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on 6 July 2007
I just finished reading Phil Rosenzweig's book "The Halo Effect...and the Eight Other Business Delusions That Deceive Managers". This book takes aim at the general run of business books and, in particular, their tendency to dress up vivid stories as scientific study. Phil does not seem to have anything against stories per se, nor does he disagree with some of the advice given in the books. What he takes issue with is the focus on a single, definitive "scientific" set of recommendations when there is no real scientific rigor behind them.

He lays out 9 specific delusions and shows how they distort the advice in management books:
- The Halo Effect - tending of analysis of a company to reflect only the overall results
- The Delusion of Correlation and Causality - the lack of proof of causality in many situations
- The Delusion of Single Explanations - one factor is unlikely to be the reason for success or failure
- The Delusion of Connecting the Winning Dots - problems with only considering "winners"
- The Delusion of Rigorous Research - mistaking large volumes of data for good data
- The Delusion of Lasting Success - most companies trend to the mean eventually
- The Delusion of Absolute Performance - companies can do well and still fail if a competitor does better
- The Delusion of the Wrong End of the Stick - successful companies may do various things but that does not mean that doing those things will make you successful
- The Delusion of Organizational Physics - business organizations are just not that predictable

Phil uses various stories to show how the perception of companies and leaders changes when the company's performance does. He also shows how the vivid but unscientific stories that arise from this are then used as evidence by later studies. He repeatedly makes the point that the business world is not a laboratory but a messy and complex world and that this limits our ability to do analysis. He shows that rather than a specific behavior leading to strong company performance, the behavior is at least as likely to be caused by strong company performance. He likens this to Cargo Cults who hope to get planes full of goods to return by recreating the look of a jungle airstrip, mistaking cause and effect.

The overall effect is to make you take most management books with a large pinch of salt - not ignoring them, but recognizing that they are just stories, not science.
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on 21 February 2009
I found this book interesting and the main tenet of the book compelling. Rosenzweig suggests that when organisations are doing well that the business press are keen to make the connection between current practices and the organisation's success. However, when the fortunes are reversed, the same is also true - the business press is quick to blame the downfall on current behaviour. At the time of writing (Feb 2009), this seems more true than ever. This is the so-called Halo Effect - the effect of a succeeding business casts only positive light on an organisation's behaviour.

This would not be too bad, except that many academics rely heavily on the business press as the raw data for their research. After all, it is very difficult, if not impossible, to run true scientific experiments in real life business settings. So academics rely on the business press and their own investigations (much of which are also subject to the Halo Effect) and the situation becomes self perpetuating and the Halo Effect becomes even greater.

The main tenet of this book is to investigate the rationale that underlie many of our most well known business textbooks (e.g. In search of excellence, Built to last, Good to great) and points out the flaws in the logic that underpin many of these books.

Personally, when any business text claims to have the "checklist to success", I always take it with a pinch of salt. The science might be somewhat lacking, however, they do tell a great story (well, the better ones do!). So my faith in business books may not have been that seriously undermined, however, I did find this book a thoroughly interesting read.
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on 22 June 2017
Loved this the for the advocacy for good social science and checking the validation of the independent variables. Invaluable those managers who have not studied research principles. Also a great read and resonates with what our intuition tells us. There isn''t one magic formula for success. Only criticism I'd make is it got a bit repetitive towards the end.
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on 10 April 2017
Must read.

Interesting reflexion about how "fashions" can distort our views on companies' performance.

Not only useful for managers but also for investors.
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on 15 April 2009
This is a definitive book about critical thinking in the context of business success. A lot of people claim to understand why businesses succeed or fail, whether in journalism such as Fortune magazine, in bestselling books such as In Search of Excellence or in academia. With admirable clarity, Rosenzweig sets out the scientific failings of these, boiling down the errors to a list of nine "delusions" which infect even some of the most prestigious business research.

For instance, business writers neglect the role of external factors in performance (similar to what Taleb's Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets says about the financial sector). They mistake correlation for causality. They amass huge corpuses of data without addressing the known biases in that data. The Halo Effect of the title is an example of what is known in psychology as attribute substitution. Researchers want to measure a company's customer focus (or strategic leadership, commitment to its people, etc.) to correlate against performance (such as profitability). However, customer focus is incredibly hard to measure, so in practice the estimates are based on the company's profitability. It shouldn't be surprising that this gives a strong positive correlation, as they are in effect correlating a variable against itself.

The book considers a succession of cases where companies were described as well-led, customer focused and innovative when their share price increased, but as soon as their fortunes changed suddenly "became" complacent, reckless or outdated in the eyes of commentators, or vice versa. It looks in detail at some of the books that claim to offer the secrets of success. Not only does he undermine the arguments of these books with straightforward science, but he shows that lasting business success, in the sense of staying ahead of the market for more than a generation, has *never happened*. He teaches you to recognise the delusions so you can apply the same critique to other claims.

The book examines some contrasting business science which is more rigorous but makes more modest claims, then concludes by discussing how to manage without pseudoscience. This involves that we acknowledge the role of chance and uncertainty, and stop looking for a list of "secrets" that will make success inevitable.
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This serious book will change the way many people think about the pursuit of managerial excellence and, indirectly, about the criteria they use for managing (and coincidentally) investing. Phil Rosenzweig provocatively challenges prevailing concepts about the traits that drive corporate performance. He asks revealing questions about previous research assumptions that labeled companies "excellent." It seems that earlier accolades about "the best" companies - including the claims in some blockbuster books - were based on faulty research techniques that led authors to mistakenly attribute achievements to companies that did not accomplish them or could not sustain them. Rosenzweig distills his compelling ideas clearly, and buttresses his case with specific examples and original research, adding to the book's power. As a result, we would compare this very readable, focused book to fine brandy: palatable, enjoyable, memorable, a little heavy - and imbued with the potential to change your mind. Highly recommended.
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on 13 December 2009
Most management literature is based on using cases or surveys to deduce the underlying behaviour that makes a company perform great or bad. The basic premise is, that we can isolate the generic factors that make a company great. This book is a much needed anti-thesis to this prevailing "wisdom".

The author first takes us through the two cases (yes, thats a bit ironic) of Cisco and ABB. Two companies who in their prime could do nothing wrong, only later to become ridiculed as badly managed companies. Convincingly, the author argues that we attribute positive and negative behaviour to a company depending on how it performs, rather than determine it's performance based on it's behaviour.

The book then takes us through a series of delusions, each hammering a nail through common 'halos'. The author reminds us, that cases are fine to learn from, as long as we take them as anecdotes and stories, and not as scientific truth. Some of the halos seems a bit overlapping, and toward the end, the book becomes a bit repetitive.

But still, this is a book that give you a clear perspective on what is wrong with most management literature (I mean 90% or more). This title ought to be required reading before reading as much as one piece of traditional business literature.

But better late, than never. A true eye-opener!
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Do not worry about what the Nine Delusions are that the author uses to develop his thesis - they largely overlap and interlock and as you read the book will be seen as a powerful continuum. Why you should read this book is because bottom dollar like me you will have read one of the prior highly successful tomes that is one of the key targets for his thesis.

Whether it is "In search of excellence", "Built to Last" or "Good to great", by the end of this book you will I reckon have a more questioning attitude to such works (if not 100% cycnical) because this book challenges many preconceptions and makes you think and look afresh at how one will ever achieve success in business management.

The theme is not just "cutting tall poppies" down to size, but more basically that nothing is as simple or easy as many have claimed in writing such books. His chapter on why "strategy" and "execution" are actually so hard to do well, is alone worth the price of the book for me.

The core argument of the "delusions" being based on too much retropsective story telling is bought full circle by the three examples at the end of companies and business leaders who have in the authors opinion sought to face reality and do not underestimate the uncertainty that faces everyone.

A highly recommended book since it makes its points thoroughly and cogently and as such comes over as thoughtful and provoking of fresh views - as such it is a welcome change from too many of the best selling tirade type books that have come to represent both business but also political and history bestsellers recently. Definitely a book that is long overdue and one hopes will be succesful plus lead to more realism in such future writing.
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on 16 January 2008
Phil Rosenzweig is a Professor at IMD in Lausanne, Switzerland. He earned his PhD from University of Pennsylvania's The Wharton School and has spent six years on the faculty of Harvard Business School. This book consists of 10 chapters, plus a preface and appendix, and was published in 2007.

In the preface, the author explains that this book should be seen as "a guide for the reflective manager, a way to separate the nuggets from the nonsense", whereby the aim is to "pull back the curtains and ask the questions we don't often raise, to point out some of the delusions that keep us from seeing clearly."

In the first chapter Rosenzweig uses several examples to point out clearly that most business books and articles are storytelling rather than based on rigorous scientific research as being claimed by their authors. The second chapter expands on the theme from the first chapter by describing the ups and downs in the history of technology firm Cisco. "The story of Cisco is perhaps less an example of intentional journalist hyperbole than it is of something more basis: the difficulty we have in understanding company performance, even as it unfolds before us." The third chapter expands again, this time by describing the ups and downs with industrial company ABB with a strong focus on the leadership role played by chief executive. "Our most compelling stories often place people at the center of events. When times are good, we lavish praise and create heroes. When things go bad, we lay blame and create villains."

In the fourth chapter discusses the various sorts of Halo Effect, which show up in many places. "The Halo Effect is a way for the mind to create and maintain a coherent and consistent picture, to reduce cognitive dissonance." Rosenzweig discusses halos in the business world, on people, on leaders, in surveys. But he also warns us: "The Halo Effect isn't the only delusion that distorts our thinking about business ... But in many ways the Halo Effect is the most basic delusion of them all."

The author is more positive in the fifth chapter. "If we're aware of the tendency to bestow Halos, we can take corrective measures ... we might expect that careful research conducted ... can avoid the Halo Effect. Maybe then we can find a satisfactory answer to the most fundamental of all business questions - What leads to high performance?" First, we need good data about company performance. And one has to avoid the Halo Effect. Through discussions on data gathering Rosenzweig introduces delusions two - the delusion of correlation and causality - and three - the delusion of single explanations.

In the sixth chapter Rosenzweig explains that although a blueprint for lasting success may be appealing, it is not supported by evidence. He takes the evidence from several landmark studies and business bestsellers, such as `In Search of Excellence' and `Built to Last'. "These studies ... all point to the basic nature of competition in a market economy ... there's a strong tendency for extreme performance in one time period to be followed by less extreme performance in the next." This chapter also introduces delusion four - the delusion of connecting the winning dots, five - the delusion of rigorous research, and six - the delusion of lasting success.

In the seventh chapter delusions seven - the delusion of absolute performance, eight - the delusion of the wrong end of the stick, and nine - the delusion of organizational physics are introduced, whereby Rosenzweig comes up with a very strong warning: "... since the best studies of business ... can never achieve the precision and replicability of physics, then all the claims of having isolated immutable laws of organizational performance are unfounded."

The author continues with his onslaught on the business bestsellers in chapter 8. He highlights that although some of the bestsellers provide good stories, they are often not based on good science. However, Rosenzweig does not completely want to reject stories and insist on a purely scientific approach to business and management. "... the test of a good story is whether it leads us toward valuable insights, if it inspires us toward helpful action, at least most of the time." Again, he provides a warning that the delusion of lasting success, together with the delusion of the wrong end of the stick, plus the delusion of organizational physics expose "the principal fiction at the heart of so many business books - that a company can choose to be great, that following a few key steps will predictably lead to greatness, that its success is entirely of its own making and not dependent on factors outside its control."

Rosenzweig sets out his thinking about company performance in Chapter 9, whereby he distinguishes two pillars of company performance. The first is strategic choice: "All companies face a handful of basic strategic choices. ...And choosing to be different implies risk." The author discusses various reasons for uncertain strategic choices, while he concludes that the task of leadership is to gather appropriate information, evaluate that information, and make choices that provide the best chances for success in a competitive industry setting. The second pillar is execution. Although there are fewer unknowns in comparison to strategic as execution takes place entirely within the company, he still discusses the uncertainties around execution. Main conclusion from the author is that "... there's simply no formula that can guarantee success" and one has to deal with that.

In the final chapter, the author states that the answer to "what really works?" is simple: "Nothing really works, at least not all the time." So what can one do about that? "A first step is to set aside the delusions that color so much of our thinking about business performance", understand that success is relative and that competitive advantage demands calculated risks. "It is not enough to do something well; you have to do it better than others - and that means you have to take chances." Rosenzweig finalizes this fine book with some remembers on the halos and delusions surrounding business. He also finalizes with 5 points for the wise manager to manage a company for high performance. But rest assured: "Will all of this guarantee success? Of course not."

Yes, I do like this somewhat unconventional business/management book. It breaks down some of the famous so-called facts within the business bestsellers. Rosenzweig does this through the introduction of 9 delusions. In the final two chapters, the author also discusses the two main pillars of business performance: strategic choice and execution. This book did certainly get me thinking, especially after originally reading the bestsellers from Peters & Waterman and Jim Collins. Recommended to all managers, but also management students.
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on 27 August 2007
The Halo Effect is an excellent book, in all respects. It is a fast and concise read, with an engaging style. Rosenzweig uses the style and approach of the successful books he dissects, whist retaining the humility which is required (gets a little carried away in places, but that's fine). I note the quote from Nassim Taleb on the cover, which tells you all you need to know about this book's focus on the essential nature of risk based thought as the key to cutting through the morass of decision making voodoo. It is an excellent introduction to the topic which can be read by anyone with an interest here, and hopefully many managers and decision makers. It can be recommended without a caveat and direction of needing to "read over the bits about market risk", or "think about how that applies in business" - I will be recommending this book to many people. This deserves a good run on the best seller list, and hopefully a sequel in a few years! I strongly recommend you read it in conjunction with David Apgar's `Risk Intelligence', which provides a very helpful and practical suggestion about how to actually apply risk based thought to the warm fuzzy risks in business which need action not math. There's no silver bullet, but there's hope for better decisions, and understanding of decisions ex post facto.
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