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The Halo Effect: ... and the Eight Other Business Delusions That Deceive Managers Hardcover – International Edition, February 6, 2007
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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.
"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
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The book then goes on to present the nine delusions excerpted below:
"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 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 Explanation - Many studies show that a particular factor - strong company culture of 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 good quality, it doesn't matter how much we have gathered or how sophisticated our research methods appears 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."
Every now and then one comes across a book, that makes its reader take a step back and re-assess his views, experiences and readings. The Halo Effect is one of these books. It delivers both on account of the content and also of the numerous corporate examples and references to leading work in the leadership/management space to illustrate the concepts presented. A very refreshing and highly recommended read!
Below are excerpts from the book that I found particularly insightful:
1- "In fact, for all the secrets and formulas, for all the self-proclaimed thought leadership, success in business is as elusive as ever."
2- "...There was talk, over and over, about customer orientation and leadership and organizational efficiency, but these things are hard to measure objectively, so we tend to make attributions about them based on things we do feel certain about - revenues and profits and share price. We may not really know what leads to high performance, so we reach for simple phrases to make sense of what happened."
3- "If we start with the full data set and look objectively at many years of company performance, we find the dominant pattern is not one of enduring performance at all, but one of rise and fall, of growth and decline. Foster and Kaplan conclude: "...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"."
4- "March and Sutton explain: "In its efforts to satisfy these often conflicting demands, the organizational research community sometimes responds by saying that inferences about the causes of performance cannot be made from the data available, and simultaneously goes ahead to make such inference.""
5- "We can't turn back the clock, change one variable, and then run the experiment again...It's easy to blame one man for a company woe's, but these sorts of attributions, while appealing for their simplicity, may not provide the best basis on which to manage a company."
6- "...An organization isn't a system of mechanical parts, interchangeable and replaceable. It's better understood as a sociotechnical system, a combination of mean and machines, of people and things, of hardware and software, but also of ideas and attitudes. Some technical elements can often be copied and applied with predictable results...but when we begin to examine how those technical systems interact with social systems, with people and values and attitudes and expectations, the results are harder to predict."
7- "Managers quite naturally find it easier to keep the attention on execution, which everyone will always agree can be done better."
8- "What leads to high performance?...we're left with two broad categories: strategic choice and execution...In spite of our desire for simple steps, the reality of management is much more uncertain that we would often like to admit - and much more so that our comforting stories would have us believe."
9- "As Tom Peters observed: "To be excellent, you have to be consistent. When you're consistent, you're vulnerable to attach. Yes, it's a paradox. Now deal with it.""
Rosenzweig outlines nine delusions often perpetuated in the business world via popular books and journalism. He argues that business success is far more complex than popular books lead readers to believe and that nothing works all the time for all businesses. Rosenzweig begins in chapter 1 asking the question, “Why do some companies prosper while others fail?” A couple of chapters later, he defines the first delusion, The Halo Effect, which sets the tone for the remainder of the book and sums up many of the delusions.
Rosenzweig does a wonderful job of explaining each of the delusions in common language and giving examples from real businesses to support his position. These chapters are spent demonstrating that many of the observations made about a firm are not drivers of performance but mere attributions based on that performance. The failure of many supposed business success models is the lack of data collection with scientific rigor and causality determined by association. Much of the data purported to lead to success are obtained based on retrospective studies and the “armchair quarterback” approach.
Starting in Chapter 9, Rosenzweig asks the question, “What leads to high performance?” He summarizes the answer into strategy and execution. Rosenzweig discusses the risky nature of strategy and the inherent unknowns as to the outcome of strategy decisions. The risk enters from influences such as uncertain customer demands, unpredictable competitors, and changing technology. The ultimate goal of strategic leadership is to gather information, to evaluate it thoroughly, and to make informed decisions that provide the best chances for success in a competitive setting.
Execution takes place within the company and is influenced by less risky factors. Execution does still involve many unknowns because of the collection of workers, equipment, technology, ideas, and attitudes within a company. Mangers tend to discuss execution in generic terms and would do well to focus on a few specific, measureable goals to complement the chosen strategy. When companies are under-performing, execution is typically blamed. However, a wise manager will examine whether the company even has the right strategy.
A few drawbacks of the book include the following. The book tends to use cases from decades ago that may be too distant for the reader. However, the most recent edition of the book contains two new chapters with more current corporate issues and the recent recession. Another drawback is that some of the chapters leave the reader hanging as to the outcome for the company or possible solutions. Finally, as much as the book attempts not to be a new recipe for success, some of the discussion comes across as just another book on how to be successful in business.
Overall, this book is a wonderful addition to any manager’s bookshelf and provides many helpful insights and suggestions. The book is a quick read and well written. A particular strength of the book is its ability to stimulate the reader to think critically about business data and business writing. Critical thinking skills will serve any business manager well throughout his career.