151 of 155 people found the following review helpful
on March 5, 2007
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.
37 of 37 people found the following review helpful
on March 27, 2007
"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.
51 of 54 people found the following review helpful
on February 20, 2007
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.
37 of 40 people found the following review helpful
on August 25, 2007
Format: HardcoverVerified Purchase
Is there a secret sauce for corporate success?
The Halo Effect is a cognitive bias whereby the perception of a particular trait (for example, of an individual) is influenced by a general impression (of that individual). This effect was first postulated by Edward L. Thorndike, an American psychologist who conducted research into how World War I soldiers were appraised by their superiors. He found high cross-correlation between all positive and all negative traits - in plainspeak, that means that soldiers who were found to be good on one or two traits were rated as good on all other traits as well, while those who were seen to be bad on one or two traits were rated poorly on all other traits as well.
Lest we think that this is an affliction confined to senior World War I army officers, it isn't. Pretty much all human beings suffer from this bias - apparently it is a mechanism used by the human brain to manage the complexity of the world. This, for example, is why celebrity endorsement of products works, even when it is fairly apparent that the celebrity has no credentials - or credibility - to endorse those products.
Most of us also seem to intuitively realize the existence of this effect - for example, this is why people go to extraordinary lengths to put on their best behavior in the presence of somebody in authority.
Now, a book called The Halo Effect ... and the Eight Other Business Delusions that Deceive Managers, published in February 2007 by Free Press, sets out show how this effect may color our perceptions of company performance. At first glance, this is the book the business world was waiting for, and didn't know it. It's a good, down-to-earth look at the various studies, scholarly and otherwise, that have claimed over the years to uncover the secret sauce that drives great companies. This is a book full of solid horse sense - the most refreshing book in years in a genre notorious for pompous claims and buzzphrases.
It dedicates itself to debunking simplistic "theories" that purport to answer the core question of what really determines corporate performance. The core argument of the Halo Effect is that when a company performs well, we shower high ratings on every one of it's management traits such as leadership, culture, strategy, execution, et al. When the company performs poorly, we promptly buckle over to the other extreme, demonizing the very same leadership, culture, etc.*!
Along the way, it unveils eight other "delusions" that frequently afflict attempts to answer this question. In buttressing its arguments, the book quotes from authorities as varied as George Bernard Shaw and the legendary Nobel Laureate Richard Feynman. Personally, perhaps the best takeaway from this book was the exhortation that one should not select a sample for study based on the dependent variable - for example, if you want to study if a new technque for teaching mathematics to children works, you should study how kids who were taught using that technique fared, but you should also look at children who weren't taught that technique! **
The book comes with cast-iron credentials - the author is Prof. Phil Rozenzweig, who is a PhD from the Wharton School at the University of Pennsylvania, and has taught at Harvard Business School and IMD, Switzerland. His candor is incredibly refreshing, and the fact that most of the "authorities" on this subject that he takes on are people of his own - business school professors - shows admirable boldness.
One criticism that may be leveled at the book is that is sometimes too quick to assume that the data used by various studies were "contaminated" by halos; it seems to me that this is too facile, and perhaps unfair, a conclusion. We should probably credit the authors of those studies, the references they consulted, and the subjects they interviewed with a greater degree of discretion and diligence than that. Another thing I found myself wishing the author would refrain from is the extent to which he bases evidence for the delusions on news reports in the business press, such as BusinessWeek, Fortune and The Wall Street Journal. These are written by reporters under stifling deadlines, often under pressure to sensationalize the mundane - a fact that does not escape most discerning readers. There can be a smattering of these, but the author would probably have done better to focus his considerable energies on well-funded studies done over a long period of time, with purport of scholarly rigor, and papers and books*** based on such studies. The readers of such reports, papers and books are typically asked to suspend common sense and prior experience, and submit to scholarly authority derived from apparent academic rigor, and it is these for which the greatest disapprobation should be reserved.
So, what does work, according to the author? Well, he concludes, somewhat disappointingly, that it's the right strategic choice, and good execution!
But this is not to take away from the otherwise excellent content of the book. It's job is not to give us formulas. It's purport is to caution us that business performance is far more complex, and far less amenable to simplistic analysis than we tend to think, and it achieves that goal with admirable panache!
* I have referred to this "binary" thinking as the Extreme Tendency elsewhere, albeit in a somewhat different context - that of foreseeing the prospects of emerging technologies!
** Later in the book Rozenzweig shows that even observing this precept doesn't help much in uncovering what drives corporate success, but it's a very important principle to keep in mind nonetheless.
*** That, without openly claiming anything of the kind, actually intend to expand the fame of their authors as management Gurus, not to say anything of their pockets!
8 of 8 people found the following review helpful
on April 6, 2007
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 performance over which a company has no control
I do have some problems with Rosenzweig's total dismissal of the Halo Effect. A Halo Effect can have positive value to a company. When employees bask in the iridescent glow of the admiration and love flowing from customers, suppliers, the community, investors and employees themselves, it serves to boost performance to even higher levels.
What does it matter that under a cold, clinical light their company has warts - isn't perfect? Perhaps unlike any other time in human history, we desperately need things - companies, people, institutions, ideas - in which we can believe. We have maybe grown to prone to demand perfection. A Halo Effect - like that cast by New Jersey-based Commerce Bank's philosophy of WOW! can be a wonderful, comforting good thing.
Notwithstanding some nits here and there with The Halo Effect, it is for me one of the most thought-provoking books on business in some years. Writer Nassim Nicholas Taleb calls The Halo Effect, "One of the most important management books of all time."
Whether Nassim is right or not, I suspect that you will never read another book on business the same after being exposed to Rosenzweig's diligent analysis of how we are so often taken in by writers offering us their silver bullets for achieving sure-fire success for our companies.
7 of 7 people found the following review helpful
on January 26, 2008
Format: HardcoverVerified Purchase
As the CEO of a mid-sized marketing firm, I found this book quite useful. I have never liked the popular business books, but could never quite place my finger on the reasons why. This volume exposes the deep flaws in many of the best-sellers and aims to promote greater skepticism among business managers.
The book is primarily a polemic against popular business writers, both of articles in such publications as Fortune and, more particularly, those who pen business best-sellers claiming to reveal the Secret Formula to business success. Like the writers of personal self-help books, the authors of many business books succeed because the stories are engaging and simple: they seduce managers into believing that anything is possible if you just do the right things and think positively.
Rosenzweig reminds us that company performance is not steady and that is not solely driven by internal mechanisms. Rather, performance is relative to the competitive environment, both at any moment and over time. Today's winner (who presumably employed the Secret Formula of success) will almost certainly do less well in the future, as market forces erode the effectiveness of their strategies and tactics.
I found two relatively minor problems. The first is that the arguments become somewhat repetitive after a time. In part, this is necessary, since Rosenzweig presents a number of cases, in which business gurus begin by stating that they are avoiding the bias in previous works, but then immediately introduce the same bias (and often add some new twist of their own). Still, one or two examples could have been omitted without diminishing the value or depth of the commentary. Yet, this is a relatively short book even with some repetition. Indeed, its length stands in contrast to the tree-killers he writes about.
The second is that the author appears to want to give some "how-to" advice toward the end of the book. Fortunately, he stops before venturing too far down that road, but for a bit I was concerned that the doctor would fall victim to the very disease he had just diagnosed in others.
I think I'll keep a a few copies of this on my bookshelf, and hand it out to those whose bookshelves seem to be populated by the likes of Porter or Collins.
7 of 7 people found the following review helpful
on April 9, 2007
Format: HardcoverVerified Purchase
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.
5 of 5 people found the following review helpful
on May 29, 2007
Format: HardcoverVerified Purchase
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.
4 of 4 people found the following review helpful
on July 30, 2009
Format: PaperbackVerified Purchase
I have the benefit of having read 'Built To Last', 'Good To Great' and 'In Search Of Excellence'. What I read at the time made perfect sense, and more - it provided a set of fascinating stories as well as some meaning to the universe of business and management (the world is fair, and if you follow the right 'steps' you will succeeed).
A few years later (and still more business books, more business magazines and more TV business programs) one begins to develop a skeptical view and a critical judgement (like 'why the people who recommend stocks of a certain company don't keep it to themselves and pile as many stock of that company as they can get?').
We as humans deal poorly with uncertainty. We like explainations (the simpler and the shorter the better), we like (and create) heroes (the superman, superstar CEO) and we like to believe that the world is fair, and that the worthy and the good will succeed and prevail at the end. We also love stories - the drama, the suspense and the happy ending. Above all... our society, our schools, our religions and our media lead us often to forget how to think, specially by ourselves.
I am delighted to have come across this wonderful book. Phil Rosenzweig is an excellent writer - smart, precise, fun, enterntaining and provoking - and it strikes deep into the delusions that constantly deceive managers. He explains nine fundamental flaws that are pervasive in common business literature and managers thinking:
1 - The Halo Effect (the most important one)
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 Skills
Phil goes further to explain that business success is fundamentally a function of strategy and execution, and that both are full of risk and uncertainty.
Once you read this book, you will lose some comfort, but you will gain a deeper understanding. You will be able to look at the Bloombergs, CNBCs, Blue Ocean Strategies, Good To Greats, Know-Hows of the world with the right perspective and with a very critical eye.
4 of 4 people found the following review helpful
on September 6, 2007
If you want guided solutions to performance excellence, or are looking for the keys to business success, do not "Search Inside" - or, for that matter, look in any other popular business book or management works, according to Dr. Rosenzweig! In this well argued challenge to popular business press answers on performance excellence, the author promises to help managers think for themselves, rather than accept the numerous and often conflicting claims made by both academics and management gurus alike. Following the theme of the book's title, Professor Rosenzweig argues that the halo effect and/or eight other fatal flaws that find their way into the research reduce most business books to `stories books' that provide coherent explanations of complex events and appeal to our need for fairytale like outcomes.
Interestingly, the author is not necessarily arguing that the offerings are wrong; in fact he believes many of them are good basic principles. Rather, he argues they often are not substantiated by sound research, and when offered as the solution, they lead not to useful insights, but they divert our attention, cause us to lose focus on the details of running our businesses better than the competition, or they let us confuse actions and outcomes. In short, if they do not help us think, they are dangerous. There are no five (or eight or whatever number) keys to sustaining excellent performance. Even the two critical success factors offered by the author - strategic choice, and execution - are fraught with risk and uncertainty. To quote from the book, "The answer to the question, What really work? is simple: Nothing really works, at least not all the time." This book is highly recommended for managers in all business or social sectors. Dennis DeWilde, author of The Performance Connection