by careful researchers. The Halo Effect vanishes when researchers look only at measurable data, rather than subjective reports. Or consider The Delusion of Connecting the Winning Dots. Any study of the excellent must contrast against the not-excellent to get good results. Imagine surveying 50 Billionaires who all say, "I ate cereal for breakfast growing up." Unless we find that non-Billionaires didn't eat cereal for breakfast, we can't say that eating cereal leads to wealth. Many business best-sellers only study the winning companies (indeed, the losers aren't around to study). But a study like Good to Great conquers this Delusion by contrasting successes with non-successes.

Sadly, other Delusions can't be fixed. The Delusion of Absolute Performance says that businesses operate in industries with competition that's changing all the time. There's no universal set of rules that work, because competitors change what they do, and in the new landscape, old habits may no longer lead to success. Even a perfect study design can't know the future of competition, and can't guarantee that results will work in the future.(*)

The Halo Effect and the Delusions took up almost the whole book. In the last two chapters, the author offers some glimmers of hope. While there are no simplistic Five Steps, Rosenzweig says careful attention to strategic decision making and excellent execution can lead to success. Learning to evaluate probabilities, think in terms of strategic choices, and execute superbly can help businesses do well at any given moment.

As a book, the Halo Effect was less than perfect. The pacing was off. It spent way too much time on the stories and the Delusions. By page 120, I felt like I'd gotten the point. The Halo Effect is Bad, and pervasive in research. As the book started delving into the other Delusions, they seemed almost an afterthought (and many weren't even given as much as their own chapter). A better devision would give each Delusion equal treatment, and spend much more time delving into Rosenzweig's keys to greater success: strategic decision-making and execution. In many ways, the book read more as a warning to future business researchers than a useful book for managers.

That said, it was a good read. And despairingly, the Delusions are real enough that you remember. Even when you want to suspend disbelief and revel in a Cinderella story of Fairy Godperson CEOs, it's hard. I attended a book launch reception the night I finished The Halo Effect. Instead of Oohing and Aahing, I munched hors d'oeuvres and tallied fallacies in the book's assumptions and methodology. As everyone else lined up for the author's autograph, I donned my jacket and vanished into the night, feeling like I'd just witnessed the birth of another useless fad.

When it comes to running a business, it pays to be fact-based. This book will help you separate the fact from fiction. But if you want Cinderella stories of Fair Godperson CEOs and the Magical Five Steps, books with large type about Moving Cheese are the way to go.

(*) Halfway through the book I invented my own unfixable delusion: the Delusion of Ethical Business. If UnethicalCo is winning in the marketplace by publishing fraudulent advertisement and engaging in restraint of trade, will its employees report that to researchers? Hardly! They'll say, "our visionary CEO leads us to success." Yet in her book Value Shift, Lynn Payne cites surveys where 1 in 3 people say their company engages in unethical or illegal business practice.